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Delhi High Court Rules Against Double Taxation on Re-imported Goods

Case Overview: The Delhi High Court recently delivered a significant judgment in Interglobe Aviation Ltd. v. Principal Commissioner of Customs , addressing the complex interplay between the Goods and Services Tax (GST) and Customs duty on goods re-imported after repairs abroad. The case involved Interglobe Aviation Ltd. (the petitioner), an airline that sent aircraft engines and parts for repair outside India. Upon re-import, the company faced levies under both the GST and the Customs Tariff Act, 1975 (CTA). The central legal question was whether the re-import, classified as a "supply of service" under the GST, could also attract additional customs duty under CTA Section 3(7).

Key Arguments

Petitioner's Argument: Interglobe Aviation argued that classifying the transaction as a "supply of service" under the Integrated Goods and Services Tax Act, 2017 (IGST), precluded the imposition of additional customs duty under CTA Section 3(7). They contended that this would constitute double taxation, violating the fundamental principles of the GST system aimed at removing the cascading effect of multiple taxes. They highlighted the definition of "service" under Article 366(26A) of the Constitution and the legislative intent behind the GST to subsume various existing taxes.

Respondent's Argument: The respondents (the customs authorities) argued that CTA Section 3(7) was an independent charging provision, levying an additional duty on the import of goods irrespective of their classification under the GST. They invoked the "aspect theory" of taxation, suggesting a single transaction could involve multiple taxable events and be subject to different levies. They emphasized the distinction between the "import of goods" and the "supply of goods imported," arguing these are separate taxable events.

Court's Reasoning and Precedents

The Delhi High Court extensively analyzed the constitutional amendments that introduced the GST (Constitution (One Hundred and First Amendment) Act, 2016) and the relevant provisions of the CGST, IGST, and CTA. The court stressed that the GST fundamentally shifted the focus from taxing goods/services to taxing their supply , with import considered an aspect of interstate supply under Article 269A. The court highlighted the absence of any provision in the Customs Act or CTA allowing the re-characterization of a service as a supply of goods for taxation purposes.

The court critically examined the amendments introduced in CTA Section 3(7) and the subsequent notifications and circulars. They held that these amendments were not merely clarificatory but rather aimed at expanding the tax net, contradicting the claimed intent of merely clarifying existing law. The court also rejected the reliance on the "aspect theory," finding that the re-import transaction represented a single taxable event (import of services).

The judgment referenced several Supreme Court precedents, notably Mohit Minerals Pvt Ltd. v. Union of India , which underscored the principle of composite supply under the GST and the prohibition of double taxation on the same transaction.

Decision and Implications

The Delhi High Court allowed the writ petitions, declaring the relevant portions of Notification No. 36/2021 (which sought to levy additional duty) as unconstitutional and ultra vires the IGST. The impugned orders of the Commissioner of Customs (Appeals) were also set aside. This decision clarifies that the re-import of goods previously classified as a "supply of service" under the GST cannot attract additional customs duty under CTA Section 3(7), preventing double taxation and upholding the intended scheme of the GST. This has significant implications for businesses involved in international trade, particularly those sending goods abroad for repair or maintenance.

Bench Details:

Hon'ble Mr. Justice Yashwant Varma Hon'ble Mr. Justice Ravinder Dudeja

Date of Judgment:

March 04, 2025