Whether late filling of EXP-2 can lead to denial of benefit of exemption?

CASE STUDY

Prepared by: CA Neetu Sukhwani &
Lovina Surana

Introduction:

M/s Rajasthan Gum Pvt. Ltd. (hereinafter referred to as assessee), situated at Agro Food Park, Boranada is holder of Service Tax registration under section 69 of the Finance Act, 1994. The assessee is exporter of guar gum and so availed the benefit of exemption notification no. 31/2012-ST dated 20.06.2012 wherein no service tax is payable on the transportation services availed from the factory gate to the port of export on filing of half yearly return in Form EXP-2. A show cause notice was issued to the assessee for delay in filing the said EXP-2 return within the prescribed period as per Notification No. 31/2012-ST dated 20.06.2012. Therefore, the availed benefit amounting to Rs. 10,963/- under Notification No. 31/2012-ST dated 20.06.2012 was alleged to be recoverable under Section 73 of the Finance Act, 1994 along with interest and penalty. The assessee contended that they have fulfilled the substantive conditions and so are eligible for availing the benefit of exemption because when substantive conditions are fulfilled then benefit cannot be denied on grounds of procedural and technical lapses. Thus, the outcome of the show cause notice is the subject matter of this case study.

RAJASTHAN GUM PVT. LTD LIMITED V/S ASSISTANT COMMISSIONER, CENTRAL EXCISE & SERVICE TAX DIVISION, JODHPUR
[ORDER IN ORIGINAL – 34/2014-(ST) DATED 26.11.2014]

Relevant Legal Provisions:

·         Notification No. 31/2012-ST dated 20.06.2012

Issue Involved:

The following issue was involved in this case before the adjudicating authority:-
Whether late filling of EXP-2 can lead to denial of benefit of exemption?

Brief Facts:

·         The appellant, i.e., M/s Rajasthan Gum Pvt. Ltd. Situated at Agro Food Park, Boranada is holder of Service Tax registration no. AACFB9304ST001 under section 69 of the Finance Act, 1994 having undertaken to comply with the provisions of Notification No. 31/2012- dated 20.06.2012 on 28.10.2013 for the half year period ending 31.3.2013.

·         On conducting a basic scrutiny, it was found that assessee was required to file half yearly EXP-2 for the period ending 31.3.2013 on or before 15.04.2013 but they have filed their said EXP-2 on 28.10.2013.

·         According to department, since the assessee has failed to file EXP-2 return for the quarter ending on 31.3.2013 within 15 days of the succeeding period, the assessee is not eligible for exemption claimed by them amounting to Rs. 10963/-.

Assessee’s Contention: -The following submissions were made before the adjudicating authority by the assessee-

1.            A perusal of the opening para of the Notification clearly provides that the exemption will be available on the specified services if the conditions prescribed in column no. (3) of the table given in the Notification are fulfilled. Thus, it is clear that the conditions prescribed in Column no. (3) are of the substantive nature and it is only if the condition given therein is not fulfilled then exemption will not be available to the claimant.

            In this regard, they submit that they have fulfilled the condition prescribed in Column (3) of the Table contained in Notification No. 31/2012-ST which is substantive in nature and therefore, they are eligible for exemption granted under the Notification and we have correctly availed the exemption. The said notification is reproduced hereunder for ready reference:

G.S.R…. (E). -In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Act) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 18/2009-Service Tax, dated the 7th July, 2009, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R.490 (E), dated the 7th July, 2009, except as respects things done or omitted to be done before such supersession, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service received by an exporter of goods (hereinafter referred to as the exporter) and used for export of goods (hereinafter referred to as the said goods), of the description specified in column (2) of the Table below (hereinafter referred to as the specified service), from the whole of the service tax leviable thereon under section 66B of the said Act, subject to the conditions specified in column (3) of the said Table, namely:-

