2025 (6) TMI 776 - AT - Customs

Violation of conditions of the Notification dated 01.03.2002 - using the imported aircraft permitted for Non-Scheduled Operator (Passenger) NSOP (Passenger) service for charter operations instead - confiscation - penalty - HELD THAT - A perusal of the order dated 21.06.2010 passed by the Commissioner Preventive indicates that the appellant was granted permission for operating NSOP (services) but the appellant did not use it for passenger service and had used it for chartering out the same to group companies of the appellant and other against lump-sum payment of agreed amount. The reason that has stated is that appellant did not issue tickets but charged a lump-sum payment. The issue as to whether NSOP (passenger) can be used for Charter purposes has been decided by a Larger Bench of the Tribunal in M/s VRL Logistics Ltd. versus Commissioner of Customs Ahmedabad 2022 (8) TMI 720 - CESTAT AHMEDABAD (LB) . It has been hold that it can be used. This decision has been affirmed by the Gujarat High Court 2023 (1) TMI 1378 - GUJARAT HIGH COURT . In view of the aforesaid decisions of the Tribunal in VRL Logistics and in Sky Airways 2025 (5) TMI 1036 - CESTAT NEW DELHI it has to be held that the Commissioner committed an error in holding that the appellant could not have used the aircraft for charter purpose when the permit was granted for NSOP service. Conclusion - The reason assigned by the Commissioner that tickets were not sold by the appellant for charter services and only a lump-sum was demanded and paid cannot be a good ground to hold that the appellant violated the conditions of the Notification in view of the decision of by the Tribunal in V.R.L. Logistics. The order dated 21.06.2010 passed by the Commissioner therefore cannot be sustained and is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant violated the conditions of the customs duty exemption notification by using the imported aircraft, permitted for Non-Scheduled Operator (Passenger) [NSOP (Passenger)] service, for charter operations instead.

- Whether the use of an NSOP (Passenger) permit to provide charter services is permissible under the relevant regulatory framework.

- Whether the aircraft is liable to confiscation under Section 111(o) of the Customs Act, 1962, due to alleged violation of the exemption conditions.

- Whether customs duty demand and penalty imposed under the Customs Act, 1962, are sustainable.

- Whether interest under Section 28AB of the Customs Act can be demanded when duty is not payable under Section 28.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Notification Conditions by Using NSOP (Passenger) Aircraft for Charter Services

Relevant Legal Framework and Precedents: The appellant imported the aircraft under Notification No. 21/02-Cus dated 01.03.2002, which exempts customs duty on aircraft used for NSOP (Passenger) services. The Ministry of Civil Aviation and Directorate General of Civil Aviation granted permission for NSOP (Passenger) operations only. The Commissioner relied on Section 111(o) of the Customs Act, 1962, for confiscation due to alleged violation of exemption conditions.

The Commissioner referenced Supreme Court decisions in Commissioner of Customs vs. Jagdish Cancer & Research (2001) and Commissioner of Customs vs. C.T. Scan Research Centre (2003) to uphold the customs duty demand.

Court's Interpretation and Reasoning: The Commissioner found that the appellant did not provide non-scheduled passenger services as per the permit but instead chartered the aircraft to group companies and others for lump-sum payments without issuing tickets, thus violating the exemption notification.

However, the Tribunal examined this issue in light of a Larger Bench decision in M/s VRL Logistics Ltd. vs. Commissioner of Customs, Ahmedabad, which held that an NSOP (Passenger) permit can be used for charter services. This decision was affirmed by the Gujarat High Court on 04.04.2023.

Further, a Division Bench of the Tribunal in Customs Appeal No. 419 of 2010 (M/s Sky Airways and others) reiterated that exemption is available to both NSOP (Passenger) and NSOP (Charter) services, relying on the VRL Logistics Larger Bench ruling and subsequent affirmations by High Courts.

The Tribunal emphasized that the permit holder under NSOP (Passenger) is not barred from providing charter services. The Commissioner's reliance on the absence of ticket issuance and the lump-sum payment method was held not to be a valid ground for violation.

Key Evidence and Findings: The appellant had valid permissions from the Ministry of Civil Aviation and DGCA for NSOP (Passenger) operations. The aircraft was imported under the exemption notification and cleared accordingly. The Commissioner's finding of violation was primarily based on the mode of charging (lump-sum) and non-issuance of tickets.

Application of Law to Facts: The Tribunal applied the Larger Bench and Division Bench decisions to the facts, concluding that the appellant's use of the aircraft for charter services under an NSOP (Passenger) permit did not constitute a violation of the exemption notification.

