GST UPDATE

Customs Appeal No.: 85202/2018

Tribunal: CESTAT (Mumbai)

Case Title: Navayuga Engineering Co. Ltd. v. Commissioner of Customs (Import-I)

Outcome:Appeal was decided in favour of the taxpayer

Judgement Date: 22.09.2026

BRIEF FACTS OF THE CASE:

Navayuga Engineering Company Limited (NECL) and Krishnapatnam Port Company Limited (KPCL) were group companies. For executing its infrastructure projects, NECL imported various capital goods, machinery, equipment, spare parts and consumables through different customs ports. These imports were undertaken by availing customs duty exemption benefits under export promotion schemes, including the Export Promotion Capital Goods (EPCG) Scheme, the Served from India Scheme (SFIS) and the Status Holder Incentive Scrip (SHIS) Scheme. NECL utilised EPCG authorisations issued in its own name and also used duty credit scrips issued to KPCL, claiming that both companies qualified as group companies under Paragraph 9.28 of the Foreign Trade Policy 2009–2014. NECL also discharged its export obligations under the EPCG Scheme by adjusting earnings generated by KPCL from port-handling and maritime services rendered to foreign vessels.
The Directorate of Revenue Intelligence (DRI) disputed the eligibility of NECL to use the scrips and export earnings of KPCL. A further dispute arose regarding the import of helicopter parts and spares under Notification No. 91/2009-Customs dated 11 September 2009. In view of the same, the department issued two show-cause notices:

First SCN demanded customs duty, along with interest, and proposed confiscation and penalties in relation to imports under the EPCG Scheme.
Second SCN demanded customs duty of in relation to imports under SFIS/SHIS scrips, along with proposals for confiscation and penalties. Of this, the adjudicating authority confirmed demand relating to helicopter parts and spares, while dropping the other remaining demand.

The adjudicating authority dropped the proceedings under the first show-cause notice and partly dropped the proceedings under the second. It confirmed duty with interest on the import of helicopter parts and spares, ordered confiscation with an option of redemption on payment of a fine of and imposed penalties. Revenue challenged the dropping of the demands before the Tribunal. NECL, in turn, challenged the confirmation of duty and consequential liabilities relating to helicopter parts and spares.
The Tribunal heard all three appeals together because they arose from the common dispute concerning the use of export promotion scrips issued to a group company, utilisation of group-company export earnings, and eligibility of helicopter parts for exemption.

QUESTION BEFORE HON’BLE TRIBUNAL:

Whether NECL and KPCL qualified as “group companies” under paragraph 9.28 of the FTP 2009–2014, permitting utilisation of group-company scrips and export earnings.
Whether earnings from port-handling and maritime services rendered by KPCL to foreign vessels carrying import cargo could be counted towards discharge of NECL's export obligation under the EPCG Scheme.?
Whether the services provided by the port operating co. to the imported vessels be treated as export of services?
Whether the DGFT authorities can grant relaxation in the condition attached to the EPCG/SFIS scheme?
Whether the impugned order passed by the Commissioner (Appeals) confirming the demand adjudged demand in respect of import of parts of helicopter and by dropping the duty demand and penalties proposed in SCN dated 20.06.2016 in respect of import of capital goods by allowing the exemption benefit under Notification No. 91/2009- Customs dated 11.09.2009 is legally sustainable or not in terms of Customs Act 1962?

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

Revenue Department contended that:

NECL and KPCL did not qualify as group companies

Revenue contended that NECL and KPCL could not be treated as group companies under Paragraph 9.28 of the Foreign Trade Policy because neither company independently held 26% or more of the voting rights in the other. The shareholding held collectively by common individuals could not, according to Revenue, be treated as shareholding by one enterprise in another. Further, it was argued that the DGFT had incorrectly interpreted the expression group company. Its administrative clarification could not override the statutory wording of Paragraph 9.28.

Port handling services for import vessels does not constitute export service:

That the appellant utilized the earnings of KPCL through services rendered to import vessels whereas the DGFT authorities allowed the earnings through ‘Port Handling Services for Export’ for adjustment of Export Obligation fulfilment. Hence, appellant violated the EPCG scheme as no export obligation was fulfilled. As such services does not constitute export service under the terms of specific license irrespective of the currency in which payment is settled. Hence, the adjustment of the payment received by the KPCL against the foreign flagged import vessels to discharge the export obligation against the imports made by the NECL is incorrect.

