COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI versus M/S. DILIP KUMAR AND COMPANY & ORS. on 30 July 2018

[2018] 7 S.C.R. 1191

COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI

v.

M/S. DILIP KUMAR AND COMPANY & ORS.

(Civil Appeal No. 3327 of 2007)

JULY 30, 2018

[RANJAN GOGOI, N. V. RAMANA, R. BANUMATHI,MOHAN M. SHANTANAGOUDAR ANDS. ABDUL NAZEER, JJ.]

Tax/Taxation:

Exemption Notification – Interpretation of – In case ofambiguity in such Notification, whether the benefit of ambiguitywould go to assessee or Revenue – Held: Exemption Notificationshould be interpreted strictly – The burden to prove the applicabilityof the exemption Notification would be on the assessee – In case ofambiguity, benefit of such ambiguity would go to Revenue and notto assessee - *Sun Export case wherein it was held that benefit ofambiguity would go to assessee is overruled.

Taxing statute and Exemption Notification – Interpretation of– Held: There is distinction in interpreting a charging provision ofa taxation statute and in the interpretation of exemption Notification– Any ambiguity in charging provision enures to the benefit of theassessee, but any ambiguity in the exemption clause or exemptionNotification would go in favour of Revenue.

Interpretation of Statutes:

General principles of interpretation – Purpose ofinterpretation – Tools of interpretation – Discussed.

Interpretation of fiscal statutes – Held: While interpretingfiscal statutes court has to apply strict rule of interpretation.

‘Plain meaning rule’ of interpretation – Held: When languagein the statute is plain and unambiguous, Court has to seal andunderstand the plain language as such, and there is no scope ofinterpretation.

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A‘Strict interpretation’ and ‘Literal interpretation’ – Distinctionbetween – Held: All cases of literal interpretation would involvestrict rule of interpretation, but strict rule may not necessarilyinvolve the former, especially in the area of taxation – Thus strictinterpretation does not encompass strict literalism into its fold.

BInterpretation of taxing statute – Rule of interpretation – Held:Every taxing statute including charging, computation and exemptionclause (at the threshold stage) should be interpreted strictly.

Contextual or purposive interpretation – Of taxing statutes –Held: In a taxation statute there is no room for any intendment – InCtaxation statutes contextual or purposive interpretation cannot beapplied – Nor any resort be made to look to other supportingmaterial – Equity has no place in interpreting a tax statute.

Answering the referred question, the Court HELD: 1.1 An Act of Parliament/Legislature cannot foreseeDall types of situations and all types of consequences. It is for theCourt to see whether a particular case falls within the broadprinciples of law enacted by the Legislature. Here, the principlesof interpretation of statutes come in handy. In spite of the factthat experts in the field assist in drafting the Acts and Rules,Ethere are many occasions where the language used and thephrases employed in the statute are not perfect. Therefore,Judges and Courts need to interpret the words. [Para 14][1206-D, E]

1.2 The principles of interpretation have been evolved incommon law. It has also been the practice for the appropriateFlegislative body to enact Interpretation Acts or General ClausesAct. In all the Acts and Regulations, made either by the Parliamentor Legislature, the words and phrases as defined in the GeneralClauses Act and the principles of interpretation laid down inGeneral Clauses Act are to be necessarily kept in view. If whileGinterpreting a Statutory law, any doubt arises as to the meaningto be assigned to a word or a phrase or a clause used in anenactment and such word, phrase or clause is not specificallydefined, it is legitimate and indeed mandatory to fall back onGeneral Clauses Act. Notwithstanding this, when there isH

repugnancy or conflict as to the subject or context between theGeneral Clauses Act and a statutory provision which falls forinterpretation, the Court must necessarily refer to the provisionsof statute. [Para 15] [1206-F-H]

1.3 The purpose of interpretation is essentially to knowthe intention of the Legislature. Whether the Legislature intendedto apply the law in a given case; whether the Legislature intendedto exclude operation of law in a given case; whether Legislatureintended to give discretion to enforcing authority or to adjudicatingagency to apply the law, are essentially questions to which answerscan be sought only by knowing the intention of the legislation.Apart from the general principles of interpretation of statutes,there are certain internal aids and external aids which are toolsfor interpreting the statutes. The long title, the preamble, theheading, the marginal note, punctuation, illustrations, definitionsor dictionary clause, a proviso to a Section, explanation, examples,a schedule to the Act etc., are internal aids to construction. Theexternal aids to construction are Parliamentary debates, historyleading to the legislation, other statutes which have a bearing,dictionaries, thesaurus. [Paras 16 and 17] [1207-A-C]

1.4 A statute must be construed according to the intentionof the Legislature and the Courts should act upon the trueintention of the legislation while applying law and whileinterpreting law. If a statutory provision is open to more thanone meaning, the Court has to choose the interpretation whichrepresents the intention of the Legislature. [Para 18] [1207-F]

District Mining Officer v. Tata Iron and Steel Co.,(2001) 7 SCC 358 : [2001] 1 Suppl. SCR 147– relied on.

1.5 The well settled principle is that when the words in astatute are clear, plain and unambiguous and only one meaningcan be inferred, the Courts are bound to give effect to the saidmeaning irrespective of consequences. If the words in thestatute are plain and unambiguous, it becomes necessary toexpound those words in their natural and ordinary sense. Thewords used declare the intention of the Legislature. [Para 19][1208-E]

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AKanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957SC 907 : [1958] SCR 360 – relied on.

1.6 In applying rule of plain meaning any hardship andinconvenience cannot be the basis to alter the meaning to thelanguage employed by the legislation. This is especially so inBfiscal statutes and penal statutes. Nevertheless, if the plainlanguage results in absurdity, the Court is entitled to determinethe meaning of the word in the context in which it is usedkeeping in view the legislative purpose. Not only that, if the plainconstruction leads to anomaly and absurdity, the court havingregard to the hardship and consequences that flow from such aCprovision can even explain the true intention of the legislation.[Para 20] [1208-G; 1209-A]

Assistant Commissioner, Gadag Sub-Division, Gadagv. Mathapathi Basavannewwa, (1995) 6 SCC 355 :[1995] 2 Suppl. SCR 807 – relied on.

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1.7 In construing penal statutes and taxation statutes, theCourt has to apply strict rule of interpretation. Article 265 of theConstitution prohibits the State from extracting tax from thecitizens without authority of law. It is axiomatic that taxationstatute has to be interpreted strictly because State cannot at theirEwhims and fancies burden the citizens without authority of law. Inother words, when competent Legislature mandates taxingcertain persons/certain objects in certain circumstances, itcannot be expanded/interpreted to include those, which were notintended by the Legislature. [Para 21] [1209-B-D]

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1.8 ‘The plain meaning rule’ suggests that when thelanguage in the statute is plain and unambiguous, the Court hasto read and understand the plain language as such, and there isno scope for any interpretation. This salutary maxim flows fromthe phrase “cum inverbis nulla ambiguitas est, non debet admittiGvoluntatis quaestio”. Following such maxim, the courts sometimeshave made strict interpretation subordinate to the plain meaningrule, though strict interpretation is used in the precise sense.To say that strict interpretation involves plain reading of thestatute and to say that one has to utilize strict interpretation inthe event of ambiguity is self-contradictory. [Para 22]H[1209-E-F]

1.9 The principle of literal interpretation and the principleof strict interpretation are sometimes used interchangeably. Thisprinciple, however, may not be sustainable in all contexts andsituations. All cases of literal interpretation would involve strictrule of interpretation, but strict rule may not necessarily involvethe former, especially in the area of taxation. Strictinterpretation does not encompass strict- literalism into its fold.Simply juxtaposing ‘strict interpretation’ with ‘literal rule’ wouldresult in ignoring an important aspect that is ‘apparentlegislative intent’. There may be overlapping in some casesbetween the aforesaid two rules. ‘Strict interpretation’ does notencompass such literalism, which lead to absurdity and go againstthe legislative intent. If literalism is at the far end of thespectrum, wherein it accepts no implications or inferences, then‘strict interpretation’ can be implied to accept some form ofessential inferences which literal rule may not accept.[Paras 24 and 25] [1210-G; 1211-C-D]

Punjab Land Development and ReclamationCorporation Ltd., Chandigarh v. Presiding Officer,Labour Court Chandigarh and Ors., (1990) 3 SCC682 : [1990] 3 SCR 111 – relied on.

1.10 The other tools of interpretation, namely contextualor purposive interpretation cannot be applied nor any resort bemade to look to other supporting material, especially in taxationstatutes. In a taxation statute, there is no room for any intendment;that regard must be had to the clear meaning of the words andthat the matter should be governed wholly by the language of thenotification. Equity has no place in interpretation of a tax statute.Nothing has to be read into nor should anything be implied otherthan essential inferences while considering a taxation statute.[Para 25] [1211-E-G]

Rajasthan Rajya Sahakari Spinning & Ginning MillsFederation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC672 : State Bank of Travancore v. Commissioner ofIncome Tax, (1986) 2 SCC 11 : [1986] 1 SCR 25 ;Commissioner of Income Tax v. Kasturi Sons Ltd.(1999) 3 SCC 346 : [ 1999] 1 SCR 1207 ; State of WestBengal v. Kesoram Industries Limited (2004) 10 SCC201 : [2004] 1 SCR 564 – relied on.

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ACape Brandy Syndicate v. IRC (1921) 1 KB 64 ; Re,Micklethwait (1885) 11 Ex 452 – referred to.

