Exemption notification should be interpreted strictly. Assessee can not claim benefit of ambiguity-Supreme Court

Exemption notification should be interpreted strictly. Burden of proving applicability is on assessee who can not claim benefit of ambiguity-Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2443 (2018) 07 SC

This Constitution Bench was setup to examine the correctness of the ratio in Sun Export Corporation (Sun Export Case). The question was ­ what is the interpretative rule to be applied while  interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of  the  assessee or the rate of tax to be applied?

In Sun Export Case a three­ Judge Bench of the Hon’ble Supreme Court had ruled that an ambiguity in a tax exemption provision or notification must be interpreted so as to favour the assessee claiming the benefit of such exemption. However when this appeal was placed  before a  Bench  of  two ­Judges, such interpretation was doubted. The matter then went before a three ­Judge Bench which opined that the dicta in Sun Export Case required reconsideration and that the matter was placed before this Constitution Bench. 

In the instant case, the respondents had imported a consignment of Vitamin powder claiming the benefit of concessional rate of duty at 5%, instead of standard 30%, as per the Customs Notification No. 20/1999 and classified the product under Chapter which admittedly pertained to  prawn feed. They  respondent relied on the ratio in Sun Export Case and claimed the benefit of exemption.  

The benefit of the said Customs Notification  was, however, denied to the respondents on the plea of the  department that the goods under import contained chemical ingredients for animal feed and not animal feed / prawn feed, as such, the concessional rate of duty under the extant notification was not available.

The department classified the consignment under Chapter 29 which attracted standard rate of customs duty. The Commissioner of Customs (Appeals) reversed the order of the Assistant Commissioner and came to the  conclusion that Sun Export Case was applicable to the case.    

The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the  order of the Commissioner of Customs (Appeals).    

Aggrieved thereby, the present appeal was filed and the matter was ultimately placed before the Constitution Bench with following observations­:

“In paragraph 13 of the order of this Court in Sun’s case,  views  have been expressed with regard to the interpretation of an exemption notification to support the conclusion reached. The same may  require a reconsideration.

That apart, in the referral order it has been noticed that Sun’s Case (supra) has been distinguished in ‘Collector of Central Excise, Guntur vs. Surendra Cotton Oil Mills & Fert. Co.  The basis on which the said distinction has been drawn needs to be further pursued.

Having considered the matter at some length,  we are of the tentative view, that the opinion  expressed in Sun’s case (supra) may require a reconsideration. Being a co­ordinate Bench, we believe we ought not to proceed any further in the matter. Hence, we direct the Registry to lay the papers before the Hon’ble the Chief Justice of India for appropriate orders.

Exemption notification should be interpreted strictly

The Constitution Bench consisting of five judges has now answered the reference holding as under: ­

(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or  exemption notification. 

(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the  benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted  in   favour of the revenue.  

(3) The ratio in Sun Export case is not correct and all the decisions which took similar view as in Sun Export Case stands over­ruled.  

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