India is fast becoming a hot destination for business jet manufacturers, lessors and financiers, with the economy booming, businesses and corporate houses are looking to minimise their travel time from point A to point B. In certain cases, it has become the “trend” to buy a business jet, whether for its convenience or for its “brag factor”, either way, the market is booming in India at the moment.
Some of the most common questions we get from prospective business jet purchasers are as follows:
- We have been told that we can purchase a business jet and keep it registered on a foreign aircraft registry so as to avoid any liability to pay taxes and / or import duty in India, is this structure sound and would it be in violation of any regulations as far as India and the DGCA are concerned?
- Could there be any deemed import duty implications in such a transaction?
More often than not, a business jet purchaser will be advised by a third party that it is perfectly safe and legal to operate a business jet in India while having the aircraft registered on a foreign aircraft register. We however, would recommend you read the following before making your mind up!
If the aircraft is intended to be registered in a foreign jurisdiction and operated in India + a third country with its usual base in India and / or the third country. It must be remembered that while a registration on a foreign aircraft registry is perfectly valid, the operator / owner is likely to face the following problems in India:
A similar procedure was previously used by corporate houses in India mainly to avoid paying import duty on the value of the aircraft. Previously, foreign registered aircraft could operate within India for a period of 6 months, after which they would require revalidation of their permits (issued by the DGCA) by flying their aircraft out of India and applying for a fresh permit (from the DGCA). This legal structure favoured domestic corporate houses / individuals purchasing aircraft, registering them overseas and plying them in India (without payment of Indian import duties) with the only hiccup being that the aircraft needed to be exported once every 6 months – not a major hassle. However, the Government of India, in the year 2012, became aware of this loophole and decided to clamp down on such practices as it resulted in loss of a huge amount of income (by way of Customs duty, etc.) to the Government. It was with the aim to curb such a practice that the Civil Aviation Requirements (herein after referred to as “CAR”s) were amended by the DGCA. In the previous cases mentioned above, the Authorities even tried to detain aircraft and levied customs duty even on foreign registered aircraft in India. Therefore essentially “lifting the veil”.
The relevant CAR issued by the DGCA is CAR Section 3 Air Transport Series “F” Part 1 Issue 1, Rev 2 20th December 2013. On a closer examination of the aforementioned CAR, the following issues would be faced by a Company (wanting to operate a foreign registered business jet in India) during its operation of the aircraft:
- The Company would have to apply and obtain prior approval from the DGCA before each flight intended to be operated by the aircraft. This would clearly be a hassle and completely contrary to the main purpose of owning a business jet, i.e. freedom of travel.
- The flight, being categorized as a “Foreign non-scheduled flight” would not be permitted to pick up passengers and / or cargo at any place in India for disembarkation at any other place in India.
- The Company would have to apply to the DGCA at least 3 working days before undertaking any flight to India – not only is this counterintuitive, but also defeats the core purpose of travel by a business jet. This notice period may be waived; however, a Company would usually not fall within any of the exempted categories, i.e. ambulance flights, Relief aircraft of scheduled airlines due to grounding, relief flights for natural calamities and non-revenue traffic by aircraft owned by ICAO member states.
- As per the CAR, a Company would have to apply for and obtain special permission in case the aircraft is to stay in India for a period of more than 15 days. Clause 8 of the CAR starts with a negative connotation, stating, “Retention of foreign registered aircraft in India would not be permitted beyond a period of 15 days….”. Further, even if a Company applies and is successful in obtaining the special permission, the same would be valid only for a period of 60 days. It must be mentioned that there is no guarantee that the DGCA will grant a Company such a permit / extension / etc. This, especially in light of the fact that the Government is aware of this method to avoid paying import duties in India.
- Further, as per the same CAR, the aircraft may be permitted to stay in India beyond the period of 15 days up to a maximum of 60 days only on special grounds, none of which, are applicable to a Company in its normal operation, i.e. A Company usually would not fall within the definition of a “tourist charter flight” operator, etc.
- For periods beyond 60 days, the Ministry of Civil Aviation shall take a decision on a case-to-case basis, it is re-iterated once again, there is no certainty that such permission would be granted.
Apart from the aforementioned problems, the aircraft could also be subject to being impounded by the Customs Authorities, etc. in case it is found that a company is trying to circumvent Indian law. This would in turn, prejudice the rights of the financiers / lessors of the aircraft – an issue that could substantially increase the cost of leasing the aircraft by a Company.
If a majority of the time a Company intends to operate a business jet in India, it is highly recommended to follow the standard procedure of being registered as a private operator in India, procure registration of the business jet in India along with all the necessary permissions for the import of the aircraft, etc.
Further there could also be deemed import duty implications. In the year 2012, the Directorate of Revenue Intelligence imposed a tax + fine on a corporate entity for operation of its foreign registered aircraft in India on a similar structure as mentioned above. In that particular case, it was a Gulfstream aircraft which was registered on the FAA aircraft register and was used to fly domestic routes in India for its wealthy owner.
Further, the Customs Authorities in India, also make a clear distinction between “foreign aircraft” and “foreign registered aircraft in India for a period of more than 15 days maximum extendible to a period of 60 days”. Therefore, it is clear that the customs authorities are aware of the DGCA CAR which speaks of the maximum period of 15 days extendable to 60 days with the permission of the Ministry of Civil Aviation. As such, import duty may be levied on the aircraft in certain circumstances even if it is registered on a foreign Aircraft Register.
24th January 2017