M. Ajit Kumar, Member (T)
1. This appeal is against Order in Appeal No. 13/2014 dated 2.1.2014 passed by the Commissioner of Central Excise (Appeals), Chennai (impugned order).
2. Brief facts of the case are that the appellant is engaged in the manufacture and export of footwear. The appellant had been utilizing various input services including goods Transport Agency (GTA) Service and commission paid to agents located outside India under ‘Business Auxiliary Service (BAS). They filed Form EXP – I on 13.8.2009 in order to avail exemption from payment of service tax relating to the above said services under Notification No. 18/2009-ST dated 7.7.2009. Subsequently, they filed Form EXP-2 on 11.2.2010 based on which they claimed exemption from payment of service tax relating to the services received from foreign commission agents in relation to export of their final products. It was observed that the appellant has not followed the condition laid down in Condition No. 4(i) prescribed under Col. No. 4, Condition No. 4(ii) prescribed under Col. No. 4 and proviso (a)(ii) and (iii) of Notification No. 18/2009-ST dated 7.7.2009. Hence Show Cause Notice dated 4.10.2010 was issued demanding service tax of Rs.2,38,806/- with interest and seeking to impose penalty under sec. 76 of the Finance Act, 1994. After due process of law, the original authority confirmed the service tax demanded on the ground that the appellant had failed to substantiate their claim for exemption from the payment of service tax in terms of the proviso to Notification No. 18/2009-ST dated 7.7.2009 inasmuch as they had not submitted the relevant documents showing the payment of commission to their foreign commission agents. Aggrieved by the said order, the appellant preferred appeal before Commissioner (Appeals), who vide the order impugned herein had rejected the appeal filed by the appellant. Hence the present appeal before this Tribunal.
3. We have heard Shri A.R. Raghunathan, Chartered Accountant for the appellant and Shri Harendra Pal Singh, learned Assistant Commissioner (AR) for the Revenue.
4. The learned counsel for the Appellant has stated that Notification No. 18/2009-ST dated 01.07.2009 is an export promotion measure as per the Policy of the Government of India, to allow relief of taxes paid on the services used in manufacture of export products. The liability to pay service tax arises only after the payment of the commission amount. As per the agreement with the agents the amount of commission is payable only after the receipt of the export proceeds which will fall in the subsequent half year(s) and hence were provided subsequently. The foreign agency commission is payable in foreign currency and hence the bank certificates are given in foreign currency and are substantial proof of payment to the agent abroad. The same should have been considered for allowing the exemption claimed. The form EXP-1 is to be filed before availing the exemption under the said notification and the exemption is first availed by filing form EXP-1 and as such was filed much before the filing of form EXP-2. The delay in filing of EXP-2 is only procedural in nature and the substantial benefit cannot be denied merely based on the procedural delay or lapses. To impose penalty blameworthy conduct on the part of the assessee has to be established and each of the ingredients of these Rules has to be shown to have been present before invoking any provision of these Rules. They have not contravened any provisions of the Act since service tax itself is not payable hence penalty under Sec 76 of the Finance Act 1994 cannot be imposed. Further the issue involved is basically interpretation of statutory provisions. The Hon'ble Supreme Court has held in the case of Uniflex Cables Ltd reported in 2011(271) ELT 161 (SC) that in the case of interpretational nature, no penalty is liable to be imposed. Same view was taken by the Tribunal in the case of Gujarat Cup Company (2004(163) ELT 191) and Zee Telefilms Pvt. Ltd. reported in 2004 (166) ELT 34.
4.1 The learned AR Shri Harendra Pal Singh reiterated the points given in the impugned order and stated that the claim was clearly time barred and hence merits rejection.
