Custom, Excise & Service Tax Tribunal
Reliance Commercial Dealers Ltd vs Commissioner, Customs ... on 8 September, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
CUSTOMS APPEAL NO. 640 OF 2010
(Arising out of Order-in-Original No. 24/Commr./HKC/2010 dated 31.08.2010 passed
by Commissioner of Customs, (Preventive), New Customs House, IGI Airport, New
Delhi-110037)
M/s Reliance Commercial Dealers Ltd. ...Appellant
VERSUS
Commissioner of Customs, (Preventive) ...Respondent
New Customs House, Delhi
With
CUSTOMS APPEAL NO. 642 OF 2010
(Arising out of Order-in-Original No. 23/Commr./HKC/2010 dated 31.08.2010 passed
by Commissioner of Customs, (Preventive), New Customs House, IGI Airport, New
Delhi-110037)
Sudhir Nayak ...Appellant
VERSUS
Commissioner of Customs, (Preventive) ...Respondent
New Customs House, Delhi
APPEARANCE:
Shri J.C. Patel, Shri Vipin Jain and Ms. Shilpa Balani, Advocates for the
Appellant
Shri Shri PRV Ramanan, Special Counsel and Shri Rakesh Kumar Authorized
Representative for the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 24.08.2022
Date of Decision: 08.09.2022
FINAL ORDER NO. 50822-50823/2022
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JUSTICE DILIP GUPTA:
Customs Appeal No. 640 of 2010 has been filed by M/s.
1
Reliance Commercial Dealers Ltd. to assail the order dated
31.08.2010 passed by the Commissioner of Customs (Preventive),
New Customs House, IGI Airport, New Delhi 2 by which the aircraft has
been confiscated under section 111(o) of the Customs Act 1962 3 with
an option to the appellant to redeem the same after payment of
redemption fine. The order also seeks to confirm the demand of duty
in terms of the undertaking given by the appellant at the time of
importation of the aircraft but since the aircraft was released
provisionally, the bank grantee furnished at the time of provisional
release of the aircraft has been directed to be invoked. The order also
imposes of penalty upon the appellant under section 112(a) of the
Customs Act. The duty demand made against M/s. Reliance Industries
Limited 4 has, however, been dropped.
2. Customs Appeal No. 642 of 2010 has been filed by Sudhir
Nayak, Vice-President of the appellant to assail the aforesaid order
dated 31.08.2010 passed by the Commissioner to the extent it
imposes a penalty of Rs. 20,000,00/- upon the said appellant under
section 112(a) read with section 140 of the Customs Act.
3. The appellant claims to be engaged in providing "non-scheduled
air transport (passenger) service". Sudhir Nayak is the Vice President,
Commercial of the appellant.
1. the appellant
2. the Commissioner
3. the Customs Act
4. RIL
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4. The issue involved in these appeals is whether the use of aircraft
imported by the appellant with benefit of exemption from customs
duty under serial 347B of notification no. 21/2002-Cus dated
01.03.2002, as amended by notification no. 61 of 2017 dated
03.05.2007 5, for providing passenger air transport service to its group
company by carrying personnel of the group company for
remuneration would amount to violation of Condition No.104 of the
said exemption notification and whether it is open to Customs to
contend that such use in not in accordance with the permit for non-
scheduled (passenger) services granted by Director General of Civil
Aviation 6 when the DGCA has not found such use to be in violation of
such permit and had renewed the permit from time to time.
5. In response to the application dated 18.07.2007 submitted by
7
the appellant for permission to import "Airbus A319-115 " for
operating non-scheduled air transport (passenger) service, the
Director, Ministry of Civil Aviation, Government of India, by letters
dated 24.07.2007 and 26.10.2007, granted such permission/No-
objection Certificate to import the aircraft for non-scheduled
operations. The appellant imported the aircraft and claimed, in respect
of the said aircraft, exemption from customs duty under of the
exemption notification. The said exemption is subject to Condition No.
104 contained in the said notification which is to the effect that the
aircraft should be imported by an operator who has been granted
approval for providing non-scheduled (passenger) services or non-
scheduled (charter) services and the importer should furnish an
5. the exemption notification
6. DGCA
7. the aircraft
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undertaking that the aircraft shall be used only for providing the said
services. The Bill of Entry filed by the appellant in respect of the said
aircraft was duly assessed by the proper officer of Customs and the
said duty exemption was granted whereafter based on the assessed
Bill of Entry, the appellant cleared the said aircraft. In terms of the No-
objection Certificate dated 26.10.2007, the office of the DGCA also
endorsed the said aircraft in the permit granted to the appellant for
operation of non-scheduled air transport (passenger) services.