Table

Sr. No.	Description of the taxable service	Conditions
(1)	(2)	(3)
1.	Service provided to an exporter for transport of the said goods by goods transport agency in a goods carriage from any container freight station or inland container depot to the port or airport, as the case may be, from where the goods are exported; or Service provided to an exporter in relation to transport of the said goods by goods transport agency in a goods carriage directly from their place of removal, to an inland container depot, a container freight station, a port or airport, as the case may be, from where the goods are exported.	*The exporter shall have to produce the consignment note, by whatever name called, issued in his name.*

Provided that-
(a) the exemption shall be available to an exporter who,-
(i) informs the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory or the regional office or the head office, as the case may be, in Form EXP1 appended to this notification, before availing the said exemption;
(ii) is registered with an export promotion council sponsored by the Ministry of Commerce or the Ministry of Textiles, as the case may be;
(iii) is a holder of Import-Export Code Number;
(iv) is registered under section 69 of the said Act;
(v) is liable to pay service tax under sub-section (2) of section 68 of said Act, read with item (B) of sub-clause (i) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules,1994, for the specified service;
(b) the invoice, bill or challan, or any other document by whatever name called issued by the service provider to the exporter, on which the exporter intends to avail exemption, shall be issued in the name of the exporter, showing that the exporter is liable to pay the service tax in terms of item (v) of clause (a);
(c) the exporter availing the exemption shall file the return in Form EXP2, every six months of the financial year, within fifteen days of the completion of the said six months;
(d) the exporter shall submit with the half yearly return, after certification, the documents in original specified in clause (b) and the certified copies of the documents specified in column (4) of the said Table;
(e) the documents enclosed with the return shall contain a certification from the exporter or the authorised person, to the effect that taxable service to which the document pertains, has been received and used for export of goods by mentioning the specific shipping bill number on the said document.
(f) where the exporter is a proprietorship concern or partnership firm, the documents enclosed with the return shall be certified by the exporter himself and where the exporter is a limited company, the documents enclosed with the return shall be certified by the person authorised by the Board of Directors;
This notification shall come into force on the 1^st day of July, 2012.
They also submitted that it is not the case of the department that assessee have not fulfilled any of the other substantial condition enumerated in the notification. It is also not a case against assessee that they are not eligible to avail the benefit. Therefore, when the substantial conditions are fulfilled then the refund cannot be denied to assessee for procedural lapses.
2.            They submitted that filing of half yearly return is a procedural condition and not a substantive requirement for availing exemption from service tax under Notification No. 31/2012-ST. They have fulfilled all the conditions for availing the benefit of the exemption notification. However there is delay in filing the half yearly return EXP-2 as prescribed in the Notification. Therefore, the substantive benefit of exemption should not be denied for violation of a procedural condition.

Moreover, there is no allegation in the impugned show cause notice that the return filed was incorrect or incomplete or defective. The only allegation raised is that the return has been filed belatedly. They submit that the reason for delay in filing the EXP-2 return is the concerned person looking after the service tax matters in their company left the job. However, as soon as they came to know about our liability to file EXP-2 return, the same was filed. They submit that for the delay in filing EXP-2 return, the substantive benefit of exemption for which they are eligible cannot be denied to them. In this regard, they wish to place reliance on the decision given by the Apex Court in the case of Mangalore Chemicals & Fertilizers Ltd. Vs. Deputy Commissioner [1991 (55) E.L.T. 437 (S.C.)] wherein it was held that the intention of the legislature is to grant exemption only upon satisfaction of the substantive conditions of the notification and so it is important to distinguish between condition that is procedural and is of technical nature and the condition which is substantive. It was concluded that the benefit of exemption should be given if the substantive conditions have been satisfied and the procedural/technical conditions may be condoned.Therefore, the impugned show cause notice proposing to recover the amount of exemption on the ground of delay in filing EXP-2 return is not sustainable and is liable to be set aside.
3.            They submitted that there are various judgments wherein it has been held that mere procedural infraction does not lead to denial of substantive benefit to the assessee. Following cases are produced:

In this regard, reliance is placed on Modern Process Printers [2006 (204) E.L.T. 632 (G.O.I.)]. In this case, verdicts of Government of India are produced as follows:-

“EXIM - Rebate - Procedural infractions of notification/circular are to condoned if export have taken place actually and substantive benefit should not be denied.”

