10 June 2024


Customs, Excise and Service Tax Appellate Tribunal

Inter Globe Aviation Limited Vs. CC, New Delhi




When the actual cost towards handling charges are available, notional addition is not legally tenable

The Appellant is engaged in air transport business both in domestic and international sector. They operate some of their air crafts in domestic sector and continue the service in international sector also. The Aviation Turbine Fuel (AFT) is filled by the Appellant for domestic flight operation. When the same aircraft is to embark on an international travel, the ATF in the fuel tank is considered as cleared outside India and when the aircraft returns from foreign trip, the ATF left over/available in the aircraft is considered to be an import item subjected to customs duty as per the applicable rates. The dispute in present case mainly revolves around the valuation of ATF available in fuel tank of aircraft returning from the foreign trip to continue travel in domestic sector. The Appellants were considering the price at which the international Airlines purchases ATF from Indian Oil Corporation. Such price formed the basis of assessable value with addition of 1.125% as insurance charges and 1% as handling charges. The customs duty was discharged by the Appellant on ATF available in such aircrafts returning from international trips on a monthly basis, by adjusting from the advance deposit maintained by them with the Department.

The Revenue entertained a view that, for valuation of ATF available on remnant fuel in the returning aircraft, the Appellants are liable to add 20% as notional freight charges in terms of Rule 10(2) of Customs Valuation Rules. The proceedings initiated against Appellant resulted in confirmation of demand of differential customs duty. A penalty of Rs. 5 lakh was imposed on the Appellant under Section 112 of the Customs Act, 1962/Act.

The consumption of fuel depends on various factors. Factually, when the aircraft completes the inward journey to reach the Indian Airport, certain quantity of fuel is left in the tanks. There should not be a freight element attributable to such fuel in the tank. The aircraft did not transport the fuel as a cargo or goods for the purpose of freight. Such interpretation will be a result of hyper-technical approach to the facts of the case.

Admittedly, the remnant fuel is construed to be an imported item for the purpose of customs duty. In the importation of such remnant fuel, there cannot be any separate freight element, which can be added in the assessable value. The fuel in the tank is part of aircraft in operation. Fuel cost is calculated, and apparently, forms part of commercial consideration while fixing ticket charges for transporting aircraft. No freight element is attributable to fuel in the tank, the usage of which varies on different parameters. The aircraft did not transport ATF on which a freight element can be attributed. The plain meaning of 'Freight' is goods that are transported by ships, planes, trains or lorries/trucks; the system of transporting goods in this way. On this basis, it cannot be said that, fuel in the tank of aircraft used for propulsion can be considered as cargo/goods with attributable cost of freight. Further, Rule 10(2) was applied by the lower authority on the ground that, the freight of ATF is not ascertainable. There is no freight element involved and hence, there is no application for Rule 10(2).

The Supreme Court in Wipro Ltd., held that normally, the value of imported goods has to be the transactional value which means the price "actually paid" or "payable" for the goods imported. When the value of transaction could not be determined then the Rules are applied to arrive at the value. The endeavour is to have closest proximity with the actual price. Dealing with addition of loading and handling charges at 1% on notional basis as per Rule 9 of Valuation Rules, the Apex Court held that when the actual cost towards handling charges are available, notional addition is not legally tenable. It was held to be violative of Article 14 of the Constitution. In the present case, there is no freight involved with reference to left over fuel in the tank of an operating aircraft. Hence, there is no question such freight being 'not ascertainable' and hence addition of 20% notional freight.

The Commissioner, Airport, Mumbai vide his instructions dated 20th October, 2006 clarified that, in the absence of invoice for ATF, the price at which Indian Airlines purchase ATF for international flight can be considered for valuation. In such situation, it will not be tenable to add a further notional freight of 20% to arrive at the assessable value. On this ground also, impugned order is not sustainable.

Regarding liability of the Appellant for penalty under Section 112 of Act, impugned order observed that, the Appellants failed to follow the procedure of filing bill of entry and valuing the ATF properly. Admittedly, the Appellants have been filing details of arrival of aircraft from foreign trip along with quantity of fuel etc. On arrival re-conciliation of quantity of fuel along with duty payable is also submitted. Duty payment is made through adjustment of pre-deposit made with the customs. This practice has been continuing for many years. In such factual position, it is not tenable for the Revenue to take up a decision that, there is a violation of procedure and the Appellant is liable to penalty under Section 112 of Act. The Original Authority did not mention under which sub-category of the provisions of Section 112 of Act, the Appellant is held liable for penalty. No loss of revenue has been alleged except for non-addition of notional fright in the value of ATF. Such notional additional is not legally sustainable. There is no sustainable reason for imposing penalty on the Appellant under Section 112 of Act. Impugned order is set aside and the appeal is allowed.


Wipro Ltd. vs. Assistant Collector of Customs and Ors. MANU/SC/0468/2015

Tags : Demand Penalty Confirmation Legality

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