Exporters Cannot Switch Service Tax Rebate Options Retrospectively After Claim Rejection: CESTAT Chennai

RBA Exports Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

Summary : M/s. RBA Exports Ltd. challenged the partial rejection of service tax rebate claims under Notification No. 41/2012-ST dated 29 June 2012. CESTAT Chennai considered twelve appeals involving exports made between July 2012 and June 2015. The manufacturer-exporter had claimed rebates based on service tax actually paid on specified export-related services through Form A-1 under paragraph 3 of the notification.

The first four quarterly claims totalled ₹5,26,460, of which ₹2,21,669 was rejected. Eight subsequent quarterly claims totalled ₹16,13,801, of which ₹5,29,879 was rejected. Across all twelve appeals, the disputed rejection amounted to ₹7,51,548 out of aggregate claims of ₹21,40,261.

The departmental authorities had verified the supporting documents, tax payment, non-receipt of rebate under paragraph 2 and arithmetic accuracy. Nevertheless, they rejected documentary rebate on shipping bills where the claim did not meet the minimum threshold imposed by clause (c) of the proviso to Notification No. 41/2012-ST.

The applicable Schedule rebate rate was 0.08% of the free-on-board value of exported goods. The Tribunal held that the documentary rebate route under paragraph 3 was available only where the amount claimed was at least 20% higher than the Schedule rebate, producing a threshold of 0.096% of the FOB value. The comparison was correctly made separately for each shipping bill.

The exporter argued that the show cause notices did not disclose sufficient arithmetic calculations and therefore violated natural justice. Relying on Gorkha Security Services, it contended that the proposed rejection lacked adequate particulars. The Tribunal rejected this contention because the notices identified the legal ground, the calculations used figures supplied by the exporter, and no specific error or prejudice was demonstrated.

The exporter alternatively submitted that even if its documentary claims failed, it should receive rebate under paragraph 2 at the Schedule rate. The Tribunal held that paragraphs 2 and 3 constitute separate routes requiring an election when the electronic shipping bill is presented. The exporter had not made the necessary paragraph 2 declaration and could not retrospectively substitute that route after the paragraph 3 claims failed.

The Tribunal distinguished R.N. Bajaj Overseas, where the electronic data interchange facility was not functioning and the exporter could not exercise the Schedule-rate option. RBA Exports had not established any comparable impossibility. The Tribunal also explained that section 149 of the Customs Act could not be used merely to retrospectively create an election that had not been made at export.

Addressing beneficial construction, the Tribunal considered Dilip Kumar and Company, Hari Chand Shri Gopal, Mother Superior Adoration Convent and other decisions. It accepted that export rebates serve a beneficial policy of preventing export of taxes, but held that liberal interpretation cannot override an express substantive eligibility condition or the notification’s clear two-route mechanism.

The Tribunal further relied on ITC Ltd. and the finality of self-assessment to explain that the paragraph 2 rebate could not be awarded in appeals against rejection of paragraph 3 Form A-1 claims when the shipping bills remained unamended. It expressly left open any question of a separate application under section 149 before the competent customs authority.

Accordingly, the Tribunal upheld the two common appellate orders and dismissed Service Tax Appeal Nos. 42111–42114 of 2016 and 41066–41073 of 2017. The appellant had expressly abandoned a separate ₹741 component described as ineligible during its submissions.

Cases Discussed

• Gorkha Security Services v. Government of NCT of Delhi — (2014) 9 SCC 105; 2014 (8) TMI 1081 (SC)
• Commissioner of Customs (Preventive), Amritsar v. Malwa Industries Ltd. — 2009 (235) ELT 214 (SC)
• Bharat Heavy Electricals Ltd. v. Commissioner of C. Ex., Bhopal — 2017 (49) STR 81 (Tri.-Del.)
• In re R.N. Bajaj Overseas — 2018 (15) GSTL 473 (GOI)
• Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company — 2018 (361) ELT 577 (SC); (2018) 9 SCC 1
• Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal — 2010 (260) ELT 3 (SC)
• Union of India v. Wood Papers Ltd. — 1990 (47) ELT 500 (SC)
• Government of Kerala v. Mother Superior Adoration Convent — 2021 (376) ELT 242 (SC)
• Commissioner of Customs (Preventive), Mumbai v. M. Ambalal and Co. — 2010 (260) ELT 487 (SC)
• Commissioner of Central Excise, Surat I v. Favourite Industries — 2012 (278) ELT 145 (SC)
• SPI Technologies India Pvt. Ltd. — 2026 (6) TMI 528 (CESTAT Chennai)
• Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner — 1991 (55) ELT 437 (SC)
• ITC Ltd. v. Commissioner of Central Excise, Kolkata IV — 2019 (368) ELT 216 (SC)
• Commissioner of Customs, Central Excise and Service Tax (Appeals II), Hyderabad v. Standard Consultants Ltd. — 2022 (381) ELT 582 (SC)
• Mafatlal Industries Ltd. v. Union of India — 1997 (89) ELT 247 (SC)
• Shree Balaji Warehouse v. Commissioner of Central Excise and Service Tax, Panchkula — (2023) 11 Centax 184 (Tri.-LB)
• Commissioner of Service Tax v. Hardy Exploration and Production (India) Ltd. — 2026 (8) TMI 731 (Mad.)