‘Principles of Statutory Interpretation’ by Justice G. P.Singh ; Black’s Law Dictionary (10[th] Edn.) – referredto.

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2.1 There is distinction in interpreting a taxing provision(charging provision) and in the matter of interpretation ofexemption notification. In the matter of interpretation of chargingsection of a taxation statute, strict rule of interpretation ismandatory and if there are two views possible in the matter ofCinterpretation of a charging section, the one favourable to theassessee need to be applied. [Para 12] [1205-E, F]

2.2 It is the law that any ambiguity in a taxing statute shouldenure to the benefit of the subject/assessee, but any ambiguity inthe exemption clause of exemption notification must be conferredDin favour of revenue – and such exemption should be allowed tobe availed only to those subjects/assesses who demonstrate thata case for exemption squarely falls within the parametersenumerated in the notification and that the claimants satisfy allthe conditions precedent for availing exemption. [Para 40][1225-B, C]E

2.3 Every taxing statue including, charging, computationand exemption clause (at the threshold stage) should beinterpreted strictly. Further, in case of ambiguity in a chargingprovisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notificationFwherein the benefit of ambiguity must be strictly interpreted infavour of the Revenue/State. [Para 41] [1225-E-F]

2.4 In the governance of rule of law by a writtenConstitution, there is no implied power of taxation. The tax powermust be specifically conferred and it should be strictly inGaccordance with the power so endowed by the Constitution itself.It is for this reason that the Courts insist upon strict compliancebefore a State demands and extracts money from its citizenstowards various taxes. Any ambiguity in a taxation provision,therefore, is interpreted in favour of the subject/assessee. The H

statement of law that ambiguity in a taxation statute should beinterpreted strictly and in the event of ambiguity the benefitshould go to the subject/assessee may warrant visualizingdifferent situations. There cannot be any implied concept eitherin identifying the subject of the tax or person liable to pay tax.That is why it is often said that subject is not to be taxed, unlessthe words of the statute unambiguously impose a tax on him, thatone has to look merely at the words clearly stated and that thereis no room for any intendment nor presumption as to tax. It isonly the letter of the law and not the spirit of the law to guide theinterpreter to decide the liability to tax ignoring any amount ofhardship and eschewing equity in taxation. Thus, if in the eventof ambiguity in a taxation liability statute, the benefit should goto the subject/assessee. But, in a situation where the taxexemption has to be interpreted, the benefit of doubt should goin favour of the revenue. [Para 43] [1226-A-F]

2.5 Exemption notification should be interpreted strictly;the burden of proving applicability would be on the assessee toshow that his case comes within the parameters of the exemptionclause or exemption notification. [Para 52] [1230-G]

2.6 When there is ambiguity in exemption notification whichis subject to strict interpretation, the benefit of such ambiguitycannot be claimed by the subject/assessee and it must beinterpreted in favour of the revenue. [Para 52] [1230-H]

2.7 The ratio in *Sun Export case is not correct and all thedecisions which took similar view as in *Sun Export case standsover-ruled. [Para 52] [1231-A]

Commissioner of Central Excise, New Delhi v. HariChand Shri Gopal (2011) 1 SCC 236 : [2010] 13 SCR820 – followed.

Sun Export Corporation, Bombay v. Collector ofCustoms, Bombay (1977) 6 SCC 564 : [1997] 1 Suppl.SCR 434 – overruled.

Hansraj Gordhandas v. H.H. Dave, Asst. Collector ofCentral Excise & Customs, Surat and Ors., AIR 1970

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SUPREME COURT REPORTS

ASC 755 = [1969] 2 SCR 253 ; Collector of CentralExcise v. Parle Exports (P) Ltd. (1989) 1 SCC 345 :[1988] 3 Suppl. SCR 933 ; Mangalore Chemicals &Fertilizers Ltd. v. Dy. Commissioner of CommercialTaxes (1992) 1 Suppl. SCC 21 : [1991] 3 SCR 336 ;Novopan India Ltd. v. Collector of Central Excise andBCustoms (1994) 3 Suppl. SCC 606 : [1994] 3 Suppl.SCR 549 ; Tata Iron & Steel Co. Ltd. v. State ofJharkhand (2005) 4 SCC 272 : [2005] 2 SCR 1207 –relied on.CCollector of Customs and Central Excise, Guntur andOrs. v.. Surendra Cotton Oil Mills and Fertilizers Co.and Ors. (2001) 1 SCC 578 : [2000] 5 Suppl. SCR701 ; Union of India v. The Commercial Tax Officer,West Bengal and Ors. AIR 1956 SC 202 : [1955] SCR1076 ; Union of India v. Wood Papers Limited (1990) 4DSCC 256 ; Govind Saran Ganga Saran v. Commissionerof Sales Tax (1985) Suppl. SCC 205 : [1985] SCR985 ; Mathuram Agrawal v. Sate of Madhya Pradesh(1999) 8 SCC 667 : [1999] 4 Suppl. SCR 195 ; IndianBanks’ Association v. Devkala Consultancy ServiceE(2004) 4 JT 587 = AIR 2004 SC 2615 ; ConsumerOnline Foundation v. Union of India (2011) 5 SCC360 : [2011] 5 SCR 911 – referred to.Commissioner of Inland Revenue v. James Forrest(1890) 15 AC 334 (HL) – referred to.F

Case Law Reference

COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.M/S. DILIP KUMAR AND COMPANY & ORS.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3327of 2007.

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From the final Order No. A/25 to 32/WZB/06 C.I. (C.S.T.B.)dated 05.12.2005 of CESTATE, Mumbai in Appeal Nos. C/199, 200,210, 211-R and 416 to 419/2000-Mum.

Ms. Pinky Anand, ASG, Yashank Adhyaru, Sr. Adv., Ms. BinuTamta, Ms. Shirin Khajuria, Ms. Ayushi Gaur, Sanjay Kr. Pathak,Ms. Saudamini Sharma, Sumit Teterwal, Rishab Jain, B. Krishna Prasad,Somnath Shukla, M. P. Devanath, Abhishek Anand, Udit Jain,Ms. Ashwini Chandrasekaran, Praveen Kumar, Advs. for the appearingparties.

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AThe Judgment of the Court was delivered by N.V. RAMANA, J. 1. This Constitution Bench is setup toexamine the correctness of the ratio in Sun Export Corporation,Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564[hereinafter referred as ‘Sun Export Case’ for brevity], namely theBquestion is - What is the interpretative rule to be applied while interpretinga tax exemption provision/notification when there is an ambiguity as toits applicability with reference to the entitlement of the assessee or therate of tax to be applied?

2. In Sun Export Case (supra), a three-Judge Bench ruled thatCan ambiguity in a tax exemption provision or notification must beinterpreted so as to favour the assessee claiming the benefit of suchexemption. Such a rule was doubted when this appeal was placed beforea Bench of two-Judges. The matter then went before a three-JudgeBench consisting one of us (Ranjan Gogoi, J.). The three-Judge Benchhaving noticed the unsatisfactory state of law as it stands today, opinedDthat the dicta in Sun Export Case (supra), requires reconsideration andthat is how the matter has been placed before this Constitution Bench.

3. Few facts necessary, to appreciate the issue involved are asfollows - the respondents imported a consignment of Vitamin – E50powder (feed grade) under Bill of Entry No. 8207, dated 19.08.1999.EThey claimed the benefit of concessional rate of duty at 5%, instead ofstandard 30%, as per the Customs Notification No. 20/1999 and classifiedthe product under Chapter 2309.90 which admittedly pertains to prawnfeed. They relied on the ratio in Sun Export Case (supra) and claimedthe benefit of exemption. The benefit of Customs Notification No. 20/F1999 was, however, denied to the respondents on the plea of thedepartment that the goods under import contained chemical ingredientsfor animal feed and not animal feed/prawn feed, as such, the concessionalrate of duty under the extant notification was not available. Thedepartment classified the consignment under Chapter 29 which attractsstandard rate of customs duty. The adjudicating authority, namely, theGAssistant Commissioner of Customs, distinguished Sun Export Case(supra), while accepting the plea of the department to deny theconcessional rate. The Commissioner of Customs (Appeals) reversedthe order of the Assistant Commissioner and came to the conclusionthat Sun Export Case (supra) was indeed applicable. The department H

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.

4. When the appeal was placed, as noticed earlier, before a Benchof two-Judges, the ruling in Sun Export Case (supra) was doubted,observing as follows- “We have serious doubts as to whether the Bombay High Courtjudgment affirmed in Sun Export Corporation’s case is correct.First and foremost, it is clear that the subsequent exemptionNotification largely expanded the first Notification which referredonly to animal feeds and nothing else. That being the case, it wouldbe difficult to say that a large number of other categories whichhave subsequently been added would be clarificatory andtherefore, retrospective. Further, we also feel that in view of thecatena of judgments of this Court which have held that anexemption Notification has to be strictly construed (that is, if theperson claiming exemption does not fall strictly within the letter ofthe Notification, he cannot claim exemption), have also beenignored by this Court in Sun Export Corporation’s case in paragraph13 thereof. Apart from this, the view of this Court in paragraph 13that it is well-settled that if two views are possible, one favourableto the assessee in matters of taxation has to be preferred isunexceptionable. However, this Court was not concerned in thatcase with the charging Section of a taxation statute. It wasconcerned with the interpretation of an Exemption Notificationwhich, as has been stated above, would require the exactly oppositetest to be fulfilled.”

