Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company
Supreme Court of India, 30 July 2018, 5 judges
A Constitution Bench held that an exemption notification must be interpreted strictly, the assessee must prove it falls within it, and any ambiguity in it goes in favour of the revenue; Sun Export Corporation was overruled.
Facts
The respondents imported Vitamin E50 powder (feed grade) in 1999 and claimed a concessional customs duty of 5% instead of 30% under Customs Notification No. 20/1999, treating the goods as prawn feed and relying on Sun Export Corporation v. Collector of Customs (1997), which held that an ambiguity in a tax exemption must be read in favour of the assessee. The department denied the concession. The Commissioner (Appeals) and CESTAT allowed the claim. In the revenue's appeal, a two-Judge Bench doubted Sun Export, a three-Judge Bench found the law unsatisfactory, and the question was referred to a Constitution Bench.
Questions before the Court
- What rule of interpretation applies to a tax exemption notification when there is ambiguity about whether the assessee is entitled to it?
- Is the rule in Sun Export Corporation, that such ambiguity must favour the assessee, correct?
What the Court held
- Every taxing statute, including charging, computation and exemption clauses, is to be interpreted strictly at the threshold stage.
- An ambiguity in a charging provision goes in favour of the subject or assessee, because a tax can be levied only by clear words of law.
- An exemption notification is different: the assessee must show that the case squarely falls within its terms, and the benefit of any ambiguity in it goes to the revenue, not the assessee.
- The ratio of Sun Export Corporation is not correct, and all decisions taking a similar view stand overruled.
- The civil appeal itself was sent back to an appropriate Bench to be decided on merits.
Why it matters
The judgment settles, by a Constitution Bench, the rule for reading tax exemption notifications: strict construction, burden on the assessee, and ambiguity resolved in favour of the revenue. It overrules Sun Export Corporation and every decision following it, while affirming that ambiguity in a charging provision still benefits the assessee. It relies on the Mangalore Chemicals and Novopan India line of cases.
In the Court's words
Copied from the official judgment; each passage links to its page.
“After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that 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.”
“(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.”
“Exemptions from taxation have tendency to increase the burden on the other unexempted class of tax payers. A person claiming exemption, therefore, has to establish that his case squarely falls within the exemption notification, and while doing so, a notification should be construed against the subject in case of ambiguity.”
Case and bench
- Parties
- Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company
- Case
- Civil Appeal No. 3327 of 2007
- Decided
- 30 July 2018
- Bench
- Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar, S. Abdul Nazeer
- Opinions
- Unanimous judgment of the Constitution Bench written by N.V. Ramana, J. and signed by all five judges.
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