Commissioner of Customs (import), Mumbai v. M/S. Dilip Kumar and Company & Ors.
N.V. RAMANA, J. 1. This Constitution Bench is setup to
examine 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 the
question is - What is the interpretative rule to be applied while interpreting
a tax exemption provision/notification when there is an ambiguity as to
its applicability with reference to the entitlement of the assessee or the
rate of tax to be applied?
2.In Sun Export Case (supra), a three-Judge Bench ruled that
an ambiguity in a tax exemption provision or notificatio n must be
interpreted so as to favour the assessee claiming the bene fit of such
exemption. Such a rule was doubted when this appeal was placed before
a Bench of two-Judges. The matter then went before a th ree-Judge
Bench consisting one of us (Ranjan Gogoi, J.). The three-Judge Bench
having noticed the unsatisfactory state of law as it stands today, opined
that the dicta in Sun Export Case (supra), requires reconsideration and
that is how the matter has been placed before this Constitution Bench.
3.Few facts necessary, to appreciate the issue involved a re as
follows - the respondents imported a consignment of Vitamin – E50
powder (feed grade) under Bill of Entry No. 8207, dated 19.08.1999.
They claimed the benefit of concessional rate of duty at 5%, instead of
standard 30%, as per the Customs Notification No. 20/1999 and classified
the product under Chapter 2309.90 which admittedly pertains to prawn
feed. They relied on the ratio in Sun Export Case (supra) and claimed
the benefit of exemption. The benefit of Customs Notification No. 20/
1999 was, however, denied to the respondents on the plea of the
department that the goods under import contained chemical ingredients
for animal feed and not animal feed/prawn feed, as such, the concessional
rate of duty under the extant notification was not a vailable. The
department classified the consignment under Chapter 29 which attracts
standard rate of customs duty. The adjudicating authority, namely, the
Assistant Commissioner of Customs, distinguished Sun Export Case
(supra), while accepting the plea of the department to deny the
concessional rate. The Commissioner of Customs (Appeals) reversed
the order of the Assistant Commissioner and came to the conclusi on
that Sun Export Case (supra) was indeed applicable. The department
1201
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 Bench
of two-Judges, the ruling in Sun Export Case (supra) was doubted,
observing as follows-
“We have serious doubts as to whether the Bombay High Court
judgment affirmed in Sun Export Corporation’s case is corr ect.
First and foremost, it is clear that the subsequent exem ption
Notification largely expanded the first Notification which referred
only to animal feeds and nothing else. That being the case, it would
be difficult to say that a large number of other categories which
have subsequently been added would be clarificatory and
therefore, retrospective. Further, we also feel that in view of the
catena of judgments of this Court which have held t hat an
exemption Notification has to be strictly construed (that is, if the
person claiming exemption does not fall strictly within the letter of
the Notification, he cannot claim exemption), have also been
ignored by this Court in Sun Export Corporation’s case in paragraph
13 thereof. Apart from this, the view of this Court in paragraph 13
that it is well-settled that if two views are possible, one favourable
to the assessee in matters of taxation has to be pre ferred is
unexceptionable. However, this Court was not concerned in that
case with the charging Section of a taxation statute . It was
concerned with the interpretation of an Exemption Notificati on
which, as has been stated above, would require the exactly opposite
test to be fulfilled.”
Further this Court found that the subsequent judgment in Collector
of Customs and Central Excise, Guntur and Ors. V. Surendra Cotton
Oil Mills and Fertilizers Co. and Ors., 2001 (1) SCC 578 [hereinafter
referred as ‘Surendra Cotton Oil Mills Case ’ for brevity ],
distinguished Sun Export Case (supra), which mandated this Court to
take a re-look at the proposition laid down by the earlier cases in the
following manner-
“We also find that in the subsequent judgment of this Court,
Surendra Cotton Oil Mills’s case, this Court has distinguished the
Sun Export Corporation’s case and held that it dealt with ‘animal
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
feed’ which was large enough to include ‘animal feed supplements’
whereas the facts of Surendra Cotton Oil Mills’s case showe d
that ingredients of animal feed could not be held to be included in
‘animal feed’. In our opinion, this Court did not adequately deal
with why Sun Exports Corporation’s case which is a binding
decision of a three Judges Bench should not be followed, apart
from a specious distinction between ‘ingredients’ a nd
‘supplements’ which is logically speaking a distinction without a
difference.