The analysis of this decision makes it clear that the where main/substantive condition is satisfied, the intended benefit should not be denied to the beneficiaries.

It is submitted that in the case of M/s Ashima Dyecott Ltd. v/s CCE, Ahmedabad [2011-TIOL-1905-CESTAT-AHM] it has been held that technical reasons cannot defeat legislative intent. It was held as under:

Service Tax –Refund of service tax paid on services utilised for export of final products rejected by lower authorities for minor procedural infractions - Legislative intent is to export only goods and not taxes – Denial of refunds for technical reasons defeats legislative intent – Matter remanded with direction to original authority to allow appellant to rectify defects wherever possible: AHMEDABAD CESTAT;

Therefore, in view of the above decisions, it is very clear that substantive benefit should not be denied for procedural or technical irregularities and the impugned show cause notice proposing to deny the exemption benefit solely for the reason of delayed filing of EXP-2 return is not at all tenable and deserves to be quashed.
4.            In continuation to the above, they also placed reliance on the following decisions in                      support of their contention that substantial benefit should not be denied for procedural lapses:-

·         KEI INDUS. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2008 (223) E.L.T. 249 (Tri. - Del.)]:-

International organization (WHO), supply thereto - Exemption Certificate of use of goods by them obtained by assessee before their clearance, sent to department under Postal Certificate but received in Commissionerate thereafter - HELD : Late production of certificate of use of goods was only a procedural lapse for which substantial benefit of exemption could not be denied - It was more so since genuineness of that certificate was not disputed - Notification No. 108/95-C.E. [para 4]

It was held in the above cited case that as far as the other substantial conditions of the notification stood fulfilled and moreover, when the genuineness of the certificate was not disputed, the benefit of exemption could not be denied on account of late submission of certificate. Similarly, in this case, there is no doubt as regards use of GTA services for the purpose of exported goods and there is also not allegation of improper or defective EXP-2 return furnished by them. As such, when all the substantial conditions of the notification have been satisfied, the delay in filing of the EXP-2 return should be condoned as procedural lapse and the impugned show cause notice proposing to deny the benefit of exemption should be quashed.

·         RAMA SPINNERS (P) LTD. VERSUS COMMISSIONER OF C. EX., HYDERABAD [2007 (220) E.L.T. 330 (Tri. – Bang)]:-

Textile machinery - Exemption - Notification No. 21/2002-Cus. - Procedural non-compliance - Evidence - Appellants produced enough proof to show that spares have been utilised in textile industry - Substantial benefit cannot be denied for procedural lapses - So long as spares have been used for textile industry, concessional rate of duty permissible and benefit of notification admissible. [2007 (211)E.L.T.44 (Tribunal) relied on]. [para 4]

In the above relied upon case, it was concluded that the benefit of notification is admissible as far as important conditions have been satisfied and denial of benefit for reason of not following the procedure prescribed is not sustainable. Similarly, in the present case, merely because there was delay in following the procedure prescribed of filing the EXP-2 return, the same cannot be taken as the sole basis for denying the benefit of exemption notification no. 31/2012-ST. Therefore, the benefit of the above cited decision should be extended and the impugned show cause notice should be set aside.

5.            They further submit that the learned adjudicating authority has allowed the benefit of exemption under erstwhile notification no. 18/2009-ST dated 07.07.2009 as prevalent for the prior period in the case of M/s Adarsh Guar Gum Udyog vide Order in Original No. 10/ST/2012 dated 28.06.2012 even if there was delay in filing the EXP-2 return. It was concluded by the adjudicating authority that the delay in filing EXP-2 return cannot be held as substantial ground for denial of the benefit of the exemption notification and so the service tax demand was quashed. Accordingly, the assessee requested to extend the benefit of the above cited decision in the present case also and drop the proceedings initiated against them vide the impugned show cause notice. They further submit that as the above cited order has been passed by the same adjudicating authority, the benefit of the above cited decision should be extended to them in order to maintain consistency between similarly placed assessee of a particular jurisdiction. Therefore, the impugned show cause notice should be dropped as the same is devoid of merits.

