2018 (7) TMI 1826 - SC - Customs

Interpretation of tax exemption Notification / statutory provision - applicability in case of ambiguity - correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay 1997 (7) TMI 117 - SUPREME COURT OF INDIA - Held that - It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. Every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 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.

Summary

Issues Involved:
1. Interpretative rule for tax exemption provisions/notifications.
2. Applicability of concessional rate of duty under Customs Notification No. 20/1999.
3. Interpretation of exemption notifications in case of ambiguity.
4. Distinction between strict and liberal interpretation of exemption notifications.
5. Reconsideration of the ratio in Sun Export Case.

Issue-wise Detailed Analysis:

1. Interpretative Rule for Tax Exemption Provisions/Notifications:
The central issue was to determine the interpretative rule to be applied while interpreting a tax exemption provision/notification when there is ambiguity regarding its applicability. The court examined whether such ambiguity should favor the assessee or the revenue. The Constitution Bench was set up to reconsider the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay (1997) 6 SCC 564, which favored the assessee in cases of ambiguity.

2. Applicability of Concessional Rate of Duty under Customs Notification No. 20/1999:
The respondents imported Vitamin E50 powder (feed grade) and claimed a concessional duty rate of 5% under Customs Notification No. 20/1999, classifying the product under Chapter 2309.90 as prawn feed. The department denied this benefit, arguing that the goods contained chemical ingredients for animal feed, not prawn feed, and classified the consignment under Chapter 29, attracting a standard duty rate. The Assistant Commissioner of Customs denied the concessional rate, but this decision was reversed by the Commissioner of Customs (Appeals) and affirmed by the Customs, Excise and Service Tax Tribunal (CESTAT).

3. Interpretation of Exemption Notifications in Case of Ambiguity:
The court reiterated that any ambiguity in an exemption notification should be interpreted strictly, favoring the revenue. The principle that if two views are possible, one favorable to the assessee should be preferred, applies to the charging section of a taxation statute but not to exemption notifications. The court emphasized that exemption notifications must be interpreted strictly, and the burden of proving applicability lies on the assessee.

4. Distinction between Strict and Liberal Interpretation of Exemption Notifications:
The court distinguished between the stages of finding eligibility for an exemption and applying the exemption. At the eligibility stage, strict interpretation is required, and the benefit of any ambiguity must favor the revenue. Once eligibility is established, a liberal interpretation may be applied. This distinction was crucial in determining the correct interpretative approach for exemption notifications.

5. Reconsideration of the Ratio in Sun Export Case:
The court overruled the ratio in Sun Export Case, which favored the assessee in cases of ambiguity in exemption notifications. The court held that the ratio in Sun Export Case and similar decisions were not correct. The correct approach is that any ambiguity in an exemption notification must be interpreted in favor of the revenue.

Conclusion:
The court concluded that exemption notifications should be interpreted strictly, and any ambiguity should favor the revenue. The burden of proving applicability lies on the assessee. The ratio in Sun Export Case was overruled, and all similar decisions were also overruled. The matter was directed to be placed before an appropriate Bench for considering the case on merits.