…
This being the unsatisfactory state of law as it stands today,
we feel that this matter should be placed before Ho n’ble
the Chief Justice of India to constitute an appropriate Bench
to resolve the doubts pointed out by us in the body o f this
Order.”
(emphasis supplied)
5. We feel that the reference to Surendra Cotton Oil Mills Case
(supra), may not be necessary as the distinction was drawn on a factual
footing, which this Court may not concern itself with, as we ar e only
concerned with the principle of law. With this, the Division Bench was
of the tentative view that the opinion expressed in Sun Export Case
(supra) would require reconsideration, as the proposition laid down therein
was unsatisfactory, and therefore placed before the Chief Jus tice of
India for constituting an appropriate Bench.
6. When the matter was placed before a three Judge Benc h
presided over by one of us (Ranjan Gogoi, J.), the Bench reiterated the
view for reconsideration of the Sun Export Case (supra) and again
placed the matter, before Hon’ble the Chief Justice of India for
constitution of an appropriate Bench, considering the fact tha t Sun
Export Case (supra) was decided by a Bench comprising of three learned
judges of this Court. Hence, this matter came to be placed before this
Bench 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 interpretation
of an exemption notification to support the conclus ion
reached. The same may require a reconsideration.
1203
That apart, in the referral order it has been noticed that Sun’s
Case (supra) has been distinguished in ‘ Collector of Central
Excise, Guntur vs. Surendra Cotton Oil Mills & Fert. Co. The
basis on which the said distinction has been drawn needs to be
further pursued.
Having considered the matter at some length, we are of
the tentative view, that the opinion expressed in Sun’s c ase
(supra) may require a reconsideration. Being a co-ordinate
Bench, we believe we ought not to proceed any further in
the matter. Hence, we direct the Registry to lay the papers
before the Hon’ble the Chief Justice of India for
appropriate orders .”
(emphasis supplied )
7.The learned Additional Solicitor General, Ms. Pinky Anand,
submits that a tax exemption statute or notification needs to be strictly
interpreted. According to her, strict interpretation is literal rule of
interpretation, which means that Court has to apply the provision
reading the language therein and no interpretation is requir ed if the
language is clear. In the event of any ambiguity, according to her, the
benefit has to be given to the revenue and that such ambiguity in tax
exemption provision must not be interpreted to benefit the assessee who
fails to demonstrate without any doubt that such assessee is covered by
the tax exemption notification. She elaborated her arguments by relying
on 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 the
artificial distinction created by Surendra Cotton Oil Mills Case
(supra), in distinguishing the ingredients from supplements is not sound
and may not be accepted by the Court.
8. Per contra , among others, Mr. Somnath Shukla, learned
counsel appearing on behalf of the respondents would submit that the
ratio and observations in Sun Export Case (supra) has to be
considered holistically without giving any narrow mean ing to the
conclusion arrived therein. The rule of strict interpret ation cannot be
applied in abstract. It has to be applied keeping in view the
interpretation to be used in relation to Customs Tariff Entry. According
to the learned counsel, when the Customs Tariff Entry is i nterpreted
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
broadly, the same should be adopted in interpreting exemption
notification. Indeed, the learned senior counsel would contend that the
rule of strict interpretation should be limited to the eligibility conditions of
an exemption notification and while conferring the benefits to such
exemption. He distinguished all the judgments relie d on by the
appellants and submits that “ prawn feed supplements ” would also be
included under the head “ prawn feed ”, and the judgment of the Tribunal
impugned in these appeals does not warrant any interference.
9. Sun Export Case (supra) was a case against the judgment of
the High Court of Judicature, Bombay. It was concerned with the
interpretation of tax exemption notification, being Notification
No. 234/1982 – CE, dated 01.11.1982, issued by the Central
Government under sub-section (1) of Section 25 of the Cus toms Act.
