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2016 (6) TMI 1125 - CESTAT MUMBAI

2016 (6) TMI 1125 - CESTAT MUMBAI - TMI - Special Economic Zone (SEZ) - services rendered to SEZ - surplus generated by trading of space purchased from airline operators in advance - Demand of services tax on services not consumed within SEZ income that was formerly recorded in the books of accounts as 'airline incentive' and now as 'expense reimbursement' which, according to Revenue, was a dressing up of commission received for 'marketing of service provided by client' within the ambit of secti .....

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mply demonstrate non-application of mind as the extended period has been invoked despite the acknowledgement of antecedent proceedings on the very same ground. We are also unable to appreciate that imperative for brevity in as serious a matter as recovery of tax that has been allegedly evaded. The demand of tax on rendering of 'business auxiliary service' is liable to be set aside on this ground alone. - As no commission is involved in this trading of 'freight slots', the appellant can hardl .....

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outside the Special Economic Zone. Of the amounts attempted to recovered ₹ 186397 pertains to the period December 2005 and January 2006. - Held that:- There can, therefore, be no doubt about legislative intent to exempt tax on services required for performance of 'authorized operations' within a Special Economic Zone and any instrument, in exercise of authority to exempt a tax to issue instructions for uniformity of practice, would be presumptuous if it, advertently or otherwise, rest .....

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notification 4/2004-ST is resolved in favour of the former with the latter relegated to redundancy since 10th February 2006. Such would be the fate of any superfluous notification issued under section 93 of Finance Act, 1994 that saddles the availing of exemption in section 26 of Finance Act, 1994 with conditions. - For the period from February 2006, section 26 of Special Economic Zones Act, 2005 shall govern exemption in supply of services for units or developers in Special Economic Zones .....

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services were rendered to a facility of the SEZ promoter outside the Zone. - ST/11/2012 - A/87827/16/STB - Dated:- 8-6-2016 - Ramesh Nair, Member & C J Mathew, Member (T) Appellant Rep by: Shri S Thirumalai, Adv. Respondent Rep by: Shri D Nagvenkar, Addl. Commissioner (AR) Per: C J Mathew: M/s DHL Lemuir Logistics Pvt. Ltd is in appeal before us against order-in-original no. 56/BR-56/ST/Th-1/2011 dated 30th September 2011 (supplemented by a minor corrigendum on 10th October 2011) of Commissi .....

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on from tax on services rendered to M/s Nokia India Pvt. Ltd., a unit in a Special Economic Zone, in connection with import and export of goods during the period from December 2005 to July 2007 and the taxability of surplus generated by advance booking of space for air freight. 2. During the period in dispute, the operations were being carried out by M/s Excel India Pvt. Ltd registered as a service-provider in Chennai and proceedings were initiated upon audit of assessee by that jurisdiction bet .....

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deavoured to demand tax of ₹ 2,56,896/- for alleged rendition of 'business auxiliary service.' It would appear that the tax was liable on an amount of ₹ 20,98,826 being income that was formerly recorded in the books of accounts as 'airline incentive' and now as 'expense reimbursement' which, according to Revenue, was a dressing up of commission received for 'marketing of service provided by client' within the ambit of section 65 (19) of Finance Act, 19 .....

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;7. The assessee also earns income on marketing services and the above said services appear to be classifiable under Business Auxiliary Services, as defined under Section 65(105)(zzb) of Finance Act, 1994, for which Show Cause Notice NO. 196/2006 dated 23.10.06 was issued by Services Tax, Chennai. The same was adjudicated and they were demanded Service Tax for the period from August 2005 to September 2006 vide Order in Original No. 10/2007 dated 23.9.2007 passed by Commissioner of Service Tax, C .....