Benefit extended to the appellant by DGFT is in contravention to FTP:

It was contended that DGFT was incorrect in allowing export obligation in respect of imports to the appellant as such allowance was in contradiction to the actual user condition contained in para 3.12.7 of the Foreign Trade Policy and the term ‘group company’ was interpreted by DGFT in incorrect manner in its letter dated 22.02.2007. Further, the administrative clarification adopted by DGFT could not override the statutory wording of Paragraph 9.28. Such interpretation is also inconsistent with the principle laid down by the Delhi High courtin its judgement given in the case of Vacmet Packaging India Pvt Ltd. V. Union of India [2011 (265) E.L.T. 50 (Del.)]

Helicopter parts were ineligible for exemption

That the helicopter was used for private purpose hence, importing of spare parts of the same availing benefit was also in contravention. It contended that the actual-user condition and the conditions of Notification No. 91/2009-Customs had been violated.
Based on above, it was contended that the impugned order in original which dropped proceedings and demand of duty, interest and penalty should be set aside and demand should be upheld.

BRIEF ARGUMENTS BY Respondent Taxpayer :

Taxpayer submitted following contentions: -
Both companies were group companies under Para 9.28
The Joint DGFT had clarified that the scrips issued to KPCL could be utilised by its group company and that NECL and KPCL fell within the definition of group companies under Para 9.28. NECL contended that the DGFT's interpretation was final and binding under Para 2.3 of the Foreign Trade Policy.
DGFT has granted the permission for import of capital goods against licenses issued to the group co :

That the disputed matter of importing capital goods availing the benefits of EPCG scheme utilizing the scrips of the ‘group co.’ was first raised against bill of entry (BoE) dated 20.06.2011. The said BoE was assessed by the Nellore Division of the department which was then sent to the Zonal Joint Director of the Foreign Trade (JDGFT), Chennai seeking clarification with specific reference to the appellant co. and its group company i.e. M/s KPCL. Thereafter, a letter was issued in which it was clarified that 9 scrips issued to KPCL could be utilised by their group co. and it was stated that the NECL i.e. appellant and M/s KPCL are the group companies.

Interpretation of DGFT is final and binding:

The DGFT subsequently reiterated this position by its clarification dated 22 February 2017, issued after consultation with the Department of Legal Affairs, Ministry of Law and Justice. Hence, such interpretation by DGFT shall be final and binding in accordance with para 2.3 of FTP.

Relied upon judgement was distinguished on the ground that the facts in the instant case are different:

With respect to the decision relied upon in the case of Vacmet Packagings India Pvt Ltd. (supra), it was argued that the facts of the case are different from the present appeals. The said judgement was distinguished on the ground that Vacment Packagings and Ployopack Industries were partnership firms having three individual partners. However, in the instant case, M/s NECL and M/s KPCL are incorporated companies and have separate legal entities. Further, that the directors of the company NECL/KPCL having voting share directly control the affairs of the appellant company. Thus, they qualify for being treated as ‘Group Company’
Indirect control and common shareholding established the group-company relationship

NECL relied upon the shareholding pattern under which three common directors collectively held 64.30% of the shareholding in NECL and 36.96% in KPCL. It submitted that the two companies satisfied the criteria of group companies and could lawfully utilise the relevant export promotion benefits.

Helicopter was used for the business purpose only:

It was argued that the helicopter service is an essential service as input service/capital goods for execution of infrastructure projects relating to service sector business, such goods are permitted for clearance under SFIS/SHIS scheme. Along with that, the helicopter was used by senior officers of the appellant to monitor the projects and occasionally by senior officers of the government. Helicopter service was not used for personal purposes or tour operator services.

The extended period was not invocable

With respect to the confirmation of the duty on import of helicopters by invoking extended period of limitation, it was submitted that the said issue of availment of CENVAT credit on such import had already been discussed and was dropped by the adjudicating authority of Guntur in its order-in-original. Hence, confirmation of the demand in respect of the same should be dropped and invocation of extended period of limitation should also be dropped. Reliance was placed upon the judgement given by Bombay High court in the case of Tata Teleservices Limited v. Union of India & ors. [SLP No.s 23384-23385/2015 ]which was also upheld by the Supreme Court.

Therefore, appealshould be allowed.

