Custom, Excise & Service Tax Tribunal
Dhl Lemuir Logistics Pvt Ltd vs Thane I on 9 December, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/11/2012
[Arising out of Order-in-Original No: 56/BR-56/ST/Th-1/2011 dated 30th September 2011 (with corrigendum on 10th October 2011) passed by the Commissioner of Service Tax, Mumbai]
For approval and signature:
Honble Shri Ramesh Nair, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
Yes
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
DHL Lemuir Logistics Pvt Ltd
Appellant
Versus
Commissioner of Central Excise
Thane I
Respondent
Appearance:
Shri S. Tirumalai, Advocate for the appellant Shri D. Navvenkar, Addl. Commissioner (AR) for the respondent CORAM:
Honble Shri Ramesh Nair, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 09/12/2015 Date of decision: 08/06/2016 ORDER NO: ____________________________ Per: C J Mathew:
M/s DHL Lemuir Logistics Pvt Ltd is in appeal before us against order-in-original no. 56/BR-56/ST/Th-1/2011 dated 30th September 2011 (supplemented by a minor corrigendum on 10th October 2011) of Commissioner of Service Tax, Mumbai seeking the setting aside of demands of service tax of ` 2,07,44,989/- and ` 2,56,896/-, with interest thereon, and penalties imposed under section 76 and 78 of Finance Act, 1994. The impugned order also confirmed interest of ` 1923/- on delayed payment of tax paid in October and November 2006 and for the first quarter of 2007 which was deposited before the impugned order was passed and is not under challenge. The disputes relate to claim for exemption from tax on services rendered to M/s Nokia India Pvt Ltd, a unit in a Special Economic Zone, in connection with import and export of goods during the period from December 2005 to July 2007 and the taxability of surplus generated by advance booking of space for air freight.
2. During the period in dispute, the operations were being carried out by M/s Excel India Pvt Ltd registered as a service-provider in Chennai and proceedings were initiated upon audit of assessee by that jurisdiction between 6th August 2007 and 8th August 2007. Having come under the name and style of M/s DHL Lemuir Logistics Pvt Ltd and having obtained centralised registration on 24th November 2007, the jurisdiction shifted to Commissioner of Service Tax, Mumbai who issued the show cause notice dated 25th April 2008.
3. Before proceeding to consider the rival contentions on the demand relating to services rendered to Special Economic Zone entity, we take note of the manner in which the show cause notice has endeavoured to demand tax of ` 2,56,896 for alleged rendition of business auxiliary service. It would appear that the tax was liable on an amount of ` 20,98,826 being income that was formerly recorded in the books of accounts as airline incentive and now as expense reimbursement, which, according to Revenue, was a dressing up of commission received for marketing of service provided by client within the ambit of section 65(19) of Finance Act, 1996 defining business of auxiliary service. According to the assessee this, being surplus generated by trading of space purchased from airline operators in advance, was booked correctly in the accounts it is an industry practice to offer competitive rates for such bulk booking of space in advance. The airlines would, thereby, surrender that space to such freight intermediaries who, in turn, would allocate space to their exporting customers. The show cause notice was couched thus:
7. The assessee also earns income on marketing services and the above said services appear to be classifiable under Business Auxiliary Services, as defined under Section 65(105)(zzb) of Finance Act, 1994, for which Show Cause Notice NO. 196/2006 dated 23.10.06 was issued by Service Tax, Chennai. The same was adjudicated and they were demanded Service Tax for the period from August 2005 to September 2006 vide Order in Original No.10/2007 dated 23.9.2007 passed by Commissioner of Service Tax, Chennai. During the course of audit, it was noticed that in the Ledger account, the assessees have shown the receipts towards Airline Incentive-AE from October 2006 onwards as NIL. On enquiry, the assessee have stated that they have booked them in expenses Reimbursements (unallocated income-AE) instead of Airline incentive ledger and furnished the income for the period from October 2006 to July 2007 as Rs 2098826/- vide their letter dated 11.10.2007. The Service Tax on the same works out to Rs 256896/- (Service Tax Rs 251859/- Education Cess Rs 5037/-) as per Annexure-B enclosed to this notice.
8. The receipts towards Airlines Incentive appears to have been made for providing marketing services, which appear to be rightly classifiable under Business Auxiliary Service. This matter has been dealt with in the Show Cause Notice issued by Service Tax. Chennai under SCN No. 196/2006 dated 23.10.2006. The grounds for the same are not repeated here for the sake of brevity but the arguments mentioned in the Show Cause Notice relating to Business Auxiliary Service will be applicable in the present notice also.
