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Part-119-One Pager Snapshot to Cases- Principle of Substantial Compliance detailed out in CCE v. Hari Chand Shri Gopal, (2011) 1 SCC 236

The distinction between the eligibility criteria and other conditions in the exemption notification and what conditions would be considered as mandatory in nature and what will be construed to directory in nature


Case Subject



Exemption only upon
establishing entitlement

The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an
exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has
been placed in the Statute and the object and purpose to be achieved.


Strict approach for deciding
Eligibility to claim Exemption
but may take liberal
approach for other conditions

Referring to Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Ors. (2005) 4 SCC 272, it was held that that the principles as regard construction of an exemption
notification are no longer res integra; whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be
interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally.


Mandatory and Directory

If exemption is available on complying with certain conditions, the conditions have to be complied with. Some of the provisions of an exemption notification may be
directory in nature and some are of mandatory in nature. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some
latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or
substance of the notification granting exemption. A distinction between provisions of statute which are of substantive character and were built in with certain specific
objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished.


What is the Principle of
Substantial Compliance

What is Principle of Substantial Compliance-This doctrine is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that
can reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the "essence" or the "substance" of the
requirements. Like the concept of "reasonableness", the acceptance or otherwise of a plea of "substantial compliance" depends upon the facts and circumstances of
each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the
regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met.
Need for “Substantial Compliance”-Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such
a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non- compliance
of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty.
What “Substantial Compliance” seeks to preserve-The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or
requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that
are so confusingly or incorrectly written that an earnest effort at compliance should be accepted.
Test for determining the applicability of Principle-The test for determining the applicability is whether the requirements relate to the "substance" or "essence" of the
statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in
that they are not of the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict
compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential.
Role of the Court-Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute
was enacted and not a mirror image type of strict compliance. The court should determine whether the statute has been followed sufficiently so as to carry out the intent
of the statute and accomplish the reasonable objectives for which it was passed


What is the Principle of
Substantial Compliance

What was not condoned-Four conditions were imposed for grant of benefit of exemption in relation to the services provided for transport of certain goods from ICD to
Port of Export. One of the conditions so imposed was that the details of exporters invoice relating to the export goods should be specifically mentioned in the lorry receipt
and the corresponding shipping bill. Assessee did not fulfil the condition and refund was rejected. The court held that object of requiring the details of exporters invoice to
be mentioned in the lorry receipt and corresponding shipping bill was to ensure that what had reached port was the consignment of that exporter and that there was no
duplication of claim. Therefore, the relaxation of such a condition would tantamount to the removal of the very life breath of the notification.
What could have been condoned-What could at the most be done by Courts or even by the statutory authorities, is to condone certain insignificant requirements. For
instance, if an application for extension of the benefit of exemption has to be endorsed by someone, but was endorsed by some other person, the mistake can be
condoned as mere procedural in nature. But when the very availability of the benefit of exemption is made contingent upon the fulfilment of certain conditions, those
conditions cannot be dismissed as matters of procedure.


Commissioner of GST and
Central Excise v. Bharat
Electronics Ltd [2022] 136 145 (Madras)

Relying upon the Judgement in Commissioner of Customs (Import) v. Dilip Kumar & Co. [2018] 95 327/69 GST 239 which also referred CCE v. Hari
Chand Shri Gopal, (2011) 1 SCC 236 held that inadvertent mistake in filling in the wrong figures in Column 6 of Form TRAN-1 cannot prove fatal to the respondent's claim
of ITC, if Transitional Credit is denied even if they are otherwise entitled to, then it could frustrate the very objective of extending the benefit of transition of Input Tax
Credit from the erstwhile regime of GST