Aircraft exemption makes news not for the first time

EXPERT EYE

Mantalai aerodrome, where the plane was supposed to land , had not been built. It was used only by another dignitary for trips to various other airports for purposes not connected with Yoga, in any case. The seizure took place as soon as the Emergency was lifted. This time the same issue has attracted a lot of media attention but much less than at that time as quite a few importers are involved and nothing like Emergency Excess is in the background.

Let me explain the legal position first. The duty on aircraft under heading 880230 and 880240 is only 3 per cent but is exempted[1] on some conditions, numbered 104. For the same conditions, the countervailing duty is also exempted. I am not taking the training aircraft here. The conditions are like this.

The aircraft shall be used only for providing non-scheduled passenger services or non-scheduled charter services. These terms are defined in Aircraft Rules, 1937. Charter service must be for charter or hire with published tariff. Personal use is obviously eliminated. Any violation of this condition will mean payment of duty at the usual rate and confiscation of the aircraft for an offence as defined under Section 111 (o) of the Customs Act.

This Section makes any article confiscable if the condition under which it was imported is violated. And if it is confiscable, it is also liable to seizure which Customs does to begin with. Violation is not difficult to prove if the log book entries are scrutinised.

Proneness to misuse is the basic feature of the conditional exemptions. End-use certificate system is just a similar system. The difference is that end-use certificate is a one time certification system while long term condition is extremely difficult to monitor on a continuing basis.

The best and most well-known example is the exemption to hospitals for importing medical instruments if they givefree treatment to a certain percentage of patients who are poor. The reported misuse became subject matter of immense litigation right up to the SC. An enquiry committee was appointed which found many cases of misuse. Hospitals said it was impracticable to maintain accounts in detail till eternity.

For aircraft, the rate is only 3 per cent and so the amount of revenue involved has to be less compared to the normal rates of 7.5 per cent or 10 per cent. So, it will be better to charge 2 per cent and CV duty 1 per cent without conditional exemptions. Such small amount cannot make the chartering or passenger transport totally unviable considering these are non-scheduled flights.

There are 126 post importation conditions in the biggest exemption notification and many more in others. Attempt should be made to eliminate or at least reduce the number of such exemptions. I have given only a few such cases of misuse, but certainly there have been many more and will be more, if such exemptions continue. In any case there is no monitoring possible. In a low-duty regime it is time for this reform.