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ks out to ₹ 256896/- (Service Tax ₹ 251859/- Education Cess ₹ 5037/-) as per Annexure-B enclosed to this notice. 8. The receipts towards Airlines Incentive appears to have been made for providing marketing services, which appear to be rightly classifiable under Business Auxiliary Service. This matter has been dealt with in the Show Cause Notice issued by Service Tax. Chennai under SCN No. 196/2006 dated 23.10.2006. The grounds for the same are not repeated here for the sake of .....

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made to a show cause notice that has been adjudicated in a different corner of the country at some time in the past, which, purportedly, is sufficient elaboration of the present allegation against the assessee. There is probably no other more illustrative example of lack of diligence in establishing a charge against a noticee and of utter disregard for the principles of natural justice - issue of a notice which is deafeningly silent on the grounds for arriving at the allegation of evasion of tax .....

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t of antecedent proceedings on the very same ground. We are also unable to appreciate that imperative for brevity in as serious a matter as recovery of tax that has been allegedly evaded. The demand of tax on rendering of 'business auxiliary service' is liable to be set aside on this ground alone. 5. The tax has been sought to be levied on the amount shown in the accounts as 'expense reimbursement' which has been presumed to be consideration for having provided marketing services .....

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uld allot the required space for which airway bills would be issued for delivery to specified consignee. In such instances of 'direct shipments', the logistics enterprises act as agents. It is also usual industry practice for logistics entities to pre-book space on carriers and to place consignments on board for collection by overseas associates who undertake to deliver the package to the intended consignee (called 'routed shipments'). Space, being pre-booked, is offered by airli .....

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eration from the airline to logistics entities such as the appellant. On the contrary, the charges for pre-booking are made over by the appellant to the airline. It receives consideration from its consignor-clients for allotment of such pre-booked space. Essentially, every such pre-booked slot is bought from the airline and sold to the consignor-clients. The two transactions are independent with no contact between the consignor and the airlines. It is the consignor who is the client of the appel .....

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' and relevant extract or section 65(19) of Finance Act, 1994 defining 'business auxiliary service' is: 'any service in relation to xxxx (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iii) procurement of goods or services, which are inputs for the client; or xxxx (v) provision of service on behalf of client; or xxxx and includes services as a commission agent……..' A harmonio .....

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ent is the true market price paid by the consignor to the appellant over and above the price at which slot was pre-booked from the airline. Of the many activities listed in the definition supra, the closest may, at best, be the procurement of services that are inputs for a client. However, here too, the appellant does not, in relation to the amounts entered in the books of accounts, procure space for the client but on its own behalf which are then sold to its clients. As no commission is involve .....

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ight. The demand of ₹ 2,56,896 fails the test of authority of law and is set aside. 8. The allegation against the assessee leading to demand of ₹ 2,07,44,989 was the services, valued at ₹ 17,42,63,809 rendered by appellant to a unit in a Special Economic Zone between December 2005 and July 2007, had not been consumed within the zone which was a necessary condition for availing the exemption extended by notification no. 4/2004-ST dated 31st March 2004. The impugned order finds t .....

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de circular dated 3rd April 2008 on the ground of inconsistency with the Special Economic Zones Act, 2005, and Federation of Indian Airlines v Union of India [WP (c) No 8004/2010] on the vires of subordinate legislation. Reliance was also placed on the decision of the Tribunal in Norasia Container Lines v Commissioner of Central Excise, New Delhi [2011 (23) STR 295 (Tri Del)] and Maersk India Pvt Ltd. v Commissioner of Service Tax, Chennai [2011 (23) STR 169 (Tri-Chennai)]. It was submitted the .....

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1st March 2004 and the order of the Tribunal in the application for stay/waiver of pre-deposit filed by the appellant in this dispute. Though stay/dispensation orders, being prima facie findings, are not considered to have a bearing in disposal of the appeal on merits, we, nevertheless feel obliged to take note of a finding - 2012-TIOL-705-CESTAT-MUM, viz., '5.7 ….. that notification no. 4/2004-ST being a conditional exemption notification issued under section 93 of the Finance Act, 1 .....