The High Court considered the issue whether Vitamin AD-3 mix (feed
grade)/animal feed supplement could be included und er the head
‘animal feed, including compound livestock feed’. The Bombay High
Court decided, in the affirmative, in favour of the assessee . The case
then landed in this Court, which was persuaded to expand the meaning
of ‘animal feed’ in the light of subsequent notification issued in 1984,
which largely expanded the scope of exemption to the ef fect that
‘animal feed, including compound livestock feed, ani mal feed
supplements and animal feed concentrates ’. This Court indeed
countenanced the plea, namely, whenever there is ambiguity as to whether
the subject matter was included or not, then the benefit of the same
should be conferred on the assessee. The relevant porti on in Sun
Export Case (supra), reads as follows:
“13. We are in agreement with the above view expressed by the
Bombay High Court. No doubt it was contended on behalf of the
Revenue that the contrary view taken by the Tribunal has bee n
challenged in this Court which was rejected in limine at the
admission stage. We do not think that dismissal at the admission
stage can be relied upon as a binding precedent. Even assuming
that there are two views possible, it is well settled t hat one
favourable to the assessee in matters of taxation has to be
preferred .”
( emphasis supplied )
1205
10.There cannot be any doubt that the ratio in Sun Export Case
(supra) that, if two views are possible in interpreti ng the exemption
notification, the one favourable to the assesseee in the matter of
taxation has to be preferred. This principle created c onfusion and
resulted in unsatisfactory state of law . In spite of catena of judgments
of this Court, which took the contra view, holding that an exemption
notification must be strictly construed, and if a p erson claiming
exemption does not fall strictly within the description of the notification
otherwise then he cannot claim exemption.
11.About three years after Sun Export Case (supra), in the year
2000, this Court in Surendra Cotton Oil Mills Case (supra), expressed
reservations as to the soundness of the dicta in Sun Export Case
(supra), observing that Sun Export Case (supra) ignored catena of
judgments of this Court expressing contra view. This Court prima
facie came to the conclusion with regard to the principle that when two
views are possible, one favourable to the assessee in matters of taxation
has to be preferred, is unexceptionable when interpreting the charging
section of a taxation statute, but the opposite prin ciple would be
applicable in interpretation of exemption notification. The three-Judge
Bench in the referral order further observed that the views expressed in
Sun Export Case (supra) with regard to interpretation of exemption
notification to support the conclusion, required reconsideration.
12. We may, here itself notice that the distinction in interpreting a
taxing provision (charging provision) and in the matter of interpretation
of exemption notification is too obvious to require any elaborat ion.
Nonetheless, in a nutshell, we may mention that, as observed in Surendra
Cotton Oil Mills Case (supra), in the matter of interpretation of
charging section of a taxation statute, strict rule of i nterpretation is
mandatory and if there are two views possible in th e matter of
interpretation of a charging section, the one favourable to the assessee
need to be applied. There is, however, confusion in the matter of
interpretation of exemption notification published under taxation statutes
and 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 Chemic als and
Pharmaceuticals Pvt. Ltd ., (2005) 3 SCC 541; Collector of Central Excise, Bombay-1
and Anr. v. Parle Exports (Pvt.) Ltd ., (1989) 1 SCC 345; Commissioner of Customs
(Import), Mumbai v. Konkan Synthetic Fibres , (2012) 6 SCC 339; Collector of
Customs, Bombay v. Swastic Wollens (Pvt.) Ltd. And Ors ., (1988) Supp. SCC 796;
Commissioner of Customs (Preventive), Gujarat v. Reliance Petroleum Ltd ., (2008) 7
SCC 220.
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
13. We may passingly, albeit, briefly reiterate the general
principles of interpretation, which were also adverted to by bo th the
counsel. In his treatise, ‘Principles of Statutory Interpretation ’ Justice
G.P. Singh, lucidly pointed the importance of construction of statutes in a
modern State as under:
“Legislation in modern State is actuated with some policy to curb
some public evil or to effectuate some public benefit. The legislation
is primarily directed to the problems before the Legislature based
on information derived from past and present experience. It may
also be designed by use of general words to cover similar problems
arising in future. But, from the very nature of things, it is impossible
to anticipate fully the varied situations arising in future in which
the application of the legislation in hand may be called for, and,
words chosen to communicate such indefinite ‘referents’ are
bound to be, in many cases lacking in clarity and precision and
thus giving rise to controversial questions of construction.”