6. On 15.01.2008, the appellant entered into an agreement with
RIL whereby the appellant agreed to provide passenger air transport
service by operation of the said aircraft to RIL and/or its nominees
upon payment of charges as specified in the said agreement. Under
the said agreement, RIL had the first right of refusal of availing
passenger air transport service in respect of the said aircraft and RIL
undertook to avail such passenger air transport service for a minimum
of 400 hours per annum.
7. Pursuant to the said agreement, the appellant provided
passenger air transport service to RIL and/or its nominees. According
to the appellant, such provision of passenger air transport service is
neither between the same two places, nor is it in accordance with a
published time table and the same, therefore, does not satisfy the
requirements of "scheduled air transport service" and is consequently
non-scheduled air transport (passenger) service. The same would,
therefore, be in accordance with the conditions of the said exemption
notification.
8. RIL also claims to have paid the appellant, in accordance with
the said agreement dated 15.01.2008, the remuneration/ charges in
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respect of the said non-scheduled (passenger) service provided by the
appellant to RIL or the nominees.
9. In June 2008, the Office of the Commissioner of Customs
(Preventive), New Delhi commenced investigations in respect of the
import of the said aircraft, which culminated into issuance of a show
cause notice dated 26/27.06.2008. By the said notice, it was
contended that the use of the aircraft, pursuant to the said agreement
with RIL, did not constitute public use and that the same amounted to
private/personal use and so the appellant had not used the said
aircraft for non-scheduled (passenger) service in accordance with the
No-objection Certificate and permit granted to the appellant by the
DGCA. The show cause notice was, accordingly, issued proposing to
deny the said exemption. The show cause notice also proposed
confiscation of the aircraft and imposition of penalty.
10. The aircraft was seized and was thereafter provisionally released
against Bond and Bank Guarantee.
11. The appellant filed a reply dated 23.08.2008 to the show cause
notice inter alia submitting that the use of the aircraft for providing
passenger air transport service for remuneration to a group company
by carrying personnel of the group company is within the scope of
non-scheduled air transport (passenger) service and does not make
the use of the aircraft, as a private aircraft. The appellant also
submitted that it is not open to Customs to contend that such use in
not in accordance with the permit for non-scheduled air transport
(passenger) services granted by DGCA, when the DGCA has not found
such use to be in violation of such permit and renewed the permit from
time to time.
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12. The Commissioner of Customs (Preventive), New Delhi, passed
an order dated 31.08.2010 holding:
(ii) That by entering into agreement dated 15.01.2008 with
RIL, whereby the appellant agreed to provide passenger
air transport service by operation of the said aircraft to
RIL and/or its nominees upon payment by RIL charges as
specified in the said agreement, the appellant had
chartered out the aircraft to RIL which is not permissible
where the aircraft is imported for non-scheduled
(passenger) services;
(iii) As a non-scheduled operator, the appellant was required
to issue passenger tickets, which has not been done; and
(iv) The use of the aircraft to carry personnel of group
company amounts to personal/private use of aircraft.
13. On the basis of the said findings, the Commissioner denied the
exemption and demanded duty with interest and held the aircraft to be
liable to confiscation and imposed fine and penalty.
14. Shri J.C. Patel and Shri Vipin Jain, learned counsel for the
appellant made the following submissions:
(i) The findings of the Commissioner for denying the
exemption are unsustainable in law in view of the order
dated 08.08.2022 of a Larger Bench of the Tribunal in
M/s. VRL Logistics Ltd. vs. Commissioner of
Customs, Ahmedabad 8;
(ii) Chartering operations are permissible under non-
scheduled (passenger) service;
8. Reference answered in Customs Appeal No. 74 of 2010 on 08.08.2022
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(iii) There is no dispute that the appellant is "operator" as
defined in clause (a) of the Explanation. There is also no
dispute that the appellant has been granted approval by
DGCA to import the aircraft for providing non-scheduled
(passenger) service, as defined in clause (b) of the
Explanation. The first requirement of Condition No. 104
is, therefore, satisfied. There is also no dispute that the
appellant has furnished undertaking to Customs that the
imported aircraft shall be used only for providing non-
scheduled (passenger) services, as defined in clause (b)
of the Explanation and in event of failure to so use the
aircraft, to pay the duty. Therefore, the second
requirement of Condition No. 104 is also fulfilled;
(iv) The appellant has used the aircraft only for providing
non-scheduled (passenger) services, as defined in clause
(b) of the Explanation;
(v) While providing non-scheduled (passenger) service, as
defined clause (b) of the Explanation, there is no
prohibition against providing the said service by way of
charter of the aircraft;
(vi) There is no requirement of issue of passenger tickets by a
non-scheduled (passenger) service operator;
(vii) The appellant has not used the aircraft as a private
aircraft. The very fact that the DGCA has for the aircraft
in question issued permits and renewed them from time
to time under the classification of non-scheduled
(passenger) service would mean that the said aircraft
cannot be classified as private aircraft; and
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(viii) It is open to Customs to contend that use of aircraft is not
in accordance with the permit for non-scheduled
(passenger) services granted by DGCA, when the DGCA
has not found the use to be in violation of such permit
and renewed the permit from time to time.