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then notification no. 4/2004-ST would have been amended to reflect the same. No such amendment has been carried out in the said notification.' 11. It may not be out of place to peruse the nature of the exemption, the alleged non-compliance of which has been saddled on the supplies made by the appellant to demand tax. Notification 4/2004-ST is as follows: "31st March, 2004 Notification No.4/2004 - Service Tax In exercise of the powers conferred by sub-section (1) of section 93 of the Fi .....

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t being satisfied that it is necessary in the public interest so to do, hereby exempts taxable service of any description as defined in clause (90) of sub-section (1) of section 65 of the said Act provided to a developer of Special Economic Zone or a unit (including a unit under construction) of Special Economic Zone by any service provider for consumption of the services within such Special Economic Zone, from the whole of service tax leviable thereon under section 66 of the said Act, subject t .....

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.- For the purposes of this notification,- (1) "Board of Approvals" means the combined Board of Approvals for export oriented unit and Special Economic Zone units, as notified in the Official Gazette, from time to time by the Government of India in the Ministry of Commerce and Industry; (2) "developer" means a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorised for such purpose by any such developer; (3) .....

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cured from factories of manufacture for operation in units within Special Economic Zones was extended by issue of notification no. 58/2003-CE dated 22nd July 2003 made effective from 11th May 2004. Prior to 11th May 2004 exemption from duties of customs on goods imported by units in Special Economic Zones was allowed through relevant notifications issued under section 25 of Customs Act, 1962. 12. In this context the decision of this Tribunal in Norasia Contaner Lines v. Commissioner of Central E .....

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vices relating to supply of containers in the SEZ are exempt from payment of service tax. We, accordingly, set aside the impugned order and allow the appeals. The Stay applications also stand disposed of." It is amply clear from this decision as well as from the expressions used in the impugned notification that the consumption of services within such Special Economic Zone is intended to cover the utilization by the entities within the Special Economic Zone holding a letter of approval. By .....

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being exported out of the country, the mechanism for neutralization of all the indirect taxes incurred on the goods was extended to service tax also. 14. The exemptions that are accorded to Special Economic Zone entities are availed by the entity for imports, extended to suppliers of indigenous inputs by documentation and verification akin to export procedures. Services, being intangible and of much later vintage, has been a fertile ground for denial of tax neutralization by an over-cautious tax .....

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but the denial of tax-exempt exports envisaged under the Special Economic Zone scheme owing to the intangibility of the target of taxation and unfamiliarity with the contours of this scheme. It would appear that Revenue is reluctantly prepared to accord exemption of tax on services only to the extent that it is envisaged as extending to goods used in or for manufacture of exports, i.e. those which enter and are consumed within the zone. The wordings of notification no. 4/2004-ST have been so co .....

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atutory provisions. 15. With effect from 11th May 2004, the hitherto existing exemption notifications relating to Special Economic Zones issued under section 5A of Central Excise Act, 1944 were substituted by the notification supra and the hitherto existing exemption notifications issued under section 25 of Customs Act, 1962 were rescinded. That date marks a significant event in the evolution of 'duty free zones' in India. 16. Such zones have existed since 1965 and had been growing in nu .....

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he hands of Department of Revenue. The sole statutory anchor for these zones (known as Export Processing Zones) was section3 of Central Excise Act, 1994 enacted from the imperative of taxing goods that, instead of being exported, were cleared into the local market as excise on manufactured goods but, owing to the duty exemptions, at rates applicable to imported goods. That statutory anchor was erased and replaced by incorporating chapter XA in Customs Act, 1962 through an amendment in Finance Ac .....

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Customs Act, 1962, not being warranted any longer, were accordingly signed out of existence. The principle is unambiguously clear - exemptions accorded by legislative action do not require reinforcement under the exempting power of the Central Government. 17. The Special Economic Zones Act, 2005 was notified on 10th February 2006 to provide a legal framework for a self-contained, comprehensive and compact scheme to bring about industrial expansion without multiple supervisory jurisdictions. The .....