FULL TEXT OF THE CESTAT CHENNAI ORDER

M/s. RBA Exports Ltd., the appellant herein, has preferred these twelve appeals against two common orders of the Commissioner of Central Excise (Appeals I), Chennai. Service Tax Appeal Nos. 42111 to 42114 of 2016 are preferred against Order in Appeal Nos. 147 to 150/2016 (CXA II) dated 29.07.2016, and Service Tax Appeal Nos. 41066 to 41073 of 2017 against Order in Appeal Nos. 39 to 46/2016 (CXA II) dated 16.02.2017 (together, the impugned orders), to the extent that they uphold the rejection of rebate of service tax claimed under Notification No. 41/2012-ST dated 29.06.2012 (the notification). Since the appeals raise a common question of law on common facts, they were heard together and are disposed of by this common order.

Relevant Facts

2. The appellant is a manufacturer registered under the Central Excise Act, 1944 with its factory at the SIPCOT Industrial Estate, Gummidipoondi. It exports the excisable goods it manufactures and receives taxable services that are used in the course of such export, on which it has paid service tax. For each quarter between July 2012 and June 2015 it filed a claim in Form A-1 before the jurisdictional Assistant or Deputy Commissioner under paragraph 3 of the notification, seeking rebate of the service tax actually paid on the specified services on the basis of documents. It is undisputed that the appellant did not seek rebate under paragraph 2 of the notification on any of the shipping bills concerned.

3. The first group of four claims relates to the quarters July to September 2012, October to December 2012, January to March 2013 and April to June 2013. The appellant claimed Rs.1,00,449/-, Rs.1,29,356/-, Rs.1,56,744/- and Rs.1,39,911/- respectively, aggregating Rs.5,26,460/-. By Orders in Original Nos. 311/2015 (RF) on a show cause notice dated 09.09.2014, 313/2015 (RF) on a show cause notice dated 08.08.2014, 314/2015 (RF) and 312/2015 (RF) on show cause notices dated 14.10.2014, the refund sanctioning authority rejected Rs.41,902/-, Rs.61,744/-, Rs.64,878/- and Rs.53,145/- out of these claims, aggregating Rs.2,21,669/-. The appeals of the appellant were rejected by the common Order in Appeal dated 29.07.2016, which is assailed in Service Tax Appeal Nos. 42111 to 42114 of 2016.

4. The second group of eight claims relates to the eight quarters from July 2013 to June 2015. For the quarter July to September 2013 the appellant claimed Rs.1,98,380/-, of which Rs.1,07,640/-was rejected by Order in Original No. 038/2016 dated 25.02.2016 on a show cause notice dated 26.06.2015. For the three quarters from October 2013 to June 2014, the appellant claimed Rs.1,20,986/-, Rs.1,65,219/- and Rs.1,56,755/-, of which Rs.82,848/-, Rs.57,560/- and Rs.38,386/- were rejected by Orders in Original Nos. 65/2016, 66/2016 and 67/2016, all dated 30.03.2016, on show cause notices dated 29.02.2016. For the two quarters from July to December 2014, the appellant claimed Rs.2,28,948/- and Rs.2,51,945/-, of which Rs.58,223/- and Rs.1,07,490/- were rejected by Orders in Original Nos. 119/2016 and 120/2016 dated 20.06.2016, on show cause notices dated 15.04.2016. For the two quarters from January to June 2015, the appellant claimed Rs.2,74,182/- and Rs.2,17,386/-, of which Rs.33,950/- and Rs.43,782/- were rejected by Orders in Original Nos. 161/2016 and 159/2016 dated 29.07.2016, on show cause notices dated 20.06.2016. The second group thus comprises claims of Rs.16,13,801/-, out of which Rs.5,29,879/- stands rejected. The appeals against these orders were rejected by the common Order in Appeal dated 16.02.2017, which is assailed in Service Tax Appeal Nos. 41066 to 41073 of 2017. Across both groups, the appellant claimed Rs.21,40,261/-, and the rejection under challenge is of Rs.7,51,548/-.