4. We observe that no effort has been taken to ascertain whether the said amount was a consideration, whether the airline was a client and whether any marketing had indeed been undertaken. A surmise has been followed by an even more bizarre justification of the brevity. And, in the pursuit of that brevity, a passing reference has been made to a show cause notice that has been adjudicated in a different corner of the country at some time in the past, which, purportedly, is sufficient elaboration of the present allegation against the assessee. There is probably no other more illustrative example of lack of diligence in establishing a charge against a noticee and of utter disregard for the principles of natural justice issue of a notice which is deafeningly silent on the grounds for arriving at the allegation of evasion of tax. We wonder at the magnitude of material at the disposal of the adjudicating authority to be convinced that there was a contravention of Finance Act, 1994 of sufficient import to invoke the penal clause under section 78. Not surprisingly, the impugned order has not considered it necessary to render an independent finding and appears to have merely followed the earlier order. It would also amply demonstrate non-application of mind as the extended period has been invoked despite the acknowledgement of antecedent proceedings on the very same ground. We are also unable to appreciate the imperative for brevity in as serious a matter as recovery of tax that has been allegedly evaded. The demand of tax on rendering of business auxiliary service is liable to be set aside on this ground alone.
5. The tax has been sought to be levied on the amount shown in the accounts as expense reimbursement which has been presumed to be consideration for having provided marketing services and a new account to supplant the erstwhile airline incentive which had been subject to tax in the earlier proceedings. The nature of the transaction is such that services appear to have been rendered in relation to space offered for carriage of cargo by airlines. Logistics enterprises are engaged by consignors for transport of goods. It is the normal practice for logistics entities to book cargo on the airlines preferred by such consignors at the prevailing prices and the airlines would allot the required space for which airway bills would be issued for delivery to specified consignee. In such instances of direct shipments, the logistics enterprises act as agents. It is also usual industry practice for logistics entities to pre-book space on carriers and to place consignments on board for collection by overseas associates who undertake to deliver the package to the intended consignee (called routed shipments). Space, being pre-booked, is offered by airlines at reduced rates and the logistics entity bills its customers at a different price and the differential is booked as incentive or profit.
6. The risk of non-occupancy of pre-booked space is borne by the logistics entity. The airline forgoes its right to sell the slots so pre-booked. The charges collected from consignors may or may not approximate that at which space has been allotted by the airline; that is a business decision of the logistics entity. In such a model, there is no flow of consideration from the airline to logistics entities such as the appellant. On the contrary, the charges for pre-booking are made over by the appellant to the airline. It receives consideration from its consignor-clients for allotment of such pre-booked space. Essentially, every such pre-booked slot is bought from the airline and sold to the consignor-clients. The two transactions are independent with no contact between the consignor and the airlines. It is the consignor who is the client of the appellant and not the airline. Space offered by airlines is not being marketed by the appellant; on the contrary, pre-booked space is sold to consignors by the appellant.
7. In the context of these contra transactions of specified space on the air carrier, we examine the taxable service and the definition thereto. The taxable service according to section 65(105)(zzb) of Finance Act, 1994 is that provided or agreed to be provided:
to a client, by any person in relation to business auxiliary service and relevant extract of section 65(19) of Finance Act, 1994 defining business auxiliary service is:
any service in relation to xxxx
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iii) procurement of goods or services, which are inputs for the client; or xxxx
(v) provision of service on behalf of client; or xxxxx and includes services as a commission agent A harmonious reading of the provisions supra points to the client being an essential ingredient in the rendering of a taxable service; the client is the one who pays the consideration for rendering of such service. No record of any receipts from airlines has been brought on record to evince the flow from them as clients. On the contrary, the appellant pays the airlines for booking of space in aircraft. The airlines, therefore, lack the distinguishing characteristics of a client. The excess reimbursement is the true market price paid by the consignor to the appellant over and above the price at which slot was pre-booked from the airline. Of the many activities listed in the definition supra, the closest may, at best, be the procurement of services that are inputs for a client. However, here too, the appellant does not, in relation to the amounts entered in the books of accounts, procure space for the client but on its own behalf which are then sold to its clients. As no commission is involved in this trading of freight slots, the appellant can hardly be designated as commission agent. Therefore, pre-booking of slots which may realise upon allotment to a customer does not conform to the definition supra and hence is not liable to tax within the scope of the show cause notice. The Tribunal in Greenwich Meridien Logistics (I) Pvt Ltd v Commissioner of Service Tax Mumbai [2016 (4)TMI 547- CESTAT MUMBAI] found in favour of the assessee in a parallel matter relating to ocean freight. The demand of ` 2,56,896 fails the test of authority of law and is set aside.