15. Shri P.R.V. Ramanan, learned special counsel and Shri Rakesh
Kumar, learned authorized representative appearing for the
Department made the following submissions:
(i) The Larger Bench of the Tribunal in VRL Logistics has
not dealt with the issue as to whether the invoking of the
terms of the undertaking to demand duty forgone at the
time of import is correct or not. This issue has been
examined by three Division Benches of the Tribunal in
Commissioner of Customs, New Delhi vs. Sameer
9
Gehlot , M/s. East India Hotels Ltd. vs.
Commissioner of Customs Central Excise and
Central GST, New Delhi 10 and King Rotors & Air
Charter P. Ltd. vs. C.C. (ACC & Import), Mumbai 11;
(ii) The statement of Sudhir Nayak recorded under section
108 of the Customs Act indicates that the terms of the
exemption notification have been violated and the
appellant is required to pay the duty; and
(iii) The aircraft was not used as per the terms and conditions
of the undertaking submitted by the appellant and once
the terms are breached, the appellant is liable to pay
duty; and
9. 2011 (263) E.L.T. 129 (Tri.-Del.)
10. 2020-TIOL-335-CESTAT-DEL
11. 2011 (269) E.L.T. 343 (Tri.-Mumbai)
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(iv) As far as the decision on the eligibility to customs duty
exemption is concerned, the Customs authorities are the
final authority and the DGCA has no say in the matter.
16. The submissions advanced by the learned counsel for the
appellant and the learned special counsel appearing for the
Department as also the learned authorized representative appearing
for the Department have been considered.
17. Aircrafts and helicopters are classified under Customs Tariff
Heading 88 of the First Schedule to the Customs Tariff Act, 1975. The
tariff rate of duty till 28.02.2007 on the import of aircraft was 3% /
12.5%. Subsequently, pursuant to the proposal made in the Finance
Bill 2007, exemption notification no. 20/2009 dated 01.03.2007 was
issued inserting Entry 346B and Condition No. 101 in the earlier
exemption notification dated 01.03.2002, whereby, the effective rate
of duty on import of aircraft for scheduled air transport service was
made 'nil'. No exemption was, however, granted to non-scheduled air
transport service and private category aircraft. However, with the
issuance of the exemption notification dated 03.05.2007, the effective
rate of duty on the import of aircraft for non-scheduled air transport
service was made 'nil'. This exemption notification was as a
consequence of the statement made by the Hon'ble Finance Minister in
the Parliament and it is reproduced:
"Honourable Members are aware that I had proposed to levy
customs duty, CVD and additional customs duty on import of
aircraft excluding imports by Government and scheduled
airlines. Ministry of Civil Aviation has made a strong
representation in favour of exemption for aircraft
imported for training purposes by flying clubs and
institutes and for non-scheduled point-to-point and non-
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scheduled charter operators under conditions of
registration to be specified and recommended by that
Ministry. Since civil aviation is a nascent and growing
industry, it has been decided to accept this request and
exempt these categories also from the duties."
(emphasis supplied)
18. A perusal of the aforesaid statement makes it clear:
(i) The exemption was granted on the basis of strong
representation made by the Ministry of Civil Aviation;
(ii) The exemption was subject to the conditions of
registration to be specified by the Ministry of Civil
Aviation; and
(iii) The exemption was granted to give an incentive to the
nascent and growing state of the aviation industry. The
purpose of granting the exemption was, therefore, to
encourage the import of aircraft, which could be used for
non-scheduled operation.
19. The aforesaid exemption notification dated 03.05.2007 inserted
Condition No. 104 which requires at the stage of import, an approval
from MCA to import the aircraft for non-scheduled (passenger) service
and an undertaking by the importer to the Customs authority that the
aircraft would be used only for non-scheduled (passenger) services
and that the operator would pay on demand, in the event of his failure
to use the aircraft for the specified purpose, an amount equal to the
duty payable on the said aircraft but for the exemption under the
notification.
20. Explanation (b) to Condition No. 104 of the exemption
notification defines non-scheduled (passenger) services as:
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"(b) Air transport services other than scheduled (passenger) air
transport services as defined in Rule 3 of the Aircraft Rules,
1937."
