2024 (4) TMI 1313 - AT - Service Tax

Conditions in Column 4 of Notification Are Mandatory; Procedural EXP Return Delays Cannot Deny Exemption, Appeal Allowed

CESTAT held that conditions in column 4 of the notification are mandatory and satisfied by the appellant, while requirements to file EXP returns ... Denial of the exemption under N/N. 18/2009-ST dated 07.07.2009 subsequently under N/N. 42/2012-ST dated 29.06.2012 - exemption in the cases where it is indicated that the shipping bills in Exp-2 and Exp-4 are filed for the subsequent period - HELD THAT:- It is found that the conditions of notification could be classified under the category of mandatory and procedural conditions. As per the mandatory conditions of this notification the exemption should have been claimed by the appellant by way of indication of details of the commission paid or being paid on the shipping bills filed by the appellant. Conditions specified in column 4 of the table in notification are mandatory whereas those specified are procedural in nature. Appellant has complied with the conditions as specified in column 4 and hence is eligible to benefit of this notification. It is settled law that an exemption notification should at the stage of entry to be interpreted in a very strict manner but once it is held that the appellant falls within the parameters of the notification, the notification should be interpreted regularly so as not to disallow the substantial benefits of notification for certain procedural irregularities. In the present case the only dispute which is to decide upon is whether the substantial benefit of the exemption should have been denied to the appellant for the reason that they have made payment to the commission agent as per there agreements with the commission agents subsequent to the period of the prescribed period of return. In case of Radiant Textiles Ltd. [2016 (10) TMI 242 - CESTAT CHANDIGARH], interpreting Notification No 18/2009-ST dated 07.07.2009 Chandigarh bench has observed that 'the Commissioner paid to the overseas commission agent is less than 1% of the FOB value of the exported goods. Therefore, the appellant is entitled for benefit under Notification No. 18/2009-S.T. Consequently, no Service Tax can be demanded under the category of „Business Auxiliary Services‟ under reverse charge mechanism.' From the above it is evident that the requirement of filing the EXP-1 and EXP-2 return has been held to be procedural requirement and not a mandatory requirement for determining eligibility to the exemption claimed by the appellant. Even in the impugned order Commissioner (Appeal) has held that filing of EXP-3 return was procedural requirement and should not come in way of appellant claiming the benefit of exemption under N/N. 42/2012-ST. That being so, merely delay in indicating the shipping bills in EXP-4 return cannot be reason for denial of the said exemption. Order of Commissioner (Appeals) to that extent, it disallows the benefit of exemption, for this reason cannot be upheld. Accordingly, the impugned order is set aside to that extent. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an exporter is disentitled to exemption under the exemption notifications where the half-yearly returns (Form EXP-2/EXP-4) indicate shipping bills that fall outside the six-month period specified in the return (i.e., returns filed late or shipping bills shown in a subsequent return period). 2. Whether filing of the intimation forms (EXP-1 / EXP-3) before availing the exemption is a mandatory pre-condition such that non-filing (or filing under an earlier notification but not under an amended one) defeats substantive entitlement. 3. Whether procedural/technical lapses in complying with documentary/return formalities (including delayed filing, omission of annexures/invoices, late payment to foreign commission agents) justify denial of the substantive exemption and imposition of tax, interest and penalties. 4. Relevance of Point of Taxation Rules for determining entitlement under the exemption notifications (i.e., whether point of taxation affects the date from which exemption can be claimed). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement when half-yearly returns include shipping bills outside the prescribed six-month period Legal framework: The notifications require half-yearly returns in prescribed forms (EXP-2/EXP-4) 'every six months ... within fifteen days of the completion of the said six months' and the return captions specify details 'of goods exported ... during the six months ending on ...', indicating the returns must relate to exports in that six-month period. Precedent treatment: Tribunal and High Court decisions have addressed whether returns and their timing are procedural or mandatory, with authorities accepting that returns relate to actual export facts for the relevant six-month window and holding that strict filing requirements cannot be ignored; other decisions have applied the doctrine of substantial compliance to prevent denial of substantive benefit for procedural lapses. Interpretation and reasoning: The Court classified conditions into mandatory (those determining eligibility) and procedural (those for verification). Conditions specifying that the return should cover goods exported during the specified six months are material to the content of the return. However, where the substantive conditions of the notification (existence of export, commission agent relationship, declaration on shipping bill, certification and documentary proof ultimately available) are satisfied, a short delay in indicating shipping bills in the subsequent half-year return - especially where delay arises from customs or genuine documentary unavailability and not mala fide intent - should not defeat the substantial benefit. The Court emphasized a practical and purposive construction: strictly interpret eligibility thresholds, but where eligibility is established, interpret procedural requirements liberally to avoid negating the exemption's object. Ratio vs. Obiter: Ratio - a mere delay of about 15 days or showing shipping bills in a subsequent half-year return (caused by non-availability of customs copy) is not, by itself, a ground to deny the exemption where substantive conditions are met; such filing requirements can be procedural and condoned. Obiter - observations on longer or repeated non-compliance and the acceptability of delays beyond incidental periods. Conclusion: Denial of exemption solely on account of late submission of EXP-4 or inclusion of shipping bills in a subsequent period (where substantive conditions are satisfied and delay is not mala fide) is not justified; such demands are to be set aside in those circumstances. Issue 2 - Requirement to file EXP-1 / EXP-3 before availing exemption Legal framework: Proviso requires informing the jurisdictional officer in Form EXP-1 (and EXP-3 w.e.f. amendment) 'before availing the said exemption'. Precedent treatment: Authorities differ; some treat pre-intimation as mandatory eligibility criterion, others treat non-filing as procedural where actual export and entitlement can be otherwise established. Interpretation and reasoning: The Court held that the intimation form is primarily indicative of intent to claim the exemption and, where an earlier form under the original notification exists or where intent and substantive compliance can be otherwise established, non-filing of the amended form is a procedural lapse. The Court relied on the established principle distinguishing eligibility (to be strictly proved) from procedural formalities (subject to substantial compliance), finding that non-filing of EXP-3 in the present facts amounted to a minor procedural violation rather than fatal non-compliance. Ratio vs. Obiter: Ratio - failure to file EXP-3 under the amended notification is procedural, and not automatically fatal where substantive eligibility is otherwise demonstrated. Obiter - caution that this will not excuse deliberate or repeated avoidance of the statutory scheme. Conclusion: Non-filing of EXP-3 (where EXP-1 or equivalent earlier intimation exists and substantive requirements are met) does not automatically disqualify the exporter from the exemption; it is a procedural irregularity amenable to condonation in appropriate circumstances. Issue 3 - Effect of other procedural/documentary lapses (omission of invoices, delayed payments, certification) and imposition of penalties Legal framework: Notifications mandate submission/certification of original documents evidencing payment, contracts/agreements, certified copies of specified documents, and certification that the service was received and used for export (with shipping bill references). Concurrent provisions of the Act (valuation, point of taxation and reverse charge liability) impose substantive tax liabilities where conditions are not met. Precedent treatment: Authorities accept the doctrine of substantial compliance for minor procedural defaults but uphold strict compliance where documentary pre-requisites are essential to the exemption's object; penalties require culpability or clear statutory breach. Interpretation and reasoning: The Court distinguished failures that go to the 'essence' of the entitlement (e.g., absence of any export, absence of commission arrangement, or clear withholding of documents to mislead) from peripheral technical lapses (late annexure due to customs delay, omission in a column when documents exist). Where the exporter ultimately satisfies the substantive conditions (e.g., export made, commission paid/ payable, shipping bills identifiable, documents produced or available) the Court held that penalties and tax demands based solely on procedural lapses are disproportionate; however, deliberate mis-declaration, repeated non-response to queries, or concealment of documents may attract denial and penalties. Ratio vs. Obiter: Ratio - procedural/documentary lapses that do not affect the substance of entitlement do not warrant denial of exemption or imposition of penalties; concealment or intentional mis-declaration can be penalised. Obiter - guidance on proportionality and repeated lapses warranting less indulgence. Conclusion: Substantive entitlement should not be denied for technical procedural lapses; penalties are not sustainable where non-compliance is procedural and bona fide, but deliberate concealment or repeated non-compliance may sustain demands and penalties. Issue 4 - Relevance of Point of Taxation Rules to entitlement under the notifications Legal framework: Point of Taxation Rules govern determination of time of tax liability for taxable services; notifications specify timing tied to filing of declaration forms and the export period. Precedent treatment and reasoning: The Court found Point of Taxation Rules irrelevant to the question of entitlement under the notification because the notification's proforma and conditions unequivocally link exemption to dates of export and filing of declaration/returns, not to the point of taxation. Thus, assessment of eligibility must focus on notification conditions, not on point-of-taxation mechanics. Ratio vs. Obiter: Ratio - Point of Taxation Rules do not determine the applicability of the exemption notifications; the decisive dates are those prescribed in the notification (declaration and half-year return dates). Obiter - none. Conclusion: Point of Taxation Rules are immaterial for deciding entitlement under the exemption notifications; the timing for claiming exemption is governed by the notification provisions themselves. OVERALL CONCLUSION The Court concluded that where substantive conditions of the exemption notifications are satisfied (export proved, commission relationship shown, declaration on shipping bill, documentary proof available or producible), isolated or minor procedural lapses - including brief delay in filing EXP-2/EXP-4, or failure to file amended intimation EXP-3 when an earlier intimation exists - do not justify denial of the exemption or imposition of penalties. However, deliberate mis-declaration, concealment of documents or repeated non-compliance remain actionable. Consequently, the impugned denial of exemption and penalties solely on procedural grounds were set aside in the appealed matters.