5. In each case the show cause notice proposed to reject the claim, to the extent the documented rebate on a shipping bill did not exceed the rebate admissible under the Schedule of rates by at least twenty per cent, on the strength of clause (c) of the proviso to the opening paragraph of the notification.

6. The refund sanctioning authority verified the claims and found that each was complete in every respect, that the documents evidencing payment of service tax on the specified services had been filed after due certification, that rebate had not already been received on the shipping bills under the procedure in paragraph 2, and that the claims were arithmetically accurate. The claims were nonetheless rejected in part. The authority noted that the rate fixed in the Schedule of rates for the goods exported was 0.08 per cent of the FOB value, so that under clause (c) a claim under paragraph 3 would lie on a shipping bill only where the documented rebate was at least 0.096 per cent of its FOB value, that is to say, 0.08 per cent together with twenty per cent of 0.08 per cent. Comparing the claim on each shipping bill with that threshold, the authority rejected the claims relating to shipping bills that fell short of it and sanctioned the remainder. The Commissioner (Appeals) affirmed these findings and rejected the appeals by the impugned orders. Aggrieved and having preferred these appeals, the appellant is before this Tribunal.

Submissions on behalf of the appellant

7. Shri G. Shiva Kumar, learned Advocate for the appellant, confined the dispute to a single question. The appellant, he pointed out, did not seek rebate under paragraph 2 and pursued its claims under paragraph 3 on the basis of the service tax actually paid. The Department has accepted that the claims were complete and arithmetically accurate and that the specified services were used for export. Yet, by applying clause (c) shipping bill by shipping bill, it has allowed nothing on the shipping bills that fell below the threshold, either under paragraph 3 or under paragraph 2. In the first group of appeals alone, he urged that the show cause notices and the consequent orders are vitiated because they disclose no intelligible basis or arithmetical working for the amounts proposed to be rejected, and that a notice which does not disclose the factual and numerical basis of the proposed action offends the principles of natural justice, relying on Gorkha Security Services v. Government of NCT of Delhi, (2014) 9 SCC 105 : 2014 (8) TMI 1081-Supreme Court.

8. Common to all the appeals, and without prejudice to the first contention, Ld. Counsel argued that even if the claims under paragraph 3 were not maintainable, the appellant remains entitled to rebate under paragraph 2. The Orders in Original themselves record that no rebate has been granted under paragraph 2, and the denial of paragraph 3 cannot deprive the exporter of the alternative relief that paragraph 2 expressly provides where the conditions of the notification are otherwise met. The use of the specified services in export is undisputed, and the notification must therefore be given effect to in favour of the exporter rather than be defeated by a hyper technical construction. Reliance was placed on Commissioner of Customs (Preventive), Amritsar v. Malwa Industries Ltd., 2009 (235) E.L.T. 214 (S.C.), for the proposition that a person entitled to the benefit of a notification cannot be deprived of it by a narrow interpretation, on Bharat Heavy Electricals Ltd. v. Commissioner of C. Ex., Bhopal, 2017 (49) S.T.R. 81 (Tri. Del.), for a purposive construction of this very notification, and on the order of the Revisionary Authority in In re R.N. Bajaj Overseas, 2018 (15) G.S.T.L. 473 (G.O.I.), as supporting the grant of rebate under paragraph 2 where export is established even though the claim was first made under paragraph 3. Ld. Counsel prayed that the appeals be allowed and the rebate sanctioned with consequential relief, save for an amount of Rs.741/-denied as ineligible in the OIO No.313/2015(RF) and upheld in the OIA dated 29.07.2016, which the counsel stated is being given up as not contested.

Submissions on behalf of the respondent

9. Shri M. Selvakumar, learned Authorised Representative for the Revenue, reiterated the findings of the lower authorities and supported the impugned orders.

Analysis

10. This Tribunal has heard both sides and perused the appeal records and the compilation of authorities filed by the appellant.

11. The following issues arise for determination:

i. Whether the orders in the first group of appeals stand vitiated for want of disclosure of the arithmetical basis of the proposed rejection?

ii. Whether the claims under paragraph 3 were rightly rejected to the extent clause (c) of the proviso was found to apply?

iii. Whether the appellant, having elected paragraph 3, is entitled in the alternative to rebate at the Schedule rates under paragraph 2 on the very shipping bills on which its paragraph 3 claim failed and whether such a claim can be entertained in these proceedings at all when the shipping bills stand as filed? and

iv. Whether the principle of beneficial or liberal construction of exemptions alters the answer to the second and third questions?