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pex level and an Approval Committee and Development Commissioner at the zone level. 18. With the coming into force of the Special Economic Zones Act, 2005 exemption from customs, central excise, service tax and other similar levies were statutorily provided for in section 26 of the said Act. '26. Exemptions, drawbacks and concessions to every Developer and entrepreneur.- (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following .....

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r any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India: (c) exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur; (d .....

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n the authorised operations in a Special Economic Zone; (f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre; (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authori .....

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yment of service tax on taxable services under section 65 of the Finance Act, 1994 (32 of 1994) rendered to a Developer or a Unit (including a Unit under construction) by any service provider shall be available for the authorized operations in a Special economic Zone.' We note that, unlike the terms and conditions relating to goods, there are no elaborate prescriptions. This is in keeping with intangibility of services. The comprehensive nature of the exemptions is, nevertheless, unambiguous .....

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ods supplied to Special Economic Zones was even considered necessary to implement or supplement the legislative sanction of exemption. The need for such an exemption under section 93 of the Finance Act,1994 in relation to supply of services to Special Economic Zones, therefore, begs an explanation. More so, as section 51 of the Special Economic Zones Act, 2005. '51 (1) The provisions of this Act shall have the effect notwithstanding anything inconsistent therewith contained in any other law .....

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fect to the privilege granted by statutory dispensation as far back as 2006 itself. The simplicity of that privilege has, however, been restricted by the attempt to restrict its scope through semantics. The question that begs an answer is whether an unconditional exemption granted in a statute can be restricted by a statutory instrument issued in exercise of delegated authority under another statute that is hierarchically not even its equal in the event of a conflict. Apparently, the myth of fin .....

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f some sort for the privilege of tax exemption to be accorded to the beneficiaries of parliamentary sanction. Exemption of duties was not only familiar from long years of practice under the predecessor schemes, by whatever name called, but also owing to its physical form, amenable to any check or verification. The very nature and manifestation of service transactions precluded the satisfaction of ascertainment of arrival at the intended destination. This lack of familiarity did justify some form .....

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amplitude to interpret consumption within the zone when the overriding statute has accorded the exemption to use for 'authorized operations'. The certificate issued by the Development Commissioner in pursuance of authority from the decision of the Approval Committee is on record as evidence of 'authorized operations'. 21. The question before us is whether the notification issued under the Finance Act, 1994 relied upon in the impugned order has a valid existence after the Special .....

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Customs Act, 1962 and Central Excise Act, 1944 to the present framework of exemptions under a separate statute encompassing manufacturing as well as service entities that also provides for special procedure for approvals and operations. Consequently, the exception from the general obligation to export, i.e., clearance to the domestic market is considered as imports into India. That special economic zones are governed by a special law covering all aspects of its functioning including exemptions .....

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Chapter X-A of the Customs Act, 1962 and the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations, 2003 made thereunder shall not with effect from such date as the Central Government by notification appoint, apply to the Special Economic Zones.' That the provisions of this law prevail over others is also articulated by '51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other l .....

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overnment of India. The Department of Revenue did not, apparently, foresee that the existing instruments issued under the general taxing statutes, such as Finance Act, 1994, that were not repealed by the newly enacted special law or on the initiative of the issuing department could well be invoked by tax officials, particularly when exemptions were saddled with conditions and restrictions which are not contemplated in the new special law. Those should have been rescinded and replaced by instruct .....

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eed examination and determination. The Hon'ble Supreme Court in Commercial Tax Officer, Rajasthan v M/s Binani Cement Ltd & another [(2014) 3 SCR 1] has held that the general provision is deemed to be repealed upon enactment of special law. Commencing with the principle that interpretation of statute must cover the text and the context as held by the Court in Reserve Bank of India v Peerless General Finance and Investment Co Ltd [1987 SCR (2)] 'Interpretation must depend on the text .....

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t, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no wo .....