21. The aforesaid definition refers to 'air transport services' and
'scheduled (passenger) air transport services' as defined in rule 3 of
the Aircraft Rules, 1937 12.
22. "Air transport services" is defined in rule 3(9) of the Aircraft
Rules as under:
"Air transport service" means a service for the transport by air
of persons, mails or any other thing, animate or inanimate, for
any kind of remuneration whatsoever, whether such service
consists of a single flight or series of flights."
23. "Scheduled air transport service" is defined in rule 3(49) of the
Aircraft Rules as under:
"Scheduled air transport service" means an air transport service
undertaken between the same two or more places and operated
according to a published time table or with flights so regular or
frequent that they constitute a recognizably systematic series,
each flight being open to use by members of the public."
24. The term 'scheduled (passenger) air transport services' has to be
interpreted according to this definition, and applied to passenger travel
in contradistinction to carriage of goods or mail.
25. Thus, if a service is covered by 'air transport service' defined in
rule 3(9) of the Aircraft Rules and is other than 'scheduled (passenger)
air transport service' defined in rule 3(49), it would be a non-
scheduled (passenger) service within the meaning of clause (b) of the
Explanation to Condition No. 104 of the exemption notification.
26. At the time when Condition No. 104 was inserted on 03.05.2007,
13
Civil Aviation Requirement dated 08.10.1999 dealing with non-
12. the Aircraft Rules
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scheduled (passenger) services as well as Civil Aviation Requirement
dated 17.05.2000 14 , dealing with scheduled (passenger) services,
which had been issued under rule 133A of the Aircraft Rules, were in
force. The expression 'non-scheduled air transport services
(passenger)' has been defined, both under the 1999 CAR as also the
2000 CAR, as follows:
"Non-scheduled air transport services (passenger) means air
transport services other than scheduled air transport services
as defined in the rule 3 of the Aircraft Rules, 1937."
27. It is not in dispute that the appellant had submitted an
application for permission to import the aircraft for operating non-
scheduled (passenger) services and a permit had been granted by the
DGCA to import the aircraft for non-scheduled (passenger) services.
The appellant imported the aircraft and claimed exemption from
customs duty under the exemption notification. The said exemption is
subject to Condition No.104 contained in the said notification which is
to the effect that the aircraft should be imported by an operator who
has been granted approval for providing non-scheduled (passenger)
services or non-scheduled (charter) services and the importer should
furnish an undertaking that the aircraft shall be used only for providing
the said services. The undertaking submitted by the appellants is as
follows:
"UNDERTAKING
To,
The President of India
Through
The Assistant Commissioner of Customs
New Customs House, New Delhi
13. 1999 CAR
14. 2000 CAR
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Dated : 29th October, 2007
Dear Sir,
We, M/s. Reliance Commercial Dealers Private Limited hereby
undertake that the aircraft Airbus A319-115CJ, Serial Number
283 shall be used for non-scheduled Transport Services
(Passenger) only.
We further undertake to pay on demand, in event of failure to
use the said imported aircraft for the specified purpose, an
amount equal to the duty payable on the said aircraft but for
the exemption under the notification no. 021/2002-Customs,
serial number 347 condition 104."
28. The show cause notice issued to the appellant states that the
use of the aircraft did not constitute public use and amounted to
private/personal use as a result of which the appellant had not used
the aircraft for non-scheduled (passenger) service in accordance with
the permit granted to the appellant by the DGCA.
29. The Commissioner has held in the impugned order dated
31.08.2010 that the appellant, by entering into an agreement with RIL
for providing passenger air transport service upon payment by RIL,
had chartered the aircraft to RIL which is not permissible when an
aircraft is imported for non-scheduled air transport (passenger)
services. The order also holds that as a non-scheduled operator, the
appellant was required to issue passenger tickets which had not been
done and that the use of the aircraft to carry personnel of a group
company amounts to private use of the aircraft.
30. The submission advanced by the learned counsel for the
appellant is that each of these aspects have been considered and
answered in favour of the appellant by the Larger Bench of the
Tribunal in VRL Logistic. Learned Counsel pointed out that the Larger
Bench held that chartering of aircraft is permissible under non-
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scheduled (passenger) service; that an operator of non-scheduled
(passenger) service is not required to issue passenger tickets; and
that so long as the aircraft is used to provide air transport service for
remuneration (as is in the present case), it would not be a private
aircraft even if such service for remuneration is rendered to a group
company. Learned counsel, therefore, contended that there has been
no breach of the undertaking given by the appellant in terms of the
notification that the aircraft shall be used for non-scheduled
(passenger) services only.