A. The challenge founded on natural justice

12. This Tribunal takes up first the objection confined to the first group of appeals, since it goes to the validity of the proceedings and would, if it succeeded, dispose of those appeals without more. In Gorkha Security Services the Hon’ble Supreme Court held, in paragraph 20, that a show cause notice must state the material or grounds which in the view of the authority necessitate action and the particular penalty or action proposed. The notice in that case had not proposed blacklisting at all, and the blacklisting was set aside for that reason. The decision is no authority for the proposition that a notice proposing rejection of a refund on a stated ground of law is void because it does not set out the arithmetic that follows mechanically from the claimant’s own figures.

13. Here the ground was clause (c) of the proviso and the action proposed was rejection to the extent that clause applied. The adjudication orders record the method undertaken, namely the comparison of the documented rebate on each shipping bill against 0.096 per cent of its FOB value. The figures on which that comparison rests are the appellant’s own, drawn from the shipping bill wise particulars it furnished in Form A-1. The appellant contested the rejection on its merits before the appellate authority, and it does so again before this Tribunal. It has not identified a single shipping bill on which the comparison has gone wrong, nor any prejudice suffered by the absence of a worked table in the notice. The principles of natural justice are not an empty formality to be invoked in the abstract, and a grievance of this kind, unaccompanied by any demonstrable prejudice, does not vitiate the proceedings. This Tribunal is of the considered view that therefore, the first contention fails.

B. The scheme of the notification and the claims under paragraph 3

14. The notification was issued under section 93A of the Finance Act, 1994. It grants rebate of service tax paid on taxable services received by an exporter of goods and used for export, by way of refund, subject to the extent and manner specified. The opening paragraph carries a proviso whose clauses (b) and (c), the heart of the present dispute, read as under.

“(b) the rebate shall be claimed either on the basis of rates specified in the Schedule of rates annexed to this notification (hereinafter referred to as the Schedule), as per the procedure specified in paragraph 2 or on the basis of documents, as per the procedure specified in paragraph 3;

(c) the rebate under the procedure specified in paragraph 3 shall not be claimed wherever the difference between the amount of rebate under the procedure specified in paragraph 2 and paragraph 3 is less than twenty per cent of the rebate available under the procedure specified in paragraph 2;”

(emphasis supplied)

15. Clause (b) employs the correlative “either … or”. The two procedures it names are not stages of one claim but two distinct routes, each with its own measure of rebate and its own machinery. Paragraph 2 is a fixed rate route. The exporter registers its central excise registration number or service tax code and bank account with the customs, and makes a declaration “in the electronic shipping bill or bill of export … while presenting the same to the proper officer of customs” that the rebate is claimed as a percentage of the declared FOB value at the Schedule rate, that no further rebate shall be claimed under paragraph 3 or in any other manner, including on the ground that the rebate obtained is less than the service tax paid, and that the conditions of the notification have been fulfilled. The rebate is then calculated on the FOB value and credited to the exporter’s bank account. Clause (g) of paragraph 2 adds that a shipping bill on which rebate has been claimed under that paragraph shall not be used for a claim on the basis of documents under paragraph 3. Paragraph 3 is a document based route. The claim is filed in Form A-1 before the jurisdictional Assistant or Deputy Commissioner within one year of export, with certified invoices evidencing payment of the tax, and is sanctioned after that officer satisfies himself, among other things, under clause (k)(iii), that rebate has not already been received on the shipping bills under paragraph 2. The declaration in Form A-1 likewise affirms that electronic rebate has not been received from customs on the shipping bills on which rebate is claimed.

16. Two features of this design bear directly on the appeals. The first is that the paragraph 2 route can be taken only at one point of time and in one manner, namely by a declaration in the electronic shipping bill when it is presented. The election is exercised shipping bill by shipping bill, for clause (g) of paragraph 2, clause (k)(iii) of paragraph 3 and the declaration in Form A-1 all speak of the shipping bill. A manufacturer exporter is therefore free to take paragraph 2 on some shipping bills and to reserve others for paragraph 3. But whichever route it takes for a given shipping bill, the choice is made when that shipping bill is presented. The second feature is clause (c). Paragraph 3 is not an open alternative available at the exporter’s pleasure. It is available only where the documented rebate exceeds the Schedule rebate by twenty per cent or more. The Schedule rates fix, for each class of goods, a standard measure of the incidence of tax on the specified services, and the notification prefers that rebate be taken through the simple, automated customs route. The document based route, with the verification it entails, is opened only where the actual incidence materially exceeds the average, and clause (c) fixes the margin at twenty per cent. The Revisionary Authority in R.N. Bajaj Overseas, on which the appellant itself relies, read the scheme in exactly this manner, observing that “claiming of rebate under Para 2 is encouraged and the rebate of Service Tax under Para 3 is allowed only when amount of rebate filed under Para 3 on the basis of actual payment of Service Tax is higher by 20% as compared to the amount of rebate under Para 2”.

