Substantial compliance with certification requirements for diplomatic mission tax exemptions warrants factual verification by adjudicating authorities.

The Respondent provides security and manpower services and claimed service tax exemptions for services rendered to foreign embassies and diplomatic missions under Notification No. 27/2012-ST.

An investigation by the DGGI alleged that the Respondent failed to fulfill specific procedural conditions of the notification, leading to an Order-in-Original (OIO) dated 26.08.2022 that confirmed a demand of ₹3,75,95,778/- plus penalties.

On appeal, the CESTAT found that the substantive condition (providing services to diplomatic missions) was met and remanded the matter to the adjudicating authority to verify certificates obtained by the Respondent and extend "cum-duty" benefits.

The Revenue appealed this remand to the High Court, arguing that strict compliance with all procedural conditions of the notification is mandatory.

Whether the CESTAT erred in treating the rendering of services to foreign diplomatic missions as the sole substantive condition while regarding other stipulations in Notification No. 27/2012-ST as mere procedural requirements.

Whether the doctrine of substantial compliance can be applied to dilute the mandatory conditions of an exemption notification.

Whether the CESTAT was justified in setting aside penalties and remanding the matter for factual verification.

The court applied the principle of strict construction of exemption notifications as established in *Commissioner of Customs v. Dilip Kumar & Co. (2018)*, holding that such notifications must be interpreted strictly at the stage of determining eligibility.

It also referenced Section 35G of the Central Excise Act, 1944 (read with Section 83 of the Finance Act, 1994), which dictates that an appeal to the High Court lies only on a "substantial question of law".

The Court observed that while the *Dilip Kumar* principle requires strict construction to determine eligibility, it does not justify the denial of an exemption where substantive compliance is shown and only factual verification of documents remains.

The Court noted that the Revenue did not dispute that services were actually rendered to diplomatic missions.

Since the CESTAT did not grant the exemption outright but merely remitted the matter for the adjudicating authority to verify the certificates against the notification's specific conditions, the High Court found no dilution of the mandatory requirements.

The Court reasoned that the CESTAT’s exercise of discretion to remand for factual scrutiny of documentary evidence is a valid exercise of appellate power and does not constitute an error of law.

The adjudicating authority remains free to deny the benefit if, upon verification, the certificates are found to be non-compliant with the Notification.

The direction for "cum-duty" benefit and the setting aside of penalties were maintained as part of the factual scrutiny process.