Cost of Freight Insurance is not included for Calculating Duty of ATF consumed in Fuel Tank of Aircraft: CESTAT Rules in Favour of Indian Airlines Ltd [Read Order]

In a ruling in favour of Indian Airlines Ltd, the New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the cost of freight insurance is not included for calculating the duty of ATF consumed in the fuel tank of aircraft.

The Directorate of Revenue Intelligence received intelligence that M/s Indian Airlines Ltd, the respondent was flying the same aircraft to various domestic destinations after the completion of the international run and that they were neither declaring the ATF in stock after the completion of the international run nor paying any customs duty leviable on the imported ATF i.e., the ATF lying in the tanks of the aircraft at the time of completion of the international flight and before the said aircraft were reverted to run to domestic destinations.

The respondents were procuring ATF overseas and also at domestic airports and the residual ATF available at the time of completion of the international run was more than the quantities of ATF on board when the same aircraft commenced the next international run and the aircraft retained a substantial quantity of fuel on arrival, which was dutiable under Customs Act, as such fuel was imported into India. Therefore, the records and documents of the respondents were verified and the quantity of ATF that was imported and consumed was calculated and a show cause notice dated 29.11.2006 was issued demanding duty. 

 The show cause notice demanding duty was adjudicated by the impugned order and the impugned order was reviewed by the Committee of Chief Commissioners.

Counsel appearing for the respondent submitted that the two issues involved in the appeal are whether a redemption fine should be imposed on the goods held liable for confiscation, but which were physically not available and whether the cost of freight, insurance and landing charges need to be included on notional basis to the FOB value for re-determine the duty. On the question of redemption fine, counsel supports the impugned order and asserts that where the goods are not available for confiscation although they were held to be liable for confiscation, no redemption fine can be imposed.

 On the question of the inclusion of freight insurance and landing charges as to the FOB value to determine the duty on the ATF consumed during the domestic flights, he submitted that freight and insurance and landing charges need not be included in the assessable value. The aircraft also buys fuel within India which is also filled in the same tank. At the end of its series of domestic flights, if the aircraft flies out of India, on the next international run, some fuel may be there in the tank at that stage also. The net ATF, which has been imported into India and consumed in India is calculated by deducting the ATF available at the time of conversion to international run from the amount of ATF available in the aircraft when it is converted to domestic run.

If the aircraft converts from international to domestic run and 30,000 lines of ATF are available in the Fuel Tank and finally when it again converts to international run, only 20,000 lines are in the aircraft, the 10,000 litres is treated as import and duty has to be paid on the quantity. On the other hand, if 40,000 litres is available on conversion to international run, 10,000 litres of ATF is treated as exported. On the amount of ATF which is imported from abroad and consumed in India for domestic flights, the airline is required to pay customs duty and there is no dispute about this liability. It is also not in dispute that the respondent had maintained records as required, but had not paid customs duty on this amount of the ATF. After investigation, the respondents agreed to the duty liability and paid some amount of customs duty, which was also appropriated in the impugned order. 

 If the importer opts to pay the redemption fine and pays it, the goods will be returned to the importer. If the importer does not opt to pay the redemption fine, the goods will stand confiscated.

In the case, although the goods were confiscated it was only a notional confiscation because the goods were not available at all. In the case of the Revenue, the redemption fine must have been imposed instead of confiscation. If the redemption fine is imposed, it cannot be extracted from the respondents because the redemption fine is only an option and the respondent may not opt for it. If the respondents opt for it and pay the redemption fine then Revenue will have to return the confiscated goods which the Revenue cannot do in this case because the goods no longer exist. 

A Two member bench comprising Shri Justice Dilip Gupta, President and Shri P V Subba Rao, Member ( Technical ) observed that the cost of the freight, transit insurance and the landing charges being ascertainable as NIL, they cannot be included in the value of the ATF. In the appellant’s case in Customs Appeal, the Tribunal held that the cost of freight, insurance and landing charges need not be included while raising the duty on the ATF consumed in the fuel tank of the aircraft.

The Tribunal dismissed the appeal and upheld the impugned order with consequential to the respondent. Shri Girijesh Kumar appeared for the department and Shri Manoj Arora appeared for the respondent.

To Read the full text of the Order CLICK HERE

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