Delhi HC strikes down tax on repair cost of re-imported plane parts

The Delhi High Court on Tuesday struck down the additional tax imposed on the repair cost of goods re-imported into India after being sent abroad for maintenance.

 

The court declared as unconstitutional a part of the 2021 customs department exemption notification that required payment of Integrated Goods and Services Tax (IGST) and cess on the repair cost of such goods.

 

The judgement was delivered on a petition filed by InterGlobe Aviation, the parent company of India's largest airline, IndiGo, which had, in 2023, challenged the notification and the IGST levy on re-imported aircraft and parts following repairs.

 

The airline argued that it had already paid import duties on overseas repairs as part of the import of services and should not be taxed again upon the re-import of the repaired aircraft parts.

   

IndiGo, principally engaged in the transportation of passengers and goods by air within and outside India, sends its goods to maintenance, repair and overhaul (MRO) service providers outside India. The goods, once repaired and overhauled, are then re-imported.

 

IndiGo said that at the time of the physical re-import of the subject goods, while a basic customs duty would be applicable, the same is exempt under a notification dated June 30, 2017. The airline contended that the re-import should be treated as a transaction of supply of service or import of service in terms of Section 5(1) of the IGST Act, read along with Entry 3 in Schedule II of the Central Goods and Services Tax (CGST) Act.

 

The customs department, however, asserted that IGST is payable at the time of import of the subject goods, as they are being re-imported into the territory of India. According to the department, this is when Section 3(7) of the Customs Tariff Act (CTA) is triggered, along with the proviso to Section 5(1) of the IGST Act.

 

The court, however, sided with the airline, stating, “We accordingly allow the instant writ petitions. Notification No. 36/2021, insofar as it purports to levy an additional levy over and above the IGST imposed under Section 5(1) by adding the words ‘...tax and cess’ is declared unconstitutional, ultra vires the IGST and is quashed to the aforesaid extent,” Justices Yashwant Varma and Ravinder Dudeja said.

 

In an earlier interim order, the Delhi High Court had directed IndiGo to pay IGST to the customs department in January 2023, with the condition that if it won the case, the amount would be refunded.