TMI Blog2011 (5) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the parent statute, which in the present case is the SEZ Act, 2005, does not prescribe. The impugned circular curtails the tax exemption granted to a service provider providing services to a Developer or a Unit/Entrepreneur operating in a SEZ to only those services that have been rendered within the SEZ, which in clear terms, is inconsistent with Section 26(1)(e) of the SEZ Act. Thus, applying the settled position of law to the facts and circumstances of the present case, I find that the impugned circular dated 03.04.2008 seeks to impose a condition that was not the intention of the legislature as expressed in the SEZ Act or in the SEZ Rules framed thereunder and thus, is liable to be set aside. - W.P.(C) 4452/2008 - - - Dated:- 31-5-2011 - MR. G.S. SISTANI J. S. Ganesh, Sr. Adv. with Mr. Tarun Gulati and Mr. Tushar Gulati, Adv. for the Petitioners. Mr. Rakesh Tiku and Mr. Aditya Bhardwaj, Advs. for the Respondents. ORDER G.S. SISTANI, J. 1. The present petition has been filed under Article 226 of the Constitution of India and is directed against the impugned Circular dated 03.04.2008, issued by the Additional Director, Directorate General of Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2006. The provisions of the SEZ Act and the SEZ Rules include the substantive law and the relevant procedures relating to SEZs in one legislation. The SEZ Act in terms of Section 51 of the SEZ Act provides for a non-obstante provision, which is extracted hereunder: Act to have overriding effect The provisions of this Act shall have effect notwithstanding anything inconsistent herewith contained in any other law for the time being in force or in any other instrument having effect by virtue of any law other than this Act. 5. Since the focus of the petitioner was to export stainless steel products from India, they decided to set up a SEZ talking into consideration various direct and indirect tax benefits. Land was identified in the State of Orissa and during the course of the year 2007, requisite clearances from State and Central Govt. were obtained. The SEZ was notified by the Central Govt. on 28.11.2007 and the petitioner started carrying out the default authorized operations in its capacity of a Developer and availed services of various service providers. 6. Vide the impugned circular dated 03.04.2008, Respondent No.3 issued various internal guidelines seeking to deny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom service tax on taxable services provided to a Developer or Unit to carry on the authorized operations by the Developer and the Entrepreneur/Unit. The authorized operations are those operations which have been approved by the Board of Approval (hereinafter referred to as the BoA‟) for a Developer and the Development Commissioner for a Unit 9. Mr. Ganesh states that Section 26(2) of the SEZ Act provides the power to the Central Government to prescribe the manner in which and subject to the terms and conditions to which the exemptions shall be granted to the Developer or Unit under Section 26(1). Further, Section 55 of the Act provides a general power to the Central Government to make rules to carry out the provisions of the Act. Under the powers of Section 55 of the SEZ Act, the Central Government has introduced the SEZ Rules. Rule 31 of the SEZ Rules prescribes the manner in which, and the terms and conditions, subject to which, the service tax exemption is available to a Developer or a Unit. This Rule provides that exemption from service tax shall be available on the rendition of all taxable services by any service provider to a Developer or a Unit for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned circular has clarified that service tax is exempted on the provision of only such services which are rendered by the service providers to the Developer or the Unit for its authorized operation within the area of the SEZ. This interpretation given by the impugned circular is clearly contrary to the provisions of the SEZ Act and the SEZ Rules as the statutory provisions which do not require that only such services which are physically rendered within the SEZ are allowed for an exemption from service tax. The impugned circular has sought to introduce new conditions which are not prescribed by the statutory provisions. 12. Learned counsel for the petitioner submits that the petitioner is availing a number of services which are not physically rendered within the SEZ but are used for the authorized operations of the Developer and the Unit. Learned counsel for the petitioner submits that even though these services are to be used for carrying out the authorized operations of the petitioners, service tax is being charged on them by the service provider as they have not been rendered within the SEZ. Learned counsel for the petitioners submits that the SEZ Act has a non-obstante p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 1997 (10) SCC 337. The exemption from service tax has been provided in the SEZ Act and SEZ Rules for carrying out the authorized operations of the developer/Unit. Further, the impugned circular issued by respondent No.3 purports to add a new condition in the exemption provided by the statutory provisions of the SEZ Act read with SEZ Rules which never existed in the provisions. 15. It is vehemently argued by learned counsel for the petitioners that proposition of law being whether that the Department can add a new condition to a notification thereby either restricting the scope of the exemption notification or whittling it down when the notification itself did not provide for the same by issuing a Circular came before the Hon ble Supreme Court in the case of Tata Teleservices Ltd. Vs. Commission of Customs, reported at (2006) 1 SCC 746 and in the case of Union of India Ors. Vs. Inter Continental (India), reported at C.A. 6529/2002. The Hon ble Supreme Court observed that such circular sought to impose a limitation on the exemption notification which the exemption notification itself did not provide and therefore it was not open to the Board to whittle down the exemption noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said service provider to decide whether to pass or not to pass on the service tax liability to its client, namely, the petitioners. The liability to pay service tax is on M/s KSMN and Company, Chartered Accountants, and any relief from levy of service tax on the taxable services provided by it, should be sought only by the aggrieved party, namely, M/s KSMN and Company, Chartered Accountants, and not by the petitioners. It is to be noted that in the present case the levy or denial of exemption is challenged not by the person who is liable to pay service tax but by another person on the assumption that service tax levied has been passed on to him. Accordingly, the petitioners have no locus standi to challenge the levy of the service tax. Further the petitioners have not been able to show the existence of any legal right, which is