Case Law Details
N.M. Zackriah & Co. Vs Commissioner of Service Tax (CESTAT Chennai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai has issued an order in the case of N.M. Zackriah & Co. vs. Commissioner of Service Tax, emphasizing that service tax exemptions cannot be claimed without fulfilling the prescribed conditions. This article provides a comprehensive analysis of the CESTAT’s decision.
The case revolves around N.M. Zackriah & Co., which is engaged in the manufacture and export of Full Shoes and Shoe Uppers. The company utilized services classified under ‘goods transport agency service’ and ‘business auxiliary service’ provided by commission agents located outside India in relation to the export of goods.
The appellant had filed Form EXP-1 on 20.11.2009 to avail an exemption from paying Service Tax for two specified services, as per Notification No. 18/2009-S.T. dated 07.07.2009. Subsequently, they filed Form EXP-2 on 31.12.2010, based on which they claimed exemption from Service Tax.
The Revenue authorities noticed that the appellant had claimed exemption from Service Tax for 52 shipping bills. Out of these, 51 shipping bills pertained to the period from 08.12.2009 to 31.03.2010, and their details were submitted only on 31.12.2010, missing the due date of 15.10.2010. Furthermore, it was observed that the appellant had not complied with the stipulated condition that required the submission of original documents reflecting the actual payment of commission along with a copy of the contract.
This led to the issuance of a Show Cause Notice dated 11.08.2011.
During adjudication, the original authority passed Order-in-Original No. 8/2012 (Service Tax) dated 16.08.2012, confirming the demand as proposed in the Show Cause Notice.
The appellant then appealed to the first appellate authority. However, their appeal was rejected through the impugned Order-in-Appeal No. 23/2014 (M-III) ST dated 10.02.2014, prompting the filing of the present appeal before the CESTAT Chennai.
In the impugned order, the Commissioner (Appeals) observed that the adjudicating authority had denied the exemption because the appellant did not fulfill the conditions specified in Notification No. 18/2009-S.T. The appellant failed to produce necessary documents such as shipping bills, agreements/contracts with agents, and original documents showing the actual payment of commission to foreign agents.
The Commissioner (Appeals) also noted that the appellant did not file the EXP-2 return in a timely manner, as prescribed by proviso (c) to the Notification.
The appellant argued that they paid commission to foreign commission agents only after realizing sale proceeds from their buyers, which took approximately two to three months from the date of export clearance. They claimed that exemption from Service Tax on the commission could only be applied at the time of payment to foreign commission agents and not at the time of shipping the goods. Therefore, they could not provide full details of commission paid at the time of clearance, as required under Table B, within the prescribed time limit.
The appellant contended that this was a procedural lapse common to exporters and that the exemption conditions were challenging to meet. They cited various orders to support their argument.
In contrast, the Ld. Departmental Representative supported the findings of the lower authorities.
The crucial issue in this dispute was whether the appellant’s claim for exemption adhered to the conditions specified in Notification No. 18/2009-S.T.
The CESTAT Chennai noted that when availing the benefit of an exemption Notification, it should be construed strictly, and the burden of proving applicability rests on the assessee. The CESTAT highlighted that exemptions cannot be claimed by exploiting ambiguity in the Notification, and any ambiguity should be interpreted in favor of the revenue.
The CESTAT found that the appellant had not produced essential documents, including shipping bills, agreements with foreign agents, and original documents verifying commission payments. While the appellant argued that they could not provide all details within the prescribed time frame due to their payment process, the CESTAT upheld the original authority’s findings.
The CESTAT emphasized that the appellant did not fulfill the conditions of the exemption Notification, leading to the dismissal of their appeal.
Conclusion:
The CESTAT Chennai’s decision in the case of N.M. Zackriah & Co. vs. Commissioner of Service Tax underscores the importance of adhering to the specified conditions when claiming service tax exemptions. The CESTAT’s strict interpretation of exemption Notifications highlights the need for precise compliance with procedural requirements. This case serves as a reminder to businesses that exemptions should be pursued diligently and in full compliance with tax regulations to avoid disputes and penalties.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1. The brief and admitted facts leading to the present dispute are that the appellant is engaged in the manufacture and export of Full Shoes and Shoe Uppers falling under TSH 64 of the Schedule to the Central Excise Tariff Act, 1985 and is utilizing the services under ‘goods transport agency service’ and commission agents located outside India under ‘business auxiliary service’ in relation to export of goods.
1.2 It appears that the appellant had filed Form EXP-1 dated 20.11.2009 to avail exemption from payment of Service Tax relating to two specified services, under Notification No. 18/2009-S.T. dated 07.07.2009. The appellant filed Form EXP-2 dated 31.12.2010, based on which they claimed exemption from payment of Service Tax.
2. The Revenue appears to have noticed that the appellant had claimed exemption from payment of Service Tax in respect of 52 shipping bills, out of which 51 shipping bills related to the period from 08.12.2009 to 31.03.2010 for which the details were submitted only on 31.12.2010 instead of the due date i.e., 15.10.2010. The Revenue also appears to have noticed that the appellant had not complied with the stipulated condition that original documents reflecting actual payment of commission along with a copy of the contract must be enclosed in terms of paragraph 4 under Col. (4) of Sl. No. 2 of the said Notification. The same thus resulted in the issuance of Show Cause Notice dated 11.08.2011.
3. Considering the explanation offered by the appellant, in adjudication, the original authority passed the Order-in-Original No. 8/2012 (Service Tax) dated 16.08.2012, thereby confirming the demand as proposed in the Show Cause Notice.
