While clarifying that an appeal under Section 35G of the Central Excise Act, 1944, lies only on a substantial question of law, the Delhi High Court has held that the impugned order from the CESTAT, being essentially one of remand that directs factual verification of documents to ascertain compliance, does not give rise to any substantial question of law that would warrant any writ interference.
The High Court observed that there is no dispute regarding the legal principle that an exemption notification must be strictly construed. However, it clarified that this strict interpretation is applicable only at the stage of determining a taxpayer’s eligibility to claim the exemption. Once eligibility is established, the conditions within the notification must be applied according to their tenor, and the principle does not justify denying an exemption where substantive compliance is demonstrated and the issue is merely one of factual verification.
The Division Bench comprising Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul noted that the substantive condition, i.e., the provision of services to diplomatic missions, was not in dispute, as recorded by the CESTAT, whose order did not grant the exemption outright but remitted the matter for the adjudicating authority to verify the certificates and extend the benefit only to the extent the conditions are met. This direction was found to be limited, conditional, and did not dilute the mandatory character of the Notification.
The Bench observed that the CESTAT’s decision to remand the case for further factual scrutiny was a proper exercise of its appellate powers, especially in a matter turning on documentary evidence, and could not be characterized as arbitrary or perverse. The Bench also noted that the appellant’s argument regarding the integral nature of certificates from the Ministry of External Affairs did not advance its case, as the CESTAT had not held otherwise and had simply directed the verification of these very certificates.
Briefly, the respondent is engaged in providing taxable services, including ‘Security/ Detective Agency Services’. An investigation by the Directorate General of Goods and Services Tax Intelligence (DGGI) alleged that the respondent had wrongly claimed exemption on security services provided to foreign embassies and establishments without fulfilling the conditions prescribed under Notification No. 27/2012-ST dated June 20, 2012.
Consequently, a Show Cause Notice was issued, proposing a service tax recovery of Rs. 3.75 Crores, along with interest and penalties, which was confirmed by the Commissioner of CGST. On appeal, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remanded the matter to the adjudicating authority for the limited purpose of verifying the certificates produced by the respondent and granting the exemption to the extent admissible. The CESTAT also directed that the benefit of cum-duty be extended where applicable and set aside the penalties imposed.
Appearances:
Advocates Monica Benjamin and Nancy Jain, for the Appellant/ Revenue
Advocates Ruchir Bhatia, Sumit Bhatia, and Lopamadura Mahapatra, for the Respondent/ Taxpayer