5. We find that this is an issue where the demand was confirmed by the learned Original Authority mainly on the ground that the appellant has not fulfilled the conditions of Notification No. 18/2009-ST dated 01.07.2009. Further in Appeal while favorably considering the same the impugned order goes on to record that the Appellant has not produced the following documents also;
(i) Shipping Bill showing that commission was paid
(ii) A copy of the agreement / contract with the Agent
(iii) Original documents showing actual payment of commission to the Commission Agent as obligated under the notification
The order goes on to conclude that there is no provision in the notification to condone the delay in filing the return and hence rejects the appeal.
6. We find that this is a case where the Appellant seeks the benefit of an exemption notification meant for export promotion as per the Policy of the Government of India, to allow relief of taxes paid on the services used in manufacture of export products. The Hon’ble Apex Court in a Constitution Bench judgment in Sardar Amarjit Singh Kalra (Dead) by Lrs. v. Pramod Gupta (Smt) (Dead) by Lrs. & Anr. [(2003) 3 SCC 272] observed;
“26. Laws of procedure are meant to regulate effectively, assist and aid the object of doing substantial and real justice and not to foreclose even an adjudication on merits of substantial rights of citizen under personal, property and other laws. Procedure has always been viewed as the handmaid of justice and not meant to hamper the cause of justice or sanctify miscarriage of justice… “
It is not disputed that there has been a delay in filing the EXP-2 Return the reason for which has been explained by the Appellant. This delay is not shown to cause any prejudicial consequence for Revenue. However, the Appellant had furnished material which shows a substantial compliance with the requirements of the exemption notification. Unlike what was stated in the impugned order the Order in Original at para 7.1 notes that the exporter had furnished the copy of shipping bill, invoices, contract copy of the agreement, Registration-cum-membership certificate issued by the Council for Leather Exports and Certificate of Importer-Exporter Code. He, however, found that the details of commission paid are in foreign currency only and there is no mention about the rupee equivalent. In the absence of such a conversion factor, he was unable to arrive at the exact quantum of service tax amount which is to be granted as exemption. Substantial compliance with the requirements of the notification was evident. While determining whether a provision is mandatory or directory, in addition to the language used in the notification, the context in which the provision is used and the purpose it seeks to achieve should also be examined. A beneficial legislation should not be viewed very rigidly. It is noted that there were no allegations of any blame worthy act by the Appellant. The claim should hence have been scrutinized and the Appellant allowed to satisfy whatever doubts that the Original Authority had. In the circumstances, the substantial rights of the appellant should not have been denied on procedural grounds.
7. While it is the role of the learned Original Authority to effectively discourage fraudulent and dishonest exporters, there is no murmur of such an intention by the Appellant. It has to be kept in mind that the departmental Dispute Resolution Mechanism is intended to discover the truth and not punish a compliant assessee due to innocent mistakes or omissions. The Original Authority is required to take appropriate steps to thrash out the underlying truth in every dispute. It hence comes as a shock that a claim for an exemption notification benefit would end up in the imposition of penalty, without a discussion of any blame worthy act especially when duty was not discharged as the Appellant has claimed the benefit of an exemption notification. An order imposing a penalty involves an exercise of judicial discretion, which requires the decision to be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would not satisfy the said requirement. This action of the Lower Authority has surprisingly found no comment in the impugned order and is defective to that extent. A simple act of claiming a tax benefit cannot be at the pain of being held liable for penalty. Such an order cannot be allowed to survive. We hence have no hesitation in not only quashing the penalty but also in setting aside the order.
8. Having regard to the discussions above the impugned order is set aside and we remand the matter back to the Original Authority for de novo adjudication on merits of the Appellants claim for duty exemption as per Notification 18/2009 Service Tax, dated 07/07/2009 only. It is clarified that the procedural issue relating to delay in filing the return and imposing penalty having been set aside, are not a part of the terms of remand. The lower authority shall follow the principles of natural justice and afford a reasonable and time bound opportunity to the appellant to submit evidence and state their case both orally and in writing if they so wish, before issuing a speaking order in the matter. The appellant should also co-operate with the adjudicating authority in completing the process of verification expeditiously and in any case within ninety days of receipt of this order. The appeal is disposed of accordingly.
