The Larger Bench of the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’) has in its decision delivered on 25 May 2021 held that notional cost towards freight charges is not required to be added to the value of Aviation Turbine Fuel (‘ATF’) remaining in the aircraft after its international flight into India. The Revenue department had added 20% to the FOB value of ATF as cost of transportation under Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (‘Valuation Rules’).
The Tribunal was of the view that firstly there was no transportation of ATF by the airlines and secondly, only the actual cost ‘paid’ or ‘payable’ can be added to the transaction value while no cost was incurred by the airlines here.
No ‘transport’ of ATF by airlines
Answering in negative the question as to whether the ATF which is filled in the fuel tank of an aircraft is actually being transported through an aircraft, the CESTAT held that the airlines are not transporting ATF for delivery to India.
It noted that in the given circumstances, the ATF filled in the fuel tank of the aircraft is required to fly the aircraft and is a consumable for the airlines. The Tribunal for this purpose also referred to the regulatory requirements of civil aviation, according to which an aeroplane must carry a sufficient amount of usable fuel to complete the planned fight safely.
Transportation cost to be actually incurred or liable to be incurred
Relying on the meaning of ‘transaction value’ which was the price actually ‘paid’ or ‘payable’, the Tribunal held that if no amount is ‘paid’ or ‘payable’ for transportation of goods, the cost of transportation would be considered as ‘nil’ and cannot be ascertained as per Rule 10(2). The 3-Member Bench was of the view that it is only when some cost of transportation is actually incurred or is liable to be incurred, but it is not ascertainable that the cost of transportation should be taken to be 20% of the FOB value of the goods as per Rule 10(2) of the Valuation Rules.
It held that when no liability is created in the first instance, the question of adding any cost of transportation to the transaction value of the imported goods does not arise.
Department’s view that since word used was ‘payable’, cost of 20% of FOB value is to be included, was rejected by the Tribunal while it observed that as per Supreme Court’s decision in the case of Eicher Tractors word ‘payable’ must be read as referring to ‘the particular transaction’ and ‘payability’ in respect of the transaction envisages a situation where payment of price may be deferred.
Further, the Tribunal noted that the Supreme Court in the case of Wipro (pertaining to constitutional validity of certain provisions of erstwhile Customs Valuation Rules, 1988) had struck down the provision that mandated addition of 1% of FOB value of the goods for unloading and loading, irrespective of whether actual cost was ascertainable or not. The provision was found to be contrary to Articles 14 and 19 of the Constitution of India.
Also, noting that Rule 10(2)(a) of the Valuation Rules provides for addition of ‘cost of transportation’ and not ‘value of transportation’, the Tribunal held that if no cost of transportation is incurred/suffered by the airlines, no amount as ‘cost’ is payable towards transportation of the remnant ATF.
No question of adding imputed cost
The Larger Bench of the Tribunal in this case Jet Airways (India) Limited v. Commissioner also noted that there is no provision either in Section 14(1) of the Customs Act or the Valuation Rules to add ‘imputed costs’ of transportation when actually no costs are incurred by the airlines for carrying its own fuel. It noted that there can be several cases where no transport charges are incurred and one such case is where personal baggage is carried by a passenger where no cost of transportation is added as the passenger himself carries it.