threatened to be violated by the said impugned circular dated 03.04.2008. Learned counsel for the respondent contends that there is no legal right shown by the petitioners, therefore, there cannot be any legal injury and consequently writ petition filed by the petitioners is utterly misconceived and liable to be dismissed. Counsel further submits that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r unit of a Special Economic Zone to maintain proper account of receipt and utilization of said taxable services. Further it is correct that the above notification No.17/2000-ST dated 21.11.2002 was superseded by Notification No.4/2004 dated 31.03.2004 issued by the Central Board of Excise and Customs, Department of Revenue and provided for an exemption from the payment of all of Service Tax on the services provided to a developer for a unit for consumption of services within such Special Economic Zones, subject to certain conditions. Thus, it is clear that the Department of Revenue, which is responsible for administering service tax all along provided that exemption from the payment of Service Tax would be available for services provided to a developer or a unit for consumption of services within such Special Economic Zones. 23. It is further submitted that the authorized operations are always those operations which are to be carried out inside the Special Economic Zones, hence, it is evident that the words In Special Economic Zone in sub-Section 26(1)(e) are to be read with taxable services provided in a Special Economic Zone and not to be read with authorized operations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin a Special Economic Zone and therefore, the Department of Revenue is consistent of the view that exemption from payment of Service tax is not available for the services provided outside Special Economic Zones. 25. It is vehemently argued by counsel for respondent that the interpretation given in the impugned circular is consistent with the scheme of the SEZ Act and does not introduce any new condition which is not prescribed by the statutory provisions. It is the contention of the counsel for respondent that under section 26(2) of the SEZ Act, the Central Government has been empowered to prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1) of section 26. The impugned circular is not giving any new interpretation to the words of a statuette and is only in the form of internal guidelines to the departmental officers merely clarifying the existing provisions of a statute. It only clarifies the existing statutory provision without adding nay new condition or provision. 26. The counsel also submits that from the invoice dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub- section (1). Rule 31 of the SEZ Rules, 2006 reads as under: The exemption from payment of service tax on taxable services under section 65 of 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 authorised operations in a Special Economic Zone . It is contended by the counsel for respondent that since the expression authorised operations refers to those operations which are to be carried out inside the Special Economic Zones, hence the words in Special Economic Zone as they appear in section 26 and Rule 31 are to be read with taxable services so as to mean that the exemption is available only with regard to those services that are rendered in a special economic zone. The aforementioned argument of the counsel for respondent has no basis. It is a well established law that statutes have to be given strict interpretation. If the words of a statute are precise and clear, they must be accepted as declaring the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation cases the subject is to be taxed if in accordance with courts view of what it considers the substance of the transaction, the court thinks that the case falls within the contemplation or spirit of the statute. The subject is not taxable by inference or by analogy, but only by the plain words of a statute applicable to the facts and circumstances of his case. The observations of Lord Russel in the aforementioned case were also referred by the Privy Council in Bank of Chettinad Ltd. v. CIT6. The Privy Council did not accept the suggestion that in revenue cases the substance of the matter may be regarded as distinguished from the strict legal position. 23. A similar view was taken in CWT v. Ellis Bridge Gymkhana7 in which it was observed: 5. The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. 24. Again in the case of Diwan Bros. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from levy of service tax that are rendered within the special economic zones, the legislature would have categorically and clearly stated so in the statute. In the absence of such express intention, the court cannot add words to the statute to lead to an interpretation which could not have been the intention of the legislature. 33. The counsel for petitioner has vehemently argued before this Court that in the absence of any such condition under the parent statute, the impugned circular being administrative in nature cannot impose a new condition nor can it supersede the parent statute which in the present case is section 26(1) (e) of the SEZ Act, 2005 read with Rule 31 of the SEZ Rules, 2006. The relevant portion of the impugned circular reads as under: 9. The SEZ Act and Rules do not permit any exemption to services provided by a SEZ unit to any individual inside an SEZ as it does not get covered under the export of services. Similarly, regarding exemption of service tax on services availed by units/developers in SEZs and regarding taxability of service rendered to an SEZ unit in respect of authorized operations 34. A plain reading of the impugned circular makes it cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le that conferment of rule making power by an Act does not enable the rule making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. 69. In B.K. Garad v. Nasik Merchants Co-op. Bank Ltd, AIR 1984 SC 192, it has been held that if there is any conflict between a statute and the subordinate legislation, the statute shall prevail over the subordinate legislation and if the subordinate legislation is not in conformity with the statute, the same has to be ignored. 70. In Ashok Lanka v. Rishi Dixit (2005) 5 SCC 598, it has been laid down that although the State may delegate its power to an administrative authority, yet such a delegation cannot be made in relation to the matters contained in the rule-making power of the State. The matters which are outside the purview of the Rules only could be the subject- matter of delegation in favour of the authority. Their Lordships have further opined that a subordinate legislation must be framed strictly in consonance with the legislative intent. 71. In Dilip Kumar Ghosh v. Chairman AIR 2005 SC 3485, their Lordships have expressed the view that it is well sett ..... X X X X Extracts X X X X X X X X Extracts X X X X
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