8. The allegation against the assessee leading to demand of ` 2,07,44,989 was that services, valued at ` 17,42,63,809 rendered by appellant to a unit in a Special Economic Zone between December 2005 and July 2007, had not been consumed within the zone which was a necessary condition for availing the exemption extended by notification no. 4/2004-ST dated 31st March 2004. The impugned order finds that the word consumption used in the said notification does not permit tax exemption when services are rendered outside the Special Economic Zone. Of the amounts attempted to recovered, `186397 pertains to the period December 2005 and January 2006.
9. Learned Counsel for appellant relies on the provisions of the Special Economic Zones Act, 2005, decisions of the Honble High Court of Delhi in Jindal Stainless Steel & another v. Union of India [AIT-2011-284-HC] which set aside circular dated 3rd April 2008 on the ground of inconsistency with the Special Economic Zones Act, 2005, and Federation of Indian Airlines v Union of India [WP (C) No 8004/2010] on the vires of subordinate legislation. Reliance was also placed on the decision of the Tribunal in Norasia Container Lines v Commissioner of Central Excise, New Delhi [2011(23) STR 295 (Tri-Del)] and Maersk India Pvt Ltd v Commissioner of Service Tax, Chennai [2011 (23) STR 169 (Tri-Chennai)]. It was submitted the services rendered by the appellant are arrangement of transportation of goods to the airport and port with attendant documentation, clearance formalities and movement by road to the zone and that the matter under dispute hinges on the argument of Revenue that exemption under their notifications is restricted to services consumed in the Special Economic Zone.
10. Learned Authorized Representative reiterated the findings of the adjudicating authority, the contents of notification 4/2004-ST dated 31st March 2004 and the order of the Tribunal in the application for stay/waiver of pre-deposit filed by the appellant in this dispute. Though stay/dispensation orders, being prima facie findings, are not considered to have a bearing in disposal of the appeal on merits, we, nevertheless, feel obliged to take note of a finding, viz., 5.7 that notification no. 4/2004-ST being a conditional exemption notification issued under section 93 of the Finance Act, 1994, cannot be interpreted on the basis of the provisions of SEZ Act, 2005 or the Rules made thereunder and the conditions specified therein have to be fully satisfied for availing the benefi under the said notification.
5.8 Further, as observed earlier, the notification came into force much before the Special Economic Zones Act or the Rules made thereunder came into force. If the intention of the legislature was to align the exemption with section 26 of the SEZ Act or Rule 31 of the SEZ Rules, then notification no. 4/2004-ST would have been amended to reflect the same. No such amendment has been carried out in the said notification.
11. It may not be out of place to peruse the nature of the exemption, the alleged non-compliance of which has been saddled on the supplies made by the appellant to demand tax. Notification 4/2004-ST is as follows:
31st March, 2004 Notification No. 4 / 2004 - Service Tax In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) and in supersession of the notification of the Government of India in the erstwhile Ministry of Finance and Company Affairs (Department of Revenue), No. 17/2002-ServiceTax, dated the 21st November, 2002, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section ( i ) dated the 21st November, 2002, vide, G.S.R.777(E), dated the 21st November 2002, 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 taxable service of any description as defined in clause (90) of sub-section (1) of section 65 of the said Act provided to a developer of Special Economic Zone or a unit (including a unit under construction) of Special Economic Zone by any service provider for consumption of the services within such Special Economic Zone, from the whole of service tax leviable thereon under section 66 of the said Act, subject to the following conditions, namely:-
(i) the developer has been approved by the Board of Approvals to develop, operate and maintain the Special Economic Zone;
(ii) the unit of the Special Economic Zone has been approved by the Development Commissioner or Board of Approvals, as the case may be, to establish the unit in the Special Economic Zone;
(iii) the developer or unit of a Special Economic Zone shall maintain proper account of receipt and utilisation of the said taxable services.
