Delhi High Court Allows Indigo Airlines' Plea, Holds Levy Of Additional IGST On Repaired & Re-Imported Aircraft Parts To Be Unconstitutional

A division bench of Justice Yashwant Varma and Ravinder Dudeja observed that “additional duty even after the transaction has been subjected to the imposition of a tax treating it to be a supply of service would be clearly unconstitutional and cannot be sustained.”

The Court also set aside a 2021 notification issued by the Central Board of Indirect Taxes & Customs (CBIC), which imposed an 'integrated tax and cess' under CTA, besides the customs duty.

The Petitioner-company, which owns the airline, had challenged this notification, contending that since the export of aircraft parts for repair outside India and their subsequent re-import would fall in the category of a 'supply of service', no further impost as envisaged under Section 3(7) of the CTA would stand attracted.

It was contended that once a transaction is conferred the character of a supply of service, it would be impermissible for the respondents to bring those transactions to tax by treating them as an import of goods and articles.

The Department, on the other hand, argued that Section 3(7) of the CTA is an independent charging provision levying an additional duty of customs, and it does not stand effaced consequent to the promulgation of IGST.

It was submitted that a plain textual reading of the provision indicates three significant expressions: 'any article which is imported into India', 'in addition' and 'be liable'. Moreover, it was contended that the import of goods is not the subject matter of IGST at all as that statute is merely concerned with the inter-state supply of goods, services or both- distinct from the import of goods.

The Department also relied on principles underlying the 'aspect theory' of taxation which envisages a tax being validly imposed upon two aspects forming part of the same transaction. It was thus argued that notwithstanding the levy of a tax under the principal provision of Section 5(1) of the IGST, the petitioner does not stand absolved of the liabilities created by Section 3(7) of the CTA.

At the outset, the High Court observed that the CTA stands confined to articles and goods only, and it is not concerned with the import or export of 'services'.

It held that an integrated tax on the import of services can only be imposed under Section 5(1) of the IGST, and a supply of service, once so classified, cannot be recharacterized.

“The integrated tax which is spoken of in Section 3(7) can only be recognised as being a reference to the integrated tax leviable under the IGST. We find ourselves unable to countenance a power or authority inhering in the respondents to subject a supply or import of service to a tax under the CTA in the garb of levying an additional duty,” Court held.

It added that Section 3(7) of CTA was also amended, and it no longer speaks of an authority to levy a tax 'notwithstanding the provisions contained in any other enactment'. Rather, the provision now restricts its expanse to the imposition and collection of a tax as leviable under Section 5(1) of IGST.

As such, it held, “both Sections 5(1) of the IGST and Section 3(7) of the CTA are indelibly connected to the levy and collection of the tax contemplated under the former. We find ourselves unable to construe or interpret Section 3(7) as envisaging an independent levy.”

The Court rejected the Department's reference to the Supreme Court judgment in Hyderabad Industries v. Union of India (1999) where it was held that the duty chargeable under Section 3 CTA shall be in addition to any other duty imposed under any other law for the time being in force.

It observed that the said decision was primarily concerned with the interplay between Basic Customs Duty and an additional duty of customs under the CTA.

“While there cannot be a cavil of doubt with respect to those two levies being separate and distinct, we are in the present batch concerned with the levy of a tax upon import of services under the IGST and an additional levy which, according to the respondents, would be leviable on a purported reading of Section 3(7) of the CTA.”

So far as the aspect theory is concerned, the Court held that the same would have had a bearing provided it was possible to countenance the existence of two separate and distinguishable taxable events.

In the case at hand, however, the Court said, “We fail to appreciate how the transaction in respect of the subject goods could possibly be construed as giving birth to two separate and divisible taxable events. 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 explained that the transaction remained an import of service “with no discernible break in the chain” connected with the movement of the articles and their departure from Indian shores.

“The service rendered upon those articles came to be indelibly embedded in those goods and it was the work expended by the MROs' (Maintenance, Repair and Overhaul Service) on those goods which constituted the principal purpose of their movement and imbued the articles. This was, therefore, not a case where one could legitimately assume or perceive the existence of two separate or disconnected taxable events.”

As such, the petition was allowed the impugned Notification, insofar as it purports to levy an additional levy over and above the IGST imposed under Section 5(1) IGST, was declared unconstitutional.

Case title: Interglobe Aviation Ltd v. Principal Commissioner Of Customs Acc (Import) New Custom House New Delhi & Ors. and batch

Citation: 2025 LiveLaw (Del) 274

Case no.: W.P.(C) 934/2023

Click here to read judgment