July 30, 2018
A Bench of Judges, Justice Ranjan Gogoi, Justice N. V. Ramana, Justice R. Banjumati, Justice Mohan M. Shantanagoudar and Justice S. Abdul Nazeer in Commissioner of Customs (Import) Mumbai V. Dilip Kumar and Company & Ors CA No. 3327 of 2007 examined the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 and dealt with the questions; 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?
In Sun Export Case (supra), a three-Judge Bench ruled 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. Such a rule was doubted when this appeal was placed before a Bench of two-Judges. The matter then went before a three-Judge Bench consisting one of us (Ranjan Gogoi, J.). The three Judge Bench having noticed the unsatisfactory state of law as it stands today, opined that the dicta in Sun Export Case (supra), requires reconsideration and that is how the matter has been placed before this Constitution Bench.
The facts of the case are:
The respondents imported a consignment of Vitamin - E50 powder (feed grade)
under Bill of Entry No. 8207, dated 19.08.1999. They claimed the benefit of concessional rate of duty at 5%, instead of standard 30%, as per the Customs
Notification No. 20/1999 and classified the product under Chapter 2309.90
which admittedly pertains to prawn feed. They relied on the ratio in Sun
Export Case (supra) and claimed the benefit of exemption. The benefit of
Customs Notification No. 20/1999 was, however, denied to the respondents on
the plea of the department that the goods under import contained chemical
ingredients for animal feed and not animal feed/prawn feed, as such, the
concessional rate of duty under the extant notification was not available.
The department classified the consignment under Chapter 29 which attracts
standard rate of customs duty. The adjudicating authority, namely, the
Assistant Commissioner of Customs, distinguished Sun Export Case (supra),
while accepting the plea of the department to deny the concessional rate.
The Commissioner of Customs (Appeals) reversed the order of the Assistant
Commissioner and came to the conclusion that Sun Export Case (supra) was
indeed applicable. The department then approached the Customs, Excise and
Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner
of Customs (Appeals). Aggrieved thereby, the present appeal is filed. When
the appeal was placed, as noticed earlier, before a Bench of two-Judges, the
ruling in Sun Export Case (supra) was doubted.
Further this Court found that the subsequent judgment in Collector of Customs and Central Excise, Guntur and Ors. V. Surendra Cotton Oil Mills and Fertilizers Co. and Ors., 2001 (1) SCC 578 [hereinafter referred as 'Surendra Cotton Oil Mills Case' for brevity], distinguished Sun Export Case (supra), which mandated this Court to take a re-look at the proposition laid down by the earlier cases.
While disposing of the case the court said that "In Hari Chand Case
(supra), as already discussed, the question was whether a person claiming
exemption is required to comply with the procedure strictly to avail the
benefit. The question posed and decided was indeed different. The said
decision, which we have already discussed supra, however, indicates that
while construing an exemption notification, the Court has to distinguish the
conditions which require strict compliance, the non-compliance of which
would render the assessee ineligible to claim exemption and those which
require substantial compliance to be entitled for exemption. We are pointing
out this aspect to dispel any doubt about the legal position as explored in
this decision. As already concluded in para 50 above, we may reiterate that
we are only concerned in this case with a situation where there is ambiguity
in an exemption notification or exemption clause, in which event the benefit
of such ambiguity cannot be extended to the subject/assessee by applying the
principle that an obscure and/or ambiguity or doubtful fiscal statute must
receive a construction favouring the assessee. Both the situations are
different and while considering an exemption notification, the distinction
cannot be ignored."
The Constitution Bench of the court answered the questions as under:
"52.To sum up, we answer the reference holding as under - (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.
(3) The ratio in Sun Export case (supra) is not correct and all the
decisions which took similar view as in Sun Export Case (supra) stands
over-ruled."
Read the Judgment of Supreme Court of India in Commissioner of Customs (Import) Mumbai V. Dilip Kumar and Company & Ors CA No. 3327 of 2007 dated 30.7.2018
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