The Hindu Business Line : The fuss about foreign fuel in aircraft tank

THERE are enough and more problems in Indian Airlines (IA), apart from delayed flights, absence of status info, and, as if to make up for time lost, jerky landings.

But the one that landed up before the Bangalore Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was about something interesting in the realm of Customs.

The question was whether the company was liable to pay duty on fuel carried by flights returning from abroad, when it was found to be in excess of what was in the aircraft when they left the country. Duty demand was Rs 36 lakh. IA, as you know, operates both domestic and international flights.

It was submitted at the tribunal that when there is shortage of aircraft in the international sector, IA diverts aircraft from the domestic sector; that these flights use duty-paid fuel when leaving the country, and refill at foreign destinations; and that on return, the aircraft are diverted to domestic flights.

While the Department charged Customs duty on the fuel that was brought in excess of the quantity of that taken to foreign country, IA pleaded that bringing fuel from foreign destination into the country while flying the aircraft from such destination did not amount to import.

To support the company's stand, IA's advocate cited cases where it has been held that export and import go in pairs. Fuel is sold to IA when refuelling and there was no export to any person from a foreign destination, he said. Import is not just the bringing into India of something but "mixing up of the goods imported with the mass of the property in the country" — something that didn't happen in the case of IA. "The fuel remains within the aircraft and is not mixed up with the property in the country."

On the Revenue side, it was pleaded that for import, it was not necessary that there must be a sale for export, because `import' is defined as `bringing into India from a place outside India'. It was pointed out that as per Notification No. 151, "fuel in the tank of aircraft of Indian Airlines or Indian Air Force is exempt to the extent the quantity of the said fuel is equal to the quantity of same type of fuel which was taken out of India in the tanks of the aircraft... and on which duty of Customs or Central Excise has been paid."

The tribunal could not find any `strong case' in favour of IA, and so directed it to pre-deposit Rs 20 lakh, before posting the case `for reporting compliance' to August 6, 2004.

Poolside profits

ANOTHER case concerning the same industry is of Lufthansa German Airlines that came up before the Delhi Income-tax Appellate Tribunal, and it was about taxability of profit earned due to participation in pool arrangement covered under DTAA between Germany and India. The company, as a member of the International Airlines Technical Pool (IATP), provides minimal technical facilities to other IATA member airlines, such as Aeroflot, Malaysian Airlines and so on, at New Delhi airport.

"No monies are paid on account of these services but only notional credits and debits are given through the pool's accounting mechanism, i.e., IATA clearing house," noted the tribunal. Arguing for Lufthansa, Dinesh Vyas cited Article 8(1) of the DTAA that provided for taxation of profits from the operation of ships or aircraft in international traffic "only in the contracting state in which the place of effective management of the enterprises is situated." And that was in Germany.

Also, Article 8(4) noted that 8(1) would apply to "profits from the participation in a pool, a joint business or an international operating agency." However, `pool' was not defined in the DTAA; so they had to resort to the interpretation given by a tribunal in an earlier case concerning British Airways.

Lufthansa was lucky in that the ruling went in its favour at the end.

Case or a case study

THE latest issue of Income-tax Tribunal Decisions carries only one case running to more than a hundred pages: Coromandel Fertilisers Ltd vs Deputy Commissioner of Income-tax, ITAT Hyderabad. The dispute was whether the sale of the company's cement unit was an itemised sale as the Department claimed, or a slump sale as the company argued.

The tribunal's ruling makes an engaging reading and is adaptable as an accounting case study. It reproduces Coromandel's offer for sale, India Cements' offer for purchase, minutes of board meeting, agreement between vendor and purchaser filled with definition of terms, application to the Income-tax Department in Form No. 34A showing a tentative estimate of deemed capital gain at Rs 54.82 crore, and deed of sale and transfer.

A pair of Q&A has questions from the Department and answers from the company executives.

Tailpiece

"I got a letter from the Revenew!"

"You mean the Deportment?"

Detaxification@TheHindu.co.in

More Stories on : Taxation | Petroleum | Detaxfication

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bengal woos investments

The DNA of India's poverty

The unnamed are unchallenged

The fuss about foreign fuel in aircraft tank

After much wooing, now some shooing

Fewer tiers, less tears

Fragrance of roses from a Pakistani village for some inner peace