17. Clause (c) is, in this sense, a condition of eligibility for the paragraph 3 route. It is couched in mandatory and prohibitory terms (“shall not be claimed”). It is not a direction about the form or timing of a claim. It defines the class of shipping bills on which a documentary claim may be made at all. The comparison it prescribes is also necessarily shipping bill wise, since the Schedule rebate is computed on the FOB value of each shipping bill under paragraph 2(e) and the bar in clause (g) of paragraph 2 operates on each shipping bill. The lower authorities applied it in that manner. For goods attracting the Schedule rate of 0.08 per cent during the period in dispute, the arithmetic that the documented claim must reach 0.096 per cent of the FOB value is unexceptionable, and the appellant does not dispute it. The claims to the extent rejected relate to shipping bills that fell short of that threshold. Their rejection under paragraph 3 is a faithful application of the notification.

18. Ld. Counsel for the appellant placed reliance on Bharat Heavy Electricals for a purposive reading of the notification. That decision construed clause (b) of paragraph 3, which provides that the person liable to pay service tax under section 68 on the taxable service provided to the exporter shall not be eligible to claim rebate. Read literally, the clause would have denied rebate altogether to every exporter who discharges tax on a service such as goods transport under reverse charge, since such an exporter is itself the person liable under section 68(2). The Tribunal held that such a reading would render the notification useless in all reverse charge cases, which could not have been the intention, and held the rebate payable to the exporter which had paid the tax and used the service in export. Two things follow for the present case. Paragraph 3(b) itself illustrates that the notification attaches distinct conditions to each route, which reinforces our reading that paragraphs 2 and 3 are separate avenues rather than alternatively interchangeable stages for one claim. And Bharat Heavy Electricals construed a clause whose literal application would have frustrated the object of the notification for a whole class of exporters. Clause (c) does nothing of the kind. It does not deny rebate to anyone. It channels the exporter to the Schedule route where the documented incidence is not materially higher. Its plain application advances, rather than defeats, the design of the scheme.

19. This Tribunal also notices that Notification No. 1/2016-ST dated 03.02.2016 later substituted clause (A)(i) of the Explanation to refer to services used beyond the factory or other place of production, omitted clause (B) defining place of removal, and enhanced the Schedule rates, including the rate of 0.08 per cent to 0.09 per cent. The amendment postdates the period in dispute and does not govern it. This Tribunal refers to it only because it confirms that, even while revisiting the definition of specified services and the rates, the Central Government left clauses (b) and (c) of the proviso and the architecture of paragraphs 2 and 3 untouched.

C. Whether the appellant can fall back on paragraph 2

20. The principal submission of the Ld. Counsel is that the failure of the paragraph 3 claim on any shipping bill should be met by the grant of rebate at the Schedule rate under paragraph 2 on that shipping bill, since the exporter would in any event have been entitled to that much. The submission has an evident equitable appeal, but this Tribunal is unable to accept it, for reasons rooted in the text and structure of the notification.

21. The declarations in paragraph 2(d) are the very means by which the paragraph 2 route is taken. They come into operation once the exporter decides to claim under paragraph 2 on a shipping bill, and they are made in that shipping bill. A shipping bill presented without them is a shipping bill on which the exporter has not taken the paragraph 2 route. The undertaking in paragraph 2(d)(ii) that no further rebate shall be claimed under paragraph 3, and the bar in paragraph 2(g), prevent an exporter who has taken the Schedule rate from returning for more on the documentary route. The notification contains no reverse bar in paragraph 3, and the reason is apparent. None is needed. The paragraph 2 route is open only at the threshold, when the shipping bill is presented. The paragraph 3 claim is filed after export, within one year. By the time an exporter files Form A-1, the occasion for invoking paragraph 2 on those shipping bills has already passed. The “either … or” of clause (b), the timing of the paragraph 2 declaration, the bar in paragraph 2(g) and the verification in paragraph 3(k)(iii) together make the choice of route, for each shipping bill, a single election made at the time of export and final once made.

