2025 (9) TMI 1637 - AT - Service Tax

Appellant denied Notification No.18/2009-ST exemption for overseas agent commission; lack of original documents and disclosures, section 76 penalty set aside

CESTAT NEW DELHI - AT held the appellant was not entitled to exemption under Notification No.18/2009-ST for commission paid to an overseas agent because ... Export of services - Commission paid to the Agent located outside the taxable territory - Failure to produce relevant documents / Evidences - Non-Mentioning on the Shipping Bill - Eligibility for the benefit of the N/N. 18/2009-ST dated 07.07.2009 - extended period of limitation - Demand of interest - Penalty - HELD THAT:- A perusal of N/N. 18/2009-ST dated 07.07.2009 read with the conditions and the Form EXP-2 reveals that an exporter, to claim exemption from service tax, has to file the documents in original viz, the consignment note issued in his name, the invoice, bill or challan, or any other document issued by the service provider to the exporter, on which the exporter intended to avail exemption specified in clause (b) and the certified copies of the documents specified in column (4) of the said Table. In the instant case, it is found that the original adjudicating authority and the Commissioner (Appeals) have denied the exemption as the appellant did not produce the original documents viz., consignment note in his name/invoices/bills/challans issued to the Commission agent, copy of the agreement or contract with the Commission agent. It is an admitted fact that the shipping bills also did not incorporate the commission amount as required under the notification. The bare perusal of this notification also clarifies that the exemption to taxable service received by an exporter of goods and used for export of goods from the commission agent located outside India is subject to several conditions as mentioned in the notification. Apparently and admittedly, all the above said conditions have not been complied with by the appellants as required. Mere filing of EXP-1 & EXP-2 does not satisfy the essential conditions of the Notification. Hence the appellant is not entitled for the benefit of exemption claimed on the Commission amount paid to the commission agent located abroad. The Constitution Bench of the Supreme Court in the case of Commissioner of Customs vs Dilip Kumar and Company [2018 (7) TMI 1826 - SUPREME COURT (LB)] held that every taxing statue including, charging, computation and exemption clause should be interpreted strictly. Further, in case of ambiguity in an exemption provision, benefit must go to the Revenue. Thus, the 'burden of proof' is upon the taxpayer claiming the benefit of exemption or exception clause to prove the applicability of such exemption. Thus, the appellant was not eligible for the benefit under Notification No. 18/2009- ST dated 07.07.2009. Extended period of limitation - HELD THAT:- The Notification 18/2009-ST in clause (c) of the conditions prescribes that the return i.e., EXP-2 is to be filed every six months within 15 days of the completion of the said six months. In the instant case, the period of demand was from October, 2009 to March, 2010 for which the said EXP-2 would have to be filed within 15 days i.e., by April 15, 2010. The demand notice had to be issued within one year from the relevant date, which in the instant case would be 14, April 2011. As the said notice was issued on 21.3.2011, which falls well within the normal period of demand, hence the demand under Section 73 is upheld - Similarly, in respect of show cause notice dated 03.08.2011, it is noted that the period involved is from April 2010 to September 2010, wherein the EXP-2 had to be filed by 15.10.2010. The clock for one year would start ticking from 16.10.2010 and end on 15.10.2011, whereas the show cause notice was issued on 03.08.2011. Consequently, both the notices were issued well within time, and the demand is not time barred. Demand of interest - HELD THAT:- Supreme Court in the case of Pratibha Processors & Ors vs Union of India & Ors. [1996 (10) TMI 88 - SUPREME COURT] has held that “Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable.” Accordingly, the demand for interest is also upheld. Penalty - HELD THAT:- As the issue relates to export benefit, the penalty imposed on the appellant under section 76 of the Finance Act, 1994 set aside. Appeal allowed in part. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether commission paid to a commission agent located outside India qualifies for exemption under Notification No.18/2009-ST when conditions of the notification (declaration in shipping bill, production of original documents showing payment, and copy of agreement/contract) are not fully complied with. 2. Whether oral agreements and banking-channel payments can substitute for the written agreement/contract and original documents mandated by the notification. 