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

New Delhi: In a 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 as unconstitutional a part of the 2021 customs department exemption notification that required payment of IGST and cess on the repair cost of such goods.

The court’s decision came in response to a petition filed by InterGlobe Aviation, the parent company of India’s largest airline, IndiGo, in 2023, challenging the notification and the IGST levy on re-imported aircraft and parts following repairs. 

The airline argued that it had already paid import duties on overseas repairs as part of import of services and should not be taxed again upon re-import of the repaired aircraft parts.

A division bench of Justices Yashwant Varma and Ravinder Dudeja passed the order, striking down the additional IGST levy imposed under the 2021 notification.

“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,” the court stated in its ruling.

In an earlier interim order on 25 January 2023, the Delhi high court had asked IndiGo to pay IGST provisionally to the customs department. The court also ruled that if IndiGo succeeded in the case, it would be entitled to a refund of the tax paid.

The detailed written judgment is still awaited.

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Evolution of IGST on re-imported Ggoods

Pre-GST era: Before the Goods and Services Tax (GST) regime came into effect 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 notification, customs duty was levied only on the cost of repairs, insurance, and freight, rather than on the entire value of the goods. This policy aimed to prevent double taxation and promote trade efficiency.

Post-GST implementation: With the introduction of GST on 1 July 2017, the taxation framework was revised. The government issued fresh notification in June 2017 to retain the pre-GST taxation practice, ensuring that IGST and compensation cess were levied only on the repair cost, insurance, and freight, instead of taxing the entire value of the goods.

Despite these notifications, ambiguities persisted regarding the applicability of IGST on re-imported goods.

To clarify the tax treatment, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular on 19 July 2021, reiterating that IGST and compensation cess should be calculated only on the repair cost, insurance, and freight.

To reinforce this stance, the government issued notifications (Nos. 36/2021-Customs and 37/2021-Customs), amending earlier notifications to explicitly impose IGST on re-imported goods that were exported for repairs.

However, this led to legal challenges, with IndiGo approaching the high Court, which has now ruled in favour of the airline.

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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 in respect of 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.