22. The consequence of reading the scheme otherwise is instructive. If an exporter who has presented its shipping bills without the paragraph 2 declaration could, after its documentary claim fails under clause (c), be granted the Schedule rate in substitution, clause (c) would cease to have any operation. Every exporter could file under paragraph 3 regardless of the margin, secure the documented amount wherever it crossed the threshold, and fall back on the Schedule rate wherever it did not. That is precisely the outcome clause (c) is designed to prevent. The same would follow if an exporter, whether unaware of the notification or otherwise, were permitted to seek amendment of its shipping bills under section 149 of the Customs Act, 1962 after a paragraph 3 claim had been made, so as to insert the paragraph 2 declaration. That section permits the proper officer to authorise amendment of a shipping bill after the goods have been exported only on the basis of documentary evidence which was in existence at the time of export. Its purpose is to correct a document so that it reflects what the position at export was in truth. It is not a means of retrospectively making an election that the exporter did not make, after the other election has been tried and found wanting. Ignorance of the notification does not enlarge the exporter’s rights under it. The appellant does not, in any event, claim to have been unaware of it. Its own case is that it consciously pursued paragraph 3 on the basis of actual payment.

23. The order in R.N. Bajaj Overseas does not assist the appellant. The Revisionary Authority there found, on a fact recorded by the Commissioner (Appeals) and not disputed by the Revenue, that the EDI facility in the customs formation was not functional, so that the exporter had no means of making the paragraph 2 declaration in an electronic shipping bill at all. It held that clause (c) “is not meant for rejection of the rebate claim of the exporter when they were not having the option to file rebate under Para 2 at all for no fault on their part”, while accepting in terms that a paragraph 3 claim “is normally rejectable for non-compliance of the condition stipulated in Proviso (c) of Notification No. 41/2012-S.T. when the exporter is in a position to exercise either of the two options freely and effectively”. The decision thus turned on the impossibility of election. It is not suggested before this Tribunal that the appellant was unable to make the paragraph 2 declaration on any shipping bill. On the reasoning of R.N. Bajaj Overseas itself, the appellant falls in the class of exporters whose paragraph 3 claim is rejectable under clause (c). Moreover, an order of the Revisionary Authority of the Government of India is not a precedent binding on this Tribunal, though this Tribunal has examined its reasoning with care.

24. The submission that the Orders in Original record that no rebate was granted under paragraph 2 does not secure anything in favour of the appellant. That recital is the satisfaction which paragraph 3(k)(iii) obliges the sanctioning authority to record, namely that rebate has not already been received under paragraph 2 on the shipping bills. It reflects the appellant’s own election and is not an acknowledgment that paragraph 2 rebate remains to be granted.

D. Beneficial construction

25. The appellant urged that the notification is a beneficial measure and must be construed liberally. In view of the questions this argument raises about the line of authority on which it depends, this Tribunal considers it necessary to examine it with some care.

26 . The Constitution Bench in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, 2018 (361) E.L.T. 577 (S.C.) : (2018) 9 SCC 1, held that an exemption notification should be interpreted strictly, that the burden of proving its applicability lies on the assessee, and that where there is ambiguity the benefit of it cannot be claimed by the assessee and must go to the Revenue. Earlier, the Constitution Bench in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal, 2010 (260) E.L.T. 3 (S.C.), had held, in paragraphs 22 to 24, that where an exemption is available on compliance with conditions, the mandatory requirements of those conditions must be obeyed or fulfilled exactly, and that the doctrine of substantial compliance cannot be pleaded where “a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met”. The distinction it drew is between provisions “of substantive character” built in with specific objectives of policy and those “merely procedural and technical in their nature”. Dilip Kumar, in paragraphs 46 and 47 of the ELT citation, also approved the two stage approach traced to Union of India v. Wood Papers Ltd., 1990 (47) E.L.T. 500 (S.C.), under which the question whether a subject falls within an exemption is construed strictly, but once that hurdle is crossed the exemption receives a liberal construction. Malwa Industries, in paragraph 20, is an application of this second stage, for it says that those who are entitled to the benefit cannot be deprived of it by a narrow interpretation simpliciter.

27. There is, alongside this, a distinct line of authority which the Supreme Court restated in Government of Kerala v. Mother Superior Adoration Convent, 2021 (376) E.L.T. 242 (S.C.). Building on Commissioner of Customs (Preventive), Mumbai v. M. Ambalal and Co., 2010 (260) E.L.T. 487 (S.C.), and Commissioner of Central Excise, Surat I v. Favourite Industries, 2012 (278) E.L.T. 145 (S.C.), the Court held that even in tax statutes an exemption that grants an incentive for promoting economic growth or otherwise has a beneficial purpose is to be construed liberally, in accordance with its object, and that Dilip Kumar, which did not refer to this line of authority, had not done away with it sub silentio. In paragraph 24 the Court said this.

