Relief for Indigo: No additional tax on aircraft parts re-imported following repairs, says Delhi HC

New Delhi: The court declared unconstitutional a part of the 2021 customs department exemption notification that required payment of integrated GST and a cess on the repair cost of goods re-imported into India after being sent abroad for maintenance.

In a major relief for aviation companies, including IndiGo, the Delhi High Court on Tuesday struck down the Integrated Goods and Services Tax (IGST) levy on the repair cost of goods re-imported into India after being sent abroad for maintenance.

The court declared a portion of the 2021 customs exemption notification unconstitutional, ruling that IGST and cess cannot be imposed on the repair cost of such goods.

The verdict came in response to a 2023 petition filed by InterGlobe Aviation, the parent company of IndiGo, challenging the IGST levy on re-imported aircraft and parts post-repair.

IndiGo argued that since aircraft engines and parts sent abroad for repair remain its property, their export for maintenance constitutes a supply of services rather than goods. As a result, the airline contended that re-imported goods should not face additional taxation beyond the original import duties.

A division bench comprising Justices Yashwant Varma and Ravinder Dudeja upheld IndiGo’s argument, ruling that IGST on imported services can only be levied under Section 5 (1) of the IGST Act, not through customs notifications.

The court clarified that re-imported repaired goods constitute an import of services, not goods, making them ineligible for taxation under the Customs Tariff Act.

The court rejected the government’s argument that the 2021 amendments were merely clarifications, stating they improperly expanded the tax scope.

In a previous interim order on 25 January 2023, the court had directed IndiGo to pay IGST provisionally, pending final judgment. With this ruling, the airline is now entitled to a refund of the tax paid.

In response to Mint’s query, IndiGo said it would not comment on the case until it has fully reviewed the court’s decision and declined to comment.

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Evolution of IGST on re-imported Ggoods

Pre-GST era (before 2017)

Under Notification No. 94/96-Customs (16 December 1996), customs duty on goods sent abroad for repair was levied only on the repair cost, insurance, and freight, avoiding double taxation.

Post-GST implementation (2017 onwards)

After GST was introduced on 1 July 2017, the government issued a new notification in June 2017, continuing the pre-GST tax treatment—levying IGST and cess only on the repair cost, insurance, and freight rather than the entire value of the goods.

However, ambiguities remained regarding IGST applicability on re-imported goods. To clarify, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular on 19 July 2021, reiterating that IGST should apply only to the repair cost, insurance, and freight.

The government issued two notifications explicitly imposing IGST on re-imported repaired goods to reinforce this.

This led to legal challenges, including IndiGo’s petition, which the Delhi High Court has now ruled in favour of.

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Previous ruling on IGST levy

This is not the first time the judiciary has intervened in IGST matters.

In 2022, the Supreme Court, in a landmark ruling, struck down the IGST levy on importers for ocean freight services provided by foreign shipping lines to foreign suppliers under a CIF or cost, insurance, and freight contract for importing goods into India.

Jyoti Pal, partner in Lakshmikumaran & Sridharan attorneys, who represented IndiGo in the lawsuit, said, “The judgment provides substantial relief to the aviation sector. It addresses the challenges faced by airlines that were compelled to pay IGST twice on repair of aircraft and their parts by foreign MRO facilities, first as IGST on import of service of repair, and second as IGST on import of goods. This double taxation imposed a significant financial strain on the airlines by impacting their cash flow, particularly since Input Tax Credit of the IGST paid at the time of import is not available to them. Notably this judgment alleviates this critical pain point by clearly clarifying that IGST is only to be paid once on import of repair service. Disputed notifications issued by customs have accordingly been quashed by the court.”