Editor:
The Division Bench of the Delhi High Court in INTERGLOBE AVIATION LTD Vs PRINCIPAL COMMISSIONER OF CUSTOMS ACC (IMPORT) NEW CUSTOM HOUSE NEW DELHI & ORS. (W.P.(C) 934/2023, W.P.(C) 7845/2023, W.P.(C) 4673/2024 PRONOUNCED ON 04.03.2025) has confirmed that amendment to Notification 45/2017 Customs Dated 30.06.2017 brought in by Notification 36/2021 Customs Dated 19.07.2021 seeking a levy of IGST u/s 3(7) of Customs Tariff Act on re-import of goods repaired abroad, as well as compensation cess, over and above the levy of IGST u/s 5(1) of Integrated Goods & Services Tax Act 2017 on repair services performed, would be unconstitutional and ultra vires IGST law.
It has declared the Explanation to clause (d) inserted in notification 45/2017 Customs, as introduced by the aforesaid notification as invalid and set aside the same. Circular No. 16/2021 issued by the CBIC has also been consequentially quashed.
The issue here was levy of integrated tax and cess on fair cost of repairs carried out including cost of materials used in repairs (whether such costs were actually incurred or not), insurance and freight charges, both ways on goods i.e. aircraft engines sent abroad to MRO facility for repair, and received back after repair. This was under serial 2 of Notification 45/2017 Customs. It has confirmed that 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 and that it was not possible to construe or interpret Section 3(7) as envisaging an independent levy.
The transaction in respect of the subject goods could not possibly be construed as giving birth to two separate and divisible taxable events. It would be fundamentally impermissible and contrary to the underlying scheme of those statutes i.e. CGST & IGST to treat a singular transaction as embodying an element of supply of goods as well as services. The legislation pertaining to the levy of an integrated tax does not envisage both elements, namely, the supply of goods and services forming part of the same transaction subject to the solitary caveat of those transactions which are treated as composite or mixed supplies under those enactments itself.
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 levy and collection of a tax under Section 3 of the CTA would only apply to imported goods and would have no application whatsoever to the import of service.
An integrated tax on the import of services could only be imposed under Section 5(1) of the IGST. A supply of service once so classified could not be recharacterized. The Constitution Amending Act read along with the provisions contained in the CGST and the IGST left no doubt that an import of service could have only been taxed by virtue of a legislation referrable to Articles 246A and 269A and not under entry 83 of List I to the Seventh Schedule of the Constitution of India.
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.
The mere use of terms like ‘Explanation’ or ‘removal of doubt’ neither results in an automatic validation of an amendment nor does its mere labelling as such make it clarificatory. For an amendment to be legitimately classified as an ‘Explanation’ or a ‘removal of doubts’ provision, it must be demonstrably evident that the position it seeks to clarify was already incorporated, contained or rooted in the original statute or the notification or even intended to be as such. This was not the case with amendment by Notification 36/2021 Customs as earlier the levy was only of BCD. The amendments inserted therefore, could neither be said to be clarificatory nor could they be viewed as being explanatory of a pre-existing provision.
The Court was also constrained to observe that the introduction of an Explanation in plenary or subordinate legislation could not be used as an artifice or a guise to expand or reinvent the original provision. That would clearly amount to a legislative overreach.
This judgment comes as a relief for the assessee and is certainly welcome.
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