Explanation .- For the purposes of this notification,-
(1)"Board of Approvals" means the combined Board of Approvals for export oriented unit and Special Economic Zone units, as notified in the Official Gazette, from time to time by the Government of India in the Ministry of Commerce and Industry;(2)
"developer" means a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorised for such purpose by any such developer;(3)
"Special Economic Zone" means a zone specified as Special Economic Zone by the Central Government in the notification issued under clause (iii) of Explanation 2 to the proviso to sub-section (1) of section 3 of the Central Excise Act, 1944 (1 of 1944). The above exemption notification superceded notification no. 17/2002-ST dated 21st November 2002 and was, in turn, superceded by notification no. 9/2009-ST dated 3rd March 2009. Exemption from duties of central excise on goods procured from factories of manufacture for operation in units within Special Economic Zones was extended by issue of notification no. 58/2003-CE dated 22nd July 2003 made effective from 11th May 2004. Prior to 11th May 2004 exemption from duties of customs on goods imported by units in Special Economic Zones was allowed through relevant notifications issued under section 25 of Customs Act, 1962.
12. In this context the decision of this Tribunal in Norasia Container Lines v. Commissioner of Central Excise, New Delhi [2011 (23) STR 295 (TR.-Del.) is relevant.
7.?This Rule also states that exemption from service tax is available to services rendered to a unit in the SEZ for the authorised operations. There is no dispute that the containers provided to the units in the SEZ have been used by such units for the authorised operations, namely, for bringing inputs for manufacture and carrying the finished goods out of SEZ for export purposes. Therefore, we are of the view that the impugned services relating to supply of containers in the SEZ are exempt from payment of Service tax. We, accordingly, set aside the impugned order and allow the appeals. The Stay applications also stand disposed of. It is amply clear from this decision as well as from the expressions used in the impugned notification that the consumption of services within such Special Economic Zone is intended to cover the utilisation by the entities within the Special Economic Zone holding a letter of approval. By no stretch can it be stated that it intents to restrict such exemptions only to the extent that it perceived to be within the boundaries of the Special Economic Zone.
13. While exemption of duties of central excise and customs for such designated zones were in existence since 1965 when the first zone was set up, exemption from service tax was of recent origin and can be traced to the policy of allowing availment of CENVAT credit of such tax. With the produce of Special Economic Zone entities being exported out of the country, the mechanism for neutralization of all the indirect taxes incurred on the goods was extended to service tax also.
14. The exemptions that are accorded to Special Economic Zone entities are availed by the entity for imports, extended to suppliers of indigenous inputs by documentation and verification akin to export procedures. Services, being intangible and of much later vintage, has been a fertile ground for denial of tax neutralisation by an over-cautious tax administration. The privilege of exemption that is available to Special Economic Zone entities depend, to a large extent, on the conviction on the part of the service provider that he will not burdened on a later date with the tax that was not collected from the zone entity. Considering the circumstances, it would take a brave commercial venture to take that risk; the appellant did so and is now facing the consequences. What is in contention here is not the tax burden visited upon the appellant but the denial of tax-exempt exports envisaged under the Special Economic Zone scheme owing to the intangibility of the target of taxation and unfamiliarity with the contours of this scheme. It would appear that Revenue is reluctantly prepared to accord exemption of tax on services only to the extent that it is envisaged as extending to goods used in or for manufacture of exports, i.e. those which enter and are consumed within the zone. The wordings of notification no 4/2004-ST have been so construed as to restrict its applicability to such services as are conclusively established as exclusively used in the zone. In the process, the nature of services has been ignored as has the principle that governs exemptions under the export promotion schemes. The definition of exports of services as it stands now also clearly points to the acknowledgement of impossibility of such strait-jacketing of services. We, therefore, need to examine the dispute in the context of the statutory provisions.
15. With effect from 11th May 2004, the hitherto existing exemption notifications relating to Special Economic Zones issued under section 5A of Central Excise Act, 1944 were substituted by the notification supra and the hitherto existing exemption notifications issued under section 25 of Customs Act, 1962 were rescinded. That date marks a significant event in the evolution of duty free zones in India.