14. An Act of Parliament/Legislature cannot foresee all types of
situations and all types of consequences. It is for the Court to see whether
a particular case falls within the broad principles of law enacted by the
Legislature. Here, the principles of interpretation of s tatutes come in
handy. In spite of the fact that experts in the field assist in drafting the
Acts and Rules, there are many occasions where the language used and
the phrases employed in the statute are not perfect. Therefore, Judges
and Courts need to interpret the words.
15.In doing so, the principles of interpretation have been evolved
in common law. It has also been the practice for th e appropriate
legislative body to enact Interpretation Acts or General Clauses Act. In
all the Acts and Regulations, made either by the Pa rliament or
Legislature, the words and phrases as defined in the General Clauses
Act and the principles of interpretation laid down in General Clauses
Act are to be necessarily kept in view. If while interpreting a Statutory
law, any doubt arises as to the meaning to be assigned to a word or a
phrase or a clause used in an enactment and such word, phrase or clause
is not specifically defined, it is legitimate and indeed mandatory to fall
back on General Clauses Act. Notwithstanding this, we should
remember that when there is repugnancy or conflict as to the subject or
context between the General Clauses Act and a statutory provision which
falls for interpretation, the Court must necessarily refer to the provisions
of statute.
1207
16. The purpose of interpretation is essentially to kn ow the
intention of the Legislature. Whether the Legislature intended to apply
the law in a given case; whether the Legislature intended t o exclude
operation of law in a given case; whether Legislature intended to give
discretion to enforcing authority or to adjudicating agency to apply the
law, are essentially questions to which answers can be sought only by
knowing the intention of the legislation. Apart fro m the general
principles of interpretation of statutes, there are certain internal aids and
external 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 a
section, explanation, examples, a schedule to the Act etc., are internal
aids to construction. The external aids to constru ction are
Parliamentary debates, history leading to the legislation, other statutes
which have a bearing, dictionaries, thesaurus.
18. It is well accepted that a statute must be construed according
to the intention of the Legislature and the Courts should a ct upon the
true intention of the legislation while applying law and while interpreting
law. If a statutory provision is open to more than one meanin g, the
Court has to choose the interpretation which represents the intention of
the Legislature. In this connection, the following observations made by
this 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 a
statute, it is necessary, to seek the intention of its maker. A statute
has to be construed according to the intent of them that make it
and the duty of the Court is to act upon the true intention of the
Legislature. If a statutory provision is open to more than one
interpretation the Court has to choose that interpretation w hich
represents the true intention of the Legislature. This tas k very
often raises the difficulties because of various reasons, inasmuch
as the words used may not be scientific symbols having any precise
or definite meaning and the language may be an imperfect medium
to convey one’s thought or that the assembly of Legislatures
consisting of persons of various shades of opinion purport to convey
a meaning which may be obscure. It is impossible even fo r the
most imaginative Legislature to forestall exhaustively situations
and circumstances that may emerge after enacting a statute where
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
its application may be called for. Nonetheless, the function of the
Courts is only to expound and not to legislate. Legislation in a
modern State is actuated with some policy to curb some p ublic
evil or to effectuate some public benefit. The legislation is primarily
directed to the problems before the Legislature bas ed on
information derived from past and present experience. It may
also be designed by use of general words to cover similar problems
arising in future. But, from the very nature of things, it is impossible
to anticipate fully the varied situations arising in future in which
the application of the legislation in hand may be called for, and,
words chosen to communicate such indefinite referents are bound
to be in many cases lacking in clarity and precision and thus giving
rise to controversial questions of construction. The process of
construction combines both literal and purposive approaches. In
other words the legislative intention i.e., the true or legal meaning
of an enactment is derived by considering the meaning of the
words used in the enactment in the light of any discernible purpose
or object which comprehends the mischief and its remedy to which
the enactment is directed…”
19. The well settled principle is that when the words in a statute
are clear, plain and unambiguous and only one meaning can be inferred,
the Courts are bound to give effect to the said meaning irrespective of
consequences. If the words in the statute are plain and unambiguous, it
becomes necessary to expound those words in their n atural and
ordinary sense. The words used declare the intentio n of the
Legislature. In Kanai Lal Sur v. Paramnidhi Sadhukhan , AIR 1957
SC 907, it was held that if the words used are capa ble of one
construction only then it would not be open to the Courts to adopt any
other hypothetical construction on the ground that such construction is
more consistent with the alleged object and policy of the Act.