FINDINGS & JUDGEMENT:

Following are the findings of the Tribunal in the instant case:
Based on the contentions of both the parties, following are the observations and judgment of the Tribunal:

Both the companies met the conditions prescribed as per the definition of group companies

It was observed that the investigation was solely based on the ground that NECL and KPCL do not come under the group company. The Tribunal first examined the definition of group company under Paragraph 9.28 of the Foreign Trade Policy 2009–2014. It was observed that : a. Two or more enterprises and b. “Exercise of voting rights in other enterprise to the extent of 26%” or more or “Appointing more than 50% of members of board of directors in other enterprise”, these two conditions need to be fulfilled cumulatively.

In the instant case, both appellant and M/s KPCL are entities in the nature of companies as registered under Companies Act and thus qualify as entities. In the companies, Directors of the organisation exercise voting rights and not as individual persons with the status of the partner/sole proprietor which is ‘person’ specific. In the instant case, combined shareholding of common directors was 64.30% in the appellant co. And 36.96% in KPCL. Hence, as both the conditions are met in the instant case, it was held that the instant two companies are covered under the definition of the group company. Along with that, DGFT had clarified vide its letter dated 22.02.2017 that the companies are related companies.
Power of the DGFT with regards to the schemes granted under FTP were analysed:
The Tribunal noted that the issue had been raised before the Joint DGFT, Chennai in 2011, well before the DRI investigation commenced. The Joint DGFT had clarified that NECL and KPCL were group companies. Subsequently, the DGFT, Ministry of Commerce and Industry, issued its clarification dated 22 February 2017, after consultation with the Department of Legal Affairs, Ministry of Law and Justice, confirming that both companies were covered by Para 9.28.
The Tribunal observed that matters relating to foreign trade fell within the domain of the Department of Commerce. Therefore, the insistence of the DRI/customs field formation under the Department of Revenue on treating the two companies as not being group companies, despite the clarification issued by the competent administrative department, had no legal basis.
Various Judicial Precedents were distinguished:

With regards to the reliance placed upon by the Department on the judgement in the case of Vacmet Packagings (india) pvt ltd. (supra) held that the meaning of ‘enterprise’ cannot be extended to the individual partners of the firm. Since in the instant case, there is no partnership firm involved, hence, the case law is not applicable. Furthermore, it was observed that in the case of Tata Teleservices Limited v. Union of India & Ors. And Tata Teleservices (Maharashtra) Ltd. V. Union of India & Ors. Bombay High Court held that through indirect control I.e. Tata Sons holds 21% equity in Tata Teleservices (Maharashtra) Ltd. And 74% in Tata Consultancy services. Further, Tata Sons Holds 36% equity in Tata Telesevices Ltd and such Tata Teleservices hold 38% equity in Tata Teleservices (maharashtra) ltd. In those cases, the High Court had recognised group-company relationships arising through indirect control and inter-corporate shareholding. The department's challenge to the judgment was dismissed by the Supreme Court in SLP (C) Nos. 23384–23385/2015. Based on above, it was held that the matter in dispute in the instant case is no more res integra.

Utilisation of KPCL's export earnings towards NECL's export obligation

The Tribunal next examined whether NECL could discharge its export obligation under the EPCG Scheme by adjusting earnings generated by KPCL from port-handling and maritime services rendered to foreign vessels. The department did not dispute the eligibility of earnings from cargo-handling services relating to export cargo and maritime services to foreign vessels carrying export cargo. The controversy was confined to services rendered to foreign vessels carrying import cargo. The Tribunal examined Para 9.53(iv) of the Foreign Trade Policy, which recognises the supply of services in India relating to exports where payment is received in free foreign exchange or in Indian rupees otherwise considered as having been paid in free foreign exchange by the Reserve Bank of India. It also considered the DGFT clarification dated 8 June 2005, which explained that services rendered within India could be treated as exports of services where the prescribed foreign-exchange conditions were satisfied. The Tribunal further referred to Policy Circular No. 24 (RE-08)/2004-09 dated 4 August 2008, under which the DGFT had clarified that aircraft landing and parking charges received from foreign airlines were eligible for discharge of export obligations under the EPCG Scheme. Applying these principles, the Tribunal recognised that services rendered to foreign vessels could constitute services rendered to foreigners and that payments received in foreign exchange, or in Indian rupees treated as foreign exchange under the applicable rules, could qualify towards discharge of export obligations.

