Strict compliance with exemption conditions governs service tax relief on imported technology, with extended limitation following breach.

Exemption from service tax for import of technology was available only when the amended notification's conditions were strictly satisfied, including timely payment of Research and Development Cess. On the facts discussed, the assessee failed to produce convincing proof of such compliance, so exemption was denied. The text also notes that breach of the notification condition justified invocation of the extended limitation period, keeping the demand and interest alive, while the penalties under sections 76 and 78 were not sustained in the final disposal for want of established suppression with intent to evade.

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Issues: (i) Whether the assessee was entitled to exemption under the service tax notifications against payment of Research and Development Cess on import of technology. (ii) Whether the extended period of limitation was invocable and, consequently, whether the demand of service tax, interest and penalty could be sustained.

Issue (i): Whether the assessee was entitled to exemption under the service tax notifications against payment of Research and Development Cess on import of technology.

Analysis: The exemption was available only on satisfaction of the conditions introduced in the amended notification. The record showed that the assessee did not produce convincing evidence to establish compliance with the timing requirement for payment of Research and Development Cess before availing the exemption. The notification terms were clear and required adherence to the stated conditions for claiming exemption against the cess paid on import of technology.

Conclusion: The assessee was not entitled to the exemption on the facts proved before the Tribunal.

Issue (ii): Whether the extended period of limitation was invocable and, consequently, whether the demand of service tax, interest and penalty could be sustained.

Analysis: The assessee had not shown bona fide compliance with the amended exemption conditions and had adjusted the cess contrary to the notification requirement. The Department had received regular returns and was aware of the transactions, but the clear breach of the exemption condition justified invocation of the longer limitation period. Once the demand survived, the connected levy of interest followed, while the penalty under section 78 did not survive in view of the finding of no suppression with intent to evade, and the penalty under section 76 was also not sustained in the final disposal.

Conclusion: The extended period of limitation was rightly invoked, the demand and interest survived, and the impugned penalty and demand orders were not sustainable in the final result.

Final Conclusion: The impugned orders were set aside and both appeals were allowed with consequential relief.

Ratio Decidendi: Exemption notifications must be strictly complied with according to their express conditions, and breach of a substantive condition justifies denial of exemption and invocation of the extended period of limitation.

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