CESTAT, Mumbai lambasts Revenue for not depicting correct factual position

DHL Lemuir Logistics Pvt Ltd Vs Commissioner of CGST and Central Excise (CESTAT Mumbai)

The Hon’ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai has dismissed a review application filed by the Revenue against DHL Lemuir Logistics Pvt Ltd. The tribunal criticized Revenue for misrepresenting facts and making an application after having its appeal dismissed by the Bombay High Court and withdrawn from the Supreme Court.

Context of the Case

Revenue had filed a review application before CESTAT, claiming an apparent error in the tribunal’s final order. Revenue argued that the tribunal had not considered the provisions of section 26(2) and 58 of the Special Economic Zones (SEZ) Act.

CESTAT’s Observations

1. Not Permissible to Argue Rectification: CESTAT observed that Revenue, which was not in appeal and had not argued this ground earlier, could not now be permitted to argue for rectification.
2. Blindsided View of Tax Administration: The tribunal noted that Revenue was blindsided into believing that the SEZ Act would be operationalized for enforcing provisions of the Finance Act.
3. Exemption for Services: CESTAT clarified that the exemption for services is not related to the place of performance but to the use for “authorized operations.”
4. Section 58 Would Not Aid Revenue: The tribunal said that anything inconsistent with the SEZ Act would not sustain.

Legal Implications

This ruling sets a precedent, emphasizing that Revenue cannot engage in ‘post-facto’ rationalizations or factual misrepresentations to reopen settled disputes.

Contextualizing the Judgment

The Tribunal’s judgment is a strict message against misrepresentations and unwarranted legal maneuvers. It upholds the integrity of legal processes and offers an interpretative lens for exemptions under the SEZ Act, especially relating to services.

Conclusion

The CESTAT Mumbai’s ruling against Revenue’s application in the case of DHL Lemuir Logistics Pvt Ltd Vs Commissioner of CGST and Central Excise is significant on several fronts. It not only chastises Revenue for misrepresentation but also clarifies key aspects regarding the SEZ Act’s application. This can serve as an instructive case for tax authorities and businesses operating in Special Economic Zones. The Tribunal’s verdict, argued by Adv. Bharat Raichandani i/b UBR Legal, can have far-reaching implications on how appeals and reviews are to be legitimately pursued in the legal landscape.

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT, MUMBAI

This matter is listed before us in unusual turn of events after being carried in appeal, all the way to the Hon’ble Supreme Court by Revenue and now presented, alternately as ‘review application’ and ‘application for rectification of mistakes’ with the applicant, again Revenue, unsure about its nature. We may clarify here at the outset that neither section 86 of Finance Act, 1994 nor the Customs Excise Service Tax Appellate Tribunal (Procedure) Rules, 1982 accord authority for seeking review of our own order. An application of the other sort may be filed under section 35C(2) of Central Excise Act, 1944 though usually not to be resorted to after placing themselves in appellate jurisdiction. Also bizarre is the insistence of Revenue that it has been compelled to relegate the dispute back before the Tribunal only upon direction of the Hon’ble Supreme Court. A perusal of the order in our records leaves no room for doubt that it was the Learned Counsel for Revenue who sought indulgence of the Hon’ble Supreme Court to withdraw their appeal for pursuing review/rectification with the Tribunal which was granted. We take exception to the manner in which Revenue has attempted to portray the actual sequence of events.

2. It is also surprising that realization of availability of review/rectification as remedy had dawned upon Revenue only after appeal of theirs was dismissed by the Hon’ble High Court of Bombay and was sought to be overturned by further appeal. The issue placed before us after and presumably, elaborate internal deliberation on the substantial question of law warranting appeal by resort to section 35G of Central Excise Act, 1944, is the alleged non-consideration by the Tribunal of section 26(2) and section 58 of Special Economic Zones Act, 2005 in order¹ disposing off appeal² of M/s DHL Lemuir Logistics Pvt Ltd against order³ of Commissioner of Central Excise, Thane-I for recovery of service tax and imposing penalties thereon under Finance Act, 1994.

3. The Tribunal had found that

’24. We, therefore, proceed to discharge our responsibilities. We find that there is no conflict in the application of notification no. 4/2004-ST for the period prior to February 2006 when the Special Economic Zones Act, 2005 came into force. We hold that for the period from February 2006, section 26 of Special Economic Zones Act, 2005 shall govern exemption in supply of services for units or developers in Special Economic Zones for their ‘authorized operations’ and the exemption notification 4/2004-ST dated 1st March 2004 is not valid for implementation to the extent that it imposes conditions not enacted in section 26 of Special Economic Zones Act, 2005 or contemplated in Rule 31 of Special Economic Zones Rules, 2006. The demand on the appellant in relation to services provided after January 2006 is set aside. For the two preceding months, the appellant shall be accorded the exemption if it cannot be established that services were rendered to a facility of the SEZ promoter outside the Zone. Penalties are also set aside.’

which is now contended by Revenue as having been rendered without the Special Economic Zones Act, 2005 in its fullness. It is mystifying that Revenue, which was not in appeal before the Tribunal or even with memorandum of cross-objections, can venture to set out the framework for disposal in an appeal filed by an assessee. Equally mystifying is this application for reconsideration of dispute emanating from demand under Finance Act, 1994 that made no reference to Special Economic Zones Act, 2005. It is seen from the records that, even at argument stage, those particular provisions of Special Economic Zones Act, 2005 had been referred to, let alone pressed, for consideration and no such claim is found in the present application. Obviously, and contrary to rules, and convention, relating to application for rectification of mistakes, Revenue attempts to re-open a dispute settled in favour of the assessee by the Tribunal that is permissible only in appellate proceedings.

