Relief for IndiGo: Delhi HC Strikes Down IGST on Aircraft Repairs
The Delhi High Court has provided a significant relief for aviation companies, including IndiGo, by striking down the Integrated Goods and Services Tax (IGST) levy on the repair cost of goods re-imported into India after overseas maintenance.
This ruling declared unconstitutional a provision in the 2021 customs exemption notification that imposed IGST and cess on the repair cost of such goods.
Why Did IndiGo Challenge the IGST Levy?
IndiGo’s parent company, InterGlobe Aviation, filed a petition in 2023 arguing that:
- Import duties on overseas repairs were already paid under the import of services category.
- The additional IGST levy on re-import of the repaired aircraft parts resulted in double taxation.
- The levy was inconsistent with previous customs exemption notifications that aimed to prevent double taxation.
A division bench of Justices Yashwant Varma and Ravinder Dudeja ruled in IndiGo’s favor, stating:
“We accordingly allow the writ petitions challenging Notification No. 36, insofar as it seeks to impose an additional levy over and above the IGST already imposed under Section 5(1). This additional levy is declared unconstitutional and ultra vires.”
Legal Context: Evolution of IGST on Re-Imported Goods
Pre-GST Era:
Before GST was introduced in 2017, the taxation of goods sent abroad for repairs and re-imported into India was governed by Notification No. 94/96-Customs, dated December 16, 1996. Under this regulation:
- Customs duty was levied only on the cost of repairs, insurance, and freight (CIF), not on the entire value of the goods.
- The policy was designed to prevent double taxation and promote trade efficiency.
Post-GST Implementation:
When GST was implemented on July 1, 2017, the taxation framework was revised:
- A new June 2017 notification retained the pre-GST taxation practice, ensuring IGST and compensation cess were levied only on the repair cost, insurance, and freight.
- Despite the clarification, ambiguities remained about the IGST applicability on re-imported goods.
- CBIC Circular (July 19, 2021) reiterated that IGST and compensation cess should apply only to the repair cost, insurance, and freight.
- However, Notification Nos. 36/2021-Customs & 37/2021-Customs explicitly imposed IGST on re-imported goods, leading to legal disputes.
Supreme Court Precedents on IGST Levy
The Delhi HC ruling follows previous Supreme Court interventions in IGST matters:
- 2022 Supreme Court Ruling on IGST & Ocean Freight:
- The court struck down the IGST levy on ocean freight services provided by foreign shipping lines to foreign suppliers under CIF (cost, insurance, and freight) contracts.
- The ruling reinforced that IGST should not be imposed on transactions where the burden is already borne under another tax category.
What This Ruling Means for Businesses
- Aviation Companies: Airlines and MRO (Maintenance, Repair, and Overhaul) firms benefit from reduced compliance costs.
- Importers & Exporters: Clarifies tax obligations on re-imported goods, preventing excessive tax burdens.
- Legal Precedents: Strengthens arguments against similar IGST levies on other industries.
Key Takeaways for Repurposing
For Business Owners, Professionals & Freelancers:
- Businesses dealing with re-imported goods should reassess tax liabilities in light of the ruling.
- Tax consultants & legal experts can use this case as a precedent to challenge unjustified IGST levies.
- Aviation firms may see lower maintenance costs as a result of IGST relief.
Final Thoughts: A Win for Trade Efficiency & Fair Taxation
The Delhi HC’s decision to strike down IGST on re-imported aircraft repairs aligns with India’s trade facilitation goals. By preventing double taxation, the ruling enhances clarity, fairness, and efficiency in tax compliance for businesses dealing with cross-border trade and maintenance operations.