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igins in the latin maxim of generalia specialibus non derogant, i.e., general law yields to special law should they operate in the same field on same subject. 30. Generally, the principle has found vast application in cases of there being two statutes: general or specific with the latter treating the common subject matter more specifically or minutely than the former. Corpus Juris Secundum, 82 C.J.S. Statutes § 482 states that when construing a general and a specific statute pertaining to t .....

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ction resolve the conflicts between the general provision in one statute and the special provision in another, it also finds utility in resolving a conflict between general and special provisions in the same legislative instrument too and observed that: "9. …We reach the same result by applying another well known rule of construction that general provisions yield to special provisions. The learned Attorney-General seemed to suggest that while this rule of construction is applicable t .....

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3 SCR 379: "10. …The classic statement of Rowlatt, J., in Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, 71 still holds the field. It reads: "In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." To this may be added a rider: in a case of reasonable doubt, the c .....

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o be curtailed by construction, the approach suggested by Lord Coke in Heydon case, (1584) 3 Rep 7b, yield better results: "To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope, and object of the whole Act: to consider, according to Lord Coke: (1) What was the law before the Act was passed; (2) What was the mischief or defect for which the law had not provided; (3) What remedy Parliament has appointed; and (4) The reason of the remedy."&quo .....

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ot;The general rule, that prior statutes are held to be repealed by implication by subsequent statutes if the two are repugnant, is said not to apply if the prior enactment is special and the subsequent enactment is general, the rule of law being, as stated by Lord Selbourne in Sewards v. Vera Cruz, 'that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to ho .....

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nt - i.e. general provisions will not abrogate special provisions.' When the legislature has given its attention to a separate subject and made provision for it, the presumption is that a subsequent general enactment is not intended to interfere with the special provision unless it manifests that intention very clearly. Each enactment must be construed in that respect according to its own subject-matter and its own terms." 40. In U.P. SEB v. Hari Shankar Jain, (1978) 4 SCC 16, this Cour .....

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In passing a special Act, Parliament devotes its entire consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not repealed or modified the former Special Act unless it appears that the Special Act again received consideration from Parliament. Vide London and Blackwall Railway v. Limehouse District Board of Works, and Thorpe v. Adams. …….. 41. In Gobind Sugar Mills Ltd. v. State of Bihar, (1999) 7 SCC 76 this .....

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special treatment vis-à-vis the general entries and a further endeavour will have to be made to find out whether the specific provision excludes the applicability of the general ones. Once we come to the conclusion that intention of the legislation is to exclude the general provision then the rule "general provision should yield to special provision" is squarely attracted. 42. Having noticed the aforesaid, it could be concluded that the rule of statutory construction that the s .....

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provision relating to a broad subject.' Guided by the enunciated principles, the Hon'ble Supreme Court held that the special law effectively repeals the general law and that special law prevails even where the general law may be more beneficial. The strictness of application of the special law is immutable. 22. There can, therefore, be no doubt about legislative intent to exempt tax on services required for performance of 'authorized operations' within a Special Economic Zone an .....

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legislative sanction. The conflict between the exemption under section 26v of Special economic Zone Act, 2005 and the notification relied upon in the impugned order viz. notification 4/2004-ST is resolved in favour of the former with the latter relegated to redundancy since 10th February 2006. Such would be the fate of any superfluous notification issued under section 93 of Finance Act, 1994 that saddles the availing of exemption in section 26 of Finance Act, 1994 with conditions. 23. In doing s .....

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a & another on the constitutional validity of the National tax Tribunal Act found it necessary to reiterate the decision of the Hon'ble Court in L. Chandra Kumar v. Union of India [(1997) 3 SCC 261] which held thus: '93. Before moving on to other aspects, we may summarise our conclusions on the jurisdictional powers of these Tribunals. The Tribunals are competent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act .....

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important exception. The Tribunals shall not entertain any question regarding the vires of their parent statutes following the settled principle that a Tribunal which is a creature of an Act cannot declare that very Act to be unconstitutional. …... We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach .....

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