SC dismisses retrospective integrated GST demand on aircraft repairs abroad

Mint

3 days ago

New Delhi: In a relief for airlines such as IndiGo and SpiceJet, the Supreme Court on Monday dismissed a plea by the customs department seeking to impose integrated goods and services tax (IGST) on re-imported aircraft and parts sent overseas for repairs. The tax demand was based on a 2021 government notification that sought to clarify and retrospectively amend a 2017 exemption.
Under the original 2017 notification, airlines were required to pay only basic customs duty (BCD) on the cost of repairs, freight, and insurance when re-importing aircraft parts after overseas maintenance. In 2021, the government clarified that IGST was also applicable on the repair value and freight—and attempted to apply this retrospectively to past imports.
A bench comprising Justices B.V. Nagarathna and K.V. Viswanathan on Monday refused to admit the customs department's appeal against an 5 August 2024, ruling by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT). The tribunal had rejected the retrospective tax demand, holding that it would place an additional burden on airlines.
'I do not have a problem in dismissing…Civil appeal dismissed,' the bench said.
During the hearing, additional solicitor general (ASG) N. Venkataraman, appearing for the customs department, argued that nearly ₹ 100 crore in tax revenue was at stake.
'This is high tax, ₹ 100 crore…I need this appeal to be admitted,' he said.
The ASG also submitted that the interpretation of the 2017 notification is already under challenge before the Supreme Court. He contended that even if the 2021 clarification is struck down for being retrospective, IGST could still be imposed based on the 2017 notification, which he argued already included such a tax under the phrase 'duties of customs.'
'If we succeed on the interpretation of the 2017 notification, then these 1,800 bills of entry will automatically be covered. Even if the 2021 notification is struck down for being retrospective, our case survives because duties of customs under the 2017 notification include IGST. All I am requesting is that if we win on the 2017 notification, the benefit of that ruling should apply to these bills as well,' he added.
The court, however, rejected the argument, observing: 'You can't do it by a retrospective amendment…If the 2017 notification did not cover IGST, you cannot use the 2021 notification to impose it retrospectively.'
The '1,800 bills' refer to bills of entry—import declarations filed by airlines with Customs for each shipment of aircraft parts or aircraft re-imported after repairs abroad.
As of July 2024, India imposes a uniform IGST rate of 5% on all imports of aircraft components, engine parts, and MRO (maintenance, repair and overhaul) items, as part of efforts to promote the aviation sector.
The dispute originated after the rollout of goods and services tax (GST) on 1 July 2017. Prior to GST, airlines sending aircraft parts or engines abroad for repairs paid BCD and countervailing duty (CVD) only on the cost of repairs, freight, and insurance—not on the full value of the parts.
Post-GST, Notification No. 45/2017-Customs (dated 30 June 2017) continued this exemption structure. It required payment of 'duty of customs' on the cost of repairs plus insurance and freight, but did not mention IGST. Airlines such as IndiGo and SpiceJet interpreted this as an exemption from IGST, paying only BCD.
Customs authorities, however, argued that 'duty of customs' included IGST under the GST regime, and began raising demands for IGST payment on such re-imports from August 2017 onwards. Airlines challenged these demands before CESTAT.
In November 2020, CESTAT ruled in favour of the airlines, holding that IGST was not payable under the 2017 notification since it was not explicitly included.
The government then challenged this ruling in the Supreme Court, which admitted the customs department's appeal. That case remains pending.
After the Supreme Court admitted the customs department's appeal, the government issued Notification No. 36/2021-Customs on 19 July 2021, amending the earlier notification to specifically include IGST and compensation cess, and inserting an explanation that this was always intended to apply. Customs then attempted to levy IGST retrospectively for the period from 1 July 2017 to 18 July 2021 based on this amendment.
This move was again challenged by airlines before CESTAT, which in August 2024 ruled in their favour and struck down the retrospective tax demand. That CESTAT ruling was the subject of Monday's dismissal by the Supreme Court.
Separately, IndiGo has also challenged the constitutionality of the 2021 notification itself before the Delhi High Court.
On 4 March 2025, the high court ruled in favour of the airline, declaring unconstitutional a portion of the 2021 notification that sought to impose IGST and cess on the repair cost of goods re-imported into India after overseas maintenance.
That ruling has not yet been challenged by Customs in the Supreme Court.