The Delhi High Court has held that Notification No. 36/2021-Cus., amending Notification No. 45/2017-Cus., insofar as it purports to levy an additional levy over and above the IGST imposed under Section 5(1) of the IGST Act, 2017, by adding the words ‘….tax and cess’ is unconstitutional and ultra vires the IGST Act. Quashing the notification to the aforesaid extent, the Court also declared the Explanation to clause (d), as introduced by the said notification, as invalid. Consequently, CBIC Circular No. 16/2021-Cus. was also quashed.
The transaction was of initial export of parts of aircraft and aircraft to Maintenance, Repair and Overhaul service providers abroad and receiving them in India after repairs and refurbishments. Revenue department had demanded IGST under Section 3(1) of the Customs Tariff Act, 1975 read with proviso to Section 5(1) of the IGST Act, 2017, on reimport of such goods.
The High Court in Interglobe Aviation Ltd. v. Principal Commissioner, however, observed the following.
- The transaction was of supply of service under Entry 3 of Schedule II of the CGST Act, 2017 and will be covered under ‘import of services’.
- Not a Department’s case that the transaction relating to the subject goods amounted to a composite or a mixed supply.
- It was impermissible for the Revenue department to either review or revisit the characterization of the subject transaction.
- Department had no power to subject a supply or import of service to a tax under the Customs Tariff Act, 1975 in the garb of levying an additional duty.
- Entry 83 of List I of the Seventh Schedule to the Constitution does not confer Revenue the authority to levy a duty on import of service, which is clearly not the legislative field or subject of that entry.
- Section 3(7) of the Customs Tariff Act, 1975 is a collection mechanism as opposed to an independent levy.
- Word ‘services’ is absent in the proviso to Section 5(1) of the IGST Act and thus Legislature deliberately refrained from providing for levy of an integrated tax on import of services as part of an additional levy.
- Neither the Customs Act nor the Customs Tariff Act envision a levy of duty on services per se.
- Levy of 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 unconstitutional.
- The Department’s argument on Aspects Theory (existence of two separate and distinguishable taxable events) is not sustainable.
- Amendment to Notification No. 45/2017-Cus. by Notification No. 36/2021-Cus. is not clarificatory. Mere use of terms like ‘Explanation‘ or ‘removal of doubt‘ neither results in an automatic validation of an amendment nor make it clarificatory.
- The Supreme Court decision in Mohit Minerals holding that a tax on a supply of service which already stands included by legislation as a component of a composite supply of goods would not be sustainable, was relied upon.
The importer was represented by Lakshmikumaran & Sridharan Attorneys.