• Dated 05^th May, 2025

IN THE HIGH COURT OF DELHI AT NEW DELHI

Delhi High Court Holds IGST as Part of Customs Duty Cannot Be Levied on Re-Import of Goods After Repairs

Facts of the case:

1. The petitioner, a scheduled airline operator engaged in the transportation of passengers and goods, had imported aircraft to support its operations. During the course of business, the petitioner exported defective goods namely aircraft engines and parts for maintenance, repair, and overhaul services (MROs). Post repairs, the subject goods were re-imported into India for continued operational use.
2. Upon physical re-importation of the goods, BCD would ordinarily be applicable. However, by virtue of Notification No. 50/2017 dated 30 June 2017, the petitioner was granted an exemption from the payment of BCD on such re-imported goods.
3. The writ petitioners contend that the re-import of goods should be treated as a transaction involving the supply or import of services in terms of Section 5(1) of the IGST Act, read with Entry 3 of Schedule II to the CGST Act. They submit that the applicable IGST has already been duly discharged.
4. The respondents, however, assert that IGST becomes payable again upon re-import of the goods into India, contending that Section 3(7) of the Customs Tariff Act, 1975 (CTA), read with the proviso to Section 5(1) of the IGST Act, is attracted at that stage.
5. The matter was brought before the CESTAT, where the Tribunal ruled in favour of the petitioner. It held that the petitioner was entitled to full exemption under the principle part of Section 5(1) of the IGST Act, thereby rendering the charging provision inapplicable. The Tribunal observed that Section 3(7) of the CTA was introduced merely to designate the point of collection for IGST on imported goods, and that the levy under Section 5(1) of the IGST Act could not be extended beyond its primary scope. Consequently, no tax could be imposed on an import that did not qualify as a "supply."
6. The Tribunal further rejected the application of the aspects theory, holding that the transaction in question involved a single taxable event i.e. the re-import of repaired aircraft engines and parts which had already been classified as a supply of services. It would be incorrect to artificially split this composite taxable event into two separate transactions. Two distinct taxable events could only arise if separate, identifiable aspects existed under different tax legislations. The aspects theory, therefore, could not justify a double taxation on the same transaction.
7. The petitioner also relied on Notification No. 45/2017, which provided that only the duty of customs would be payable on the re-imported goods, to the extent of fair value of the cost of repairs, including the cost of materials used therein. However, Notification No. 36/2021 later amended this, replacing the term "duty of customs" with "said duty, tax, or cess." Consequently, Serial Nos. 2 and 3 of Notification No. 36/2021 were interpreted to imply that the petitioner was now liable to pay IGST and cess, in addition to BCD.
8. To further clarify this position, the CBIC issued Circular No. 16/2021-Customs, dated 19 July 2021. Against this backdrop, the petitioner approached the Delhi High Court by way of a writ petition, challenging the imposition of IGST on the subject goods upon their re-import into India and questioning the validity of Notification No. 36/2021 read with Circular No. 16/2021.

Main challenge involved in the case:

1. Is the tax charged under Section 3(7) of the Customs Tariff Act (CTA) a separate tax from the IGST charged under Section 5 of the IGST Act?
2. If something is treated as a supply of service according to Schedule II of the CGST Act, can it still be treated as import of goods just because it involves goods physically?
   

Petitioner's Contention:

1. Constitutional and Legal Basis for IGST: The petitioners, through Advocates argued that the power to levy IGST arises from Article 246A of the Constitution, which authorizes Parliament to legislate on GST for inter-State supplies. IGST is a tax on supply, distinct from customs duties governed by Entry 83 of List I. Therefore, customs duty and IGST are separate levies and customs duty being a charge on goods, and IGST being a charge on the supply of goods or services and hence cannot be treated as the same.
2. Nature of the Transaction: Supply of Service, Not Goods: The petitioner contended that when aircraft engines and parts are sent abroad for repairs, the transaction constitutes a "supply of service" under Entry 3 of Schedule II of the CGST Act, since only treatment or process is applied to the petitioner's goods, which remain its property throughout. Hence, it is incorrect for the government to treat the transaction as an import of goods.
3. Prevention of Double Taxation: It was argued that accepting the government's view would result in impermissible double taxation- first, taxing the repair as a supply of service under the IGST Act, and then again taxing the reimported goods under Section 3(7) of the Customs Tariff Act. This would unfairly burden the petitioner with payment of BCD, IGST on import, and IGST on supply of service for the same transaction, which is legally untenable as per principles of law.
4. Interpretation of Section 3(7) of the Customs Tariff Act: The petitioners emphasized that Section 3(7) of the CTA merely provides a mechanism to collect IGST at the point of import, it does not create an independent levy. Thus, when the primary taxable event i.e. the supply of repair services is already taxed under the IGST Act, no fresh tax liability arises under Section 3(7) upon reimport.
5. No Justification for Application of the "Aspects Theory": Finally, the petitioners rejected the application of the "aspects theory," arguing that in this case, there is only one composite taxable event named the supply of service and no separate identifiable event of goods imported that could independently attract another tax. Thus, splitting the transaction artificially to impose double taxation is impermissible.

