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2016 (6) TMI 1125 - AT - Service TaxSpecial 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 section 65 (19) of Finance Act, 1996 defining business of auxiliary service . - 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. Held that - Not surprisingly, the impugned order has not considered it necessary to render an independent finding and appears to have merely followed the earlier order. It would also amply 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 hardly be designated as commission agent. Therefore, pre-booking of slots which may realize upon allotment to a customer does not conform to the definition supra and hence is not liable to tax within the scope of the show cause notice. Demand of services tax on services not consumed within SEZ - scope of notification no. 4/2004-ST dated 31st March 2004. - The impugned order finds that the word consumption used in the said notification does not permit tax exemption when services are rendered 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, restricts legislative intent of the special law. That the Department of Revenue took three years to issue an exemption notification is neither a virtue to be proud of nor a defence to hang on to. We do notice that by relying upon an invalidated exemption notification the impugned order has deliberately ignored the primacy accorded by legislative sanction. The conflict between the exemption under section 26 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. 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 for their authorized operations and the exemption notification 4/2004-ST dated 1st March 2004 is not valid for implementation to the extent that it imposes conditions not enacted in section 26 of Special Economic Zones Act, 2005 or contemplated in Rule 31 of Special Economic Zones Rules, 2006. The demand on the appellant in relation to services provided after January 2006 is set aside. For the two preceding months, the appellant shall be accorded the exemption if it cannot be established that services were rendered to a facility of the SEZ promoter outside the Zone.
Issues Involved:
1. Taxability of surplus generated by advance booking of space for air freight. 2. Claim for exemption from tax on services rendered to a Special Economic Zone (SEZ) entity. Analysis: 1. Taxability of Surplus Generated by Advance Booking of Space for Air Freight: The demand of ?2,56,896/- was based on the classification of surplus income from advance booking of air freight space as 'business auxiliary service'. The Revenue argued that this income, previously recorded as 'airline incentive' and later as 'expense reimbursement', was essentially a commission for marketing services provided by the client, falling under section 65(19) of the Finance Act, 1994. The Tribunal observed that no effort was made to verify if the amount was a consideration, whether the airline was a client, or if any marketing had indeed been undertaken. The show cause notice lacked diligence and failed to establish a charge against the noticee, thus violating principles of natural justice. The Tribunal found that the logistics entity pre-booked space from airlines at reduced rates and sold it to consignors, with no flow of consideration from airlines to the logistics entity. The airlines were not clients of the logistics entity, and the surplus was the differential between the pre-booked and sold rates. Therefore, the Tribunal concluded that the pre-booking of slots did not conform to the definition of 'business auxiliary service' and set aside the demand of ?2,56,896/-. 2. Claim for Exemption from Tax on Services Rendered to a SEZ Entity: The appellant contested the demand of ?2,07,44,989/- for services rendered to a unit in a SEZ, arguing that these services were exempt under notification no. 4/2004-ST dated 31st March 2004. The Revenue contended that the exemption was only applicable if the services were consumed within the SEZ. The Tribunal examined the legislative framework, including the Special Economic Zones Act, 2005, which provided statutory exemptions from various taxes, including service tax, for services required for 'authorized operations' within a SEZ. The Tribunal noted that the SEZ Act, 2005, and its rules, particularly Rule 31, did not impose conditions on the exemption for services, unlike the notification under the Finance Act, 1994. The Tribunal concluded that the statutory exemption under the SEZ Act, 2005, prevailed over the conditional exemption notification. The Tribunal held that the demand for services provided after January 2006 was invalid, as the SEZ Act, 2005, governed the exemption. For services rendered before February 2006, the Tribunal allowed the exemption if it could not be established that the services were rendered outside the SEZ. Consequently, the demand of ?2,07,44,989/- and the associated penalties were set aside. Conclusion: The appeal was disposed of, with the Tribunal setting aside the demands and penalties related to both the issues. The Tribunal emphasized the primacy of the SEZ Act, 2005, over the conditional exemption notification under the Finance Act, 1994, and highlighted the lack of diligence and natural justice in the Revenue's approach.
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