20. In applying rule of plain meaning any hardship a nd
inconvenience cannot be the basis to alter the meaning to the language
employed by the legislation. This is especially so in fiscal statutes and
penal statutes. Nevertheless, if the plain language results in absurdity,
the Court is entitled to determine the meaning of the word in the context
in which it is used keeping in view the legislative purpose. 2 Not only
2Assistant Commissioner, Gadag Sub-Division, Gadag v . Mathapathi
Basavannewwa , 1995 (6) SCC 355.
1209
that, if the plain construction leads to anomaly and absurdity, the court
having regard to the hardship and consequences that flow from such a
provision can even explain the true intention of the legislation. Having
observed general principles applicable to statutory interpretation, it is
now time to consider rules of interpretation with respect to taxation.
21.In construing penal statutes and taxation statutes, the Court
has to apply strict rule of interpretation. The penal statute which tends
to deprive a person of right to life and liberty has to be given strict
interpretation or else many innocent might become v ictims of
discretionary decision making. Insofar as taxation statutes are
concerned, Article 265 of the Constitution 3 prohibits the State from
extracting tax from the citizens without authority of law. It is axiomatic
that taxation statute has to be interpreted strictly because State cannot
at their whims and fancies burden the citizens without authority of law.
In other words, when competent Legislature mandates taxing c ertain
persons/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 meaning
rule or clear and unambiguous rule’ with respect of tax law. ‘The plain
meaning rule’ suggests that when the language in the statute is plain and
unambiguous, the Court has to read and understand the plain language
as such, and there is no scope for any interpretation. This salut ary
maxim flows from the phrase “ cum inverbis nulla ambiguitas est, non
debet admitti voluntatis quaestio” . Following such maxim, the courts
sometimes have made strict interpretation subordinate to the plain meaning
rule 4, though strict interpretation is used in the precise sense. To say that
strict interpretation involves plain reading of the statute and to say that
one has to utilize strict interpretation in the even t of ambiguity is
self-contradictory.
23. Next, we may consider the meaning and scope of ‘stric t
interpretation’, as evolved in Indian law and how the higher Courts have
made a distinction while interpreting a taxation statute on one hand and
tax exemption notification on the other. In Black’s Law Dic tionary
(10 th Edn.) ‘strict interpretation’ is described as under:
3 265. Taxes not to be imposed save by authority of l aw -No tax shall be levied or
collected except by authority of law.
4 Mangalore Chemicals Case (Infra para 37 ).
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
Strict interpretation. (16c) 1. An interpretation according t o the
narrowest, most literal meaning of the words without regard for
context and other permissible meanings. 2. An interpretat ion
according to what the interpreter narrowly believes to have been
the specific intentions or understandings of the text’s authors or
ratifiers, and no more.- Also termed (in senses 1 & 2) strict
construction, literal interpretation; literal construction; restricted
interpretation; interpretatio stricta; interpretati o restricta;
interpretatio verbalis. 3. The philosophy underlyin g strict
interpretation of statues.- Also termed as close interpre tation;
interpretatio restrictive.
See strict constructionism under constructionism. C f. large
interpretation; liberal interpretation (2).
“Strict construction of a statute is that which refuses to expand
the law by implications or equitable considerations, but confines
its operation to cases which are clearly within the lette r of the
statute, as well as within its spirit or reason, not so as to defeat the
manifest purpose of the legislature, but so as to res olve all
reasonable doubts against the applicability of the statut e to the
particular case.’ Willam M. Lile et al., Brief Making and the use
of Law Books 343 (Roger W. Cooley & Charles Lesly Ames
eds., 3d ed. 1914).