6.            They further submit that the impugned show cause notice should be dropped because the government has provided many benefits to the exporter with the sole intention of not exporting domestic taxes. They submit that if they are compelled to pay service tax demand as proposed in the impugned show cause notice, then it will defeat the purpose of the notification no. 31/2012-ST dated 20.06.2012 which was issued for exempting the exporters from payment of service tax on the transportation services availed by them for the purpose of export of goods. Not only this, notification no. 42/2012-ST dated 29.06.2012 is also issued on similar lines so as to provide exemption from payment of service tax on commission paid to foreign agents in relation to export of goods. Therefore, looking at the ultimate intention of the government of not levying service tax on services used in export of goods, the proceedings initiated vide the impugned show cause notice should be set aside. However, the impugned show cause notice is issued in contradiction to the intention of the government and is not sustainable in the light of following decisions:-
·         BALWANT SINGH VERSUS JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-
Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]

·         COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]
Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]
The analysis of above decisions of hon’ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision.If any interpretation defeats the intention of the law makers, it should be avoided. In their case also, the interpretation taken by the impugned show cause notice is defeating the intention of law makers that no service tax should be leviable on services availed for export of goods. As such, the impugned show cause notice is not sustainable and should be dropped being devoid of merits.


7.            They submit that in the impugned show cause notice it is alleged that interest is recoverable from them on the exemption availed by them underSection 75 of the Finance Act, 1994. In this regard, they submit that when the demand itself is not sustainable then interest cannot be recovered from them. It is submitted that the exemption availed by them was admissible to them as they are eligible to avail the same. The only issue is that the return EXP-2 was filed belatedly. Hence, the benefit of exemption cannot be denied to them for this procedural mistake. Therefore, the show cause notice demanding interest under Section 75 of the Finance Act, 1994 is not sustainable and is liable to be set aside.

8.            They further submit that the impugned show cause notice is proposing to impose penalty under Section 76 of the Finance Act, 1994 for violation of contravening the provisions of Section 68 (1) of the Act read with Rule 6 (1) of the Rules.

            In this regard, they submit that Penalty under Section 76 would arise only where there is failure to pay service tax. However, in this case there is no failure to pay service tax. The exemption claimed by them was available to them as they have fulfilled all the substantive conditions of the Notification. It is submitted that the condition of filing return every half yearly cannot be said to be a substantial condition, the violation of which will result in denial of exemption. Therefore, the exemption benefit cannot be denied to them on this ground. Therefore, when no liability arises on their part to pay the service tax, no penalty can be imposed on them. Therefore, the impugned show cause notice proposing to impose penalty on them is required to be set aside.

9.            They also submitted that they regularly file EXP-2 returns timely and it is the first time that there was delay in filing EXP-2 return on their part. They submit that non submission of a particular return for a particular period cannot be considered as intention to evade payment of service tax. Accordingly the penalty proposed under section 76 of the Finance Act should not be imposed on them in view of the decisions given in the following cases:-

·         COMMISSIONER OF C. EX., MEERUT-I VERSUS MAHA LAXMI SUGAR MILLS CO. LTD. [2008 (11) S.T.R. 450 (Uttarakhand)]:-

Penalty (Service tax) - Delay in filing returns- Recipient of Goods Transport Operator service - ST-3 return filed on 23-1-2002 for the quarter ending December 1997 - Penalty imposed by Commissioner in Revision Order but set aside by CESTAT - Penalty imposable wherever assessee avoids or attempts to avoid to pay tax - Rules on liability in respect of GTO service held ultra vires by Supreme Court - Impugned provisions revalidated retrospectively in 2000 - Non-submission of particular return for one quarter not with intention to avoid payment of tax - Amount of tax involved Rs. 1000 only -Penalty not justified in impugned case - Section 77 of Finance Act, 1994. [paras 2, 4, 6, 7, 8]

In the above case, it was stated that it is settled principle of law that the penalty is required to be imposed wherever the assessee avoids or attempts to avoid to pay tax. However, in the present case, as explained above, there was exemption from payment of service tax to exporter and even exporter could have availed credit or refund later on. As such, there could not have been any intention to avoid payment of tax by us and so delay in filing of return for a particular period should not be taken as ground to deny the rightly admissible benefit to us. Hence, no penalty should be imposed on them and the impugned show cause notice should be set aside.