16. Such zones have existed since 1965 and had been growing in number over the years. Set up as manufacturing enclaves, exemption from the two principal indirect taxes was accorded through appropriate notifications under the relevant taxing statutes. The early days of service tax with only a few services being taxable did not warrant the extension of the privilege of exemption from that tax, These exemptions were necessitated by the promises enshrined in the Foreign Trade Policy issued by Department of Commerce and given effect to through the mechanism in the hands of Department of Revenue. The sole statutory anchor for these zones (known as Export Processing Zones) was section 3 of Central Excise Act, 1994 enacted from the imperative of taxing goods that, instead of being exported, were cleared into the local market as excise on manufactured goods but, owing to the duty exemptions, at rates applicable to imported goods. That statutory anchor was erased and replaced by incorporating chapter XA in Customs Act, 1962 through an amendment in Finance Act, 1992 and made effective from 11th May 2004. This was intended to align the status of these zones with the evolution of these from bonded areas to outside customs jurisdiction areas. Consequently, import duties were zero rated and customs duties leviable if, instead of exports, goods were cleared into the domestic tariff area. The statutory status of these newly-designated special economic zones stood on firmer ground. Exemption under section 25 of Customs Act, 1962, not being warranted any longer, were accordingly signed out of existence. The principle is unambiguously clear exemptions accorded by legislative action do not require reinforcement under the exempting power of the Central Government.
17. The Special Economic Zones Act, 2005 was notified on 10th February 2006 to provide a legal framework for a self-contained, comprehensive and compact scheme to bring about industrial expansion without multiple supervisory jurisdictions. The legal fiction of outside the Customs territory enabled exemptions from all indirect taxes to the extent that goods and services were required for performing authorised operations which are production and export of goods or export of services. Consequently, goods produced and sold within the country were required to discharge duties as applicable on imported goods. The single window control was manifested by specific roles assigned to the Board of Approvals at the apex level and an Approval Committee and Development Commissioner at the zone level.
18. With the coming into force of the Special Economic Zones Act, 2005 exemption from customs, central excise, service tax and other similar levies were statutorily provided for in section 26 of the said Act.
26. Exemptions, drawbacks and concessions to every Developer and entrepreneur. (1) Subject to the provisions of sub section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely:
(a) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India;
(c) exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;
(d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;
(e) exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non resident through the International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.
(2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub section (1). The powers delegated to the Central Government to prescribe the manner and conditions of availment were exercised by issue of Special Economic Zones Rules, 2006. Rule 31 is as under:
31. The exemption from payment of service tax on taxable services under section 65 of the Finance Act, 1994 (32 of 1994) rendered to a Developer or a Unit (including a Unit under construction) by any service provider shall be available for the authorized operations in a Special Economic Zone. We note that, unlike the terms and conditions relating to goods, there are no elaborate prescriptions. This is in keeping with intangibility of services. The comprehensive nature of the exemption is, nevertheless, unambiguously clear. Just as the incorporation of Chapter XA in the Customs Act, 1962 obviated recourse to the authority vested in the executive to resort to subordinate legislation, viz. notification for exempting duties of customs, the statutory exemption in the Special Economic Zones Act, 2005 stultified resort to section 5A of Central Excise Act, 1944 and section 93 of Finance Act, 1994. Indeed, the need to update or reissue an exemption notification to allow exemption of duties of central excise on goods supplied to Special Economic Zones was even considered necessary to implement or supplement the legislative sanction of exemption. The need for such an exemption under section 93 of the Finance Act, 1994 in relation to supply of services to Special Economic Zones, therefore, begs an explanation. More so, as section 51 of the Special Economic Zones Act, 2005.
51(1) The provisions of this Act shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
19. An exposition of legislative intent that is so unambiguous may be hard to find. Yet, we cannot but perceive that tax authorities have accorded a superceding effect to the 2004 notification supra and that the Department of Revenue appears to persist in its fallacious interpretation by issuing an exemption notification under section 93 of Finance Act, 1994 in 2009 ostensibly to give effect to the privilege granted by statutory dispensation as far back as 2006 itself. The simplicity of that privilege has, however, been restricted by the attempt to restrict its scope through semantics. The question that begs an answer is whether an unconditional exemption granted in a statute can be restricted by a statutory instrument issued in exercise of delegated authority under another statute that is hierarchically not even its equal in the event of a conflict. Apparently, the myth of finality and prevalence of the last word vesting in the tax collecting department is sought to be perpetuated at the cost of legislative dignity.