Further this Court found that the subsequent judgment in Collectorof Customs and Central Excise, Guntur and Ors. V. Surendra CottonOil Mills and Fertilizers Co. and Ors., 2001 (1) SCC 578 [hereinafterreferred as ‘Surendra Cotton Oil Mills Case’ for brevity],distinguished Sun Export Case (supra), which mandated this Court totake a re-look at the proposition laid down by the earlier cases in thefollowing manner- “We also find that in the subsequent judgment of this Court,Surendra Cotton Oil Mills’s case, this Court has distinguished theSun Export Corporation’s case and held that it dealt with ‘animal AB

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Afeed’ which was large enough to include ‘animal feed supplements’whereas the facts of Surendra Cotton Oil Mills’s case showedthat ingredients of animal feed could not be held to be included in‘animal feed’. In our opinion, this Court did not adequately dealwith why Sun Exports Corporation’s case which is a bindingdecision of a three Judges Bench should not be followed, apartBfrom a specious distinction between ‘ingredients’ and‘supplements’ which is logically speaking a distinction without adifference.

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This being the unsatisfactory state of lawas it stands today,we feel that this matter should be placed before Hon’blethe Chief Justice of India to constitute an appropriate Benchto resolve the doubts pointed out by us in the body of thisOrder.”

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5. We feel that the reference to Surendra Cotton Oil Mills Case(supra), may not be necessary as the distinction was drawn on a factualfooting, which this Court may not concern itself with, as we are onlyconcerned with the principle of law. With this, the Division Bench wasEof the tentative view that the opinion expressed in Sun Export Case(supra) would require reconsideration, as the proposition laid down thereinwas unsatisfactory, and therefore placed before the Chief Justice ofIndia for constituting an appropriate Bench.

6. When the matter was placed before a three Judge Benchpresided over by one of us (Ranjan Gogoi, J.), the Bench reiterated theFview for reconsideration of the Sun Export Case (supra) and againplaced the matter, before Hon’ble the Chief Justice of India forconstitution of an appropriate Bench, considering the fact that SunExport Case (supra) was decided by a Bench comprising of three learnedjudges of this Court. Hence, this matter came to be placed before thisGBench of Five Judges with following observations- “In paragraph 13 of the order of this Court in Sun’s case,views have beenexpressed with regard to the interpretationof an exemption notification to support the conclusionreached. The same may require a reconsideration.

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That apart, in the referral order it has been noticed that Sun’sCase (supra) has been distinguished in ‘Collector of CentralExcise, Guntur vs. Surendra Cotton Oil Mills & Fert. Co. Thebasis on which the said distinction has been drawn needs to befurther pursued.

Having considered the matter at some length, we are ofthe tentative view, that the opinion expressed in Sun’s case(supra) may require a reconsideration. Being a co-ordinateBench, we believe we ought not to proceed any further inthe matter. Hence, we direct the Registry to lay the papersbefore the Hon’ble the Chief Justice of India forappropriate orders.”

7. The learned Additional Solicitor General, Ms. Pinky Anand,submits that a tax exemption statute or notification needs to be strictlyinterpreted. According to her, strict interpretation is literal rule ofinterpretation, which means that Court has to apply the provisionreading the language therein and no interpretation is required if thelanguage is clear. In the event of any ambiguity, according to her, thebenefit has to be given to the revenue and that such ambiguity in taxexemption provision must not be interpreted to benefit the assessee whofails to demonstrate without any doubt that such assessee is covered bythe tax exemption notification. She elaborated her arguments by relyingon various judgments and contends that the ratio in Sun Export Case(supra), which was doubted in Surendra Cotton Oil Mills Case(supra), is not correct law. On merits of the case, she submitted that theartificial distinction created by Surendra Cotton Oil Mills Case(supra), in distinguishing the ingredients from supplements is not soundand may not be accepted by the Court.

8. Per contra, among others, Mr. Somnath Shukla, learnedcounsel appearing on behalf of the respondents would submit that theratio and observations in Sun Export Case (supra) has to beconsidered holistically without giving any narrow meaning to theconclusion arrived therein. The rule of strict interpretation cannot beapplied in abstract. It has to be applied keeping in view theinterpretation to be used in relation to Customs Tariff Entry. Accordingto the learned counsel, when the Customs Tariff Entry is interpreted ABC

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Abroadly, the same should be adopted in interpreting exemptionnotification. Indeed, the learned senior counsel would contend that therule of strict interpretation should be limited to the eligibility conditions ofan exemption notification and while conferring the benefits to suchexemption. He distinguished all the judgments relied on by theappellants and submits that “prawn feed supplements” would also beBincluded under the head “prawn feed”, and the judgment of the Tribunalimpugned in these appeals does not warrant any interference.

9. Sun Export Case (supra) was a case against the judgment ofthe High Court of Judicature, Bombay. It was concerned with theCinterpretation of tax exemption notification, being NotificationNo. 234/1982 – CE, dated 01.11.1982, issued by the CentralGovernment under sub-section (1) of Section 25 of the Customs Act.The High Court considered the issue whether Vitamin AD-3 mix (feedgrade)/animal feed supplement could be included under the head‘animal feed, including compound livestock feed’. The Bombay HighDCourt decided, in the affirmative, in favour of the assessee. The casethen landed in this Court, which was persuaded to expand the meaningof ‘animal feed’ in the light of subsequent notification issued in 1984,which largely expanded the scope of exemption to the effect that‘animal feed, including compound livestock feed, animal feedEsupplements and animal feed concentrates’. This Court indeedcountenanced the plea, namely, whenever there is ambiguity as to whetherthe subject matter was included or not, then the benefit of the sameshould be conferred on the assessee. The relevant portion in SunExport Case (supra), reads as follows:

F“13. We are in agreement with the above view expressed by theBombay High Court. No doubt it was contended on behalf of theRevenue that the contrary view taken by the Tribunal has beenchallenged in this Court which was rejected in limine at theadmission stage. We do not think that dismissal at the admissionstage can be relied upon as a binding precedent.Even assumingGthat there are two views possible, it is well settled that onefavourable to the assessee in matters of taxation has to be”preferred.

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10. There cannot be any doubt that the ratio in Sun Export Case(supra) that, if two views are possible in interpreting the exemptionnotification, the one favourable to the assesseee in the matter oftaxation has to be preferred. This principle created confusion andresulted in unsatisfactory state of law. In spite of catena of judgmentsof this Court, which took the contra view, holding that an exemptionnotification must be strictly construed, and if a person claimingexemption does not fall strictly within the description of the notificationotherwise then he cannot claim exemption.

11. About three years after Sun Export Case (supra), in the year2000, this Court in Surendra Cotton Oil Mills Case (supra), expressedreservations as to the soundness of the dicta in Sun Export Case(supra), observing that Sun Export Case (supra) ignored catena ofjudgments of this Court expressing contra view. This Court primafacie came to the conclusion with regard to the principle that when twoviews are possible, one favourable to the assessee in matters of taxationhas to be preferred, is unexceptionable when interpreting the chargingsection of a taxation statute, but the opposite principle would beapplicable in interpretation of exemption notification. The three-JudgeBench in the referral order further observed that the views expressed inSun Export Case (supra) with regard to interpretation of exemptionnotification to support the conclusion, required reconsideration.

12. We may, here itself notice that the distinction in interpreting ataxing provision (charging provision) and in the matter of interpretationof exemption notification is too obvious to require any elaboration.Nonetheless, in a nutshell, we may mention that, as observed in SurendraCotton Oil Mills Case (supra), in the matter of interpretation ofcharging section of a taxation statute, strict rule of interpretation ismandatory and if there are two views possible in the matter ofinterpretation of a charging section, the one favourable to the assesseeneed to be applied. There is, however, confusion in the matter ofinterpretation of exemption notification published under taxation statutesand in this area also, the decisions are galore[1].

1 See: Sun Export Corporation, Bombay v. Collector of Customs, Bombay and Anr.,(1997) 6 SCC 564; Commissioner of Central Excise, Pune v. Abhi Chemicals andPharmaceuticals Pvt. Ltd., (2005) 3 SCC 541; Collector of Central Excise, Bombay-1and Anr. v. Parle Exports (Pvt.) Ltd., (1989) 1 SCC 345; Commissioner of Customs(Import), Mumbai v. Konkan Synthetic Fibres, (2012) 6 SCC 339; Collector ofCustoms, Bombay v. Swastic Wollens (Pvt.) Ltd. And Ors., (1988) Supp. SCC 796;Commissioner of Customs (Preventive), Gujarat v. Reliance Petroleum Ltd., (2008) 7SCC 220.

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A13. We may passingly, albeit, briefly reiterate the generalprinciples of interpretation, which were also adverted to by both thecounsel. In his treatise, ‘Principles of Statutory Interpretation’ JusticeG.P. Singh, lucidly pointed the importance of construction of statutes in amodern State as under:B“Legislation in modern State is actuated with some policy to curbsome public evil or to effectuate some public benefit. The legislationis primarily directed to the problems before the Legislature basedon information derived from past and present experience. It mayalso be designed by use of general words to cover similar problemsarising in future. But, from the very nature of things, it is impossibleCto anticipate fully the varied situations arising in future in whichthe application of the legislation in hand may be called for, and,words chosen to communicate such indefinite ‘referents’ arebound to be, in many cases lacking in clarity and precision andthus giving rise to controversial questions of construction.”D14. An Act of Parliament/Legislature cannot foresee all types ofsituations and all types of consequences. It is for the Court to see whethera particular case falls within the broad principles of law enacted by theLegislature. Here, the principles of interpretation of statutes come inhandy. In spite of the fact that experts in the field assist in drafting theActs and Rules, there are many occasions where the language used andEthe phrases employed in the statute are not perfect. Therefore, Judgesand Courts need to interpret the words.