31. The contention of learned special counsel appearing for the
Department is that the Larger Bench of the Tribunal has not
considered the issue of invoking the undertaking.
32. It is not possible to accept the contention advanced by the
learned special counsel for the Department. The Larger Bench of the
Tribunal noted that furnishing of undertaking to Customs that the
aircraft shall be used only for non-scheduled air transport (passenger)
services is a condition of the notification and that Condition No. 104 of
the notification requires furnishing of the said undertaking that the
aircraft would be used only for non-scheduled (passenger) services
and in the event of failure to use the aircraft for the specified purpose,
the operator would on demand pay the duty. The Larger Bench,
thereafter, examined the scope of the expression non-scheduled air
transport (passenger) service and also whether chartering of the
aircraft and use of the aircraft to provide air transport service for
remuneration to personnel of group companies and non-issuance of
passenger tickets, is outside the scope of or constitutes contravention
of non-scheduled air transport (passenger) service.
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33. The findings on these of issues by the Larger Bench of the
Tribunal are as follows:
Use of Aircraft for only non-scheduled (passenger)
services
"53. It needs to be examined, as has been contended on
behalf of the appellants, whether the aircraft was used by
the appellants only for providing non-scheduled
(passenger) services as defined in clause (b) of the
Explanation to Condition No. 104 of the exemption
notification.
54. Non-scheduled (passenger) services has been defined in
the aforesaid clause (b) to mean air transport services other
than scheduled (passenger) air transport services as
defined in rule 3 of the Aircraft Rules. Thus, what has to be
seen is whether the use of the aircraft satisfies the following
two requirements of clause (b):
(i) The use should be for air transport service; and
(ii) Such air transport service should be other than
scheduled (passenger) air transport service as defined in
rule 3 of the Aircraft Rules.
55. 'Air transport service' has been defined in rule 3 (9) of
the Aircraft Rules to mean service for transport by air of
persons for any kind of remuneration whatsoever. There is no
dispute that the appellants have used the aircraft for the
transport of persons for remuneration. There is no stipulation or
restriction or a condition in the said definition that a tariff
should be published or that such service should be rendered
only on per-seat basis and not by chartering or about the
category or class of persons to be transported. Thus, the
contention of the department that the appellants have
rendered 'air transport service' to their group companies
by carrying personnel of their group companies is not of
any relevance as there is no prohibition in the said
definition against any kind of persons to be transported.
56. Rule 3 (49) of the Aircraft Rules defines 'scheduled air
transport service' to mean an air transport service undertaken
between the same two or more places and operated according
to a published time table or with flights so regular or frequent
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that they constitute a recognizably systematic series, each
flight being open to use by members of the public. Thus, for
an 'air transport service' to qualify as 'scheduled air
transport service', it must satisfy all the following three
conditions:
(i) It must be undertaken between the same two or more
places;
(ii) It must be operated according to a published time table
or the flights must constitute a recognizable systematic
series; and
(iii) Each flight must be open to use by members of the
public.
57. If any of the aforesaid three conditions is not satisfied in
respect of a passenger air transport service, the same cannot
be termed as 'scheduled air transport service' and, therefore,
would be a non-scheduled (passenger) service as defined in
clause (b) of the Explanation to Condition No. 104 of the
exemption notification. In the present case, the aforesaid
conditions are not satisfied and, therefore, the air
transport service rendered by the appellants would be
other than scheduled (passenger) air transport service.
58. Thus, both the requirements of clause (b) of the
Explanation are satisfied. It is also not in dispute that
the appellants have been granted non-scheduled
operator permits, which permits have been renewed
from time to time without any objection from the DGCA.
59. It has now to be seen whether the appellants have
used the aircraft for providing non-scheduled (charter)
services as defined in clause (c) of Condition No. 104 of
the Explanation to the exemption notification.
60. Non-scheduled (charter) services have been defined in
clause (c) to mean services provided by a non-scheduled
(charter) air transport operator, for charter or hire of an aircraft
to any person, with a published tariff, and who is registered
with and approved by DGCA for such purposes and who
confirms to the Civil Aviation Requirements. An aircraft
operator can be said to provide non-scheduled (charter) service
only if the service satisfies the requirements of clause (c). The
appellants are not registered and approved with DGCA as non-
scheduled (charter) air transport operator and in some cases
there is no published tariff. The appellants, therefore,
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cannot be said to have provided non-scheduled (charter)
services as defined in clause (c).
61. The appellants have, therefore, provided non-scheduled
(passenger) services, as defined in clause (b) of the
Explanation to the exemption notification.