20. We have no doubt that some form of directive was necessary at that point in time to implement the popular will articulated in a statute of such import as the Special Economic Zones Act, 2005. An uninstructed tax mechanism that had no cause to acquiesce gracefully in exclusion of its jurisdiction by statutory mandate would well have required a diktat of some sort for the privilege of tax exemption to be accorded to the beneficiaries of parliamentary sanction. Exemption of duties was not only familiar from long years of practice under the predecessor schemes, by whatever name called, but also, owing to its physical form, amenable to any check or verification. The very nature and manifestation of service transactions precluded the satisfaction of ascertainment of arrival at the intended destination. This lack of familiarity did justify some form of instruction under the authority of taxing statute. There is, however, no justification for resort to an exemption notification for achieving that end when the supreme legislative organ has, itself, legislated an exemption into effect. That errancy is all the more piquant when executive initiative, in exercise of delegated authority, seeks to constrain the unrestricted exemption legislated in section 26 of the Special Economic Zones Act, 2005. That has afforded the field formations sufficient amplitude to interpret consumption within the zone when the overriding statute has accorded the exemption to use for authorized operations. The certificate issued by the Development Commissioner in pursuance of authority from the decision of the Approval Committee is on record as evidence of authorized operations.
21. The question before us is whether the notification issued under the Finance Act, 1994 relied upon in the impugned order has a valid existence after the Special Economic Zones Act, 2005 came into existence. In our elaboration supra, we have traced the evolution of these zones, under different nomenclatures, from a scheme in the Export Import Policy through incorporation in the Customs Act, 1962 to a self-contained, comprehensive statute. Similarly, the contours of the scheme have evolved from being bonded premises under physical supervision of the Customs through that of being industrial estates for manufacture of export goods with exemptions under the Customs Act, 1962 and Central Excise Act, 1944 to the present framework of exemptions under a separate statute encompassing manufacturing as well as service entities that also provides for special procedure for approvals and operations. Consequently, the exception from the general obligation to export, i.e., clearance to the domestic market is considered as imports into India. That special economic zones are governed by a special law covering all aspects of its functioning including exemptions and levy provisions for authorized operations is amply clear. The exclusion of Customs Act, 1962 in relation to authorized operations is enshrined 53. A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. The hitherto existing statutory provisions under the Customs Act, 1962 were also made non-applicable by 52. The provision contained in the Chapter X-A of the Customs Act, 1962 and the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations, 2003 made thereunder shall not with effect from such date as the Central Government by notification appoint, apply to the Special Economic Zones. That the provisions of this law prevail over others is also articulated by 51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. In the event of a dispute, the legal position is not in doubt: the exemption in Special Economic Zones Act, 2005 will prevail.. The objective of the Special Economic Zones Act, 2005 being the avoidance of any impediment to the operation of foreign exchange generating entities, the obligation to eliminate the scope for disputes is also binding on different departments of the Government of India. The Department of Revenue did not, apparently, forsee that the existing instruments issued under the general taxing statutes, such as Finance Act, 1994, that were not repealed by the newly enacted special law or on the initiative of the issuing department could well be invoked by tax officials, particularly when exemptions were saddled with conditions and restrictions which are not contemplated in the new special law. Those should have been rescinded and replaced by instructions for ensuring compliance with new law. The consequences of tardiness in notifying such restrictions out of existence should not be visited upon the objects of the new law. That appears to have occurred here: according to the adjudicating Commissioner, a conditional and restricting exemption notification intended for Special Economic Zone entities exists and is liable to be invoked for denying the exemption conferred by another law. The validity of existing exemptions under the general laws need examination and determination. The Honble Supreme Court in Commercial Tax Officer, Rajasthan v M/s Binani Cement Ltd & another [(2014) 3 SCR 1] has held that the general provision is deemed to be repealed upon enactment of special law. Commencing with the principle that interpretation of statue must cover the text and the context as held by the Court in Reserve Bank of India v Peerless General Finance and Investment Co Ltd [1987 SCR (2)] Interpretation must depend on the text and the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole, then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place it goes on to enunciate that 29. It is well established that when a general law and a special law dealing with some aspect dealt with by the general law are in question, the rule adopted is one of harmonious construction whereby the general law, to the extent dealt with by the special law, is impliedly repealed. The principle finds its origins in the Latin maxim of generalia specialibus non derogant, i.e. general law yields to special law should they operate in the same field on the same subject.
