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The Principal Commissioner of Service Tax, Customs, Central Excise & Service Tax, Hyderabad Service Tax Commissionerate, Hyderabad Versus M/s. R.R. Global Enterprises Pvt. Ltd.

2016 (9) TMI 636 - ANDHRA PRADESH HIGH COURT

Refund claim - service tax paid on the transport of goods by road (GTA) services - Notification No.41/2007-ST, dated 6-10-2007, for the exports made during the period from January, 2008 to March, 2008 - non-fulfilment of condition no. 3 imposed under amendment Notification No.3/2008-ST, dated 19-2-2008 - Whether any one or more of the conditions stipulated in an exemption Notification can be said to be a mere matter of procedure, on which some amount of laxity can be given. - Held that:- the .....

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rtunately 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 .....

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theory of substantial compliance can be applied to the conditions stipulated in exemption Notifications - Held that:- the answer to the above question is to be found very clearly in the decision of the Constitution Bench of the Supreme Court in Commissioner of Central Excise v. Hari Chand Shri Gopal (2011) 1 SCC 236. If we look 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 excisabl .....

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nd 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 .....

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inor or inconsequent aspects which cannot be described as the essence or substance of the requirements. The Court pointed out that the acceptance of a plea of substantial compliance depended upon two things, viz., (a) facts and circumstances of the case and (b) the purpose and object sought to be achieved and the context of the prerequisites which are essential to achieve the object and purpose. The Supreme Court went on to point out that substantial compliance is insisted where mandatory or dir .....

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r 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 complicat .....

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venue by holding that condition No.3 in the exemption notification, is also the substance or essence of the exemption notification and the compliance with the same is mandatory. - Decided in favour of Revenue - C.E.A.Nos. 137 and 140 of 2015 and 8 of 2016 - Dated:- 31-8-2016 - SRI V.RAMASUBRAMANIAN AND SMT. ANIS, JJ. For The Petitioner : Sri B. Narayana Reddy For The Respondent : Sri S. Sriram COMMON JUDGMENT: (per V. Ramasubramanian, J.) These three appeals are filed by the Revenue under Sectio .....

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submitted a refund claim, for a sum of ₹ 28,12,788/- under Notification No.41/2007-ST, dated 6-10-2007, for the exports made during the period from January, 2008 to March, 2008, in relation to the service tax paid on the transport of goods by road (GTA) services. 4. The original Notification No.41/2007, dated 6-10-2007, did not attach any conditions for the grant of the benefit of exemption under Section 65 (105) (zzp) in relation to the services provided for transport of certain goods fr .....

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foresaid condition, the refund claim made by the respondent was rejected by the Deputy Commissioner of Service Tax by an order 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 fil .....

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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 substantial questions of law arise for our consideration in these appeals. They are:- 1) Whether any one or more of the conditions stipulated in an exemption Notification can be said to b .....

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er to this question, it is necessary to take note of the original Notification No.41/2007, dated 6-10-2007 and the amendment Notification No.3/2008, dated 19.2.2008. 11. The relevant portion of the Notification No.41/2007, dated 6.10.2007, on which our focus is necessary, reads as follows: In exercise of the powers conferred by sub-section (1) of Section 93 of the Finance Act, 1994 (32 of 1994) and in supersession of the Notification of the Government of India in the Ministry of Finance (Departm .....

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by an exporter and used for export of goods (hereinafter referred to as said goods), from the whole of the service tax leviable thereon under Section 66 and Section 66A of the said Finance Act, subject to the conditions specified in the corresponding entry in column (4) of the Schedule: Provided that (a).. (b) . (c) . (d) . (e) (f) . 2. The exemption contained in this notification shall be given effect to in the following manner, namely:- (a) (b) (c) (d) (e) .. (f) the refund claim shall be acco .....

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ncluding 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 technic .....

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ency in relation to inspection and certification of export goods where such technical inspection and certification is required to be undertaken as per written agreement between the exporter and the buyer of the export goods. (i) the exporter furnishes a copy of the written agreement entered into with the buyer of the said goods requiring inspection and certification of the said goods; and (ii) the invoice issued by the service provider shall be specific to export goods and shall be in the name o .....

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cified in Column 3 of the Table below the Schedule, subject to the conditions specified in the corresponding entry in column 4 of the Table under the Schedule; 2) that as per Paragraph 2 (f) of the exemption notification, which prescribes the procedure, the refund claim should be accompanied by the documents listed therein; and 3) that out of 7 taxable services which were exempt thereunder, 4 taxable services, listed in S.Nos.2, 5, 6 and 7, were exempt without any conditions attached thereto and .....

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ication 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 .....

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e goods are exported (i) export goods are transported directly from the place of removal to inland container depot or port or airport, as the case may be, from where the goods are exported, (ii) invoice issued by the exporter in relation to export goods shall indicate the name of the inland container depot or port or airport from where the goods are exported. (iii) details of exporters invoice relating to export goods are specifically mentioned in the lorry receipt and the corresponding shipping .....

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place of removal to the inland container depot or port or airport from where the goods are exported; 2) that the invoice issued by the exporter should include the name of the inland container depot or port or airport from where the goods are exported; 3) that the details of the exporters invoice relating to export goods are specifically mentioned in the lorry receipt and corresponding shipping bill; and 4) that the exporter should also make a declaration in the refund claim, indicating whether .....