Treatment of Competing Arguments: The Commissioner argued that the exemption was violated because the aircraft was not used for passenger services as per the permit, and hence duty was payable with penalty and confiscation. The Tribunal rejected this, holding that the permit covers charter operations as well, and the method of charging does not invalidate the exemption.

Conclusion: The appellant did not violate the conditions of the exemption notification by using the aircraft for charter services under the NSOP (Passenger) permit.

Issue 2: Confiscation of Aircraft under Section 111(o) of the Customs Act, 1962

Relevant Legal Framework and Precedents: Section 111(o) authorizes confiscation of goods if conditions of exemption notifications are violated. The Commissioner ordered confiscation based on the alleged violation.

Court's Interpretation and Reasoning: Since the Tribunal held there was no violation of the exemption notification, the basis for confiscation under Section 111(o) falls away. The Tribunal also noted the Supreme Court's decision in East India Commercial vs. Commissioner of Customs, which held that subsequent non-compliance with conditions does not render the import illegal or warrant confiscation under Section 111(d).

Key Evidence and Findings: The appellant had valid import permissions and complied with the procedural requirements. The only contention was about the nature of operations, which was found permissible.

Application of Law to Facts: No violation of exemption conditions means no ground for confiscation. The Tribunal set aside the confiscation order accordingly.

Treatment of Competing Arguments: The Commissioner contended deliberate violation warranting confiscation. The Tribunal rejected this, relying on binding precedents and the factual matrix.

Conclusion: The order of confiscation of the aircraft under Section 111(o) is not sustainable and is set aside.

Issue 3: Demand of Customs Duty and Penalty under the Customs Act, 1962

Relevant Legal Framework and Precedents: Customs duty demand was confirmed under the undertaking given at import and Supreme Court precedents cited by the Commissioner. Penalty was imposed under Section 112 of the Customs Act, 1962.

Court's Interpretation and Reasoning: Since the exemption notification conditions were not violated, the demand of customs duty and penalty premised on such violation cannot be sustained.

Key Evidence and Findings: The appellant cleared the aircraft under the exemption notification and had valid permits. The Tribunal found no breach of conditions.

Application of Law to Facts: The Tribunal held that the demand of customs duty and penalty based on the violation of exemption conditions is erroneous.

Treatment of Competing Arguments: The Department argued that violation of exemption conditions justified duty demand and penalty. The Tribunal disagreed, relying on the binding precedents and factual findings.

Conclusion: The demand of customs duty and penalty is set aside.

Issue 4: Demand of Interest under Section 28AB of the Customs Act, 1962

Relevant Legal Framework and Precedents: Interest under Section 28AB is payable only if duty is demandable under Section 28. The Commissioner held that since duty is not demandable under Section 28, interest cannot be imposed.

Court's Interpretation and Reasoning: The Tribunal agreed with the Commissioner that interest under Section 28AB cannot be demanded if duty is not payable under Section 28.

Key Evidence and Findings: The Commissioner's order explicitly states no duty demand under Section 28 and thus no interest under Section 28AB.

Application of Law to Facts: The Tribunal accepted this legal position.

Treatment of Competing Arguments: No contrary arguments were raised.

Conclusion: No interest under Section 28AB is payable.

3. SIGNIFICANT HOLDINGS

"Permit under NSOP (Passenger) can be used for charter purposes is no longer res integra and has been decided against the Revenue by the Larger Bench of the Tribunal in the case of M/s. V.R.L. Logistics Ltd. Vs. Commissioner of Customs, Ahmedabad, which has been affirmed by the Gujarat High Court vide order dated 04.04.2023."

"The subsequent noncompliance of conditions of the exemption notification do not vitiate the status of that permit in view of the decision of the Supreme Court in the case of East India Commercial versus Commissioner of Customs, Kolkata - 1983 (13) E.L.T. 1342, wherein it has been held that the subsequent cancellation of the licence under which the goods were imported does not render the import illegal."

"The order dated 21.06.2010 passed by the Commissioner, therefore, cannot be sustained and is set aside."

Core principles established include:

• The use of an aircraft imported under an NSOP (Passenger) permit for charter services is permissible under the Customs Act and related aviation regulations.
• Violation of exemption notification conditions is not made out merely by the mode of charging or non-issuance of tickets.
• Confiscation under Section 111(o) of the Customs Act requires a clear violation of exemption conditions, which was absent here.
• Demand of customs duty and penalty premised on violation of exemption notification cannot be sustained if no violation is established.
• Interest under Section 28AB is payable only if duty is demandable under Section 28.

Final determinations on each issue were in favor of the appellant, with the Tribunal setting aside the confiscation, duty demand, penalty, and confirming no interest liability.