Use of Imported Helicopter for Non-Revenue Private Flights Violates Condition No. 104: CESTAT Upholds Confiscation [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi has held that use of an imported helicopter for non-revenue private flights violates Condition No. 104 of the Exemption Notification. The Bench justified confiscation and duty demand.

Indian Metal and Ferro Alloys Limited appealed against that portion of the Order-in-Original dated 24.11.2009 passed by the Commissioner of Customs (Preventive), New Delhi, which confiscated the Robinson R-44 Raven II Helicopter under Section 111(o) of the Customs Act, 1962.

Appeals were also filed by Baijayant Panda, Vice-Chairman, and Rajeev Lala, Senior Manager (Corporate Affairs), against the penalties imposed upon them under Section 112. The Department filed a separate appeal seeking enhancement of penalty.

The appellant had imported the helicopter claiming exemption under Notification No. 21/2002-Cus as amended by Notification No. 61/2007-Cus dated 03.05.2007. The exemption granted nil rate of duty on import of aircraft for non-scheduled (passenger) services or non-scheduled (charter) services subject to fulfillment of Condition No. 104.

At the time of import, the appellant furnished an undertaking that the aircraft shall be used only for providing non-scheduled (passenger) services and they shall pay an amount equal to the duty payable in the event of failure to use the aircraft for the specified purpose.

A show cause notice alleged that the aircraft had not been used for the specified purpose but for private use and for promoting business. It was alleged that this amounted to violation of the conditions of the exemption notification and rendered the aircraft liable to confiscation under Section 111(d) and 111(o) of the Customs Act, 1962.

The Tribunal noted that the crucial issue was whether the appellant had complied with Condition No. 104. Referring to the decision of the Delhi High Court in East India Hotels Ltd. vs. Commissioner of Customs, the Tribunal noted that “air transport service” under Rule 3(9) of the Aircraft Rules, 1937 necessarily requires transport for remuneration and flight service for no remuneration would not qualify as air transport service.

In the present case, it was evident from the aircraft log book details that leaving aside test/ferry flights, about 80% of the hours flown were used for private purposes without any remuneration. The Tribunal held that there was no substantial compliance of Condition No. 104 of the Exemption Notification.

The appellant was found to have clearly violated the terms of the notification. Accordingly, confiscation of the helicopter under Section 111(o) and confirmation of duty on the basis of the undertaking were upheld.

On the issue of penalties under Section 112, the Tribunal observed that penalty can be imposed only when there is intentional aiding or active complicity. Relying on the decisions of the Supreme Court and the Bombay High Court, it was held that mere violation of the exemption notification would not automatically result in imposition of penalty. In the absence of mens rea, penalties under Section 112 could not be sustained.

Accordingly, the Customs Appeal filed by the company was dismissed and filed by the Department seeking enhancement of penalties was dismissed.

The order was pronounced by the Bench comprising Dilip Gupta (President) and Hemambika R. Priya (Technical Member).