15. In doing so, the principles of interpretation have been evolvedin common law. It has also been the practice for the appropriatelegislative body to enact Interpretation Acts or General Clauses Act. InFall the Acts and Regulations, made either by the Parliament orLegislature, the words and phrases as defined in the General ClausesAct and the principles of interpretation laid down in General ClausesAct are to be necessarily kept in view. If while interpreting a Statutorylaw, any doubt arises as to the meaning to be assigned to a word or aGphrase or a clause used in an enactment and such word, phrase or clauseis not specifically defined, it is legitimate and indeed mandatory to fallback on General Clauses Act. Notwithstanding this, we shouldremember that when there is repugnancy or conflict as to the subject orcontext between the General Clauses Act and a statutory provision whichfalls for interpretation, the Court must necessarily refer to the provisionsHof statute.

16. The purpose of interpretation is essentially to know theintention of the Legislature. Whether the Legislature intended to applythe law in a given case; whether the Legislature intended to excludeoperation of law in a given case; whether Legislature intended to givediscretion to enforcing authority or to adjudicating agency to apply thelaw, are essentially questions to which answers can be sought only byknowing the intention of the legislation. Apart from the generalprinciples of interpretation of statutes, there are certain internal aids andexternal aids which are tools for interpreting the statutes.

17. The long title, the preamble, the heading, the marginal note,punctuation, illustrations, definitions or dictionary clause, a proviso to asection, explanation, examples, a schedule to the Act etc., are internalaids to construction. The external aids to construction areParliamentary debates, history leading to the legislation, other statuteswhich have a bearing, dictionaries, thesaurus.

18. It is well accepted that a statute must be construed accordingto the intention of the Legislature and the Courts should act upon thetrue intention of the legislation while applying law and while interpretinglaw. If a statutory provision is open to more than one meaning, theCourt has to choose the interpretation which represents the intention ofthe Legislature. In this connection, the following observations made bythis Court in District Mining Officer vs. Tata Iron and Steel Co.,(2001) 7 SCC 358, may be noticed:

“… A statute is an edict of the Legislature and in construing astatute, it is necessary, to seek the intention of its maker. A statutehas to be construed according to the intent of them that make itand the duty of the Court is to act upon the true intention of theLegislature. If a statutory provision is open to more than oneinterpretation the Court has to choose that interpretation whichrepresents the true intention of the Legislature. This task veryoften raises the difficulties because of various reasons, inasmuchas the words used may not be scientific symbols having any preciseor definite meaning and the language may be an imperfect mediumto convey one’s thought or that the assembly of Legislaturesconsisting of persons of various shades of opinion purport to conveya meaning which may be obscure. It is impossible even for themost imaginative Legislature to forestall exhaustively situationsand circumstances that may emerge after enacting a statute where A

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Aits application may be called for. Nonetheless, the function of theCourts is only to expound and not to legislate. Legislation in amodern State is actuated with some policy to curb some publicevil or to effectuate some public benefit. The legislation is primarilydirected to the problems before the Legislature based oninformation derived from past and present experience. It mayBalso be designed by use of general words to cover similar problemsarising in future. But, from the very nature of things, it is impossibleto anticipate fully the varied situations arising in future in whichthe application of the legislation in hand may be called for, and,words chosen to communicate such indefinite referents are boundCto be in many cases lacking in clarity and precision and thus givingrise to controversial questions of construction. The process ofconstruction combines both literal and purposive approaches. Inother words the legislative intention i.e., the true or legal meaningof an enactment is derived by considering the meaning of thewords used in the enactment in the light of any discernible purposeDor object which comprehends the mischief and its remedy to whichthe enactment is directed…”

19. The well settled principle is that when the words in a statuteare clear, plain and unambiguous and only one meaning can be inferred,the Courts are bound to give effect to the said meaning irrespective ofEconsequences. If the words in the statute are plain and unambiguous, itbecomes necessary to expound those words in their natural andordinary sense. The words used declare the intention of theLegislature. In Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957SC 907, it was held that if the words used are capable of oneFconstruction only then it would not be open to the Courts to adopt anyother hypothetical construction on the ground that such construction ismore consistent with the alleged object and policy of the Act.

20. In applying rule of plain meaning any hardship andinconvenience cannot be the basis to alter the meaning to the languageGemployed by the legislation. This is especially so in fiscal statutes andpenal statutes. Nevertheless, if the plain language results in absurdity,the Court is entitled to determine the meaning of the word in the contextin which it is used keeping in view the legislative purpose.[2] Not only 2Assistant Commissioner, Gadag Sub-Division, Gadag v. MathapathiHBasavannewwa, 1995 (6) SCC 355.

that, if the plain construction leads to anomaly and absurdity, the courthaving regard to the hardship and consequences that flow from such aprovision can even explain the true intention of the legislation. Havingobserved general principles applicable to statutory interpretation, it isnow time to consider rules of interpretation with respect to taxation.

21. In construing penal statutes and taxation statutes, the Courthas to apply strict rule of interpretation. The penal statute which tendsto deprive a person of right to life and liberty has to be given strictinterpretation or else many innocent might become victims ofdiscretionary decision making. Insofar as taxation statutes areconcerned, Article 265 of the Constitution[3] prohibits the State fromextracting tax from the citizens without authority of law. It is axiomaticthat taxation statute has to be interpreted strictly because State cannotat their whims and fancies burden the citizens without authority of law.In other words, when competent Legislature mandates taxing certainpersons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature.

22. At the outset, we must clarify the position of ‘plain meaningrule or clear and unambiguous rule’ with respect of tax law. ‘The plainmeaning rule’ suggests that when the language in the statute is plain andunambiguous, the Court has to read and understand the plain languageas such, and there is no scope for any interpretation. This salutarymaxim flows from the phrase “cum inverbis nulla ambiguitas est, nondebet admitti voluntatis quaestio”. Following such maxim, the courtssometimes have made strict interpretation subordinate to the plain meaningrule[4], though strict interpretation is used in the precise sense. To say thatstrict interpretation involves plain reading of the statute and to say thatone has to utilize strict interpretation in the event of ambiguity isself-contradictory.

23. Next, we may consider the meaning and scope of ‘strictinterpretation’, as evolved in Indian law and how the higher Courts havemade a distinction while interpreting a taxation statute on one hand andtax exemption notification on the other. In Black’s Law Dictionary(10[th ]Edn.) ‘strict interpretation’ is described as under:

3 265. Taxes not to be imposed save by authority of law-No tax shall be levied orcollected except by authority of law.4 Mangalore Chemicals Case(Infra para 37).

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AStrict interpretation. (16c) 1. An interpretation according to thenarrowest, most literal meaning of the words without regard forcontext and other permissible meanings. 2. An interpretationaccording to what the interpreter narrowly believes to have beenthe specific intentions or understandings of the text’s authors orratifiers, and no more.- Also termed (in senses 1 & 2) strictBconstruction, literal interpretation; literal construction; restrictedinterpretation; interpretatio stricta; interpretatio restricta;interpretatio verbalis. 3. The philosophy underlying strictinterpretation of statues.- Also termed as close interpretation;interpretatio restrictive.

CSee strict constructionism under constructionism. Cf. largeinterpretation; liberal interpretation (2).

“Strict construction of a statute is that which refuses to expandthe law by implications or equitable considerations, but confinesits operation to cases which are clearly within the letter of theDstatute, as well as within its spirit or reason, not so as to defeat themanifest purpose of the legislature, but so as to resolve allreasonable doubts against the applicability of the statute to theparticular case.’ Willam M. Lile et al., Brief Making and the useof Law Books 343 (Roger W. Cooley & Charles Lesly Ameseds., 3d ed. 1914).E

“Strict interpretation is an equivocal expression, for it meanseither literal or narrow. When a provision is ambiguous, one of itsmeaning may be wider than the other, and the strict (i.e., narrow)sense is not necessarily the strict (i.e., literal)sense.”John Salmond , Jurisprudence 171 n. (t) (Glanville L.FWilliams ed., 10[th] ed. 1947).

24. As contended by Ms. Pinky Anand, learned AdditionalSolicitor General, the principle of literal interpretation and the principleof strict interpretation are sometimes used interchangeably. Thisprinciple, however, may not be sustainable in all contexts and situations.GThere is certainly scope to sustain an argument that all cases of literalinterpretation would involve strict rule of interpretation, but strict rulemay not necessarily involve the former, especially in the area oftaxation. The decision of this Court in Punjab Land Development andReclamation Corporation Ltd., Chandigarh v. Presiding Officer,Labour Court Chandigarh and Ors., (1990) 3 SCC 682, made theHsaid distinction, and explained the literal rule- “The literal rules of construction require the wording of the Act tobe construed according to its literal and grammatical meaningwhatever the result may be. Unless otherwise provided, the sameword must normally be construed throughout the Act in the samesense, and in the case of old statutes regard must be had to itscontemporary meaning if there has been no change with thepassage of time.”

That strict interpretation does not encompass strict- literalism intoits fold. It may be relevant to note that simply juxtaposing ‘strictinterpretation’ with ‘literal rule’ would result in ignoring an importantaspect that is ‘apparent legislative intent’. We are alive to the fact thatthere may be overlapping in some cases between the aforesaid tworules. With certainty, we can observe that, ‘strict interpretation’ doesnot encompass such literalism, which lead to absurdity and go againstthe legislative intent. As noted above, if literalism is at the far end of thespectrum, wherein it accepts no implications or inferences, then ‘strictinterpretation’ can be implied to accept some form of essentialinferences which literal rule may not accept.

