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: –