4. It is against the order confirming the demand that the appellant approached the first appellate authority, but however, even the first appellate authority, having rejected their appeal vide impugned Order-in-Appeal No. 23/2014 (M-III) ST dated 10.02.2014, the present appeal has been filed before this forum.
5. Heard Shri Arun Kurian Joseph, Ld. Advocate and Shri Harendra Singh Pal, Ld. Assistant Commissioner.
6.1 In the impugned order, the Commissioner (Appeals) has observed that the adjudicating authority had denied the benefit of exemption since the appellant did not fulfil the conditions specified under Notification No. 18/2009- S.T. (supra). He has further observed that the appellant did not produce the documents namely, (i) shipping bills, (ii) agreement/contract with the agent and (iii) original documents showing the actual payment of commission to the agent.
6.2 Further the first appellate authority has also observed regarding delayed filing of the EXP-2 return; that in terms of proviso (c) to the Notification (supra), the same should be filed every six months of the financial year, within fifteen days of the completion of the said six months. In this regard he has relied on the following decisions: –
- Government of India v. Indian Tobacco Association [2005 (187) E.L.T. 162 (S.C.)]
- Commissioner of C.Ex., Shillong v. San ganariya Woollen Mills (P) Ltd. [2001 (138) E. L. T. 381 (Tri. – Kol.)]
7.1 Ld. Advocate contended that the appellant had utilised the services of commission agents located outside India; that when the Show Cause Notice was issued proposing to deny the exemption, they had submitted all the details and that the appellant was paying the commission only after realization of sale proceeds from their buyers, which would normally take about two to three months from the date of export clearance from their factory and hence, the exemption from Service Tax on the commission could only be claimed at the time of payment of commission to its foreign commission agents and not at the time of shipping of the goods; hence, full details of the commission paid in respect of clearance is mentioned under Table A could not be furnished as per Table B within the time-limit prescribed and that since the goods exported by them would not have reached their buyers as the shipments were made through sea, the commission would not become payable.
7.2 It is contended that it is a case of only a procedural lapse and that no exporter could fulfil the conditions prescribed under the said Notification i.e., filing of the documents within 15 days from the date of export; exemption is thereafter claimed on the service tax payable on commission paid to foreign commission agent and as such, the forms have been duly filed within the stipulated time from the date of payment of commission and hence the date of dispatch of goods cannot be made relevant date for denying the exemption. They have relied on the following orders: –
i. HEG Ltd. v. Commissioner of Cus., C.Ex. & S. T., Bhopal [2019 (29) G.S.T.L. 730 (Tri. – Del.)]
ii. Praj Industries Ltd. v. Commissioner of Central Excise, Pune-III [2017 (3) G. S. T. L. 341 (Tri. – Mum.)]
iii. Radiant Textiles Ltd. v. Commissioner of C.Ex., Chandigarh-II [2017 (47) S.T.R. 195 (Tri. – Chan.)]
8. Per contra, the Ld. Departmental Representative supported the findings of the lower authorities.
9. The only point of dispute is whether the claim of exemption made by the appellant is correct in all respects and in compliance with the Notification No. 18/2009-S.T. (supra).
10. When the benefit of an exemption Notification is sought to be availed, the Hon’ble Supreme Court has held in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company [2018 (361) E.L.T. 577 (S.C.)] that such exemption Notifications should be construed strictly, that is to say the appellant should strictly adhere to the conditions specified under such exemption Notification.
11.1 We find from a perusal of the Order-in-Original that even as on the date of personal hearing, the appellant was asked to furnish the details of clearances effected during the half-year for which the return was filed under Table A along with the details of specified services used for export, which should be filed under Table B. Further, out of the 52 clearances shown under Table A, only one clearance involved under shipping bill no. 3763008 dated 27.05.2010 was relevant and to this extent, therefore, the original authority accepts the exemption claim towards commission paid.
11.2 Further, the original authority also observes that the appellant did not produce the original documents showing actual payment of commission to their foreign commission agents during the period from 01.04.2010 to 30.09.2010 and that they also did not file corresponding Table B in this regard.
11.3 He further observes that the EXP-2 return itself contains a declaration to the effect that failure to file the return within the stipulated period would debar from availing exemption from payment of Service Tax. He thus concludes that the exporter-appellant had failed to substantiate their claim for exemption in terms of Notification No. 18/2009-S.T. dated 07.07.2009.
12. Neither from the pleadings before the lower authorities nor before us, either in the statement of facts or in the grounds of appeal, do we see any effort being made by the appellant to dislodge the above factual findings of the original authority. Though they have contended inter alia that the details of exemption paid could not be furnished within the time-limit prescribed for filing EXP-2 return, the issue was only procedural factor and no exporter can fulfil the above condition, the exemption was claimed on Service Tax payable on commission paid to foreign commission agents, etc., the fact however remains that the production of shipping bills showing commission paid, agreement with such foreign agents and original documents, which were necessary documents, are not filed by the appellant. It is therefore clear that the appellant has not fulfilled the conditions of the exemption Notification.
13. In this regard, the following observations of the Hon’ble Supreme Court in the case of Dilip Kumar & Company (supra) are relevant wherein, after considering various decisions, it was ruled as under: –
“52. To sum up, we answer the reference holding as under –
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.
(3) ….
..”
14. In view of the above discussion, we do not find any merit in the appellant’s case and consequently, the appeal is dismissed.
(Order pronounced in the open court on 01.09.2023)