30. Generally, the principle has found vast application in cases of there being two statutes: general or specific with the latter treating the common subject matter more specifically or minutely than the former. Corpus Juris Secundum,82 C.J.S. Statutes ' 482 states that when construing a general and a specific statute pertaining to the same topic, it is necessary to consider the statutes as consistent with one another and such statutes therefore should be harmonized, if possible, with the objective of giving effect to a consistent legislative policy. On the other hand, where a general statute and a specific statute relating to the same subject.
..
34. In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P., (1961) 3 SCR 185, this Court has clarified that not only does this rule of construction resolve the conflicts between the general provision in one statute and the special provision in another, it also finds utility in resolving a conflict between general and special provisions in the same legislative instrument too and observed that:
"9. We reach the same result by applying another well known rule of construction that general provisions yield to special provisions. The learned Attorney-General seemed to suggest that while this rule of construction is applicable to resolve the conflict between the general provision in one Act and the special provision in another Act, the rule cannot apply in resolving a conflict between general and special provisions in the same legislative instrument.
37. This Court has noticed the application of the said rule in construction of taxing statutes along with the proposition that the provisions must be given the most beneficial interpretation in CIT v. Shahzada Nand & Sons, (1966) 3 SCR 379:
"10. The classic statement of Rowlatt, J., in Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, 71 still holds the field. It reads:
"In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
To this may be added a rider: in a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. "The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient."
When the words of a section are clear, but its scope is sought to be curtailed by construction, the approach suggested by Lord Coke in Heydon case, (1584) 3 Rep 7b, yield better results:
"To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope, and object of the whole Act: to consider, according to Lord Coke: (1) What was the law before the Act was passed; (2) What was the mischief or defect for which the law had not provided; (3) What remedy Parliament has appointed; and (4) The reason of the remedy."" (emphasis supplied)
38. In LIC v. D.J. Bahadur, (1981) 1 SCC 315 this Court was confronted with the question as to whether the LIC Act is a special legislation or a general legislation and while considering the rule in discussion, this Court observed thus:
"49. the legal maxim generalia specialibus non derogant is ordinarily attracted where there is a conflict between a special and a general statute and an argument of implied repeal is raised. Craies states the law correctly:
"The general rule, that prior statutes are held to be repealed by implication by subsequent statutes if the two are repugnant, is said not to apply if the prior enactment is special and the subsequent enactment is general, the rule of law being, as stated by Lord Selbourne in Sewards v. Vera Cruz, 'that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do so. There is a well known rule which has application to this case, which is that a subsequent general Act does not affect a prior special Act by implication. That this is the law cannot be doubted, and the cases on the subject will be found collected in the third edition of Maxwell is generalia specialibus non derogant - i.e. general provisions will not abrogate special provisions.' When the legislature has given its attention to a separate subject and made provision for it, the presumption is that a subsequent general enactment is not intended to interfere with the special provision unless it manifests that intention very clearly. Each enactment must be construed in that respect according to its own subject matter and its own terms."
40. In U.P. SEB v. Hari Shankar Jain, (1978) 4 SCC 16, this Court has concluded that if Section 79(c) of the Electricity Supply Act generally provides for the making of regulations providing for the conditions of service of the employees of the Board, it can only be regarded as a general provision which must yield to the special provisions of the Industrial Employment (Standing Orders) Act in respect of matters covered by the latter Act, and observed that:
"9. The reason for the rule that a general provision should yield to a specific provision is this: In passing a to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not repealed or modified the former Special Act unless it appears that the Special Act again received consideration from Parliament. Vide London and Blackwall Railway v. Limehouse District Board of Works, and Thorpe v.Adams.
..
41. In Gobind Sugar Mills Ltd. v. State of Bihar, (1999) 7 SCC 76 this Court has observed that while determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act. With this basic principle in mind, the provisions must be examined to find out whether it is possible to construe harmoniously the two provisions. If it is not possible then an effort will have to be made to ascertain whether the legislature had intended to accord a special treatment vis-`-vis the general entries and a further endeavour will have to be made to find out whether the specific provision excludes the applicability of the general ones. Once we come to the conclusion that intention of the legislation is to exclude the general provision then the rule "general provision should yield to special provision" is squarely attracted.