·         MOORES ROWLAND CONSULTING PVT. LTD. VERSUS COMMISSIONER OF C. EX., MUMBAI [2007 (6) S.T.R. 160 (Tri. – Mumbai)]:-

Penalty (Service tax) - Imposition of - Delay in filing return pleaded as one time incidence and unintentional one- Interest amount remitted immediately - Impugned order not considering that penalty was not be levied where there was reasonable cause for failure to pay tax and quantum thereof was discretionary - Penalty set aside - Sections 76 and 80 of Finance Act, 1994.[paras 1, 2]

In light of the above cited decisions, the impugned show cause notice proposing penalty under section 76 of the Finance Act, 1994 is not at all tenable and the same should be quashed.

10.          It was also submitted that for delay in filing the EXP-2 return which is a procedural lapse, the substantial benefit of exemption notification should not be denied to them. In this respect, they submitted that when the formality that is of procedural nature is not complied with by the assessee inadvertently, penal provisions or harsh action against assessee is not warranted. This fact is clear from various judicial pronouncements concluding that late fees under Rule 7C of Service Tax Rules, 1994 for delay in filing of ST-3 returns is not imposable if the no services were provided and the return that was to be filed was “Nil return”. The reason for the same being that filing of service tax return in prescribed format at specified intervals is procedural obligation and it can be condoned if no service was provided by the service provider and the return that was to be filed was Nil return. Moreover, in case of nil returns, there is no loss of revenue to the government and so the penal provisions may be avoided. They submitted that discharge of service tax liability is essential compliance rather than filing the ST-3 return because return filing is merely presentation of the liability discharged by assessee. Similarly, in the present case, when the substantial conditions for availing the benefit of the notification no. 31/2012-ST dated 20.06.2012 have been complied with by the exporter and further, keeping in mind the intention of the government as regards not to export domestic taxes, the delay in filing the EXP-2 return should be condoned and the proceedings initiated vide the impugned show cause notice should be dropped.

Reasoning of the Adjudicating Authority:- The Assistant commissioner viewed that the contention of the assessee was considerable as the services were used in the goods exported and late filling of return is procedural lapse. Receipt and use of services in export of goods has not been challenged in the impugned notice. The procedural lapse cannot be held as substantial ground for denial of benefit of exemption notification. It was found that there is delay in filling the EXP-2 return, which is procedural lapse and the same cannot be held as substantial ground for denial of benefit of exemption granted and availed under notification no. 31/2012-ST dated 20.06.2012.
It was also found that the case laws cited by the assessee in their reply were very much relevant in the present case and so the exemption was allowable to them
In view of the above discussion and findings, the exemption benefit availed was upheld. Accordingly, the proceedings for interest and penalty under section 76 of Finance Act,1994 was also dropped.

Decision:- The proceedings initiated vide the show cause notice were dropped.

Conclusion:- The gist of this case is that delay in filling EXP-2 return is procedural lapse for which substantial benefit of exemption cannot be denied. The substantive condition for availing the benefit of notification no. 31/2012-ST is that the exporter produces the evidence of consignment note issued in his name indicating that the transportation services were availed from the factory gate to the port of export. When the substantial conditions were satisfied, the benefit of exemption cannot be denied for technical lapses. Moreover, there was genuine reason for delay in filing the EXP-2 returns as the concerned person left the company during the period of filing the return. Therefore, the show cause notice was dropped.

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06 December 2014

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PJ/Case Study/2014-15/96
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