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Excise & Customs : Exemption notifications should be interpreted strictly, assessee cannot take benefit of ambiguity in exemption notification – SC

BHARTI AIRTEL LIMITED W.P.(C) 6345/2018, CM APPL. 45505/2019
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The Constitution Bench of Supreme Court of India in Commissioner of Customs vs Dilip Kumar & Company [Civil Appeal No. 3327 of 2007] on July 30, 2018 overruled the ratio laid down in Sun Export’s case and held the following:

Facts : 

  1. The Assessee imported Vitamin E-50 and classified same as ‘Prawn Feed’ and claimed benefit of concessional rate.
  2. Assessee relied upon judgment in Sun Export Corporation v. Collector of Customs 1997 taxmann.com 696 (SC) case to argue that ‘prawn feed’ must be understood to include ‘prawn feed supplements’ and therefore, Vitamin E-50, being ‘prawn feed supplements’, is also eligible for concessional rate.
  3. Thus, matter was referred to Constitution Bench of Supreme Court. The Constitution Bench was set up to examine the correctness of the ration in Sun Export ‘s case (supra), namely to decide as to 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 entitlement of assessee or rate of tax to be applied?

Judgement in Sun Export Corporation v Collector of Customs : 

The Supreme Court in Sun Export upheld the ratio laid by the Bombay High Court States the following:

  1. That the subsequent exemption Notification largely expanded the first Notification which referred only to animal feeds and nothing else. That being the case, it would be difficult to say that a large number of other categories which have subsequently been added would be clarificatory and therefore, retrospective.that the subsequent exemption Notification largely expanded the first Notification which referred only to animal feeds and nothing else. That being the case, it would be difficult to say that a large number of other categories which have subsequently been added would be clarificatory and therefore, retrospective.
  2. A three-Judge Bench 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.

Latest Judgement overruling the 21 year old judgement

The Constitution Bench of the Supreme Court in the latest judgement held the following:

  1. Exemption notification should be interpreted strictly; burden of proving applicability would be on assessee to show that his case comes within parameters of exemption clause or exemption notification.
  2. When there is ambiguity in exemption notification which is subject to strict interpretation, benefit of such ambiguity cannot be claimed by subject/assessee and it must be interpreted in favour of revenue.

Subsequent Effect of the judgement

  1. The ratio in Sun Export’s case (supra) is not correct and all the decisions which took similar view as in Sun Export’s Case (supra) stands overruled.
  2. Whenever there is an ambiguity in the interpretation of exemption notification, that ambiguity will be in the favor of the revenue.

Conclusion

The judgement of the Supreme Court overrules the landmark judgement wherein the exemption notification should be interpreted in the favor of revenue only that is whenever there is some ambiguity, the benefit of doubt shifts to the revenue from the assessee.

To download complete order, Click Here

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