TMI Blog2016 (9) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... g the benefit of the exemption notification. But unfortunately for the Assessee, condition No.3 cannot be construed as a mere matter of procedure. It is a matter of evidence. The original notification dated 6.10.2007 did not make the applicability of exemption, conditional. But by an amendment to the original notification, the grant of exemption was made conditional. Therefore, the object of the amendment is very clear to the effect that proof of eligibility to claim exemption was made equivalent to the eligibility for exemption. The object of requiring the details of exporters invoice to be mentioned in the lorry receipt and the corresponding shipping bill is to ensure that what had reached the port was actually the consignment of that exporter and that there was no duplication of the claim. Therefore, the relaxation of such a condition would tantamount to the removal of the very life breath of the notification. Hence, the first question of law is to be answered in favour of the Revenue and against the Assessee. Whether the theory of substantial compliance can be applied to the conditions stipulated in exemption Notifications - Held that:- the answer to the above question i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. Therefore, what can be condoned, is that which is not the essence of the thing to be done, but that which is prescribed merely for the orderly conduct of the business. In the case on hand all the four conditions stipulated in the amended notification, are intended to ensure that there are checks and balances for the authority conferred with the power of processing the application for exemption to arrive at a subjective satisfaction that the requirements are fulfilled. If the Courts recognise some amount of latitude for the authorities, who are vested with the power to process the application for exemption, then the same may tantamount to enlarging the scope of the discretionary power on the part of those authorities. Many times the exercise of discretion, one way or the other, leads to complications, when there are no guidelines for the exercise of the power of discretion. Once a full-fledged system is put in place, for the exercise of discretion, the compliance with the requirements of such a system alone will remove any kind of arbitrary exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in original dated 2.2.2010. 6. The respondent/Assessee filed 3 appeals as against the rejection of 3 different claims for refund. All the 3 appeals in Appeal Nos.67, 68 and 69 were rejected by the Commissioner (Appeals) by a common order dated 27.7.2010. But the order of the Commissioner (Appeals) was reversed by CESTAT by an order dated 31.3.2015 passed on 3 appeals filed by the respondent/ Assessee. To come to the conclusion that the Assessee deserved to succeed, the Tribunal relied upon the decision of the another Bench in Jumbo Mining Ltd., v. Commissioner of Central Excise, Hyderabad (2012 (26) STR 525), wherein the Tribunal granted relief on the ground that consignments of huge quantity cannot be transported by a single lorry and that they are required to be aggregated at the port before shipping documents could be prepared. The Tribunal held that strict compliance of the condition for the grant of exemption, cannot be made. 7. Aggrieved by the said order of the CESTAT, the Revenue has come up with the above appeals, raising about 7 substantial questions of law in their memorandum of appeal. 8. But a careful perusal of the material papers would show that only 2 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax paid is filed; (iii) wherever applicable, a copy of the written agreement entered into by the exporter with the buyer of the said goods, as the case may be; SCHEDULE S.No. Taxable Services Conditions Classification under Finance Act, 1994 Description (1) (2) (3) (4) 1. Section 65 (105)(d) Services provided to an exporter by an insurer, including a re-insurer carrying on general insurance business in relation to insurance of said goods. (i) document issued by the insurer, including re-insurer, for payment of insurance premium shall be specific to export goods and shall be in the name of the exporter. 2. Section 65 (105)(zn) Services provided for export of said goods 3. Section 65 (105) (zzh) Services provided by a technical testing and analysis agency in relation to technical testing and analysis of said goods where such technical testing and analysis is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 6 and 7, were exempt without any conditions attached thereto and the other 3 services made subject to the fulfilment of the conditions stipulated in column 4. In other words, the grant of exemption for 3 types of services, listed at S.Nos.1, 3 and 4 in the Table below the Schedule to the Notification, was made subject to the conditions stipulated in column 4 of the Table under the Schedule. But column 4 of the Table was left blank in respect of 4 types of taxable services listed in S.Nos.2 and 5 to 7. 13. Therefore, it is clear that as per the original notification of the year 2007, the services provided for the transport of goods from the inland container depot to the port of export, included in S.No.6 of the table under the Schedule, relating to Section 65 (105) (zzp), were entitled to exemption, unconditionally. Hence, if an exporter was claiming the benefit of the notification dated 6.10.2007, in relation to the taxable services included at S.No.6 of the table under the schedule, he would not have been required to satisfy any condition. 14. But the Notification dated 6.10.2007 was amended by the Notification No.3/2008, dated 19.2.2008. The relevant portion of the table ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the respondent/ Assessee is that in so far as the export of iron ore is concerned, the practice prevalent in the industry is to aggregate significant quantity of the materials at the port of export and to prepare the exporters invoice thereafter. This practice, according to the respondent, is attributed to the demand-supply factor inherent in the trade, where huge consignments are exported on short notice. The respondent claims that they have exported up to 40,000 tonnes of iron ore and the proportional usage of transport services is to the tune of 3,000 trucks, used to transport the goods from the place of removal to the port of export. Since there was no discrepancy noted in the total quantity of material exported and the extent of transport services utilized, it is claimed by the respondent/Assessee that there was substantial compliance with the exemption notification. 