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TMI Blog2011 (5) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and development of infrastructural facilities in the country, the Government of India introduced the concept of Special Economic Zone (hereinafter referred to „SEZ‟) in India. Such zones are specifically delineated duty free enclaves, which are deemed to be a foreign territory for trade operations, duties and tariff purposes. In order to increase the competitiveness of exporters, the SEZs have been accorded special status and are provided with a number of tax concessions and exemptions. In order to give effect to the assurances made by respondent No.2, which included the exemption from payment of service tax, respondent No.1 issued notification No.17/2002-ST, dated 21.11.2002, for an exemption from the whole of payment of service tax on services provided to a Developer or Units of SEZ by any service provider, for the purposes of development, operation and maintenance of SEZ or for setting up of a SEZ Unit or for manufacture of goods by the SEZ Unit, on the satisfaction of certain conditions. This notification was superseded by a subsequent notification No.4/2004-ST dated 31.03.2004 which provided for an exemption from the payment of whole of service tax on the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in relation to the accounting to the petitioners. The petitioners wrote a letter to the Chartered Accountants from Delhi requesting them to cancel the invoice issued by them as Section 26(1)(e) of the SEZ Act read with Rule 31 of the SEZ Rules provides for a service tax exemption on the rendition of such services. M/s. KSMN & Co., Chartered Accountants, New Delhi replied to the letter of the petitioners stating that they are aware of the provisions of the SEZ Act and the SEZ Rules. However, service tax has been charged in the invoice in view of the impugned circular issued by respondent No.3 which provides that service tax exemption will not be provided if the services are not rendered within the SEZ. The Chartered Accountants further stated that since the liability to pay service tax to the Government lies on them, they do not want to take a chance by not paying now and be required to pay by the Department later without recovering it from the petitioners. The petitioner-company issued another letter dated 30.05.2008 to M/s KSMN & Company, Chartered Accountants, submitting that the petitioners have been advised by the petitioners internal legal team and the lawyers that the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 31 of the SEZ Rules would show that the only condition required for availing exemption from payment of Service Tax by a developer/Entrepreneur is that the taxable service should be used for the carrying on the authorized operations by the Developer/Entrepreneurs. The location of the service provider or the place of service is entirely irrelevant for the purpose of this exemption. It is submitted by learned counsel for the petitioner that Respondent No.3 by issuing the impugned circular dated 03.04.2008 has virtually directed the departmental officers to deny tax exemptions to SEZs in accordance with its views. Therefore, the departmental officers, who are bound by such clarifications, are seeking to deny the tax benefits which are otherwise available to SEZs under the statutory provisions of the SEZ Act and the SEZ Rules. Similarly, service providers, who are providing services to the petitioners are insisting on charging service tax despite the fact that there is a clear exemption from service tax available to the petitioners under the statutory provisions of the SEZ Act/Rules. The impugned circular, inter alia, clarified the following in paras 8 and 10. "9. The SEZ Act and Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal and are liable to be overridden by the provisions of Section 51 read with Section 26(1)(e) of the SEZ Act read with Rule 3 of the SEZ Rules. 13. Learned counsel for the petitioners has strongly urged before this Court that the provisions of an Act which provide for an exemption from a tax have to be interpreted strictly. It is a well settled legal principle that in a taxing statute, one has to look merely at what is clearly said. There is no room for any intendment. These principles have been laid down by the Hon'ble Supreme Court in CIT Vs. Ajax Products, reported at 55 ITR 741, 747 (SC); CIT Vs. Shahzada Nand, reported at 60 ITR 392, 400 (SC) and State of Punjab Vs. Jaswant, reported at 186 ITR 655. In view of the plain language of the SEZ Act/SEZ Rules, there is no scope of an interpretation of such provisions to include a condition that the exemption would be available only if the services are rendered within a SEZ. Mr. Ganesh has strongly urged before this Court that the impugned circular has been issued and/or inserted without proper application of mind and in colourable and mechanical exercise of powers. The impugned circular has no nexus with the object and purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits available to the SEZ Developers like the petitioners. It has been erroneously stated in Para 10 of the impugned circular that input credit is not available to manufacturers making supplies to SEZ developers. By making this erroneous clarification which is contrary to the statutory provisions, the impugned circular has virtually taken away the excise duty benefit available to SEZ developers as suppliers would substantially lose the excise duty benefit available to them for making such supplies. 17. Lastly, learned counsel for the petitioners submits that the power to issue clarifications rests only with the Central Board of Excise and Customs (hereinafter referred to as the „Board‟) under Section 37B of the Central Excise Act, 1944. Thus, the impugned circular is illegal so far as they have not been issued by the Board and, in any event, are also beyond the scope of even the Boards‟ powers. 18. Per contra, learned counsel for the respondents submits that the present writ petition is liable to be dismissed as the same amounts to an abuse of the process of law. Counsel submits that by this petition, the petitioners are trying to seek anticipatory declaration r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KSMN & Company, Chartered Accountants, and for disputes between two parties various legal remedies are available and filing of writ petition against tax collecting authorities is not maintainable. 