“24. This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.”

28. It may be asked whether every exemption in a taxing statute is not, by its very nature, beneficial, since every exemption relieves someone of a burden. The answer lies in the passage in Ambalal, paragraph 16, which Mother Superior adopted. The Court there drew a distinction between exemptions generally, which are strictly interpreted, and “beneficial exemptions having their purpose as encouragement or promotion of certain activities”, which are liberally interpreted. The general rule rests on the premise, explained in Dilip Kumar, that an exemption shifts the burden of tax to the unexempted class of taxpayers, so that a claimant must bring itself squarely within it. A beneficial exemption, in the sense in which Ambalal and Mother Superior use the expression, is one granted to further an identified public purpose, such as the promotion of industry in a backward area, the encouragement of investment, or the relief of religious, charitable and educational activity. In such a case the object of the exemption itself supplies the key to its construction. Benefit to the assessee is common to all exemptions. What sets a beneficial exemption apart is a purpose beyond the relief itself, which the legislature or the delegate has chosen to promote. Nor can it be said that this line of authority is confined to non fiscal enactments. Ambalal arose under the Customs Act and Favourite Industries under the Central Excise Act, and the Kerala Building Tax Act considered in Mother Superior is itself a taxing statute. The line of authority applies to exemptions in fiscal statutes where they bear the requisite character.

29. This Tribunal is prepared to proceed on the basis that the notification belongs to this class. A rebate of service tax on services used for the export of goods serves the settled policy that taxes are not to be exported, and its purpose is the promotion of exports. Strictly, it is a rebate and not an exemption, but the principles of construction are not materially different. Even so, the beneficial construction does not carry the appellant where it wishes to go, for three reasons. First, Ambalal itself, in the very passage relied upon in Mother Superior, begins with the proposition that the notification has to be read as a whole and that if any of the conditions laid down in it is not fulfilled, the party is not entitled nterto its benefit. The liberal construction of a beneficial exemption is a tool for discerning the reach of the words used in the light of their object. It is not a licence to disregard a condition which the delegate has expressly imposed. Secondly, Mother Superior resolves ambiguity in favour of that which is exempted. There is no ambiguity in clause (b) or clause (c). The words “either … or” and “shall not be claimed wherever the difference … is less than twenty per cent” admit of one meaning only. Thirdly, the object of this notification is not merely to refund the tax but to do so through a particular scheme, in which the Schedule route is the rule and the documentary route the exception. A construction that allows an exporter to try the exception and then claim the rule after the event does not advance the object of the notification. It overrides the means the notification has chosen to achieve it.

30. This Tribunal has also considered the decision in SPI Technologies India Pvt. Ltd., 2026 (6) TMI 528- CESTAT CHENNAI, where the Tribunal applied Mother Superior to a rebate under Notification No. 12/2005-ST and held that the omission to file a declaration of inputs on one occasion could not defeat the rebate. The declaration there was a procedural requirement relating to details always verifiable from the exporter’s records, and the Tribunal relied on the distinction drawn in Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner, 1991 (55) E.L.T. 437 (S.C.), between conditions which are substantive and rest on considerations of policy and those which belong to the area of procedure. That very distinction places clause (c) on the opposite side of the line. It is a substantive condition of eligibility, built in with a specific policy objective, and the election of route which it regulates goes to the substance of the scheme. The appellant has not been denied rebate for a technical lapse. It has been held to the route it chose, and on the shipping bills in question that route was closed by the express terms of the notification. Malwa Industries does not assist it either, for that decision protects one who is entitled to the benefit. The appellant has not established its entitlement to the paragraph 3 rebate on these shipping bills, and it never took the paragraph 2 route on them.

E. Whether rebate under paragraph 2 can be granted in these proceedings

31. There is a further and independent reason why the alternative prayer cannot be granted, and it concerns the forum and the document on which paragraph 2 operates. A paragraph 2 rebate is founded on the electronic shipping bill. The declaration that sets it in motion is part of the entry of the export goods made under section 50 of the Customs Act and self assessed under section 17. Circular No. 17/2011-Cus dated 08.04.2011, issued on the introduction of self-assessment in F.No.450/26/2011-Cus. IV, required the exporter to declare in the shipping bill, at the time of self assessment, the benefit of exemption notifications claimed, which underlines that benefits under notifications attach to the content of the entry itself. The rebate is computed on the declared FOB value and credited to the exporter’s bank account through the customs system. The appellant’s shipping bills were presented and self assessed without the paragraph 2 declaration, and that is how they stand. No amendment of them has been sought or authorised under section 149, and no proceeding to modify them is before this Tribunal. What the appellant asks is that the Assistant Commissioner of Central Excise, while deciding a Form A-1 claim under paragraph 3, and this Tribunal in appeal from his order, treat those shipping bills as though they carried a declaration they do not carry, and grant a rebate which the notification entrusts to the customs on the strength of that declaration.