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spondent/ 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 proportion .....

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er , 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 74 , it is contended by Mr. S. Sriram, learned counsel for the respondent/Assessee that an exemption notification has to be interpreted, by applying different rules of construction at different stages or levels. At the threshold, an exemption notification is to be construed strictly, to find out whether a subject falls wit .....

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ned counsel, has satisfied three out of four conditions. Therefore, the non-compliance with condition No.3, which is merely a matter of procedure, cannot stand in the way of the respondent being entitled to the benefit of the exemption notification. 20. However, it is contended by Mr. B. Narayana Reddy, learned Assistant Solicitor General, that what is stipulated in Column No.4 of the table under the schedule to the exemption notification cannot be construed as a mere matter of procedure. The re .....

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considered the above submissions. Since the substantial questions of law raised herein, revolve around the rules of interpretation to be applied to an exemption notification, we think it would be better first to take a survey of the law relating to the rules of construction of exemption notifications. RULES OF CONSTRUCTION OF EXEMPTION NOTIFICATIONS 22. The rules of interpretation to be applied to exemption notifications are slightly different from the rules of interpretation applicable to the .....

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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 entit .....

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gislative intent". The Court also held that "in a taxing statute there is no room for any intendment" and that "the entire matter is governed wholly by the language of the notification". While quoting Lord Watson that "intention of the legislature is a common but very slippery phrase", the Constitution Bench laid down the law as follows:- "If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supp .....

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my. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objection etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive appro .....

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or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction". 25. Holding that the above view represents 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 taxa .....

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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 establish clearly that he is covered by the said provision. In case of .....

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val, as late as in 2004, by the Apex Court in Associated Cement Companies vs. State of Bihar {2004 (7) SCC 642}. Again in CCE -vs- Ginni Filaments Ltd {(2005) 3 SCC 378} it was held that an exemption notification has to be read strictly so far as the eligibility criteria is concerned. 27. As a matter of fact, a two member Bench of the Supreme Court held in CCE vs. Parle Exports Pvt Ltd {1989 (1) SCC 345}, that "when two views of a notification are possible, it should be construed in favour .....

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fit of the exemption have to be strictly interpreted". Similarly, in Commissioner of Customs -vs- Tullow India Operations Ltd., {(2005) 13 SCC 789} the Apex court held in paragraph 34 as follows:- " The principles as regards construction of an exemption notification are no longer res integra: whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies .....

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ould 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 .....

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for denying the benefit of the exemption notification. 32. But unfortunately for the respondent/Assessee, condition No.3 cannot be construed as a mere matter of procedure. It is a matter of evidence. As we have indicated earlier, 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 pro .....

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uld at the most be done by Courts or even by the statutory authorities, is to condone certain insignificant requirements. For instance, if an application for extension of the benefit of exemption has to be endorsed by someone, but was endorsed by some other person, the mistake can be condoned as mere procedural in nature. But when the very availability of the benefit of exemption is made contingent upon the fulfilment of certain conditions, those conditions cannot be dismissed as matters of proc .....

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the respondent/Assessee. Question No.2 36. The second question of law that arises for consideration is as to whether the theory of substantial compliance can be applied to the conditions stipulated in exemption notifications. 37. The answer to the above question is to be found very clearly in the decision of the Constitution Bench of the Supreme Court in Commissioner of Central Excise v. Hari Chand Shri Gopal (2011) 1 SCC 236. If we look at the facts of the case decided by the Constitution Bench .....

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es 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 .....

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upreme Court in Thermax (P) Ltd., v. Collector of Customs (1992) 4 SCC 440 and CCE v. J.K. Synthetics (2000) 10 SCC 393, wherein the Supreme Court held that the benefit of exemption notification cannot be denied if there has been a substantial compliance with the procedure and if the intended use of the goods for the manufacture of final product had been established. The said contention was accepted by the Tribunal and the Revenue took the matter on appeal to the Supreme Court. 39. A three membe .....

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e allowing the appeals filed by the Revenue and holding that the decisions in Thermax (P) Ltd. (1992) 4 SCC 440, and J.K. Synthetics (2000) 10 SCC 393 are confined to the facts of those cases alone, held that the doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke an exemption. What can be forgiven is the non-compliance of unimportant and tangential requirements or requirements that are so confusingly o .....

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ting liberal construction and 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 ca .....

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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 Novopan India Ltd., and Hansraj Gordhandas in para-30, and indicated the distinction between the provisions which are directory and those which are mandatory in para-31, as follows: Of course, some of the provisions of an exemption notification may be directory in nature and some .....

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ification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally. An eligibility criteria, therefore deserves a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature. 44. The Constitution Bench pointed out in para-32 that the doctrine of substantial compliance is a judici .....

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uisites which are essential to achieve the object and purpose. 45. The Supreme Court went on to point out that substantial compliance is insisted where mandatory or directory requirements are lumped together and that in cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. In para-34, the Supreme Court held as follows: The test for determining the applicability of the substantial compliance doctrine has been the subject .....

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ce. 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 po .....

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