“Strict interpretation is an equivocal expression, for it means
either literal or narrow. When a provision is ambiguous, one of its
meaning 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.
Williams ed., 10 th ed. 1947).
24. As contended by Ms. Pinky Anand, learned Addition al
Solicitor General, the principle of literal interpretation and the principle
of strict interpretation are sometimes used interch angeably. This
principle, however, may not be sustainable in all contexts and situations.
There is certainly scope to sustain an argument that all cases of literal
interpretation would involve strict rule of interpretation, but strict rule
may not necessarily involve the former, especially in the area of
taxation. The decision of this Court in Punjab Land Development and
Reclamation Corporation Ltd., Chandigarh v. Presidi ng Officer,
Labour Court Chandigarh and Ors. , (1990) 3 SCC 682, made the
said distinction, and explained the literal rule-
1211
“The literal rules of construction require the wording of the Act to
be construed according to its literal and grammatical me aning
whatever the result may be. Unless otherwise provided, the same
word must normally be construed throughout the Act in the same
sense, and in the case of old statutes regard must be had to i ts
contemporary meaning if there has been no change with the
passage of time.”
That strict interpretation does not encompass strict- literalism into
its fold. It may be relevant to note that simply jux taposing ‘strict
interpretation’ with ‘literal rule’ would result in ignoring an important
aspect that is ‘apparent legislative intent’. We are alive to the fact that
there may be overlapping in some cases between the afor esaid two
rules. With certainty, we can observe that, ‘strict int erpretation’ does
not encompass such literalism, which lead to absurdity and go against
the legislative intent. As noted above, if literalism is at the far end of the
spectrum, wherein it accepts no implications or inferences, then ‘strict
interpretation’ can be implied to accept some form of essential
inferences which literal rule may not accept.
25. We are not suggesting that literal rule de hors the strict
interpretation nor one should ignore to ascertain the interplay between
‘strict interpretation’ and ‘literal interpretation’. We may reiterate at the
cost of repetition that strict interpretation of a statute certainly involves
literal or plain meaning test. The other tools of interpre tation, namely
contextual or purposive interpretation cannot be applied nor any resort
be made to look to other supporting material, especially i n taxation
statutes. Indeed, it is well settled that in a taxation stat ute, there is no
room for any intendment; that regard must be had to the clear meaning
of the words and that the matter should be governed wholly by the
language of the notification. Equity has no place in interpretation of a
tax statute. Strictly one has to look to the language used; the re is no
room for searching intendment nor drawing any presu mption.
Furthermore, nothing has to be read into nor should anything be implied
other than essential inferences while considering a taxation statute.
26. Justice G.P. Singh, in his treatise ‘ Principles of Statutory
Interpretation ’ (14 th ed. 2016 p. – 879) after referring to Re,
Micklethwait, (1885) 11 Ex 452; Partington v. A.G., (1869) LR 4 HL
100; Rajasthan Rajya Sahakari Spinning & Ginning Mills
Federation Ltd. v. Deputy CIT, Jaipur , (2014) 11 SCC 672, State
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
Bank of Travancore v. Commissioner of Income Tax , (1986) 2 SCC
11 and Cape Brandy Syndicate v. IRC , (1921) 1 KB 64, summed up
the law in the following manner-
“A taxing statute is to be strictly construed. The well-established
rule in the familiar words of LORD WENSLEYDALE, reaffirmed
by LORD HALSBURY AND LORD SIMONDS, means: ‘The
subject is not to be taxed without clear words for that pur pose;
and also that every Act of Parliament must be read according to
the natural construction of its words. In a classic passage LORD
CAIRNS stated the principle thus: “If the person sought t o be
taxed comes within the letter of the law he must be taxed, however
great the hardship may appear to the judicial mind to be. On the
other hand, if the Crown seeking to recover the tax, cannot bring
the subject within the letter of the law, the subject is free, however
apparently within the spirit of law the case might otherwise appear
to be. In other words, if there be admissible in any statute, what
is called an equitable construction, certainly, such a construction
is not admissible in a taxing statute where you can simply adhere
to the words of the statute. VISCOUNT SIMON quoted with
approval a passage from ROWLATT, J. expressing the principle
in the following words: “In a taxing Act one has to look merely at
what is clearly said. This is no room for any intendment. There is
no equity about a tax. There is no presumption as to tax. Nothing
is to be read in, nothing is to be implied. One can only look fairly
at the language used.”
