Exemption Under The STP Scheme Not To Be Denied Because Of Delay In Technical Approval

BRIEF FACTS OF THE CASE

• The Appellant on 25-01-2025 applied for setting up of a Software Technology Park (STP) and also sought exemption¹ for importing telematic infrastructural equipment, as a 100% exportoriented unit.
• The Inter-Ministerial Standing Committee (IMSC) approved the application on 04-04-2005. The approval was subject to the Appellant obtaining a permission from the Chennai Metropolitan Development Authority (CMDA). The recommendation for obtaining the permission was communicated to the Appellant on 22-06-2005.
• Though the Appellant applied to the CMDA on 10-01-2005 [i.e. even prior to the recommendation of IMSC], the approval was granted only on 21-10-2005 and received by the Appellant on 29-11-2005.
• The Appellant imported the approved capital goods on 24-10-2005, before the CMDA's approval was received and communicated to the Appellant.
• The Customs Department denied the exemption, stating that the import occurred before CMDA's approval. Since the approval of the CDMA was a condition precedent for availing the exemption, the absence of the approval at the time of import would disentitle the Appellant of the exemption.
• The Appellant's request to treat the IMSC approval dated 04-04-2005 as the effective approval date was also rejected by the IMSC. The rejection order was appealed by the Appellant before the Hon'ble High Court [Single Bench]. However, the Appeal of the Appellant was dismissed on the premise that the Appellant had undertaken the import of the Capital goods way before the approval was communicated and hence the Appellant was ineligible for the exemption under the scheme. The Appellant filed an Appeal against the order of the Single Bench before the Division Bench.

KEY OBSERVATIONS OF THE HON'BLE BOMBAY HIGH COURT

• The Division bench of the Hon'ble High Court held that the requirement to obtain CMDA approval was not a precedent condition and could have been fulfilled subsequently by the Appellant. Considering that the approval was eventually granted, the condition could be said to be substantially complied with. The Bench emphasized that the Appellant cannot be prejudiced on account of delays that the Appellant had control over. The delay in obtaining CMDA approval was due to an internal governmental administrative process and could not be attributed to any act of the Appellant. Therefore, the Appellant could not be penalized for such delay
• The Hon'ble High Court applied the Doctrine of Substantial Compliance, stating that the Appellant had met all essential conditions and that a minor procedural lapse should not lead to denial of customs exemption that are essentially to promote exports and earn foreign exchange. Hence, the Court quashed the earlier orders and held that the Appellant was entitled to the exemption under Notification No. 153/93 and consequently the Bank guarantee was instructed to be returned to the Appellant.

AURTUS COMMENTS

• After the Supreme Court's ruling in Commissioner of Customs (Import) Mumbai vs. Dilip Kumar and Company² , exemption notifications have been subject to strict interpretation with the burden of proof resting squarely on the shoulders of the assessee/ taxpayers. In most instances, this has led to the denial of substantial benefits for mere procedural lapses, even where the core conditions of the exemptions have been complied with by the taxpayers. The Hon'ble Court in this case resorting to the Doctrine of Substantial Compliance has indicated that where procedural delays are not attributable to the assessee / taxpayers, then such delays should not be the reasons to deny the benefits, as such denial defeats the purpose of the substantive entitlement.
• The Hon'ble Supreme Court in case of Commissioner of Central Excise, Delhi vs. Hari Chand Shri Gopal³ while holding that the exemption conditions need to be strictly construed, distinguished between essential [substantive] and ancillary [procedural] conditions. The Court held that procedural requirements may be satisfied through substantial compliance especially where no prejudice is caused to the Revenue.
• This principle has wider implications in the context of other schemes such as EPCG, Advance Authorization, Project Imports, and EOU schemes, where authorities often reject claims due to minor lapses in approval timelines, post-facto issuance of licenses, or procedural gaps. In M/s. Ramsays Corporation Pvt. Ltd vs The Commissioner of Customs⁴ , the Hon'ble Madras High Court has held that delays by the Public Authority [DGFT] in issuing the Export Obligation Discharge Certificate (EODC) should not result in the denial of benefits to importers who have otherwise fulfilled their export obligations within the prescribed time. While the EODC remains a formal requirement under the EPCG scheme, the Court adopted a liberal approach, especially where the delay in obtaining the certificate was not attributable to the importer. However, the manner in which authorities continue to interpret such cases remains an issue that warrants further deliberation.

Footnotes

1. Notification No. 153/93-Customs dated 13-08-1993

2. 2018 (361) E.L.T. 577 (SC)

3. 2010 (260) E.L.T. 3 (SC)

4. 2022 (381) E.L.T. 372 (Mad.)

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