3. Whether non-mentioning of commission amount in shipping bills and other alleged procedural lapses are trivial clerical errors that should not disentitle an exporter from the exemption. 4. Whether the demands in the show-cause notices are time-barred under Section 73 of the Finance Act having regard to the relevant date determined by filing of Form EXP-2 (half-yearly return) prescribed by the notification. 5. Whether interest on confirmed liability is payable. 6. Whether penalty under Section 76 of the Finance Act is legally sustainable in the facts of the case relating to claimed export benefit. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility for exemption under Notification No.18/2009-ST when prescribed conditions are not complied with Legal framework: Notification No.18/2009-ST exempts specified taxable services received by an exporter and used for export, subject to express conditions in the Table and provisos - notably (i) declaration of commission amount in the shipping bill, (ii) production of original documents showing actual payment of commission, and (iii) submission of a copy of the agreement/contract with the foreign commission agent; returns in Form EXP-2 and prescribed certifications are also mandated. Precedent treatment: The Court relied on the Constitution Bench decision emphasizing strict interpretation of exemption notifications and placing burden of proof on the assessee. The Tribunal's prior decisions (cited) that denied exemption where prescribed conditions were not fulfilled were followed as supportive authority. Interpretation and reasoning: The Tribunal treated the notification conditions as integral, not merely procedural, requirements. The text of the notification was read strictly: the exemption is expressly 'subject to the conditions specified' and requires specific documentary proof and shipping-bill declaration. Mere filing of Form EXP-1/EXP-2 or showing payment through banking channels was held insufficient to substitute for the mandatory documentary conditions. Oral agreement and banking evidence do not satisfy the explicit requirement of a 'copy of the agreement or contract' and 'original documents showing actual payment' accompanying the certified half-yearly return. Ratio vs. Obiter: Ratio - An exporter claiming exemption under Notification No.18/2009-ST must strictly comply with its documentary and form-filing conditions; non-compliance disentitles the exporter to the exemption. Obiter - Observations rejecting the sufficiency of EXP-1/EXP-2 filing alone to meet the notification requirements are explanatory but flow from the core ratio. Conclusion: The exporter was not entitled to the exemption on commission paid to a foreign commission agent because essential conditions of the notification were not complied with. Issue 2 - Whether oral agreements and banking payments can substitute for written agreement and original documents Legal framework: Notification requires submission of 'a copy of the agreement or contract' and 'original documents showing actual payment' with certified half-yearly returns; Form EXP-2 and its annexures are statutorily incorporated into the compliance matrix for claiming exemption. Precedent treatment: The decision applied the binding principle from the Supreme Court that exemption provisions must be strictly construed and the burden of proof lies on the claimant; Tribunal jurisprudence denying benefit where written agreements/documents were absent was relied upon. Interpretation and reasoning: The Tribunal rejected the contention that oral agreements, bank payment evidence, or the general practice of declaring commission percentages in shipping bills suffice. The notification's explicit documentary prerequisites cannot be waived by showing payments through banking channels or asserting verbal arrangements. The requirement of a written agreement is specific and not satisfied by circumstantial evidence. Ratio vs. Obiter: Ratio - Oral contracts and banking payments do not fulfill the notification's express documentary conditions; claimant must produce the specified written agreement and original payment documents. Obiter - Emphasis that ordinary trade practice cannot override statutory documentary mandates. Conclusion: Oral agreements and bank remittance evidence did not meet the notification's conditions; they cannot substitute for the required written agreement and original documents. Issue 3 - Clerical omission of commission amount in shipping bills and characterization as mere procedural lapse Legal framework: Condition (1) in column (4) of the notification requires the exporter to declare the amount of commission paid or payable in the shipping bill or bill of export to claim exemption on commission services. Precedent treatment: The Tribunal applied strict construction and prior authority treating the shipping-bill declaration as an essential statutory condition. Interpretation and reasoning: The Tribunal held that omission of commission amount on some shipping bills is not a trivial procedural lapse