18. Placing reliance upon the decisions of the Supreme Court in Union of India and others v. Woodpapers Limited and another , Bhai Jaspal Singh and another v. Assistant Commissioner of Income Tax and others (2011) 1 SCC 39 and Commissioner of Customs Mumbai v. M. Ambalal and Company (2011) 2 SCC 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court held (by a majority) in Union of India vs. Commercial Tax Officer {AIR 1956 SC 202} that exemption is a creation of statute and must be construed strictly . Interestingly, that case before the Constitution Bench concerned an exemption under Section 5 of the Bengal Finance (Sales Tax) Act, 1941. Section 5(2)(a)(iii) of the Act exempted the sales to the Indian Stores Department and the Supply Department of the Government of India and any Railway Company from being included in the taxable turnover. The assessee claimed exemption in respect of the sales made to the Ministry of Industry and Supplies, Government of India. But by a majority, the Constitution Bench held that the various departments of the Government of India may have to be treated as distinct units or quasi legal entities and that at any rate, the Act in question treated two named departments of the Government of India as distinct entities from others. Consequently, the Court held that the supplies made to any department other than those two departments, may not qualify for exemption. 23. In Hansraj Gordhandas vs. Assistant Collector of Central Excise and Customs, Surat {AIR 1970 (SC) 755}, a Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the correct position of law, a three member Bench of the Apex Court, in Novopan India Ltd vs. Collector of Central Excise and Customs {1994 Supp. (3) SCC 606}, also referred to the opinion of Lord Halsbury, L.C., in IRC vs. James Forrest to the effect that all exemptions from taxation, to some extent increase the burden on other members of the Community. The Bench also referred to the observations of Cohen, L.J., in Littman vs. Barron to the effect that the principle that in case of ambiguity, a taxing statute should be construed in favour of a tax payer does not apply to a provision giving a tax payer relief in certain cases from a section clearly imposing liability . After pointing out that the decisions expressing a contrary view do not reflect the correct position of law, the Bench held in para-16 as follows:- The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee assuming that the said principle is good and sound does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of construction of a statute that the exemption provisions would be attracted only when requisite conditions therefor are satisfied, would also apply in a case of constitutional interpretation . Application of Principles of law to the facts on hand 30. Having traced the nuances of the law relating to the construction of exemption notifications, let us now see the application of those principles to the facts of the cases on hand. 31. The main contention of the respondent/Assessee is that condition No.3 in the amended exemption notification is a mere matter of procedure and that therefore some amount of laxity can be given with regard to its compliance. According to the respondent/Assessee, they have satisfied the substantial requirements (1) of export of iron ore; (2) of payment of service tax on the service of transportation of material from the place of removal to the port; and (3) of actual export of the material. Therefore, the failure to have the details of the exporters invoice mentioned in the lorry receipt and corresponding shipping bill, on account of the peculiar nature of the trade, cannot be a ground for denying the benefit of the exemption notification. 32. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the facts of the case decided by the Constitution Bench, it is seen that the Assessees in the case before the Supreme Court were engaged in the manufacture of excisable goods, which became chargeable to the duty of excise with effect from 01.03.1994. The Assessee was transferring a major portion of the manufactured goods to certain companies, under the cover of transfer challans, describing them in a particular manner. The factory of the Assessee was raided by the Preventive Wing of the Excise Department and on the basis of what was found out, notices were issued. The Assessee claimed the benefit of exemption under a notification. But the claim was rejected and the demand was confirmed. On appeal, the Tribunal confirmed the findings of the adjudication officer, but directed re-examination of the question of applicability of the notification. At the time of re-examination by the adjudicating Commissioner, the Assessee contended (1) that they despatched the goods to their final manufacturing units through transfer challans, and receipts were also recorded in Form-IV register and the utilisation of the goods was recorded in RG-12 register; and (2) that the manufacture of final prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if there was substantial compliance and if the intended use of the goods had been established, then the benefit of exemption notification cannot be denied. 42. While dealing with the said contention, the Supreme Court opined in para-29 as follows: The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. 43. After expressing an opinion as aforesaid, the Supreme Court considered the previous decisions in N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the substance or essence of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the essence of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance with those factors which are considered as essential. 45. Therefore, what can be condoned, is that which is not the essence of the thing to be done, but that which is prescribed merely for the orderly conduct of the business. In the case on hand all the four conditions stipulated in the amended notification, are intended to ensure that there are checks and balances for the authority conferred with the power of processing the application for exemption to arrive at a subjective satisfaction that the requirements are fulfilled. If the Courts recognise some amount of latitude for the authorities, who are vested with the power to process the application for exemption, then the same may tantamount to enlarging ..... X X X X Extracts X X X X X X X X Extracts X X X X
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