42. Having noticed the aforesaid, it could be concluded that the rule of statutory construction that the specific governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be overcome by textual indications that point in the other direction. This rule is particularly applicable where the legislature has enacted comprehensive scheme and has deliberately targeted specific problems with specific solutions. A subject specific provision relating to a specific, defined and descriptable subject is regarded as an exception to and would prevail over a general provision relating to a broad subject. Guided by the enunciated principles, the Honble Supreme Court held that the special law effectively repeals the general law and that special law prevails even where the general law may be more beneficial. The strictness of application of the special law is immutable.
22. There can, therefore, be no doubt about legislative intent to exempt tax on services required for performance of authorized operations within a Special Economic Zone and any instrument, in exercise of authority to exempt a tax to issue instructions for uniformity of practice, would be presumptuous if it, inadvertently or otherwise, restricts legislative intent of the special law. That the Department of Revenue took three years to issue an exemption notification is neither a virtue to be proud of nor a defence to hang on to. We do notice that by relying upon an invalidated exemption notification the impugned order has deliberately ignored the primacy accorded by legislative sanction. The conflict between the exemption under section 26 of Special Economic Zone Act, 2005 and the notification relied upon in the impugned order viz. notification 4/2004-ST is resolved in favour of the former with the latter relegated to redundancy since 10th February 2006. Such would be the fate of any superfluous notification issued under section 93 of Finance Act, 1994 that saddles the availing of exemption in section 26 of Finance Act, 1994 with conditions.
23. In doing so, we are mindful of the lack of precedential rulings to guide us. Perforce, we are compelled to navigate uncharted waters actuated by unfailing fidelity to rule of law. While acknowledging the limitations of the Tribunal in the constitutional scheme of judicial intervention, we are not without authority to be a bulwark against the exercise of untrammelled executive powers on the part of the tax collector. The Honble Supreme Court in deciding the matter of Madras Bar Association v Union of India & another on the constitutional validity of the National Tax Tribunal Act found it necessary to reiterate the decision of the Honble Court in L. Chandra Kumar v. Union of India [(1997) 3 SCC 261] which held thus:
93. Before moving on to other aspects, we may summarise our conclusions on the jurisdictional powers of these Tribunals. The Tribunals are competent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act as substitutes for the High Courts and the Supreme Court which have, under our constitutional set-up, been specifically entrusted with such an obligation. Their function in this respect is only supplementary and all such decisions of the Tribunals will be subject to scrutiny before a Division Bench of the respective High Courts. The Tribunals will consequently also have the power to test the vires of subordinate legislations and rules. However, this power of the Tribunals will be subject to one important exception. The Tribunals shall not entertain any question regarding the vires of their parent statutes following the settled principle that a Tribunal which is a creature of an Act cannot declare that very Act to be unconstitutional. ..We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations (except, as mentioned, where the legislation which creates the particular Tribunal is challenged) by overlooking the jurisdiction of the concerned Tribunal.
99. While this jurisdiction cannot be ousted, other courts and Tribunals may perform a supplemental role in discharging the powers conferred by Articles 226/227 and 32 of the Constitution. The Tribunals created under Article 323-A and Article 323-B of the Constitution are possessed of the competence to test the constitutional validity of statutory provisions and rules. All decisions of these Tribunals will, however, be subject to scrutiny before a Division Bench of the High Court within whose jurisdiction the Tribunal concerned falls. The Tribunals will, nevertheless, continue to act like courts of first instance in respect of the areas of law for which they have been constituted.
24. We, therefore, proceed to discharge our responsibilities. We find that there is no conflict in the application of notification no. 4/2004-ST for the period prior to February 2006 when the Special Economic Zones Act, 2005 came into force. We hold that for the period from February 2006, section 26 of Special Economic Zones Act, 2005 shall govern exemption in supply of services for units or developers in Special Economic Zones for their authorized operations and the exemption notification 4/2004-ST dated 1st March 2004 is not valid for implementation to the extent that it imposes conditions not enacted in section 26 of Special Economic Zones Act, 2005 or contemplated in Rule 31 of Special Economic Zones Rules, 2006. The demand on the appellant in relation to services provided after January 2006 is set aside. For the two preceding months, the appellant shall be accorded the exemption if it cannot be established that services were rendered to a facility of the SEZ promoter outside the Zone. Penalties are also set aside.
25. The appeal is accordingly disposed off.
(Pronounced in Court on 08/06/2016) (Ramesh Nair) Member (Judicial) (C J Mathew) Member (Technical) */as 34