Non-scheduled (passenger) operator can carry out
charter service
62. It would now have to be seen whether there is any
restriction or prohibition against providing air transport
service by way of charter of aircraft, while providing
non-scheduled (passenger) services.
63. As noticed above, the definitions of air transport service
and non-scheduled (passenger) service do not stipulate any
restriction or impose a condition that such service should be
rendered only on per-seat basis and not by chartering nor is
there any stipulation in CAR 1999 issued by DGCA for grant of
permits to operate non-scheduled air transport (passenger)
services. In fact paragraph 9.2 of CAR 1999, which deals with
non-scheduled air transport (passenger) services, categorically
provides that a non-scheduled operator can conduct charter
operations.
*****
65. What needs to be noticed is that the exemption
notification does not prohibit a non-scheduled (passenger)
service permit holder to use the aircraft for charter operations.
A conjoint reading of the definitions contained in the Aircraft
Rules, as have been adopted in the definition in clause (b) of
the Explanation to Condition No. 104 of the exemption
notification, makes the following position quite clear:
(a) The expression "air transport service" covers service for
the transport by air of person for any kind of
remuneration whatsoever. The service may be
individually for each seat or by chartering the entire
aircraft and the remuneration may be of any kind
whatsoever, such as seat-wise or daily or weekly or
monthly or annual basis. There is no restriction on the
mode and manner of fixing or charging the
remuneration either in the exemption notification or in
the Aircraft Rules;
(b) "Scheduled (passenger) air transport service" only
means that air transport service which has the essential
features mentioned in the definition in rule 3 (49) of
Aircraft Rules, namely, it must be undertaken between
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the same two or more places, operated according to a
time table or with flights so regular or frequent that they
constitute a recognizable systematic series, each flight
being open to use by the 'members of the public'; and
(c) If a service is covered by "air transport service" defined
in rule 3(9) and is other than "scheduled (passenger) air
transport service" defined in rule 3(49), it is a "non-
scheduled (passenger) service" within the meaning of
clause (b) of the Explanation to the exemption
notification.
66. It needs to be noticed that Condition No. 104 specifically
refers to the definitions contained in the Aircraft Rules as also
Civil Aviation Requirements issued under the provisions of rule
133A of the Aircraft Rules. Both, CAR 1999 that deals with non-
scheduled (passenger) services operator and CAR 2000 that
deals with non-scheduled (charter) services operator define a
non-scheduled air transport services (passenger) in the same
manner as defined in clause (b) of the Explanation to Condition
No. 104.
*****
68. It is, therefore, clear that an operator providing
non-scheduled (passenger) services can always provide
such services either on individual seat basis or by
chartering the entire aircraft and such a restriction is not
contained either in Condition No. 104 or Aircraft Rules or
the Civil Aviation Requirements.
69. It also needs to be remembered that charter is one way
in which passenger services can be rendered; the only
difference is that instead of individual seats, all the seats of an
aircraft are hired out to one person. It is, therefore, difficult to
conceive that by chartering the aircraft, non-scheduled
(passenger) services would not be rendered as even in such a
case an operator transport passengers.
*****
71. In this view of the matter, the contention of the learned
special counsel for the department that a charter permit is
required for carrying out charter operations cannot be
accepted. In fact, the prohibition is on a non-scheduled
(charter) holder to carry out (passenger) operations.
*****
Whether the aircraft can be used by members of
public
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86. The definition of "private aircraft" under rule
3(43) of Aircraft Rules, does not warrant the view that if
tariff is not published, the use of aircraft would be
private. In terms of rule 3(43), private aircraft is other than
public transport aircraft. Public transport aircraft is defined in
rule 3 (46) as aircraft which effects public transport and public
transport is defined in rule 3(45) to mean all carriage of
persons or things effected by aircraft for a remuneration of any
nature whatsoever, and all carriage of persons or things
effected by aircraft without such remuneration if the carriage is
effected by an air transport undertaking. Air transport
undertaking is defined in rule 3(9A) to mean an undertaking
whose business includes the carriage by air of passengers or
cargo for hire or reward. It would follow from the aforesaid
definitions that where the aircraft is used for carriage of
persons for a remuneration it is a public transport
aircraft and not a private aircraft. There is no stipulation
in the said definitions that if tariff is not published, the
use of aircraft would be as a private aircraft. Admittedly,
in the present case, the appellants have used the aircraft
for carriage of persons for remuneration. Further, where
the business of an undertaking includes carriage by air of
persons it would be an air transport undertaking and if such an
undertaking also uses the aircraft to effect carriage of persons
without remuneration, it would still be public transport aircraft
and not a private aircraft. Therefore, even assuming that some
flights are conducted for carriage of persons without
remuneration, it would be still be a public transport aircraft and
not a private transport aircraft.
