Delhi HC strikes down IGST on reimported aircraft parts, relief for airlines

While setting aside a part of the 2021 customs department’s exemption notification that imposed IGST and cess on the repair cost of such reimported goods, a Division Bench comprising justices Yashwant Varma and Ravinder Dudeja said that the July 2021 notification that “purports to levy an additional levy over and above the IGST imposed under Section 5(1) (of IGST) by adding the words ‘…tax and cess’ is declared unconstitutional, ultra vires the IGST and is quashed to the aforesaid extent.” It said that an integrated tax on the import of services can only be imposed under Section 5(1) of the IGST and a supply of service once so classified cannot be recharacterized.

On the Central Board of Indirect Taxes and Customs’ clarification issued by way of circular in July 2021, the court said that that the addition of the words “tax” and “cess” over and above the duty of customs which was originally conceived and provisioned in 2017 notification was “clearly ultra vires” and liable to be declared as an intent to levy an “impost” which is without authority of law. Terming the tax authorities’ contention about the existence of two separate and distinguishable taxable events as clearly “untenable,” the court said that the transaction remained that of supply of services in the shape of repair or refurbishment. It clearly did not constitute a supply of goods, the judges said.

According to the judgement, a conjoint reading of the Proviso to Section 5(1) along side Section 3(7) of the Customs Tariff Act, 1975 (CTA) clearly establishes that they are a part of a composite and comprehensive machinery laid in place for collection of a goods and services tax. It merely designates the place and the juncture when the tax liability would be liable to be discharged. The integrated tax which is spoken of in Section 3(7) can only be recognised as being a reference to the integrated tax leviable under the IGST. “… we have found, both Sections 5(1) of the IGST and Section 3(7) of the CTA are indelibly connected to the levy and collection of the tax contemplated under the former. We find ourselves unable to construe or interpret Section 3(7) as envisaging an independent levy,” the court said. The HC decision came in on various petitions filed by InterGlobe Aviation challenging the notification and the IGST levy on re-imported aircraft and parts following repairs. Interglobe, which moved its aircraft engines and aircraft parts for repair and service outside the territory of India, said that the amount paid by it for the repairs overseas has been taxed as import of services and, therefore, the very same goods being reimported to India cannot be subjected to IGST as import of goods.  The airline company said that since the export of these engines and aircraft parts for repair outside India and their subsequent reimport would fall in the category of a supply of service, no further impost as envisaged under Section 3(7) of the CTA would stand attracted. Once a transaction is conferred the character of a supply of service, it would be impermissible for the department to bring those transactions to tax by treating them as an import of goods and articles, the company stated.

However, the customs department argued that Section 3(7) is an independent charging provision levying an additional duty of customs on the same transaction. Levy does not stand effaced consequent to the promulgation of IGST, it argued, adding that Interglobe does not stand absolved of the liabilities created by the provision.