While overruling a judgment in the Sun Export case that had held a contrary view, the bench, in an 83-pages judgement, said “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”.
“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,” the court held in the case of Commissioner of Customs, vs Dilip Kumar Company and others.
Holding that the ratio in Sun Export case “is not correct and all the decisions which took similar view stand overruled,” justice Ramana, writing for the Bench, said the earlier view “created confusion and resulted in an unsatisfactory state of law”.
Ramana said that an Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences and it is for courts to see whether a particular case falls within the broad principles of law enacted by the Legislature.
The Constitution Bench was set up to examine the correctness of the ratio in Sun Export Corporation, Bombay vs Collector of Customs, Bombay.
The case is related to assessee Dilip Kumar, and overturns the decision in case of Sun Export Corporation, who imported a consignment of feed grade Vitamin-E50 powder in 1999. The Kumar claimed the benefit of a concessional 5% duty instead of the standard 30%, classifying the product as prawn feed that attracted the lower rate.
The exemption was denied by customs on the ground that the imports contained chemical ingredients for animal feed and were not animal feed or prawn feed as such, and so were not eligible for the concessional rate.
The revenue department moved the apex court following an unfavourable ruling in the appellate fora. A two-judge bench referred the matter to a bench of three judges which said it needed reconsideration, bringing it before the constitution bench.
Experts said the ruling would have significant ramifications for taxpayers and influence decision on past as well as future litigation over tax disputes.
“Till now, the general understanding was that to determine the eligibility, an exemption notification has to be interpreted strictly but once having determined so, it ought to be interpreted liberally to ensure that benefit can be provided to the assessee,” The Economic Times report quoted indirect taxes leader at PwC, Pratik Jain as saying.
With this decision, in all cases, an exemption notification has to be interpreted strictly and in case of ambiguity or alternate views, the benefit of doubt should go to the government, Jain said.
“From industry standpoint, it would mean that rigours of interpreting an exemption notification have to be much more as the risk goes up substantially in case of disputes,” he said.
“The ruling is likely to have far-reaching ramifications, as going forward tax authorities are going to interpret exemption notifications in a constrict way and would thus insist on strict adherence to conditions attached to claiming benefit under the notifications,” the report quoted Harpreet Singh, partner-indirect taxes at KPMG.
“Any deviation from conditions or ambiguity is likely to deny the benefit of exemption/concession,” Singh said.