Service Tax Exemption for Services to Diplomatic Missions: Delhi HC upholds CESTAT’s Direction to Verify MEA Certificates [Read Order]

The Delhi High Court has upheld the order of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) remanding the issue of service tax exemption for services provided to diplomatic missions for verification of certificates issued by the Ministry of External Affairs (MEA).

The background of the matter is that the respondent company, M/s Pro-Interactive Services India Pvt. Ltd was engaged in providing taxable services such as security/detective agency services, manpower recruitment/supply services, and construction services.

After an investigation by the Directorate General of GST Intelligence (DGGI), it was alleged that the assessee had wrongly claimed exemption from service tax in respect of services provided to foreign embassies and diplomatic establishments without satisfying the prescribed conditions.

Based on this investigation, a show cause notice demanding ₹3.75 crore in service tax along with interest and penalties was issued.

Later, an Order-in-Original confirmed the demand with equal penalty under Section 78 and additional penalty under Section 77 of the Finance Act, 1994.

The respondent company said that the company is exempted from Notification No. 27/2012-ST dated 20.06.2012, issued under the negative list regime introduced from 01.07.2012.

As per the submissions, security services were taxable under Section 66B of the Finance Act, but exemption was available for services provided to foreign diplomatic missions subject to strict conditions.

These required MEA Protocol Division certification based on reciprocity, authenticated undertakings with serial numbers, diplomatic ID details, and proper retention of supporting documents by the service provider.

On appeal, the CESTAT observed that there was no dispute regarding whether the respondent had rendered services to foreign diplomatic missions.

It noted that the assessee had obtained the certificates from the embassies, even though some were furnished after adjudication. Therefore the tribunal remanded the matter for limited verification of the documents. It also sets aside penalties.

Challenging this remand, the Revenue - appellant contended before the High Court that the Tribunal had erred in treating the rendering of services as the sole substantive condition while diluting other requirements as procedural.

The High Court bench of Justice Ajay Digpaul and Justice Nitin Wasudeo Sambre, after hearing the matter said that “The remand is confined to verification of documentary compliance and consequential grant of relief, if admissible. Such exercise of discretion, particularly in a matter turning upon documentary evidence, cannot be characterized as arbitrary or perverse. It is well within the appellate powers of the CESTAT to adopt such a course to secure a proper adjudication.”

Therefore, the Court noted that an appeal under Section 35G of the Central Excise Act lies only on substantial questions of law which are lacking in this case. Therefore by upholding the CESTAT order, it dismissed revenue’s appeal.

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