25. We are not suggesting that literal rule de hors the strictinterpretation nor one should ignore to ascertain the interplay between‘strict interpretation’ and ‘literal interpretation’. We may reiterate at thecost of repetition that strict interpretation of a statute certainly involvesliteral or plain meaning test. The other tools of interpretation, namelycontextual or purposive interpretation cannot be applied nor any resortbe made to look to other supporting material, especially in taxationstatutes. Indeed, it is well settled that in a taxation statute, there is noroom for any intendment; that regard must be had to the clear meaningof the words and that the matter should be governed wholly by thelanguage of the notification. Equity has no place in interpretation of atax statute. Strictly one has to look to the language used; there is noroom for searching intendment nor drawing any presumption.Furthermore, nothing has to be read into nor should anything be impliedother than essential inferences while considering a taxation statute.

26. Justice G.P. Singh, in his treatise ‘Principles of StatutoryInterpretation’ (14[th ]ed. 2016 p. – 879) after referring to Re,Micklethwait, (1885) 11 Ex 452; Partington v. A.G., (1869) LR 4 HL100; Rajasthan Rajya Sahakari Spinning & Ginning MillsFederation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC 672, State AB

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ABank of Travancore v. Commissioner of Income Tax, (1986) 2 SCC11 and Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, summed upthe law in the following manner- “A taxing statute is to be strictly construed. The well-establishedrule in the familiar words of LORD WENSLEYDALE, reaffirmedBby LORD HALSBURY AND LORD SIMONDS, means: ‘Thesubject is not to be taxed without clear words for that purpose;and also that every Act of Parliament must be read according tothe natural construction of its words. In a classic passage LORDCAIRNS stated the principle thus: “If the person sought to betaxed comes within the letter of the law he must be taxed, howeverCgreat the hardship may appear to the judicial mind to be. On theother hand, if the Crown seeking to recover the tax, cannot bringthe subject within the letter of the law, the subject is free, howeverapparently within the spirit of law the case might otherwise appearto be. In other words, if there be admissible in any statute, whatDis called an equitable construction, certainly, such a constructionis not admissible in a taxing statute where you can simply adhereto the words of the statute. VISCOUNT SIMON quoted withapproval a passage from ROWLATT, J. expressing the principlein the following words: “In a taxing Act one has to look merely atwhat is clearly said. This is no room for any intendment. There isEno equity about a tax. There is no presumption as to tax. Nothingis to be read in, nothing is to be implied. One can only look fairlyat the language used.”

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“In all tax matters one has to interpret the taxation statute strictly.Simply because one class of legal entities is given a benefit whichis specifically stated in the Act, does not mean that the benefitcan be extended to legal entities not referred to in the Act asthere is no equity in matters of taxation….”

GYet again, it was observed:

“It may thus be taken as a maxim of tax law, which although notto be overstressed ought not to be forgotten that, “the subject isnot to be taxed unless the words of the taxing statuteunambiguously impose the tax on him”, [Russel v. Scott, (1948) 2All ER 1]. The proper course in construing revenue Acts is to H

give a fair and reasonable construction to their language withoutleaning to one side or the other but keeping in mind that no tax canbe imposed without words clearly showing an intention to lay theburden and that equitable construction of the words is notpermissible [Ormond Investment Co. v. Betts, (1928) AC 143].Considerations of hardship, injustice or anomalies do not play anyuseful role in construing taxing statutes unless there be some realambiguity [Mapp v. Oram, (1969) 3 All ER 215]. It has also beensaid that if taxing provision is “so wanting in clarity that no meaningis reasonably clear, the courts will be unable to regard it as of anyeffect [IRC v. Ross and Coutler, (1948) 1 All ER 616].”

Further elaborating on this aspect, the learned author stated asfollows:

“Therefore, if the words used are ambiguous and reasonable opento two interpretations benefit of interpretation is given to the subject[Express Mill v. Municipal Committee, Wardha, AIR 1958 SC341]. If the Legislature fails to express itself clearly and thetaxpayer escapes by not being brought within the letter of the law,no question of unjustness as such arises [CIT v. Jalgaon ElectricSupply Co., AIR 1960 SC 1182]. But equitable considerationsare not relevant in construing a taxing statute, [CIT, W.B. v. CentralIndia Industries, AIR 1972 SC 397], and similarly logic or reasoncannot be of much avail in interpreting a taxing statute [Azam Jhav. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. It iswell settled that in the field of taxation, hardship or equity has norole to play in determining eligibility to tax and it is for theLegislature to determine the same [Kapil Mohan v. Commr. ofIncome Tax, Delhi, AIR 1999 SC 573]. Similarly, hardship orequity is not relevant in interpreting provisions imposing stampduty, which is a tax, and the court should not concern itself withthe intention of the Legislature when the language expressing suchintention is plain and unambiguous [State of Madhya Pradesh v.Rakesh Kohli & Anr., (2012) 6 SCC 312]. But just as relianceupon equity does not avail an assesse, so it does not avail theRevenue.”

The passages extracted above, were quoted with approval by thisCourt in at least two decisions being Commissioner of Income Tax vs.Kasturi Sons Ltd., (1999) 3 SCC 346 and State of West Bengal vs.

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AKesoram Industries Limited, (2004) 10 SCC 201 [hereinafter referredas ‘Kesoram Industries Case’ for brevity]. In the later decision, aBench of seven Judges, after citing the above passage from Justice G.P.Singh’s treatise, summed up the following principles applicable to theinterpretation of a taxing statute:

B“(i) In interpreting a taxing statute, equitable considerations areentirely out of place. A taxing statute cannot be interpreted onany presumption or assumption. A taxing statute has to beinterpreted in the light of what is clearly expressed; it cannot implyanything which is not expressed; it cannot import provisions in thestatute so as to supply any deficiency; (ii) Before taxing any person,Cit must be shown that he falls within the ambit of the chargingsection by clear words used in the section; and (iii) If the wordsare ambiguous and open to two interpretations, the benefit ofinterpretation is given to the subject and there is nothing unjust ina taxpayer escaping if the letter of the law fails to catch him onDaccount of Legislature’s failure to express itself clearly”.

27. Now coming to the other aspect, as we presently discuss,even with regard to exemption clauses or exemption notifications issuedunder a taxing statute, this Court in some cases has taken the view thatthe ambiguity in an exemption notification should be construed in favourEof the subject. In subsequent cases, this Court diluted the principlesaying that mandatory requirements of exemption clause should beinterpreted strictly and the directory conditions of such exemptionnotification can be condoned if there is sufficient compliance with themain requirements. This, however, did not in any manner tinker with theview that an ambiguous exemption clause should be interpreted favouringFthe revenue. Here again this Court applied different tests whenconsidering the ambiguity of the exemption notification which requiresstrict construction and after doing so at the stage of applying thenotification, it came to the conclusion that one has to consider liberally.

28. With the above understanding the stage is now set to considerGthe core issue. In the event of ambiguity in an exemption notification,should the benefit of such ambiguity go to the subject/assessee or shouldsuch ambiguity should be construed in favour of the revenue, denyingthe benefit of exemption to the subject/assessee? There are catena ofcase laws in this area of interpretation of an exemption notification, whichHwe need to consider herein. The case of Commissioner of Inland Revenue vs. James Forrest, [(1890) 15 AC 334 (HL)] – is a casewhich does not discuss the interpretative test to be applied to exemptionclauses in a taxation statute – however, it was observed that ‘it wouldbe unreasonable to suppose that an exemption was wide aspracticable to make the tax inoperative, that it cannot be assumedto have been in the mind of the Legislature’ and that exemption ‘fromtaxation to some extent increased the burden on other members ofthe community’. Though this is a dissenting view of Lord Halsbury,LC, in subsequent decisions this has been quoted vividly to support theconclusion that any vagueness in the exemption clauses must go to thebenefit of the revenue. Be that as it is, in our country, at least from 1955,there appears to be a consistent view that if the words in a taxing statute(not exemption clause) are ambiguous and open to two interpretations,the benefit of interpretation is given to the subject and it does not matterif the taxpayer escapes the tax net on account of Legislatures’ failure toexpress itself clearly (See the passage extracted hereinabove fromKesoram Industries Case (supra)).

29. The first case with which we need to concern ourselves is thecase in Union of India v. The Commercial Tax Officer, West Bengaland Ors., AIR 1956 SC 202. It may be noted that this case was dealtwith by five learned Judges of this Court resulting in two differentopinions; one by the then Chief Justice of India, S.R. Das for themajority, and Justice B.P. Sinha (as His Lordship then was) renderingminority view. The question before this Court was whether the sale ofgoods made by one private mill to the Government of India, Ministry ofIndustries and Supplies were to be deducted as taxable turnover of themill for the exemption given under Section 5 of the Bengal Finance (SalesTax) Act, 1941 (Bengal Act VI of 1941). The exemption under Section5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941 provided forexemption ‘to sales to the Indian Stores Department, the SupplyDepartment of the Government of India, and any railway or watertransport administration’. The Court was to interpret the aforesaidprovision in order to ascertain whether the sale to the Government ofIndia, Ministry of Industries and Supplies would be covered under theSection.

