In a landmark judgment that will benefit the revenue department, a Constitution bench of the Supreme Court on Monday held that the benefit of any ambiguity in a tax exemption provision/notification on entitlement or the rate of tax to be paid by the assessee must be interpreted in favour of the revenue.
While overruling a 1971 judgment in the Sun Export case that had held a contrary view, a five-judge Constitution bench comprising justices Ranjan Gogoi, NV Ramana, R Banumathi, Mohan M Shantanagoudar and S Abdul Nazeer said that “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 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 question was 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 the entitlement of the assessee or the rate of tax to be applied?
Additional solicitor general Pinky Anand had argued that in the event of any ambiguity, the benefit has to be given to the revenue and that such ambiguity in tax exemption provision must not be interpreted to benefit the assessee who fails to demonstrate without any doubt that such assessee is covered by the tax exemption notification.