Helicopter parts and spares were eligible as the same were ulimately used by the appellant for the business:

With regards to the issue of eligibility of exemption benefits under Notification No. 91/2009-Customs dated 11.09.2019 to import parts of helicopter, it was observed that the fact that the said goods were used by taxpayers in helicopters. Furthermore, it is very evident from the operations of the taxpayer that the helicopters are used to transport personnel of the taxpayer company. Working in connection with the infrastructure projects. Hence, the question is restricted to whether such goods are covered by the scope of definition of ‘capital goods’ and whether the SFIS/SHIS scrips permits import of such goods.
Private use cannot be treated as personal use

The definition of ‘capital goods’ provided under para 9.12 of FTP, covers wide variety of plant, machinery, equipment or accessories acquired for manufacture or production, either directly or indirectly of goods or for rendering services. In the instant case, the impugned goods are used in helicopter which are thus in the nature of parts or accessories for the functioning of helicopters. Hence, reliance was placed upon the permission granted by the Director General of Civil Aviation (DGCA) for operating the aircraft for ‘private use’ to be understood in the context that it is for compliance with Civil Aviation Requirements (CAR) for ensuring minimum airworthiness, operational and other general requirements for grant of air operator permit for operating air transport services. DGCA has issued certain guidelines for regulating the operation of private chartered jets/planes/aircarafts. Civil Aviation requirements (CAR), Section 3, Series C, Part III covers non-scheduled air transport services and Section 8, series O, Part II on Commercial Air transport operation . Therefore the letter of DGCA was issued to the appellant for obtaining necessary regulation license for import of helicopter for use from DGFT authorities. The mention of ‘private use’ does not mean that it is for ‘personal use’ as the air operations are generally permitted by DGCA under the category of ‘Schedule Passenger operator’ service and ‘Non-Scheduled passenger operator’ and includes private plane operation. In view of the statutory provisions relating to air transport operation of passengers, appellant use of helicopters in relation to their infrastructure projects can be considered as ‘capital goods’ under the definition provided under FTP and para 3.12.6 of the FTP applicable for SFIS imports and 3.17.5 of the FTP applicable for SHIS imports.
Accordingly, it was held that the use of SFIS/SHIS scrips of KPCL validly issued by DGFT for availing customs duty exemption under Notification No. 91/2009- Customs dated 11.09.2009 for import of parts of helicopter, as capital goods are well within the provisions of FTP.

Extended period of limitation under Section 28(4) was not invocable

Along with that, it was held that in the SCN proceedings initiated related to 19 BoEs for the period 12.01.2012 to 08.05.2015, the duty demands under 10 BoEs relating to imports prior to 19.06.2014 and thus for such demand SCN has been issued beyond the normal period of 2 years. Furthermore, where the issue of the eligibility of capital goods by the appellant under the category of ‘group company’ having been clarified that the Zonal Joint DGFT, Chennai in the letter dated 21.06.2011 was known to the department. Hence, there is no case out for suppression of facts or wiful misstatement with an intention to evade duty for invoking extended period of limitation under Section 28(4) of the Act 1962
For this reliance was placed upon the decision of Supreme Court in the case of Pushpam Pharmaceuticals Co. V. Collector of Central Excise, Bombay [1995 (78) E.L.T. 401 (S.C.)] in which it was held that
In the instant case. the appellants themselves referred the issue in which the department had raised the doubt to the DGFT authorities and had also obtained necessary clarification and furnished the same to the department. Along with that, the appellant had also obtained requisite permits and licenses for import use, operation of the helicopter from the competent authorities. Hence, it was held that there is no case made by the department for invocation of extended period of limitation and the demand of duty is not proper on this account.

Confirmation of duty on helicopter parts and consequential confiscation and penalties were unsustainable

Furthermore, with regard to the issue of demand of duty on parts of helicopters on the merits of the case in detail in the preceding paras, it was held that these are eligible for extending the customs duty exemption benefits under Notification No. 91/2009-Customs dated 11.09.2009. Hence, it was held that the impugned order to the extent of confirmation of duty on the part of helicopter is not legally sustainable. Based on above, settled proposition of law, impugned order was set aside and the demands raised were dropped.

Thus, the appeal was decided in favour of the taxpayer.

CA Pradeep Jain_

This is solely for educational purpose

Readers can also access this from our

Linkedin account : www.linkedin.com/in/ca-pradeep-jain-b6a31a16

Comments

GST update /2026-27/0098

GST UPDATE

BRIEF FACTS OF THE CASE:

QUESTION BEFORE HON’BLE TRIBUNAL:

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

FINDINGS & JUDGEMENT:

CA Pradeep Jain_

Opinion

Author’s Comment:

Post a Comment

Query