Commissioner of Customs (Import), Mumbai Vs.
Dilip Kumar and Company and Ors.

Judges: Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer

Facts:

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 Corporation, Bombay v. Collector of Customs, Bombay, MANU/SC/0703/1997 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, distinguished Sun Export Case, 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 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 before a Bench of two-Judges, the ruling in Sun Export Case, MANU/SC/0703/1997, 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 was doubted and matter was placed before Three Judge bench. The three-Judge Bench having noticed the unsatisfactory state of law, opined that the dicta in Sun Export Case, requires reconsideration and that is how the matter has been placed before present Constitution Bench.

Issues:

(i) 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?

Contentions:

Appellant

(i) A tax exemption statute or notification needs to be strictly interpreted. Strict interpretation is literal Rule of interpretation, which means that Court has to apply the provision reading the language therein and no interpretation is required if the language is clear. In the event of any ambiguity, the benefit has to be given to the revenue and 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.

Respondent

(i) The ratio and observations in Sun Export Case has to be considered holistically without giving any narrow meaning to the conclusion arrived therein. The Rule of strict interpretation cannot be applied in abstract. It has to be applied keeping in view the interpretation to be used in relation to Customs Tariff Entry.

(ii) When the Customs Tariff Entry is interpreted broadly, the same should be adopted in interpreting exemption notification. Rule of strict interpretation should be limited to the eligibility conditions of an exemption notification and while conferring the benefits to such exemption.

Analysis:

(i) An Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences. It is for the Court to see whether a particular case falls within the broad principles of law enacted by the Legislature. Here, the principles of interpretation of statutes come in handy. In spite of the fact that experts in the field assist in drafting the Acts and Rules, there are many occasions where the language used and the phrases employed in the statute are not perfect. Therefore, Judges and Courts need to interpret the words.

(ii) The purpose of interpretation is essentially to know the intention of the Legislature. Apart from the general principles of interpretation of statutes, there are certain internal aids and external aids which are tools for interpreting the statutes.

(iii) The long title, the preamble, the heading, the marginal note, punctuation, illustrations, definitions or dictionary clause, a proviso to a section, explanation, examples, a Schedule to the Act etc., are internal aids to construction. The external aids to construction are Parliamentary debates, history leading to the legislation, other statutes which have a bearing, dictionaries, thesaurus.

(iv) The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense.

(v) In applying Rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes.

(vi) In construing penal statutes and taxation statutes, the Court has to apply strict Rule of interpretation. Insofar as taxation statutes are concerned, Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature.

(vii) 'The plain meaning rule' suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase "cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio". Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is self-contradictory.

(viii) Next, to consider is the meaning and scope of 'strict interpretation'. The strict interpretation does not encompass strict-literalism into its fold. It may be relevant to note that simply juxtaposing 'strict interpretation' with 'literal rule' would result in ignoring an important aspect that is 'apparent legislative intent'. We are alive to the fact that there may be overlapping in some cases between the aforesaid two rules. With certainty, we can observe that, 'strict interpretation' does not encompass such literalism, which lead to absurdity and go against the legislative intent. As noted above, if literalism is at the far end of the spectrum, wherein it accepts no implications or inferences, then 'strict interpretation' can be implied to accept some form of essential inferences which literal Rule may not accept.

(ix) Strict interpretation of a statute certainly involves literal or plain meaning test. The other tools of interpretation, namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute.

(x) So far core issue is concerned, as decided in various authorities, 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.

(xi) Every taxing statue including, charging, computation and exemption Clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in 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.

(xii) There is abundant jurisprudential justification for this. In the governance of Rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee.

(xiii) But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue, the aforesaid conclusions are expounded only as a prelude to better understand jurisprudential basis for our conclusion.

Conclusion:

(i) 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.

(ii) 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.

(iii) 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.

The instant civil appeal may now be placed before appropriate Bench for considering the case on merits after obtaining orders from the Hon'ble Chief Justice of India.

Important Precedents:

Sun Export Corporation, Bombay v. Collector of Customs, Bombay MANU/SC/0703/1997

Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal MANU/SC/0955/2010

Tata Iron & Steel Co. Ltd. v. State of Jharkhand MANU/SC/0237/2005

Collector of Central Excise, Bombay-1 and Anr. v. Parle Exports (Pvt.) Ltd. MANU/SC/0081/1988

Crawford v. Spooner; Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner of Commercial Taxes MANU/SC/0035/1992