A bench of Justices S Muralidhar and Pratibha M Singh refused to interfere with the custom authority's decisions of November 2004 and December 2006 upholding the tax demand.
It said the airline has not challenged the circulars by which tax exemption in respect of sky marshals was first given to Indian Airlines in 2001 and later to private airlines after October 8, 2003.
Sky marshals, also known as air marshals or flight marshals, are covert law-enforcement agents on board commercial aircraft to counter hijacking. The court noted that the airline had not sought a declaration that sky marshals were not "passengers" as defined in the Finance Act, 1989 and, hence, no IATT was payable for carrying them.
The bench said the government had made it mandatory for airlines to carry sky marshals in view of the increasing threat perception to passengers, crew and aircraft.
On seeking refund, the customs authority sanctioned refund of Rs 6.48 lakh for the period subsequent to October 8, 2003, after exemption was granted to private airlines, but the remaining refund claim amount of Rs 2.29 crore for the period from October 1, 2001 to October 7, 2003 was rejected, the airline had said in its petition.
The bench said the two orders of the custom authority could "not be faulted with" as exemption from the IATT was extended to other domestic private airlines only on October 8, 2003.