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2011 (5) TMI 1034 - HC - Companies LawWhether the circular dated 03.04.2008 seeking to deny tax benefits to service provided outside the SEZ inconsistent with the provisions u/s 26(1)(e) of the SEZ Act specifically grants an exemption from service tax on taxable services provided to a Developer or Unit to carry on the authorized operations by the Developer and the Entrepreneur/Unit - HELD THAT - In Godrej Boyce Mfg. Co. Ltd. V. State of Maharashtra 2009 (2) TMI 856 - SUPREME COURT the Apex Court held that circulars are administrative in nature and cannot alter the provisions of a statute nor can they impose additional conditions. A plain reading of the impugned circular makes it clear that only those services are exempted from service tax which are rendered to a Developer or a Unit/Entrepreneur within the SEZ. Thus while the SEZ Act and the rules framed thereunder provide for tax exemption to all services provided to a Developer/ Entrepreneur operating in a SEZ but vide the impugned circular the Government has sought to prescribe an additional condition 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.
Issues Involved:
1. Validity of the impugned Circular dated 03.04.2008. 2. Interpretation of Section 26(1)(e) of the SEZ Act, 2005 and Rule 31 of the SEZ Rules, 2006. 3. Locus standi of the petitioners to challenge the circular. 4. Authority of the respondent to issue the impugned circular. 5. Consistency of the impugned circular with the SEZ Act and SEZ Rules. Issue-wise Detailed Analysis: 1. Validity of the impugned Circular dated 03.04.2008: The petition challenges the impugned Circular dated 03.04.2008, which seeks to deny tax benefits to services provided outside the SEZ. The petitioners argue that the circular contradicts Section 26(1)(e) of the SEZ Act and Rule 31 of the SEZ Rules, which provide for service tax exemption on services rendered for authorized operations in a SEZ. The court observed that the circular imposes an additional condition not present in the parent statute, thereby curtailing the tax exemption granted to services provided to a Developer or Unit/Entrepreneur operating in a SEZ. The court held that the circular is inconsistent with the statutory provisions and is liable to be set aside. 2. Interpretation of Section 26(1)(e) of the SEZ Act, 2005 and Rule 31 of the SEZ Rules, 2006: The court emphasized that a plain grammatical reading of Section 26(1)(e) of the SEZ Act and Rule 31 of the SEZ Rules indicates that taxable services provided to a Developer or Unit for authorized operations in a SEZ are exempt from service tax. The court rejected the respondent's argument that the exemption applies only to services rendered within the SEZ, stating that the statute does not explicitly impose such a condition. The court reiterated that statutes must be interpreted strictly, and no additional conditions can be inferred or added by subordinate legislation. 3. Locus standi of the petitioners to challenge the circular: The respondents argued that the petitioners lack locus standi since the liability to pay service tax lies with the service provider, not the petitioners. The court, however, found that the petitioners are directly affected by the circular as service providers are insisting on charging service tax despite the statutory exemption. Therefore, the petitioners have the standing to challenge the circular. 4. Authority of the respondent to issue the impugned circular: The petitioners contended that the power to issue clarifications rests with the Central Board of Excise and Customs under Section 37B of the Central Excise Act, 1944, and not with the Additional Director General. The court noted that the impugned circular was issued as internal guidelines and not as a clarification under Section 37B. However, the court held that even as internal guidelines, the circular cannot impose conditions inconsistent with the parent statute. 5. Consistency of the impugned circular with the SEZ Act and SEZ Rules: The court concluded that the impugned circular is inconsistent with Section 26(1)(e) of the SEZ Act and Rule 31 of the SEZ Rules. The circular's interpretation that service tax exemption applies only to services rendered within the SEZ introduces a condition not present in the statutory provisions. The court held that subordinate legislation must conform to the parent statute, and any inconsistency renders the subordinate legislation void. Conclusion: The court set aside the impugned circular dated 03.04.2008, holding that it imposes an additional condition not present in the SEZ Act or SEZ Rules and is therefore inconsistent with the statutory provisions. The writ petition was disposed of in these terms.
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