87. Even otherwise, the purpose of having a published tariff
is to apprise the public of the rates at which the aircraft would
be available. The appellants hire the aircrafts to customers
pursuant to tenders/negotiations. The purpose of having a
published tariff is, therefore, substantially complied with.
88. Learned special counsel for the appearing for the
department submitted that the aircraft is being provided for
private use and is not available to use by the public.
89. Learned counsel for the appellants submitted that the
aircraft is available not only to group companies but also to
other customers.
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90. In the first instance, personnel of companies which are
group companies of the appellant are also members of public.
The aircraft is, therefore, available for used by the public. Even
otherwise, this cannot be a reason to hold that the air transport
service provided by the appellants would fall outside the scope
of non-scheduled (passenger) service.
******
Requirement of issuing air-tickets
"100. The definitions of 'air transport service' and 'non-
scheduled (passenger) service' do not stipulate any restriction
or condition that such service should be rendered only on per-
seat basis. Nor is there any stipulation in the said definitions for
issuance of passenger tickets. The Policy Guidelines for
Starting Scheduled/ Non-Scheduled Air Transport
Services issued by the Ministry of Civil Aviation clearly state
that non-scheduled operation means an air transport service
other than scheduled air transport service and that it may be
on charter basis and/or non-scheduled basis and that such
operator is not permitted to publish time schedule and
issue tickets to passengers. A operator of non-scheduled
passenger service is, therefore, not required to issue tickets to
passengers.
101. Learned special counsel for the department has,
however, placed reliance upon paragraph 9.7 of CAR 1999 to
contend that non-issue of passenger tickets would amount to
not rendering non-scheduled (passenger) service.
102. This contention cannot not be accepted. Paragraph 9.7
of CAR 1999 provides that non-scheduled operators shall issue
passenger tickets in accordance with the provisions of the
Carriage By Air Act 1972 and any other requirements which
may be prescribed by DGCA. As noticed above, the Policy
Guidelines for starting scheduled/non-scheduled air transport
services issued by Ministry of Civil Aviation provide that non-
scheduled operator is not permitted to publish time schedule
and issue tickets to passengers. There is, therefore, no
obligation on the part of the appellants to issue tickets to
passengers.
*****"
(emphasis supplied)
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34. It is also not possible to accept the contention of the Department
that Larger Bench did not examine the issue of demand of duty in
terms of the undertaking. This issue was examined at length by the
Larger Bench and the findings are as follows:
Whether the customs authorities have the jurisdiction to
decide violation of the exemption notification
"91. A perusal of the exemption notification clearly
shows that it merely requires the conditions set out by
the DGCA and the conditions imposed by the Civil
Aviation Ministry be complied with for the operations of
the non-scheduled operators. It, therefore, follows that
it should be the jurisdictional authorities under the Civil
Aviation Ministry which alone can monitor the
compliance. As stated above initially by exemption notification
dated 01.03.2007, entry no. 346B and Condition No. 101 was
introduced in the exemption notification dated 01.03.2002
whereby the effective rate of duty on import of aircraft for
scheduled air transport service was made 'nil'. As no exemption
was granted to non-scheduled air transport service and private
category aircraft, the Ministry of Civil Aviation made a strong
representation for granting exemption for non-scheduled
(passenger) service and non-scheduled (charter) services under
conditions to be specified and recommended by the Civil
Aviation Ministry. It is for this reason, as would be apparent
from the statement made by the Hon'ble Finance Minister in the
Parliament, that the exemption notification dated 03.05.2007
was issued granting 'nil' rate of duty on import of aircraft for
non-scheduled (passenger) service as well as non-scheduled
(charter) services subject to Condition No. 104.
92. The alleged misuse of the aircraft, as suggested by
the customs authority, has repeatedly been clarified by
DGCA and the Civil Aviation Requirements relating to
non-scheduled (passenger) services. It is the DGCA which
is empowered to issue the Civil Aviation Requirements under
rule 133A of the Aircraft Rules. The DGCA has not
complained of any violation by the non-scheduled
(passenger) services operator and in fact has been
renewing the permits from time to time. It is only when
the competent authority under the Director General of
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Civil Aviation Ministry finds as a fact that the permit
holders have violated the conditions that it would be
open to the customs authorities, in terms of the
undertaking given by the permit holders, to require
payment of the duty, which otherwise was exempted by
the notification.