but a failure to satisfy an explicit, substantive condition for the exemption. The notification's language does not permit relaxation for clerical errors; absence of the shipping-bill declaration undermines the statutory prerequisite for the exemption. Ratio vs. Obiter: Ratio - Non-declaration of commission in the shipping bill nullifies eligibility for the exemption; it is not a mere curable procedural lapse in absence of statutory provision permitting relaxation. Obiter - Remarks on remedial possibilities or equitable considerations were not adopted. Conclusion: Clerical non-mention of commission in shipping bills disentitled the exporter from the exemption under the notification. Issue 4 - Time-bar of demands under Section 73 having regard to filing obligations under the notification (Form EXP-2) Legal framework: Section 73(1) prescribes limitation periods for issuance of show-cause notices; Section 73(6) defines the relevant date for services where periodic returns are filed - the date on which such return is filed or the last date for filing, as applicable. Notification condition (c) prescribes filing of Form EXP-2 every six months within 15 days of completion of the six months. Precedent treatment: The Tribunal applied statutory computation of limitation in light of the specific return-filing dates prescribed by the notification; no contrary precedent was accepted that would extend limitation absent invocation of extended period under proviso to Section 73. Interpretation and reasoning: For the period Oct 2009-Mar 2010, EXP-2 was due by 15 April 2010, so the one-year limitation expired on 15 April 2011; the show-cause notice dated 21 March 2011 was therefore within time. For Apr 2010-Sept 2010, EXP-2 was due by 15 Oct 2010 and the one-year limitation expired 15 Oct 2011; the notice dated 3 Aug 2011 was within time. Absent plea of suppression invoking extended period under proviso to Section 73, the notices were validly issued within the normal period. Ratio vs. Obiter: Ratio - Where a notification prescribes a periodic return and its due date, the relevant date under Section 73(6) is determined with reference to that return; show-cause notices issued within one year from that relevant date are not time-barred. Obiter - None materially affecting the ratio. Conclusion: Both show-cause notices were issued within the limitation period and demands are not time-barred. Issue 5 - Liability for interest on confirmed demand Legal framework: Interest is compensatory and payable where tax has been withheld or unpaid; established jurisprudence holds interest is compensatory in character and recoverable on tax not paid when due. Precedent treatment: The Tribunal followed Supreme Court authority that interest is compensatory and payable when tax has not been paid timely. Interpretation and reasoning: As the exemption claim failed and tax on commission was held payable, interest for delay in payment is compensatory and properly imposed under the statutory scheme. Ratio vs. Obiter: Ratio - Interest on the confirmed tax demand is payable; interest imposition is sustained. Obiter - None additional. Conclusion: Interest on the confirmed service-tax demand is upheld. Issue 6 - Validity of penalty under Section 76 in the context of export benefit dispute Legal framework: Section 76 prescribes penalty for contraventions; application may depend on facts, mens rea, and whether penalty is mandatory or discretionary, subject to judicial mitigation in appropriate cases. Precedent treatment: The Tribunal considered statutory scheme and facts relating to export benefit claims and exercised its power to set aside penalty in light of the context. Interpretation and reasoning: Although the exemption claim failed for non-compliance with documentary conditions, the Tribunal set aside penalty under Section 76 given the nature of the dispute concerning entitlement to an export benefit and perhaps in view of mitigating circumstances (procedural lapses and absence of deliberate evasion were noted). The order treats penalty as not sustainable in these facts even while sustaining tax and interest. Ratio vs. Obiter: Ratio - Penalty under Section 76 can be set aside even where tax and interest are upheld, where the circumstances of the claim for export benefit justify relief from penal consequences. Obiter - Observations on mandatory nature of penalty in other contexts were not followed to negate this outcome. Conclusion: Penalty under Section 76 was set aside while upholding tax and interest. Overall Disposition (cross-reference) Cross-reference: Issues 1-3 are interrelated (compliance with notification conditions); failure on these grounds (shipping-bill declaration, written agreement, original payment documents) drove the result on entitlement. Issue 4 independently validated the temporal validity of demands based on EXP-2 filing dates. Issues 5 and 6 follow from findings on entitlement and conduct: interest sustained; penalty set aside.