2025 (6) TMI 1979 - HC - Customs

Imports made for setting up a Software Technology Park - Entitlement to exemption under Notification No.153/93/Cus. dated 13.08.1993 - rejection of exemption on the ground that exemption was subject to prior permission to be granted by the Deputy Commissioner of Commercial Taxes - applicability of doctrine of substantial compliance - HELD THAT - The appellant s renewal application though filed within time was not renewed and in the absence of prior permission of renewal Deputy Commissioner of Commercial Taxes the appellant was held dis-entitled to claim exemption. The Hon ble Supreme Court while dealing with the contention that prior permission of renewal was a condition precedent and in the absence of prior permission appellant would not be entitled to the benefit of notification held that the said stand taken by the Revenue is wholly technical and that merely because a benefit / exemption was subject to a condition it may still be necessary for the Courts to examine if the above condition is procedural in nature or substantive or fundamental to exemption. It was also observed that Courts must be conscious of the distinction between procedural and technical conditions on the one hand and conditions which are substantive and necessary to attain the objectives of the policy. Apex Court found that though the expression used is prior permission nevertheless permission was being withheld due to inter-departmental issues and the inaction or the delay in issuing prior permission by department cannot be a reason for denying appellant the benefit of exemption. It is well-settled that export of goods is in public interest as valuable foreign exchange is earned. The intention behind grant of exemption vide notification No. 153 of 93 was to encourage export so as to earn foreign exchange. The legislative intent being to extend the benefit to persons who bring in foreign exchange it is incumbent on the Revenue to ensure that the construction placed on such instruments be it legislative delegated or subordinate must be to promote the above objective and not to rely upon technicalities which would frustrate the object. It is already found appellant had applied for permission to import the goods in question and the same was also approved by IMSC subject to approval by CMDA. Appellant had applied to CMDA as early as on 21.05.2005. Appellant imported Telematic Infrastructural Equipment. Imports were used for export of Software out of India in terms of Software Technology Park 100% Export Oriented Scheme. In other words goods imported were used for purposes mentioned in the notification. Value of import was within monetary limit mentioned in communication dated 22.06.2005 and 29.11.2005 of 1 st respondent. Appellant has substantially complied with the requirement/conditions to claim the benefit of exemption on imported goods in terms of N/N.153/93. In the circumstances applying the doctrine of substantial compliance to the facts of the case the denial of exemption is unjustified. The order of the learned Single Judge is quashed and set aside - Appeal allowed.

Summary

The core legal questions considered by the Court in this writ appeal are:

1. Whether the appellant is entitled to exemption under Notification No.153/93/Cus dated 13.08.1993 for imports made for setting up a Software Technology Park (STP) when the imports were made prior to the formal approval by the Chennai Metropolitan Development Authority (CMDA), but after the Inter-Ministerial Standing Committee (IMSC) recommended approval subject to CMDA permission.

2. Whether the date of approval for the purpose of claiming exemption should be the date of IMSC recommendation or the later date of CMDA approval.

3. Whether ex-post facto approval by CMDA can validate imports made prior to such approval for claiming exemption under the notification.

4. Whether delay in obtaining CMDA approval, not attributable to the appellant, can disentitle the appellant from claiming exemption.

5. The applicability of the doctrine of substantial compliance in the context of procedural delays and technicalities related to exemption claims under customs notifications.

6. The correct interpretation of the exemption notification and the conditions precedent for claiming customs duty exemption on imports under the Software Technology Park scheme.

Issue-wise Detailed Analysis:

Issue 1 & 2: Entitlement to exemption under Notification No.153/93/Cus and determination of effective date of approval

The relevant legal framework is Notification No.153/93/Cus dated 13.08.1993, which exempts telematic infrastructural equipment imported for use in export of software under the Software Technology Parks 100% Export Oriented Scheme from customs duty, subject to several conditions. Key among these is that the importer must have been granted necessary permission to import the goods by the Inter-Ministerial Standing Committee (IMSC) appointed by the Government of India.

The appellant had applied for permission on 25.01.2005 and the IMSC recommended approval on 04.04.2005, communicated by letter dated 22.06.2005, subject to obtaining CMDA permission. CMDA approval was granted only on 21.10.2005 and communicated on 29.11.2005. The appellant imported the goods on 24.10.2005, prior to CMDA approval but after IMSC recommendation.

The Customs Department denied exemption on the ground that imports were made before CMDA approval, which was a mandatory condition.

The Court interpreted the notification and communications as not mandating prior CMDA approval before import, but rather that CMDA approval was a condition to be fulfilled before claiming exemption. The letter dated 22.06.2005 was held to be a letter of intent, not a letter of permission, but it effectively approved the application subject to CMDA approval.

The Court reasoned that the delay in CMDA approval was not attributable to the appellant, who had applied to CMDA as early as 10.01.2005, and that the appellant was entitled to rely on ex-post facto approval to claim exemption. The Court applied the principle that procedural delays or technicalities should not defeat the substantive right to exemption.