30. The majority was of the view that the Government of India,Ministry of Industries and Supplies was not similar to those mentioned inthe exemption notification. The majority extensively relied on the AB

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Ahistory and origin of Ministry of Industries and Supplies and concludedthat the functions of the aforesaid Ministry were different from theerstwhile departments mentioned under the exemption provision. Themajority reasoned that the exemption being the creation of the statuteitself, it should have to be construed strictly and the interpretation cannotbe extended to sales to other departments. We might find some clue asBto the content of a strict construction also. It was canvassed before theCourt that the object of Section 5(2)(a)(iii) of the relevant statute, wasto give exemption not to the particular departments but to the sale ofsuch goods to those departments and, therefore, sale of those goodsmade to any Departments of the Government of India, which came toCbe charged with the duty of purchasing those goods should also comewithin the purview of the exemption. The Court while repelling theaforesaid interpretation, reasoned as under:

“We are unable to accept this line of reasoning. Thisinterpretation will unduly narrow the scope and ambit of theDexemption by limiting it to sales of only those goods as, at the dateof the Act, used to be sold to those two departments and sales ofother goods even to those two departments, however necessaryfor the prosecution of the war, would not get benefit of theexemption. Such could not possibly be the intention of theLegislature as expressed by the language used by it in framingEthe Section.”

31. The aforesaid placitum is suggestive of the fact that the Courtsutilized the rule of strict interpretation in order to decipher the intentionof the Legislature and thereafter provide appropriate interpretation forthe exemption provided under the provisions of the Act which wasFneither too narrow nor too broad. It may be noted that the majority didnot take a narrow view as to what strict interpretation would literallymean; rather they combined legislative intent to ascertain the meaningof the statute in accordance with the objective intent of the Legislature.

32. On the contrary, the minority opinion of Justice B.P. Sinha (asGHis Lordship then was) provided a purposive interpretation for Section5(2)(a)(iii) of the Act, which is clear from the following passage:

“The judgment under appeal is based chiefly on the considerationthat the exemption clause in question does not in terms refer tothe newly created department which now goes by the name of H

COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]

the Ministry of Industry and Supply. But this department in so faras it deals with industry, is not concerned with the main purchasingactivities of the Government of India. The exemption was grantedin respect of the purchasing activity of the Government of Indiaand that function continues to be assigned to the SupplyDepartment which has now become a wing of the newly createddepartment of the Government. The question therefore ariseswhether in those circumstances the Government of India couldclaim the benefit of the exemption. The High Court in answeringthat question in the negative has gone upon mere nomenclature.It has emphasized the change in the name and overlooked thesubstance of the matter.”

33. The minority construed ‘strict interpretation’ to be aninterpretation wherein least number of “determinates in terms ofquantity” would fall under the exemption. The minority referred to anold English case of Commissioner of Inland Revenue v. James Forrest,(1890) 15 AC 334. It may be relevant to note that the minority could notfind the justification to apply strict interpretation as the exemptionnotification was broad enough to include exemptions for commoditiespurchased by the Government of India. The Court was of the opinionthat the strict interpretation provided by the majority was uncalled for asthere was no additional burden on others by giving such exemptions.The relevant observations are as follows- “The High Court referred to the observations of LordHalsbury in the case of Commissioner of Inland Revenue v. JamesForrest (1890) 15 AC 334, to the effect that exemptions fromtaxation should be strictly construed because otherwise the burdenof taxation will fall on other members of the community. Thoseobservations, in my opinion, have no relevance to the facts andcircumstances of the present controversy, because we know thatthe exemption was granted to the Government of India in thedepartment dealing with purchase of certain commodities andarticles without reference to quantity. As already pointed out, theIndian Stores Department was concerned with purchase of storesfor public services on behalf of all Central Departments ofGovernment and local Government, etc., and the Government ofBengal as then constituted was one of the provinces of India whichhave been receiving subsidies and subventions to make up the A

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Adeficit in their budgets. As a matter of fact, as stated on behalf ofthe Bengal Government the concession was granted in order toenable business communities within the province of Bengal tocompete on favourable terms with others outside Bengal in thematter of supplying the needs of the Government. Hence, thereis no question of liberal construction of the exemption resulting inBthrowing a greater burden on other citizens. On the other hand,the larger the sales in the province of Bengal as it used to be, thegreater the benefit to the business community doing business withinthat province. It was therefore stated at the Bar that though thepresent case involved taxes amounting to less than Rs.10,000, theCquestion arising for determination in this case affected much largeramounts because such sales within the province amounted toseveral crores. I should have thought that the business communityin the province of Bengal having had the advantage of thetransactions of sale, the Government of Bengal in all fairness shouldhave allowed the purchasing agency of the Government of IndiaDthe benefit of the exemption until that benefit was in termswithdrawn sometimes in the beginning of 1949.”

34. In Hansraj Gordhandas v. H.H. Dave, Asst. Collector ofCentral Excise & Customs, Surat and Ors., AIR 1970 SC 755 = (1969)2 SCR 253 [hereinafter referred as ‘Hansraj Gordhandas Case’ forEbrevity], wherein this Court was called upon to interpret an exemptionnotification issued under the Central Excise Act. It would be relevant tounderstand the factual context which gave rise to the aforesaid casebefore the Court. The appellant was sole proprietor who used toprocure cotton from a co-operative society during the relevant period.FThe society had agreed to carry out the weaving work for the appellanton payment of fixed weaving charges at Re.0.19 np. per yard whichincluded expenses the society would have to incur in transporting theaforesaid cotton fabric. In the years 1959 and 1960, the Governmentissued an exemption notification which exempted cotton fabrics

produced by any co-operative society formed of owners of cotton powerGlooms, registered on or before 31[st] March, 1961. The question beforethe Court was whether the appellant who got the cotton fabric producedfrom one of the registered co-operative society was also covered underthe aforesaid notification. It may be of some significance that therevenue tried to interpret the aforesaid exemption by relying on theHpurposive interpretation by contending that the object of granting the above exemption was to encourage the formation of co-operativesocieties which not only produced cotton fabrics but also consisted ofmembers, not only owning but having actually operated not more thanfour power looms during the three years immediately preceding theirhaving joined the society. The policy was that instead of each suchmember operating his looms on his own, he should combine with othersby forming a society to produce clothes. It was argued that the goodsproduced for which exemption could be claimed must be goodsproduced on his own and on behalf by the society. The court did notcountenance such purposive interpretation. It was held that a taxinglegislation should be interpreted wholly by the language of thenotification. The relevant observations are:

“It is well-established that in a taxing statute there is noroom for any intendment but regard must be had to the clearmeaning of the words. The entire matter is governed wholly bythe language of the notification. If the tax-payer is within theplain terms of the exemption it cannot be denied its benefit bycalling in aid any supposed intention of the exempting authority.If such intention can be gathered from the construction of thewords of the notification or by necessary implication therefrom,the matter is different, but that is not the case here. In thisconnection we may refer to the observations of Lord Watson inSalomon vs. Salomon & Co., (1897) AC 22):

‘Intention of the Legislature is a common but very slippery phrase,which, popularly understood may signify anything from intentionembodied in positive enactment to speculative opinion as to whatthe legislature probably would have meant, although there hasbeen an omission to enact it. In a Court of Law or Equity, whatthe Legislature intended to be done or not to be done can only belegitimately ascertained from that which it has chosen to enact,either in express words or by reasonable and necessaryimplication.’

It is an application of this principle that a statutory notificationmay not be extended so as to meet a casus omissus. As appearsin the judgment of the Privy Council in Crawford v. Spooner.

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ALearned Counsel for the respondents is possibly right in hissubmission that the object behind the two notifications is toencourage the actual manufacturers of handloom cloth to switchover to power looms by constituting themselves in co-operativeSocieties. But the operation of the notifications has to be judgednot by the object which the rule making authority had in mind butBby the words which it has employed to effectuate the legislativeintent.”

35. In the judgment of two learned Judges in Union of India v.Wood Papers Limited, (1990) 4 SCC 256 [hereinafter referred as‘Wood Papers Ltd. Case’ for brevity], a distinction between stage ofCfinding out the eligibility to seek exemption and stage of applying thenature of exemption was made. Relying on the decision in Collector ofCentral Excise vs. Parle Exports (P) Ltd., (1989) 1 SCC 345, it washeld “Do not extend or widen the ambit at the stage of applicability.But once that hurdle is crossed, construe it liberally”. TheDreasoning for arriving at such conclusion is found in para 4of WoodPapers Ltd. Case (supra), which reads-

“… Literally exemption is freedom from liability, tax or duty.Fiscally, it may assume varying shapes, specially, in a growingeconomy. For instance tax holiday to new units, concessionalrate of tax to goods or persons for limited period or with the specificEobjective etc. That is why its construction, unlike chargingprovision, has to be tested on different touchstone. In fact, anexemption provision is like an exception and on normal principleof construction or interpretation of statutes it is construed strictlyeither because of legislative intention or on economic justificationFof inequitable burden or progressive approach of fiscal provisionsintended to augment State revenue. But once exception orexemption becomes applicable no rule or principles requires it tobe construed strictly. Truly speaking liberal and strictconstruction of an exemption provision are to be invokedat different stages of interpreting it. When the question isGwhether a subject falls in the notification or in the exemptionclause then it being in nature of exception is to be construedstrictly and against the subject, but once ambiguity or doubtabout applicability is lifted and the subject falls in thenotification then full play should be given to it and it callsfor a wider and liberal construction…”H

36. In Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Com-missioner of Commercial Taxes, (1992) Supp. 1 SCC 21 [hereinafterreferred as ‘Mangalore Chemicals Case’ for brevity], the facts ofthe case were that the State Government issued a notification inexercise of power under Section 8-A of the Karnataka Sales Tax Act,1957, providing certain incentives to entrepreneurs starting newindustries in the State pursuant to State’s policy for “rapidindustrialization”. The notification contains a package of reliefs andincentives including one concerning relief from payment of sales taxwith which the case was concerned. There was no dispute that theappellant was entitled to the benefit of the Notification dated June 30,1969. There was also no dispute that the refunds were eligible to beadjusted against sales tax payable for respective years. The onlycontroversy was whether the appellant, not having actually secured the“prior permission” would be entitled to adjustment having regard to thewords of the Notification of August 11, 1975, that “until permission ofrenewal is granted by the Deputy Commissioner of Commercial Taxes,the new industry should not be allowed to adjust the refunds”. Thecontention of the appellants therein was that the permission for the threeyears had been sought well before the commencement of the respectiveyears but had been withheld for reasons which were demonstrablyextraneous. Therefore, contention was that if, in these circumstances,the Deputy Commissioner could withold the permission.

