Summary
Answering a reference, a five-Judge Constitution Bench held that tax-exemption notifications must be construed strictly and that the assessee bears the burden of establishing coverage. Ambiguity at the stage of entitlement benefits the Revenue, unlike ambiguity in a charging provision. Sun Export and decisions adopting its contrary approach were overruled. The underlying customs appeal was left for an appropriate Bench to decide on its merits.
Issues
- Who receives the benefit of ambiguity concerning entitlement under a tax-exemption notification.
Provisions considered
- Article 265, Constitution of IndiaExplained that taxation requires express authority of law and cannot arise by implication; this supports strict construction of charging provisions, whose ambiguity differs from ambiguity in claiming an exemption. (¶¶ 21, 26, 41, 42, 43)
Held
- An assessee claiming exemption must establish that the claim falls within the notification’s parameters. Exemption notifications are strictly interpreted, and ambiguity concerning their applicability cannot be resolved in the claimant’s favour; it benefits the Revenue. (¶¶ 40, 41, 43, 48, 49, 50, 51, 52)
- Charging provisions are also strictly construed, but ambiguity in imposing tax benefits the subject. The rule against an uncertain tax burden cannot be transposed to establish entitlement to an uncertain exemption. (¶¶ 12, 21, 26, 28, 41, 42, 43, 51)
- Strict construction at the threshold of eligibility is distinct from giving full effect to an exemption once applicability is established. The Court concurred with that distinction and preserved the distinction between substantive mandatory conditions and procedural or directory requirements addressed by substantial compliance. (¶¶ 35, 37, 38, 39, 46, 47, 51)
- Sun Export’s rule favouring the assessee when an exemption notification admits two views was incorrect. Its ratio and decisions taking the same view were overruled. The underlying classification and concession claim were not decided by the reference Bench. (¶¶ 1, 5, 10, 11, 52, 53)
Result
Reference answered. Civil appeal directed to be placed before an appropriate Bench for determination on merits after orders of the Chief Justice of India.