Respondent's Contention:

1. Distinct Taxable Events: Import vs. Supply : The Respondent submits that "import of goods" under the CTA, 1975 and "supply of goods or services" under the IGST Act, 2017 are distinct taxable events.
• Import of goods is an independent event taxable under customs laws, while supply is taxable under GST laws.
• Section 3(7) of the CTA creates its own tax liability upon import, separate from any GST liability that may arise subsequently when goods are supplied domestically.
• Therefore, the characterization of import and supply must not be conflated.
2. Independent Nature of Customs Duty Under Section 3(7) CTA: Section 3(7) of the CTA imposes an additional duty at the time of import, mirroring the IGST rate but maintaining its character as customs duty. The plain language is "any article imported into India", "be liable", and "in addition" clearly indicates that import itself is the taxable event, attracting additional duty separate from GST. The term "integrated tax" is only a measure of the duty and does not alter its character as customs duty.
3. Aspects Theory: The Respondent invokes the "aspects theory" to argue that the same transaction (sending goods abroad for repair and re-importing them) can validly attract different taxes. First, the supply of goods and the provision of repair services are taxed under IGST. Secondly, the import of the repaired goods is taxed under customs law.
4. Legislative Competence and Substance Over Form: The way a tax is worked out doesn't change what the tax is. It just needs to be fairly linked to what it's based on. The integrated tax levied under Section 3(7) of the CTA draws authority from Article 246 and Entry 83 of List I (Union List), not from Article 246A (which governs GST).
   The Court must analyze the true character of the levy focusing on substance, not labels or incidental overlaps, reaffirming the constitutional validity of the impugned levies.
5. Validity of Levy Despite Hardship and the Limited Scope of Exemptions: The Respondent contends that allegations of double taxation or hardship are legally irrelevant if the statutory levy is otherwise clear. Further, Notifications such as 45/2017 (granting exemptions) presuppose the validity of the underlying levy. If the foundational levy is invalidated, the entire exemption structure collapses.

Held:

1. IGST on Repaired Imports is Not a Separate Customs Duty: The Court held that Section 3(7) of the Customs Tariff Act does not create an independent customs duty rather it is simply a mechanism to collect IGST on imports under the IGST Act, not a new tax by itself.
2. Supply Classification Must Be Respected: No Reclassification by Customs. If a transaction is classified under GST law as a supply of services (such as repair services), Customs authorities cannot reclassify it as an import of goods to impose a different or additional tax. The embedded service character remains intact on re-import.
3. No Double Taxation Permitted: The Court reaffirmed that once IGST is charged on the service element (repair services), levying IGST again on the repaired goods at re-import would amount to double taxation, which is impermissible under constitutional and GST law principles.
4. Notification No. 36/2021-Customs and Circular No. 16/2021 are invalid. The Court struck down Notification No. 36/2021 and Circular No. 16/2021, holding that they illegally attempted to expand the original exemption under Notification 45/2017-Customs by adding new tax liabilities under the guise of a "clarification," which was beyond government powers (ultra vires).
5. Final Relief to Petitioners: No IGST on repair re-imports of goods. The Court quashed the assessments imposing IGST on the re-imported repaired goods, set aside related demands, and clarified that no IGST is payable again at the time of re-import after payment on the taxable supply of service. Petitioners are entitled to refunds or correction of any wrongly collected tax.

Interglobe Aviation Ltd. vs Principal Commissioner Of Customs ACC (Import)

Author: Sneha Jhunjhunwala

Edited by: Shaily Gupta