37. This Court while accepting the interpretation provided by theappellant, observed on the aspect of strict construction of a provisionconcerning exemptions as follows:

“… There is support of judicial opinion to the view thatexemptions from taxation have a tendency to increase the burdenon the other unexempted class of tax payers and should beconstrued against the subject in case of ambiguity. It is an equallywell known principle that a person who claims an exemption hasto establish his case.

… The choice between a strict and a liberal construction arisesonly in case of doubt in regard to the intention of the legislaturemanifest on the statutory language. Indeed, the need to resort toany interpretative process arises only where the meaning is notmanifest on the plain words of the statute. If the words are plainand clear and directly convey the meaning, there is no need for ABCDE

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Aany interpretation. It appears to us the true rule of constructionof a provision as to exemption is the one stated by this Court inUnion of India v. Wood Papers Ltd. [(1990) 4 SCC 256 = 1990SCC (Tax) 422 = JT (1991) SC 151]”

Three important aspects which comes out of the discussion areBthe recognition of horizontal equity by this court as a consideration forapplication of strict interpretation, subjugation of strict interpretation tothe plain meaning rule and interpretation in favour of exclusion in light ofambiguity.

38. We will now consider another Constitution Bench decision inCCommissioner of Central Excise, New Delhi v. Hari Chand ShriGopal, (2011) 1 SCC 236 [hereinafter referred as ‘Hari Chand Case’for brevity]. We need not refer to the facts of the case which gave riseto the questions for consideration before the Constitutional Bench. K.S.Radhakrishnan, J., who wrote the unanimous opinion for theConstitution Bench, framed the question, viz., whether manufacturer ofDa specified final product falling under Schedule to the Central ExciseTariff Act, 1985 is eligible to get the benefit of exemption of remission ofexcise duty on specified intermediate goods as per the CentralGovernment Notification dated 11.08.1994, if captively consumed forthe manufacture of final product on the ground that the records kept byEit at the recipient end would indicate its “intended use” and “substantialcompliance” with procedure set out in Chapter 10 of the Central ExciseRules, 1994, for consideration? The Constitution Bench answering thesaid question concluded that a manufacturer qualified to seek exemptionwas required to comply with the pre-conditions for claiming exemptionand therefore is not exempt or absolved from following the statutoryFrequirements as contained in the Rules. The Constitution Bench thenconsidered and reiterated the settled principles qua the test ofconstruction of exemption clause, the mandatory requirements to becomplied with and the distinction between the eligibility criteria withreference to the conditions which need to be strictly complied with andGthe conditions which need to be substantially complied with. TheConstitution Bench followed the ratio in Hansraj Gordhandas Case(supra), to reiterate the law on the aspect of interpretation of exemptionclause in para 29as follows- “The law is well settled that a person who claims exemptionor concession has to establish that he is entitled to that exemptionor concession. A provision providing for an exemption, concessionor exception, as the case may be, has to be construed strictly withcertain exceptions depending upon the settings on which theprovision has been placed in the statute and the object and purposeto be achieved. If exemption is available on complying with certainconditions, the conditions have to be complied with. The mandatoryrequirements of those conditions must be obeyed or fulfilledexactly, thought at times, some latitude can be shown, if there isfailure to comply with some requirements which are directory innature, the non-compliance of which would not affect the essenceor substance of the notification granting exemption.”

39. The Constitution Bench then considered the doctrine ofsubstantial compliance and “intended use”. The relevant portions of theobservations in paras 31 to 34are in the following terms –

“31. Of course, some of the provisions of an exemption notificationmay be directory in nature and some are mandatory in nature. Adistinction between the provisions of a statute which are ofsubstantive character and were built in with certain specificobjectives of policy, on the one hand, and those which are merelyprocedural and technical in there nature, on the other, must bekept clearly distinguished…

Doctrine of substantial compliance and “intended use”

32. The doctrine of substantial compliance is a judicial invention,equitable in nature, designed to avoid hardship in cases where aparty does all that can reasonably be expected of it, but failed orfaulted in some minor or inconsequent aspects which cannot bedescribed as the “essence” or the “substance” of the requirements.Like the concept of “reasonableness”, the acceptance or otherwiseof a plea of “substantial compliance” depends upon the facts andcircumstances of each case and the purpose and object to beachieved and the context of the prerequisites which are essentialto achieve the object and purpose of the rule or the regulation.Such a defence cannot be pleased if a clear statutory prerequisitewhich effectuates the object and the purpose of the statute has AB

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not been met. Certainly, it means that the Court should determinewhether the statute has been followed sufficiently so as to carryout the intent for which the statute was enacted and not a mirrorimage type of strict compliance. Substantial compliance means“actual compliance in respect to the substance essential to everyreasonable objective of the statute” and the Court should determinewhether the statute has been followed sufficiently so as to carryout the intent of the statute and accomplish the reasonableobjectives for which it was passed.

33. A fiscal statute generally seeks to preserve the need to complystrictly with regulatory requirements that are important, especiallywhen a party seeks the benefits of an exemption clause that areimportant. Substantial compliance with an enactment is insisted,where mandatory and directory requirements are lumped together,for in such a case, if mandatory requirements are complied with,it will be proper to say that the enactment has been substantiallycomplied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has beenfound, there has been actual compliance with the statute, albeitprocedurally faulty. The doctrine of substantial compliance seeksto preserve the need to comply strictly with the conditions orrequirements that are important to invoke a tax or duty exemptionand to forgive non-compliance for either unimportant and tangentialrequirements or requirements that are so confusingly or incorrectlywritten that an earnest effort at compliance should be accepted.

34. The test for determining the applicability of the substantialcompliance doctrine has been the subject of a myriad of casesand quite often, the critical question to be examined is whetherthe requirements relate to the “substance” or “essence” of thestatute, if so, strict adherence to those requirements is aprecondition to give effect to that doctrine. On the other hand, ifthe requirements are procedural or directory in that they are notof the “essence” of the thing to be done but are given with a viewto the orderly conduct of business, they may be fulfilled bysubstantial, if not strict compliance. In other words, a mereattempted compliance may not be sufficient, but actual compliancewith those factors which are considered as essential.”

40. After considering the various authorities, some of which areadverted to above, we are compelled to observe how true it is to say thatthere exists unsatisfactory state of law in relation to interpretation ofexemption clauses. Various Benches which decided the question ofinterpretation of taxing statute on one hand and exemption notificationon the other, have broadly assumed (we are justified to say this) that theposition is well settled in the interpretation of a taxing statute: It is thelaw that any ambiguity in a taxing statute should enure to the benefit ofthe subject/assessee, but any ambiguity in the exemption clause ofexemption notification must be conferred in favour of revenue – andsuch exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls withinthe parameters enumerated in the notification and that the claimantssatisfy all the conditions precedent for availing exemption. Presumablyfor this reason the Bench which decided Surendra Cotton Oil MillsCase (supra) observed that there exists unsatisfactory state of law andthe Bench which referred the matter initially, seriously doubted theconclusion in Sun Export Case (supra) that the ambiguity in anexemption notification should be interpreted in favour of the assessee.

41. After thoroughly examining the various precedents some ofwhich were cited before us and after giving our anxious consideration,we would be more than justified to conclude and also compelled to holdthat every taxing statue including, charging, computation and exemptionclause (at the threshold stage) should be interpreted strictly. Further, incase of ambiguity in a charging provisions, the benefit must necessarilygo in favour of subject/assessee, but the same is not true for anexemption notification wherein the benefit of ambiguity must be strictlyinterpreted in favour of the Revenue/State.

42. In Govind Saran Ganga Saran v. Commissioner of SalesTax, 1985 Supp (SCC) 205, this Court pointed out three components ofa taxing statute, namely subject of the tax; person liable to pay tax; andthe rate at which the tax is to be levied. If there is any ambiguity inunderstanding any of the components, no tax can be levied till theambiguity or defect is removed by the legislature [See MathuramAgrawal v. Sate of Madhya Pradesh, (1999) 8 SCC 667; Indian Banks’Association vs. Devkala Consultancy Service, (2004) 4 JT 587 = AIR2004 SC 2615; and Consumer Online Foundation vs. Union of India,(2011) 5 SCC 360.]