32. The Supreme Court held in ITC Ltd. v. Commissioner of Central Excise, Kolkata IV, 2019 (368) E.L.T. 216 (S.C.), that refund proceedings are in the nature of execution, that the officer processing a refund cannot reassess or adjudicate the conditions of an exemption, and that a claim for refund cannot be entertained unless the order of assessment or self assessment is first modified in accordance with law. In paragraph 47 it held as under.

“47. When we consider the overall effect of the provisions prior to amendment and post-amendment under Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.”

33. The same principle was applied in Commissioner of Customs, Central Excise and Service Tax (Appeals II), Hyderabad v. Standard Consultants Ltd., 2022 (381) E.L.T. 582 (S.C.), where refunds allowed by the Tribunal without any challenge to the self assessment were set aside. It is an expression of the wider principle of finality stated by the nine Judge Bench in Mafatlal Industries Ltd. v. Union of India, 1997 (89) E.L.T. 247 (S.C.), in paragraph 70, that “where a duty has been collected under a particular order which has become final, the refund of that duty cannot be claimed unless the order (whether it is an order of assessment, adjudication or any other order under which the duty is paid) is set aside according to law”, and restated in proposition (iv) of paragraph 99.

34. This Tribunal is conscious that a Larger Bench of this Tribunal in Shree Balaji Warehouse v. Commissioner of Central Excise and Service Tax, Panchkula, (2023) 11 Centax 184 (Tri. LB), held by majority that ITC Ltd. does not apply to refunds of service tax self assessed in ST-3 returns, because the provisions of sections 17, 27 and 128 of the Customs Act are not in pari materia with the scheme of assessment and appeal under the Finance Act, 1994. That decision does not touch the present question. The document whose content the appellant seeks to have disregarded is not an ST-3 return. It is a shipping bill, an entry made and self assessed under the Customs Act itself, to which the reasoning in ITC Ltd. applies on its own terms. Nor is this a case like Commissioner of Service Tax v. Hardy Exploration and Production (India) Ltd., 2026 (8) TMI 731 (Mad.), where the jurisdictional High Court allowed refund to a service recipient of tax collected without authority of law, holding that its retention would offend Article 265 of the Constitution. The service tax paid by the appellant on the specified services was lawfully leviable. What the appellant claims is a statutory rebate on conditions, and the question is whether those conditions have been met, not whether the State holds money it had no authority to collect.

35. This Tribunal makes clear the limits of this conclusion. The appellant did challenge the Orders in Original rejecting its paragraph 3 claims, and those challenges are what has been decided on merits in Part B. The principle in ITC Ltd. and Mafatlal is not invoked against those claims. It bears only on the alternative prayer for paragraph 2 rebate, which depends on the content of shipping bills that the appellant has never sought to modify in the manner the law provides. Whether any such modification could now be sought under section 149, and with what result, is a matter for the proper officer of customs and is not before this Tribunal, and hence no opinion is expressed on it beyond what was said in Part C about the nature of the election under the notification.

36. In conclusion, collating these threads together, this Tribunal holds that the proceedings in the first group of appeals are not vitiated by any breach of the principles of natural justice, that the claims under paragraph 3 were rightly rejected to the extent the documented rebate on the shipping bills concerned fell below 0.096 per cent of their FOB value, as clause (c) of the proviso requires, and that the appellant, having elected the documentary route under paragraph 3 on those shipping bills, is not entitled to be granted rebate at the Schedule rates under paragraph 2 in substitution. The notification gave the appellant a choice of route at the time of export. It exercised that choice. The result on some of its shipping bills is the consequence of the choice and of the express condition attached to it, not of any want of beneficence in the notification or of any error by the lower authorities. The impugned orders are well founded and call for no interference.

37. In view of the aforesaid analysis, Service Tax Appeal Nos. 42111 to 42114 of 2016 and Service Tax Appeal Nos. 41066 to 41073 of 2017 are dismissed. The impugned Orders in Appeal Nos. 147 to 150/2016 (CXA II) dated 29.07.2016 and Nos. 39 to 46/2016 (CXA II) dated 16.02.2017 are upheld.

(Order pronounced in the open court on 28.10.2026)