Issue 3: Validity of ex-post facto approval

The Court referred to binding precedents, including the Supreme Court's judgment in LIC v. Escorts Ltd., which held that "permission" under regulatory statutes can be interpreted as either prior or subsequent permission, especially where the statute is enacted in the national economic interest.

The Court held that the ex-post facto CMDA approval satisfied the condition precedent for claiming exemption, as the appellant had substantially complied with the requirements and the delay was caused by the authority, not the appellant.

Issue 4: Effect of delay in CMDA approval not attributable to appellant

The Court relied on authoritative precedents including Commissioner of Customs v. Tullow India Operations Ltd. and ONGC Ltd. v. Commissioner of Customs, where the Supreme Court held that delays in obtaining government permissions or certificates, which are not in the hands of the importer, cannot disentitle the importer from claiming exemption. The Court emphasized that procedural delays or inter-departmental issues should not be allowed to defeat the substantive right to exemption.

The Court also cited Mangalore Chemicals and Fertilisers Ltd. v. CCT, where the Supreme Court held that technicalities or procedural requirements should not be used to deny benefits when the delay is attributable to the authorities and not the applicant.

Issue 5: Application of the doctrine of substantial compliance

The Court applied the doctrine of substantial compliance as explained in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and Others. The doctrine recognizes that minor or procedural lapses should not defeat the substantive compliance necessary to claim benefits under fiscal statutes.

The Court found that the appellant had substantially complied with the conditions of the notification: the application was made timely, IMSC approval was granted, CMDA approval was eventually obtained, imports were within the approved monetary limits, and the goods were used for the intended export purposes.

The Court held that the denial of exemption on the ground of timing of CMDA approval was an unjustified technicality and that the appellant was entitled to the exemption.

Issue 6: Interpretation of the exemption notification and conditions precedent

The Court carefully analyzed the terms of Notification No.153/93/Cus and the conditions attached to the exemption. It noted that the notification requires "necessary permission" from the IMSC and compliance with conditions including use of goods for export purposes and submission of certificates from the Software Technology Parks Society.

The Court observed that the notification does not explicitly require prior CMDA approval before import but conditions the exemption on compliance with all approval requirements. Since CMDA approval was ultimately granted and the appellant had complied with other conditions, the exemption should not be denied.

The Court emphasized that the legislative intent behind the notification is to promote exports and earn foreign exchange, and that the interpretation of exemption notifications must be liberal and purposive, favoring the promotion of exports rather than technical disqualifications.

In this regard, the Court referred to judgments such as CIT v. Punjab Stainless Steel Industries and Sandoz (P) Ltd. v. Union of India, which underscore that export promotion policies should be construed to further their objectives and not be defeated by technicalities.

Treatment of competing arguments:

The respondents argued for strict construction of the exemption notification and contended that imports made prior to CMDA approval cannot be exempted. They relied on the letter dated 22.06.2005 which conditioned approval on CMDA permission, and on the fact that the appellant imported goods before CMDA approval was communicated.

The Court rejected this rigid approach, holding that the letter of intent dated 22.06.2005 did not preclude imports but conditioned exemption on subsequent CMDA approval. The Court found no merit in denying exemption on the basis of timing of approval when the delay was not attributable to the appellant and the goods were used for the intended export purposes.

Conclusions:

The Court concluded that the appellant was entitled to exemption under Notification No.153/93/Cus despite imports being made prior to CMDA approval, because:

• The IMSC had approved the application subject to CMDA approval, which was eventually granted.
• The delay in CMDA approval was not attributable to the appellant.
• The appellant had substantially complied with the conditions of the notification.
• The imported goods were used for the export of software as required.
• The legislative intent and public interest in promoting exports require a liberal construction of the exemption notification.

The Court allowed the writ appeal, quashed the orders denying exemption, and directed return of the bank guarantee furnished by the appellant.

Significant holdings and core principles established:

"The Foreign Exchange Regulation Act is, therefore, clearly a statute enacted in the national economic interest. When construing statutes enacted in the national interest, we have necessarily to take the broad factual situations contemplated by the Act and interpret its provisions so as to advance and not to thwart the particular national interest whose advancement is proposed by the legislation... we find no difficulty in interpreting 'permission' to mean 'permission', previous or subsequent..."

"...delay due to inter-departmental issues cannot result in denial of exemption to appellant... a permission of this nature was a technical requirement and could be issued making it operative from the time it was applied for."

"The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the 'essence' or the 'substance' of the requirements..."

"...the legislature would surely like to give more benefit to persons who are making an effort to help our nation in the process of bringing more foreign exchange... the Revenue should also make all possible efforts to encourage such traders or manufacturers by giving such business units more benefits as contemplated under the provisions of law."

Final determinations:

• The date of approval for claiming exemption under Notification No.153/93/Cus is not restricted to the date of CMDA approval if such approval is granted subsequently and the delay is not attributable to the importer.
• Exemption cannot be denied on technical grounds where there is substantial compliance with statutory requirements and the imported goods are used for the intended export purpose.
• Ex-post facto approval by competent authority is adequate compliance to fulfill conditions precedent for exemption.
• The appellant is entitled to exemption and return of bank guarantee related to the imports in question.