By TIOL News Service

NEW DELHI, JAN 22, 2019: BACKGROUND: The petitioner had sought a direction for release of its aircraft engine.

It is submitted that the engine was not imported but rather flown in to be fitted in an aircraft to enable the latter to fly on account of cannibalization of the aircraft resorted to by M/s. Kingfisher Airlines on account of its problems.

The Customs authorities, however, were of the opinion that the bringing of the aircraft engine into India amounts to import and, therefore, attracted duty. They accordingly exercised their rights and detained the engine under Section 110A.

The engine is the subject matter of SCN u/s 124(1) of the Customs Act and adjudication was pending.

The petitioner argued that they were entitled to 98% duty drawback in such eventualities.

The Revenue, however, disputes this and submits that the petitioner is liable to pay duty (Rs.8.69 crores), interest (approx. Rs.1.30 crores) and such penalty as may be imposed by the adjudicating authority.

After considering the submissions, the High Court observed thus -

+ There appears to be no dispute about the basic fact at this stage that the rationale for bringing in the engine was to enable it to be fitted to the cannibalized aircraft to fly it.

+ It is not disputed that the aircraft has been allowed to fly out though with the aid of another engine.

+ In the circumstances, the Court is of the opinion that to avoid deterioration in the functionality of the engine, it would be in the interest of justice to allow it to be released subject to conditions.

The writ petition was disposed of.

It was also mentioned that the said order is subject to the final outcome of adjudication.

We reported this order as - 2014-TIOL-322-HC-DEL-CUS.

The Commissioner adjudicated the SCN and ordered confiscation of the imported engine with an option to redeem the same on payment of redemption fine of Rs.3.37 crore. A penalty of Rs.2.50 crores each was imposed on the appellant (petitioner) and also M/s Kingfisher Airlines Ltd.

Against this order, the appellant filed an appeal before the CESTAT and it was held thus -

Eligibility to Notification 12/2012-Cus:

++ the purpose of exemption is specific and categorical - the aircraft engine should have been for servicing, repair or maintenance of aircraft which is used for operating scheduled air transport service - in the present case, the aircraft to which the engine was intended to be fitted is not to be used for operating scheduled air transport service - all the parties to the dispute categorically admitted that the import of engine is only for the purpose of making the aircraft air worthy and to take it back, out of India - this certainly does not meet the requirement of exemption in terms of the said notification - the Bench is in agreement with the original authority regarding denial of exemption to the imported aircraft engine.

Confiscation:

++ a plain reading of section 111(o) of the Act will indicate that same is applicable in respect of any goods which were exempted subject to certain condition and upon violation of such condition, the said goods shall be liable for confiscation.

++ in the present case, the exemption claimed has been denied to the appellant and, hence, there is no question of violation of conditions of exemption - in such situation, there is no scope to apply the provisions of section 111 (o) for confiscation of the engine - as such, the confiscation of the imported engine is not legally sustainable.

Limitation:

++ SCN was issued on 28.11.2013, within one year of the assessment (dated 06.12.2012) - no infirmity found in the proceedings for confirmation of demand for customs duty as ordered by the original authority.

Penalty:

++ penalty under section 112(a) can be imposed for an act or omission which would render the goods liable to confiscation under section 111 of the Act - as the confiscation of goods is not legally sustainable, penalty will also become untenable - penalty set aside.

The appeal was partly allowed.

This order was reported as - 2017-TIOL-2511-CESTAT-DEL.

The petitioner approach the Delhi High Court claiming refund of the penalty amount, which had been deposited by it during the pendency of the appeal, since those amounts were not released by the Customs Authorities.

The High Court, by its Division Bench order dated 24.09.2018 directed the release of those amounts after considering the entirety of the circumstances.

The petitioner is again before the Delhi High Court and claims direction to the Customs authority to pass appropriate orders on its duty drawback claim under Section 74 of Customs Act, 1962.

After extracting the provisions of section 74 of the Customs Act, the High Court also noted the Revenue stand regarding applicability of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, regulation 2(iv) and 4(f) and observed -

++ In this case, it is undisputed that the exporter i.e. owner and the person entitled to the engine were one and the same i.e. the petitioner. Having regard to these circumstances, the necessity for blind adherence to a declaration [Guaranteed Remittance Declaration] and further necessity for waiver, in the opinion of the Court was entirely uncalled for.

++ There is sufficient indication in the Regulations - i.e. the manner of definition of export and even the phraseology of Regulations regarding non-commercial exports - that in cases like the present one, if compelling circumstances lead the original owner to bring in goods to remedy an unforeseen eventuality, such as the need to fly back an aircraft, it is not to be subjected to such requirements. The absurdity is writ large on the face of the record.

++ Court is of the opinion that there is no question of respondents/Customs Authorities insisting that the GR requirement was mandatory or that, in its absence, exemption from RBI was necessary.

The High Court also directed the respondents to process the drawback claim of the petitioner and release the amounts to the extent permitted in law, within four weeks along with interest as permissible.

The order in original was quashed and the Writ petition was allowed.

(See 2019-TIOL-175-HC-DEL-CUS)