Win for IndiGo: CESTAT Reclassifies Aircraft Engine Stands as Containers for Transport [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) recently ruled in favor of InterGlobe Aviation Ltd. (IndiGo), reclassifying aircraft engine stands as containers for transport.

InterGlobe Aviation Ltd., appellant-assessee,is an airline operator that imports aircraft and parts for its operations. Between April 2018 and March 2019, the assessee imported engine stands for aircraft engines under CTI 7310 29 10/ 7310 29 90, paying customs duty and IGST.

In November 2018, the department disagreed with this classification, suggesting that the engine stands should be classified under CTI 8716 39 00, which covers trailers. The assessee protested the reclassification in December 2018 but cleared the consignment as per the department’s revision, paying the differential duty under protest.

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In April 2019, the department issued a pre-notice letter, claiming the engine stands were used to move aircraft and should be classified as trailers. The assessee maintained that the engine stands should be classified under Customs Tariff Heading 8609.

A show cause notice was issued to the assessee on 13.06.2019, stating that the engine stand should be classified as a trailer under CTI 8716, not as a container under CTI 8609. The department argued that the engine stand was used for transporting engines and should be treated like a trailer, as other airlines had classified them under CTI 8716.

The assessee disagreed, stating that the engine stand’s main purpose was to securely hold the engine, not transport it like a trailer. They explained that the caster wheels only allowed limited movement on smooth surfaces.

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However, the Principal Commissioner ruled on 30.01.2020 that the engine stand was not a container under CTI 8609 and should be classified under CTI 8716 for transportation purposes. The assessee was required to pay the shortfall in customs duty with interest due to the misclassification.

The assessee appealed this decision.

Justice Dilip Gupta (President) and P.V.Subba Rao(Technical Member)  heard the appeal, which involved the classification of aircraft engine stands. The assessee described them as made from welded steel frames with strong, corrosion-resistant parts, designed to hold an engine securely during transport.The stands included a base, cradle, and caster wheels for easy movement. The cradle held the engine and had a shock system to protect it during transport. The stands could move short distances in a workshop.

The stands also had forklift channels for lifting, tie-down rings for securing the engine during transit, shock mounts to reduce vibrations, and adapters to secure the engine.The assessee explained that engine stands were required for transporting engines by truck, air, or sea. They were used to protect the engine from damage, and Pratt and Whitney mandated their use for safe transport. The stands remained with the engine during repairs.

The GI Rules said that goods should be classified based on the heading and relevant notes. Incomplete goods could be classified if they had the essential character of the finished article. For materials, mixtures or combinations were also included.

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If goods could be classified under multiple headings, the most specific one would be chosen. If unclear, goods would be classified under the last heading in numerical order.

In the case of the aircraft engine stand, the assessee argued that the essential character was the cradle, which held the engine securely, not the caster wheels. The wheels only allowed movement within a workshop, while the stand could not transport the engine on roads or airports due to its weight.

For classification, two entries,CTH 7310 and CTH 8609 were considered. CTH 7310 excluded containers made for transport under CTH 8609, which covered containers designed for transport by road, air, or sea with special fittings for securing.

In G. Claridge & Company Ltd. Vs. Collector of Central Excise, the Supreme Court gave "container" a narrow meaning, referring only to enclosed receptacles used for transportation.However, CTH 8609, which covers containers for transportation, does not require them to be enclosed. It includes open containers designed for transport, as stated in HSN Explanatory Notes.

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The aircraft engine stand was considered an open container. It was designed for transporting engines by air, sea, or land, and included a shock system and fittings to secure the engine. The caster wheels were not used for transport but folded up during the journey.

The Principal Commissioner had classified the stand under CTH 8716, based on its wheels, but this was incorrect. The engine stand’s purpose was to protect the engine, not to directly transport it.

Therefore, the engine stand should be classified under CTH 8609, and the Principal Commissioner’s ruling was set aside.

To Read the full text of the Order CLICK HERE

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