93. Learned counsel for the appellants have submitted that
whenever a fiscal benefit is granted on the basis of a certificate
issued by another statutory authority, it is only that statutory
authority which is empowered to monitor compliance of the
conditions of the certificate and to initiate action, in case of non
compliance. In this connection learned counsel have placed
reliance upon the decisions of the Supreme Court in Zuari
Industries Ltd. vs. Commissioner of C. Ex. & Customs 15,
Titan Medical Systems Pvt. Ltd. vs. Collector of Customs,
16
New Delhi and Vadilal Chemicals Ltd. vs. State of
Andhra Pradesh 17.
*****
99. It, therefore, follows that it is the jurisdictional
authorities under the Civil Aviation Ministry that alone
can monitor the compliance of the conditions imposed
and the Customs Authorities can take action on the basis
of the undertaking submitted by the importer only when
the authority under the Civil Aviation Ministry holds that
the conditions have been violated.
(emphasis supplied)
35. It is seen that the Larger Bench held that the undertaking to use
the aircraft for non-scheduled (passenger) service can be said to have
been violated only when the DGCA finds that the use of the aircraft is
not in accordance with the permit granted by DGCA for non-scheduled
(passenger) service and only in that event the Customs authority can
demand duty in terms of undertaking. In the present case, the DGCA
has not found the use of the aircraft by appellant to be in violation of
permit for non-scheduled (passenger) service and in fact has renewed
15. 2007 (210) E.L.T. 648 (S.C.)
16. 2003 (151) E.L.T. 254 (S.C.)
17. 2005 (192) E.L.T. 33 (S.C.)
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the permit year after year. There is, therefore, no violation of the
undertaking and, therefore, Customs cannot demand duty in terms of
the undertaking.
36. It also needs to be noted that the Larger Bench of the Tribunal
specifically held that the decision of the Division Bench of the Tribunal
in East India Hotels which holds that it is the Customs department
that has to ensure compliance of the undertaking is not correct. The
Larger Bench also held that the decision of the Division Bench in King
Rotors does not lay down the correct position of law.
"Analysis of the division bench decisions
119. The division bench of the Tribunal in King Rotors held
that since the flight operations are not open to the public, the
aircraft would not be considered to have been used for non-
scheduled (passenger) services. This view, as discussed above,
proceeds on an incorrect appreciation of the definition of non-
scheduled (passenger) services.
120. The division bench of the Tribunal in East India Hotels
held that published tariff to the public is a mandatory
requirement of a non-scheduled (passenger) service and so if
the tariff is not published, the use of the aircraft would be as a
private aircraft. It was also held that it is the customs
department that has to ensure compliance of the undertaking.
These views, for the reasons stated above, are not correct
views.
121. This apart, both Sameer Gehlot and King Rotors have
been distinguished by the division bench in East India Hotels
for the reason that both these cases were covered by the
earlier CAR 1999, whereas the case before the division bench
was covered by CAR 2010.
*****"
37. The use of the aircraft has, therefore, been in accordance with
the scope of non-scheduled (passenger) services and there is no
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violation of the undertaking to use the aircraft for non-scheduled
(passenger) services.
38. It is, therefore, for all the reasons stated above, not possible to
sustain the impugned order dated 31.08.2010 passed by the
Commissioner in so far as it concerns the appellant. For these reasons,
the penalty imposed upon Sudhir Nayak cannot also be sustained.
39. The impugned order dated 31.08.2010 is, accordingly, set aside
and Customs Appeal No. 640 of 2010 and Customs Appeal No. 642 of
2010 are allowed.
(Order Pronounced on 08.09.2022)
(JUSTICE DILIP GUPTA)
PRESIDENT
(P.V. SUBBA RAO)
MEMBER (TECHNICAL)
Shreya
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C/640/2010 & C/642/2010
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
CUSTOMS APPEAL NO. 640 OF 2010
M/s Reliance Commercial Dealers Ltd. ...Appellant
VERSUS
Commissioner of Customs, (Preventive) ...Respondent
New Customs House, Delhi
With
CUSTOMS APPEAL NO. 642 OF 2010
Sudhir Nayak ...Appellant
VERSUS
Commissioner of Customs, (Preventive) ...Respondent
New Customs House, Delhi
APPEARANCE:
Shri J.C. Patel, Shri Vipin Jain and Ms. Shilpa Balani, Advocates for the Appellant
Shri Shri PRV Ramanan, Special Counsel and Shri Rakesh Kumar Authorized
Representative for the Department
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. C.J. MATHEW, MEMBER (TECHNICAL)
Date of Hearing: 24.08.2022
Date of Decision: 08.09.2022
ORDER
Order Pronounced.
(JUSTICE DILIP GUPTA) PRESIDENT (C.J. MATHEW) MEMBER (TECHNICAL) Shreya