4. We have heard Learned Authorized Representative and Learned Counsel for the respondent at length.

5. It appears to us that Revenue contends that error apparent on record has occurred with a different outcome incumbent on considering section 26(2) and section 58 of Special Economic Zones Act, 2005 as the notification impugned in the appeal should have been determined to continue in existence till it was substituted by notification no. 9/2009-ST dated 3^rd March 2009. The applicant does not appear to have even taken the preliminary precaution of appreciating the institutional mechanism that existed prior to the enactment of Special Economic Zones Act, 2005 or the context in which notification no. 4/2004-ST dated 31^st March 2004 was promulgated under the authority of section 93 of Finance Act, 1994. It is also apparent that the cocooned world of administration of tax has blindsided the applicant into perceiving operation of section 26(2) and section 58 of Special Economic Zones Act, 2005 within the administrative rubric resorted to in Department of Revenue for operationalising the enabling provisions of taxing statutes.

6. The Special Economic Zones Act, 2005 provides for exemptions from duties and taxes on goods and services through

‘26. Exemptions, drawbacks and concessions to every Developer and entrepreneur.—

(1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely:—

(a) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or services provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;

(b) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India;

(c) exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;

(d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;

(e) exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;

(f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre;

(g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.

(2) The Central Government may prescribe, the manner in which, and, the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1).’

The terms and conditions referred to in section 26(2) supra are enumerated in Special Economic Zones Rules, 2006 which, for the purpose of operationalizing the Act, was notified on 10^th February 2006. Hence, the Tribunal demarcated the two periods for the purpose of determining exemption under the notification and the Act. Presumably, there is no error insofar as the former is concerned and the application is limited to the latter.

7. The exemption from service tax is, unlike goods, not related to place where the service is physically rendered but to the extent of deployment in pursuit of carrying out ‘authorized operations’ and, that too, in accordance with the Special Economic Zones Rules, 2006. ‘Authorized operations’ is defined in section 2(c) of Special Economic Zones Act, 2005 and any demand made under section 73 of Finance Act, 1994 without ascertainment of usage for ‘authorized operations’, thus defined, lacks authority of law. It has never been the case of Revenue that such exercise had been carried out by the adjudicating authority and found wanting. It is, thus, all too clear that the present application has been made without comprehending of the scope of section 26(2) of Special Economic Zones Act, 2005.

8. The Special Economic Zones Act, 2005 is a successor to the scheme operating under the Foreign Trade Policy, notified in accordance with empowerment of Foreign Trade (Development & Regulation) Act, 1992 as well as the erstwhile chapter XA of Customs Act, 1962 which itself was a consequence of re-grafting from Central Excise Act, 1944 in 2003. notification no. 4/2004-ST dated 31^st March 2004was, thus, issued as a facilitating exemption and, that too, under section 93 of Finance Act, 1994 for ‘zero rating’ of taxes and duties without reference to those statutory provisions relating to special economic zones.

9. As

‘58. Savings.—All rules made or purporting to have been made or all notifications issued or purporting to have been issued under any Central Act relating to the Special Economic Zones shall, in so far as they relate to matters for which provision is made in this Act or rules made or notification issued thereunder and are not inconsistent therewith, be deemed to have been made or issued under this Act as if this Act had been in force on the date on which such rules were made or notifications were issued and shall continue to be in force unless and until they are superseded by any rules made or notifications issued under this Act.’

of Special Economic Zones Act, 2005 is specific to statutes relating to Special Economic Zone for notifications to continue to be applicable, to the extent of not being inconsistent with the new dispensation, only those if issued under authority of either chapter XA of Customs Act, 1962 or of Foreign Trade (Development & Regulation) Act, 1992 can claim continuity of existence thereby. That is not the submission of the applicant herein. There can be no claim that Finance Act, 1994 relates to Special Economic Zone in any manner as there is no reference therein to such expression and a notification, under section 93 of Finance Act, 1994 enabling exemptions generally or to a class of service-providers, can have no pretence to being saved by section 58 of Special Economic Zones Act, 2005. Moreover, such saving is founded on lack of inconsistency in the secondary legislation and it has been held by the Tribunal that it is that very inconsistency which led to discarding of provisions in the impugned notification that insist upon restriction not contemplated in section 26 of Special Economic Zone Act, 2005.

10. In the light of above findings, the application is devoid of merit and deserves to be rejected.

(Order pronounced in the open court on 24/08/2023)

Notes:-

¹ [final order no. A/87827/16/STB dated 8^th June 2016]

² [service tax appeal no. ST/11/2012]

³ [order-in-original no. 56/BR-56/ST/Th-1/2011 dated 30^th September 2011]