21. Learned counsel for the respondents submits that the impugned circular is in fact a letter F. No. DGEP/SEZ/473/2006 dated 03.04.2008 issued by the Additional Director General, Directorate General of Export Promotion, respondent No.3 herein, to all the Chief Commissioners, which correctly interprets the provisions of Special Economic Zones Act and Rules, and provides internal guidelines to the departmental officers representing department of Revenue in the Approval Committees of SEZs, so as to enable them to take uniform stand on matters pertaining to tax revenue/exemptions related to Special Economic Zones at the meetings of the Approval Committee. Further Section 26(1)(e) of the Special Economic Zones Act, 2005, and Rule 31 of the Special Economic Zones Rules, 2006 clearly state that the Service Tax exemption is available only if the services are provided to carry on authorized operation in a Special Economic Zone. 22. Learned counsel for the respondents submits that the Notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Central Excise Act and the Finance Act, 1994 (Service Tax), as per notification 41/2007-ST dated 06.10.2007 and notification 43/2007-ST dated 29.11.2007. The exemption from Service Tax under Special Economic Zones Act is for consumption of Services within Special Economic Zones Act cannot provide Service Tax exemption merely on the ground that the recipient of service is a Unit or Developer of Special Economic Zones. The counsel for respondent further submits that the Special Economic Zones Act, by its very nature, does not envisage enforcement of Special Economic Zone Rules cannot go and actually has not gone beyond this scheme of SEZ Act. 24. The counsel for respondent strongly contends that exemption from levy of service tax under the Special Economic Zones Act is available only for taxable services consumed within Special Economic Zones. Relief from any tax on services consumed outside SEZ but relatable to export is available not under the SEZ Act but under the provisions contained in the Central Excise Act and the Finance Act, 1994 as per notification 41/2007-ST dated 06.10.2007 and notification 43/2007-ST dated 29.11.2007. It is submitted by the counsel for respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers the Central Excise & Customs to issue clarifications where it considers it necessary for purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, to issue such orders , instructions and directions to Central Excise Officers as it may deem fit. In the present case, the impugned circular is a letter dated 03.04.2008 that is in the form of internal guidelines on matters relating to Special Economic Zone to departmental officers to enable them to take a uniform stand while attending meetings of approval committee. It is next submitted that it is not a clarification under section 37B of Central Excise Act. It is only a letter which reiterates some of the legal provisions of Special Economic Zones Act and Rules and does not in any way impose or add any condition or denied nay right of exemption bestowed under the Special Economic Zones Act and Rules. 28. I have heard the counsel for parties and have carefully perused the pleadings on record and the written submission filed by both the parties. 29. Before proceeding further, it would be relevant to reproduce section 26(1) (e) of the SEZ Act, 2005 and Rule 31 of the SEZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andy Syndicate v. IRC AIR 1961 SC 1047 and Federation of A.P. Chambers of Commerce & Industry v. State of A.P (1961)2 SCR 189 AIR 1957 SC 657) In interpreting a taxing statute, the court must look (1921)1 KB 64 (2000)6 SCC 550 squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see CST v. Modi Sugar Mills Ltd 1957 SCR 837 1936 AC 1)" 31. A similar view was expressed in Hansraj & Sons v. State of J&K, reported at (2002) 6 SCC 227. The relevant portion reads as under: "22. A Constitution Bench of this Court in the case of A.V. Fernandez v. State of Kerala 1935 All ER Rep 259: observed: (AIR p. 661, para 29) "29. It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpret the provisions of a fiscal statute strictly so as to give benefit of doubt to the litigant. The principles deducible from the decisions referred to above are well established and admit of no doubt." 26. From the discussions in the foregoing paragraphs, the position that emerges is that Notification No. SRO 348 in which the additional toll tax was levied was clearly beyond the purview of Section 3 of the Act. Further, the finding of AIR 1940 PC 183 : (1940)8 ITR 522 (1998)1 SCC 384 (1976)3 SCC 800 AIR 1964 SC 457 : (1964)5 SCR 230 the High Court that in the context of facts and circumstances of the case, processing of the dry fruits like almonds, walnuts and walnut kernels did not come within the expression "manufacture" cannot be said to be erroneous. The judgment of the High Court upholding the levy of additional toll tax in the case is also unsustainable." 32. A plain grammatical reading of section 26(1) (e) of the SEZ Act, 2005 makes it clear that taxable services provided by a service provider to a Developer or a Unit/entrepreneur to carry out authorised operations in a Special Economic Zone are exempted from levy of service tax. Similarly, a bare perusal of Rule 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider providing services to a Developer or a Unit/Entrepreneur operating in a Special Economic Zone to only those services that have been rendered within the Special Economic Zone, which in clear terms, is inconsistent with Section 26(1)(e) of the SEZ Act. 35. It is trite law that a subordinate legislation has to conform to the parent statute and any subordinate legislation inconsistent to the provisions of the parent statute is liable to be set aside. It is equally well settled that circulars being executive/administrative in character cannot supersede or override the Act and the statutory rules. A division Bench of this Court in decision dated 04.03.2011 in Federation of Indian Airlines v. Union of India (WP (C) No. 8004/2010) has elaborately discussed the above proposition of law. the relevant extract of the judgment reads as under: "67. The basic test is to determine whether a rule to have effect must have its source of power which is relatable to the rule making authority. Similarly, a notification must be in accord with the rules, as it cannot travel beyond it. In this context, we may refer with profit to the decision in General Officer Commanding-in-Chief v. Dr. Subhash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2009)5 SCC 24, the Apex Court held that circulars are administrative in nature and cannot alter the provisions of a statute nor can they impose additional conditions. Para 64 of the judgment of the judgment reads as under: "64. Having regard to the nature of the law the submission advanced on behalf of the municipal authority would lead to palpably unjust and inequitable results. The landowner whose land is designated in the development plan as reserved for any of the purposes enumerated in Section 22 of the Act or for any of the amenities as defined under Section 2(2) of the Act or Regulation 2(7) [sic Regulation 3(7)] of the Regulations is not left with many options and he does not have the same bargaining position as the municipal authority. Therefore, surrender of the land in terms of clause (b) of Section 126(1) of the Act cannot be subjected to any further conditions than those already provided for in the statutory provisions. It is of course open to the legislature to add to the conditions provided for in the statute (or for that matter to do away with certain conditions that might be in existence). But it certainly cannot be left in the hands of the executive to impos ..... 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