A tax exemption notification should be interpreted strictly, a five-judge Constitution bench of the Supreme Court ruled on Monday adding that the onus will be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
The benefit of any such ambiguity will not accrue to the assessee, and should be interpreted in favour of the revenue department, the bench comprising Justices Ranjan Gogoi, Justice N V Ramana, Justice R Banumathi, Justice Mohan M Shantanagoudar and Justice Abdul Nazeer said.
‘We may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue,”
The verdict effectively overrules the 1997 decision of a three-judge bench of the apex court in Sun Export House, Bombay vs Collector of Customs, Bombay. It was held in that case 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.
The Constitution bench was set up to examine the correctness of the judgement in the Sun Export House case.
The case relates to the import of a consignment of Vitamin E50 powder (feed grade) by the respondents in 1999. They claimed the benefit of concessional rate of duty at 5 per cent, instead of standard 30 per cent, as per a Customs Notification. They relied on the ratio in Sun Export case and claimed the benefit of exemption.
However, the benefit was denied to the respondents on the plea of the revenue department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed.
The Assistant Commissioner of Customs accepted the plea of the department to deny the concessional rate, while the Commissioner of Customs (Appeals) reversed the order, holding that the Sun Export case was applicable. The Customs, Excise and Service Tax Tribunal (CESTAT) then upheld the order. Therefore, the present appeal was filed in the Supreme Court.