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A43. There is abundant jurisprudential justification for this. In thegovernance of rule of law by a written Constitution, there is no impliedpower of taxation. The tax power must be specifically conferred and itshould be strictly in accordance with the power so endowed by theConstitution itself. It is for this reason that the Courts insist upon strictcompliance before a State demands and extracts money from itsBcitizens towards various taxes. Any ambiguity in a taxation provision,therefore, is interpreted in favour of the subject/assessee. Thestatement of law that ambiguity in a taxation statute should beinterpreted strictly and in the event of ambiguity the benefit should go tothe subject/assessee may warrant visualizing different situations. ForCinstance, if there is ambiguity in the subject of tax, that is to say, who arethe persons or things liable to pay tax, and whether the revenue hasestablished conditions before raising and justifying a demand. Similar isthe case in roping all persons within the tax net, in which event the Stateis to prove the liability of the persons, as may arise within the strictlanguage of the law. There cannot be any implied concept either inDidentifying the subject of the tax or person liable to pay tax. That is whyit is often said that subject is not to be taxed, unless the words of thestatute unambiguously impose a tax on him, that one has to look merelyat the words clearly stated and that there is no room for any intendment

nor presumption as to tax. It is only the letter of the law and not theEspirit of the law to guide the interpreter to decide the liability to taxignoring any amount of hardship and eschewing equity in taxation. Thus,we may emphatically reiterate that if in the event of ambiguity in ataxation liability statute, the benefit should go to the subject/assessee.But, in a situation where the tax exemption has to be interpreted, thebenefit of doubt should go in favour of the revenue, the aforesaidFconclusions are expounded only as a prelude to better understandjurisprudential basis for our conclusion. We may now consider thedecisions which support our view.

44. In Hansraj Gordhandas Case (supra), the ConstitutionalBench unanimously pointed out that an exemption from taxation is to beGallowed based wholly by the language of the notification and exemptioncannot be gathered by necessary implication or by construction of words;in other words, one has to look to the language alone and the object andpurpose for granting exemption is irrelevant and immaterial.

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45. In Parle Exports Case (supra), a bench of two Judges of thisCourt considered the question whether non-alcoholic beverage base likeGold spot base, Limca base and Thumps Up base, were exempted frompayment of duty under the Central Government notification of March,1975. While considering the issue, this Court pointed out the Strictinterpretation to be followed in interpretation of a notification for ex-emption. These observations are made in para 17 of the judgment, whichread as follows:

“How then should the courts proceed? The expressions in theSchedule and in the notification for exemption should be understoodby the language employed therein bearing in mind the context inwhich the expressions occur. The words used in the provision,imposing taxes or granting exemption should be understood in thesame way in which these are understood in ordinary parlance inthe area in which the law is in force or by the people who ordinarilydeal with them. It is, however, necessary to bear in mind certainprinciples. The notification in this case was issued under Rule 8of the Central Excise Rules and should be read along with theAct. The notification must be read as a whole in the context ofthe other relevant provisions. When a notification is issued inaccordance with power conferred by the statute, it has statutoryforce and validity and, therefore, the exemption under thenotification is as if it were contained in the Act itself. See in thisconnection the observations of this Court in Orient Weaving Mills(P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790.The principle is well settled that when two views of a notificationare possible, it should be construed in favour of the subject asnotification is part of a fiscal enactment. But in this connection, itis well to remember the observations of the Judicial Committee inCoroline M. Armytage v. Frederick Wilkinson, (1878) 3 AC 355,that it is only, however, in the event of there being a real difficultyin ascertaining the meaning of a particular enactment that thequestion of strictness or of liberality of construction arises. TheJudicial Committee reiterated in the said decision at page 369 ofthe report that in a taxing Act provisions enacting an exception tothe general rule of taxation are to be construed strictly against ABCDE

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Athose who invoke its benefit. While interpreting an exemptionclause, liberal interpretation should be imparted to the languagethereof, provided no violence is done to the language employed.It must, however, be borne in mind that absurd results ofconstruction should be avoided.”

BIn the above passage, no doubt this Court observed that “whentwo views of a notification are possible, it should be construed infavour of the subject as notification is part of fiscal document”.This observation may appear to support the view that ambiguity in anotification for exemption must be interpreted to benefit the subject/assessee. A careful reading of the entire para, as extracted hereinaboveCwould, however, suggest that an exception to the general rule of tax hasto be construed strictly against those who invoke for their benefit. Thiswas explained in a subsequent decision in Wood Papers Ltd. Case(supra). In para 6, it was observed as follows:

“… In Collector of Central Excise v. Parle Exports (P) Ltd., (1989)D1 SCC 345, this Court while accepting that exemption clauseshould be construed liberally applied rigorous test for determing ifexpensive items like Gold Spot base or Limca base of Thums Upbase were covered in the expression food products and foodpreparations used in Item No. 68 of First Schedule of CentralExcises and Salt Act and held ‘that it should not be in consonanceEwith spirit and the reason of law to give exemption for non-alcoholicbeverage basis under the notification in question’. Rationale orratio is same. Do not extend or widen the ambit at stage ofapplicability. But once that hurdle is crossed construe it liberally.Since the respondent did not fall in the first clause of the notificationFthere was no question of giving the clause a liberal constructionand hold that production of goods by respondent mentioned in thenotification were entitled to benefit.”

46. The above decision, which is also a decision of two-JudgeBench of this Court, for the first time took a view that liberal and strictGconstruction of exemption provisions are to be invoked at different stagesof interpreting it. The question whether a subject falls in the notificationor in the exemption clause, has to be strictly construed. When once theambiguity or doubt is resolved by interpreting the applicability ofexemption clause strictly, the Court may construe the notification by H

giving full play bestowing wider and liberal construction. The ratio ofParle Exports Case (supra) deduced as follows:

“Do not extend or widen the ambit at stage of applicability. Butonce that hurdle is crossed, construe it liberally”.

47. We do not find any strong and compelling reasons to differ,taking a contra view, from this. We respectfully record ourconcurrence to this view which has been subsequently, elaborated bythe Constitution Bench in Hari Chand Case (supra).

48. The next authority, which needs to be referred is the case inMangalore Chemicals (supra). As we have already made referenceto the same earlier, repetition of the same is not necessary. From theabove decisions, the following position of law would, therefore, clear.Exemptions from taxation have tendency to increase the burden on theother unexempted class of tax payers. A person claiming exemption,therefore, has to establish that his case squarely falls within theexemption notification, and while doing so, a notification should beconstrued against the subject in case of ambiguity.

49. The ratio in Mangalore Chemicals Case (supra) wasapproved by a three-Judge Bench in Novopan India Ltd. v. Collectorof Central Excise and Customs, 1994 Supp (3) SCC 606. In this case,probably for the first time, the question was posed as to whether thebenefit of an exemption notification should go to the subject/assesseewhen there is ambiguity. The three-Judge Bench, in the background ofEnglish and Indian cases, in para 16, unanimously held as follows:

“We are, however, of the opinion that, on principle, the decision ofthis Court in Mangalore Chemicals – and in Union of India v.Wood Papers, referred to therein – represents the correct viewof law. The principle that in case of ambiguity, a taxing statuteshould be construed in favour of the assessee – assuming that thesaid principle is good and sound – does not apply to the constructionof an exception or an exempting provision, they have to beconstrued strictly. A person invoking an exception or an exemptionprovision to relieve him of the tax liability must establish clearlythat he is covered by the said provision. In case of doubt orambiguity, benefit of it must go to the State….”

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A50. In Tata Iron & Steel Co. Ltd. v. State of Jharkhand, (2005)4 SCC 272, which is another two-Judge Bench decision, this Court laiddown that eligibility clause in relation to exemption notification must begiven strict meaning and in para 44, it was further held –

“The principle that in the event a provision of fiscal statute isBobscure such construction which favours the assessee may beadopted, would have no application to construction of an exemptionnotification, as in such a case it is for the assessee to show that hecomes within the purview of exemption (See Novopan India Ltd.v. CCE and Customs).”

C51. In Hari Chand Case (supra), as already discussed, thequestion was whether a person claiming exemption is required tocomply with the procedure strictly to avail the benefit. The questionposed and decided was indeed different. The said decision, which wehave already discussed supra, however, indicates that while construingan exemption notification, the Court has to distinguish the conditionsDwhich require strict compliance, the non-compliance of which wouldrender the assessee ineligible to claim exemption and those whichrequire substantial compliance to be entitled for exemption. We arepointing out this aspect to dispel any doubt about the legal position asexplored in this decision. As already concluded in para 50 above, weEmay reiterate that we are only concerned in this case with a situationwhere there is ambiguity in an exemption notification or exemption clause,in which event the benefit of such ambiguity cannot be extended to thesubject/assessee by applying the principle that an obscure and/orambiguity or doubtful fiscal statute must receive a construction favouringthe assessee. Both the situations are different and while considering anFexemption notification, the distinction cannot be ignored.

52. To sum up, we answer the reference holding as under -

(1) Exemption notification should be interpreted strictly; the burdenof proving applicability would be on the assessee to show that hisGcase comes within the parameters of the exemption clause orexemption notification.

(2) When there is ambiguity in exemption notification which issubject to strict interpretation, the benefit of such ambiguity cannotbe claimed by the subject/assessee and it must be interpreted infavour of the revenue.H

COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]

(3) The ratio in Sun Export case (supra) is not correct and all thedecisions which took similar view as in Sun Export Case (supra)stands over-ruled.

53. The instant civil appeal may now be placed beforeappropriate Bench for considering the case on merits after obtainingorders from the Hon’ble Chief Justice of India.

Kalpana K. Tripathy

Referred question answered.

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