2016 (9) TMI 636 - HC - Service Tax

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 Assessee, have satisfied the substantial requirements (1) of export of iron ore; (2) of payment of service tax on the service of transportation of material from the place of removal to the port; and (3) of actual export of the material. Therefore, the failure to have the details of the exporters invoice mentioned in the lorry receipt and corresponding shipping bill, on account of the peculiar nature of the trade, cannot be a ground for denying the benefit of the exemption notification. But unfortunately 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 of requiring the details of exporters invoice to be mentioned in the lorry receipt and the corresponding shipping bill is to ensure that what had reached the port was actually the consignment of that exporter and that there was no duplication of the claim. Therefore, the relaxation of such a condition would tantamount to the removal of the very life breath of the notification. Hence, the first question of law is to be answered in favour of the Revenue and against the Assessee. Whether the 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 excisable goods, which became chargeable to the duty of excise with effect from 01.03.1994. The Assessee was transferring a major portion of the manufactured goods to certain companies, under the cover of transfer challans, describing them in a particular manner. The factory of the Assessee was raided by the Preventive Wing of the Excise Department and on the basis of what was found out, notices 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 also recorded in Form-IV register and the utilisation of the goods was recorded in RG-12 register; and (2) that the manufacture of final products could be ascertained through RG-1 register maintained at the recipient end. These, according to the Assessee, established substantial compliance with the procedure set out in Chapter-X for duty exemption. The Constitution Bench pointed out that the doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor 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 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. 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 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 complications, when there are no guidelines for the exercise of the power of discretion. Once a full-fledged system is put in place, for the exercise of discretion, the compliance with the requirements of such a system alone will remove any kind of arbitrary exercise of power. The Courts are obliged to interpret notifications of this nature, in such a manner that the power of discretion is reduced to the minimum. Therefore, the second substantial question of law is also to be answered in favour of the Revenue 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

Issues Involved:

1. 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?
2. Whether the theory of substantial compliance can be applied to the conditions stipulated in exemption Notifications?

Issue-Wise Detailed Analysis:

Question No.1:

The first substantial question of law is 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.

The original Notification No.41/2007, dated 6-10-2007, granted exemptions to certain taxable services without attaching any conditions. However, an amendment under Notification No.3/2008-ST, dated 19-2-2008, imposed four conditions for the grant of exemption. One key condition was that the details of the exporter’s invoice relating to the export goods must be specifically mentioned in the lorry receipt and the corresponding shipping bill.

The respondent/Assessee did not fulfill this condition, leading to the rejection of their refund claim by the Deputy Commissioner of Service Tax. The Tribunal, however, reversed this decision, citing substantial compliance and the impracticality of strict adherence to the condition due to the nature of the trade.

The court noted that three out of the four conditions imposed by the amended notification are evidentiary in nature. The purpose of these conditions is to ensure that the goods reaching the port are indeed the consignment of the exporter and to prevent duplication of claims.

The court concluded that these conditions cannot be dismissed as mere procedural matters. They are essential for the verification process and ensuring the integrity of the exemption system. Therefore, the first question of law was answered in favor of the appellant/Revenue, stating that the conditions stipulated in the exemption notification are not mere procedural formalities but essential requirements that must be strictly complied with.

Question No.2:

The second question of law is whether the theory of substantial compliance can be applied to the conditions stipulated in exemption Notifications.

The court referred to the decision of the Constitution Bench of the Supreme Court in Commissioner of Central Excise v. Hari Chand Shri Gopal (2011) 1 SCC 236, which 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. The court emphasized that substantial compliance can only be considered where the requirements are procedural or directory and not when they are of the essence of the notification.

The court noted that all four conditions stipulated in the amended notification are intended to ensure checks and balances for the authority processing the exemption application. Relaxing these conditions would undermine the integrity of the exemption process and lead to arbitrary exercise of discretion by the authorities.

Therefore, the second substantial question of law was also answered in favor of the appellants/Revenue. The court held that condition No.3 in the exemption notification is the essence of the exemption and compliance with it is mandatory.

Conclusion:

In light of the answers to both substantial questions of law, the appeals were allowed, and the order of the Tribunal was set aside. The court emphasized the importance of strict compliance with the conditions stipulated in exemption notifications to maintain the integrity and purpose of the exemption system. There was no order as to costs, and any pending miscellaneous petitions were closed.

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