In a relief to airlines InterGlobe Aviation and SpiceJet Ltd, the Supreme Court on Monday dismissed the customs department's appeal seeking to levy integrated goods and services tax (IGST) retrospective on reimport of aircraft or aircraft parts into India after their repairs outside the country.
The department claimed that an amended notification issued in 2021 would have retrospective effect from the original exemption notification of 2017, a stand rejected by a bench comprising Justices B.V. Nagarathna and K.V. Viswanathan.
"You can’t do it by a retrospective amendment…If the 2017 notification did not cover IGST, you cannot use the 2021 notification to impose it retrospectively,” the bench said.
In the 2017 notification, due to exemptions, the airlines were required to only pay 'duty of customs' on the fair cost of repairs and the cost of insurance and freight charges, both ways and not the integrated tax. However, in the 2021 notification, the government said that the airlines were required to pay integrated tax, in addition to the basic customs duty, on the fair cost of repairs and the cost of insurance and freight charges.
The department told the SC that InterGlobe, the parent of India's largest airline IndiGo, and SpiceJet had to pay the integrated tax also for 2017 to 2021, which otherwise was not leviable under the un-amended 2021 notification. In August, Customs, Excise and Service Tax Appellate Tribunal ruled that the 2021 notification was not retrospective in nature.
It may be noted that the Delhi High Court in March had declared as unconstitutional the levy of IGST on reimported aircraft engines and aircraft parts that were repaired and serviced abroad.
While setting aside a part of the 2021 customs department’s exemption notification that imposed IGST and cess on the repair cost of such reimported goods, the HC said the July 2021 notification that “purports to levy an additional levy over and above the IGST imposed under Section 5(1) (of IGST) by adding the words '...tax and cess' is declared unconstitutional, ultra vires the IGST and is quashed to the aforesaid extent.”
It said that an integrated tax on the import of services can only be imposed under Section 5(1) of the IGST and that a supply of service once so classified cannot be recharacterised.
On the Central Board of Indirect Taxes and Customs’ clarification issued through the July 2021 circular, the HC said the addition of the words "tax" and "cess" over and above customs duty which was originally conceived and provisioned in 2017 notification was "clearly ultra vires" and liable to be declared as an intent to levy an "impost" which is without authority of law.
Terming the tax authorities’ contention about the existence of two separate and distinguishable taxable events as clearly "untenable," the HC said the transaction remained that of supply of services in the shape of repair or refurbishment. It clearly did not constitute a supply of goods, the court said.
The HC ruling had come in response to several petitions filed by InterGlobe Aviation challenging the notification and IGST levy on re-imported aircraft and parts after repairs.
The department claimed that an amended notification issued in 2021 would have retrospective effect from the original exemption notification of 2017, a stand rejected by a bench comprising Justices B.V. Nagarathna and K.V. Viswanathan.
"You can’t do it by a retrospective amendment…If the 2017 notification did not cover IGST, you cannot use the 2021 notification to impose it retrospectively,” the bench said.
In the 2017 notification, due to exemptions, the airlines were required to only pay 'duty of customs' on the fair cost of repairs and the cost of insurance and freight charges, both ways and not the integrated tax. However, in the 2021 notification, the government said that the airlines were required to pay integrated tax, in addition to the basic customs duty, on the fair cost of repairs and the cost of insurance and freight charges.
The department told the SC that InterGlobe, the parent of India's largest airline IndiGo, and SpiceJet had to pay the integrated tax also for 2017 to 2021, which otherwise was not leviable under the un-amended 2021 notification. In August, Customs, Excise and Service Tax Appellate Tribunal ruled that the 2021 notification was not retrospective in nature.
It may be noted that the Delhi High Court in March had declared as unconstitutional the levy of IGST on reimported aircraft engines and aircraft parts that were repaired and serviced abroad.
While setting aside a part of the 2021 customs department’s exemption notification that imposed IGST and cess on the repair cost of such reimported goods, the HC said the July 2021 notification that “purports to levy an additional levy over and above the IGST imposed under Section 5(1) (of IGST) by adding the words '...tax and cess' is declared unconstitutional, ultra vires the IGST and is quashed to the aforesaid extent.”
It said that an integrated tax on the import of services can only be imposed under Section 5(1) of the IGST and that a supply of service once so classified cannot be recharacterised.
On the Central Board of Indirect Taxes and Customs’ clarification issued through the July 2021 circular, the HC said the addition of the words "tax" and "cess" over and above customs duty which was originally conceived and provisioned in 2017 notification was "clearly ultra vires" and liable to be declared as an intent to levy an "impost" which is without authority of law.
Terming the tax authorities’ contention about the existence of two separate and distinguishable taxable events as clearly "untenable," the HC said the transaction remained that of supply of services in the shape of repair or refurbishment. It clearly did not constitute a supply of goods, the court said.
The HC ruling had come in response to several petitions filed by InterGlobe Aviation challenging the notification and IGST levy on re-imported aircraft and parts after repairs.