It was further observed:
“In all tax matters one has to interpret the taxation statute strictly.
Simply because one class of legal entities is given a benefit which
is specifically stated in the Act, does not mean that the be nefit
can be extended to legal entities not referred to in the Act as
there is no equity in matters of taxation….”
Yet again, it was observed:
“It may thus be taken as a maxim of tax law, which although not
to be overstressed ought not to be forgotten that, “the subject is
not to be taxed unless the words of the taxing stat ute
unambiguously impose the tax on him”, [Russel v. Scott, (1948) 2
All ER 1]. The proper course in construing revenue Acts is t o
1213
give a fair and reasonable construction to their language without
leaning to one side or the other but keeping in mind that no tax can
be imposed without words clearly showing an intention to lay the
burden and that equitable construction of the words is not
permissible [Ormond Investment Co. v. Betts, (1928) AC 143].
Considerations of hardship, injustice or anomalies do not play any
useful role in construing taxing statutes unless there be some real
ambiguity [Mapp v. Oram, (1969) 3 All ER 215]. It has also been
said that if taxing provision is “so wanting in clarity that no meaning
is reasonably clear, the courts will be unable to regard it as of any
effect [IRC v. Ross and Coutler, (1948) 1 All ER 616].”
Further elaborating on this aspect, the learned author sta ted as
follows:
“Therefore, if the words used are ambiguous and reasonable open
to two interpretations benefit of interpretation is given to the subject
[Express Mill v. Municipal Committee, Wardha, AIR 1958 SC
341]. If the Legislature fails to express itself clearly and the
taxpayer escapes by not being brought within the letter of the law,
no question of unjustness as such arises [CIT v. Jalgaon Electric
Supply Co., AIR 1960 SC 1182]. But equitable considerations
are not relevant in construing a taxing statute, [CIT, W.B. v. Central
India Industries, AIR 1972 SC 397], and similarly logic or reason
cannot be of much avail in interpreting a taxing statute [Azam Jha
v. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. It is
well settled that in the field of taxation, hardship or equity has no
role to play in determining eligibility to tax and it is for the
Legislature to determine the same [Kapil Mohan v. Commr. of
Income Tax, Delhi, AIR 1999 SC 573]. Similarly, hardship or
equity is not relevant in interpreting provisions imposing stamp
duty, which is a tax, and the court should not concern itself with
the intention of the Legislature when the language expressing such
intention is plain and unambiguous [State of Madhya Pradesh v.
Rakesh Kohli & Anr., (2012) 6 SCC 312]. But just as reliance
upon equity does not avail an assesse, so it does not avail the
Revenue.”
The passages extracted above, were quoted with approval by this
Court in at least two decisions being Commissioner of Income Tax vs.
Kasturi Sons Ltd ., (1999) 3 SCC 346 and State of West Bengal vs.
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
Kesoram Industries Limited , (2004) 10 SCC 201 [hereinafter referred
as ‘Kesoram Industries Case ’ for brevity ]. In the later decision, a
Bench of seven Judges, after citing the above passage from Justice G.P.
Singh’s treatise, summed up the following principles applicable to the
interpretation of a taxing statute:
“(i) In interpreting a taxing statute, equitable considerations are
entirely out of place. A taxing statute cannot be interpret ed on
any presumption or assumption. A taxing statute has t o be
interpreted in the light of what is clearly expressed; it cannot imply
anything which is not expressed; it cannot import provisions in the
statute so as to supply any deficiency; (ii) Before taxing any person,
it must be shown that he falls within the ambit of the ch arging
section by clear words used in the section; and (iii) If the words
are ambiguous and open to two interpretations, the benefit of
interpretation is given to the subject and there is nothing unjust in
a taxpayer escaping if the letter of the law fails to c atch him on
account 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 issued
under a taxing statute, this Court in some cases has taken the view that
the ambiguity in an exemption notification should be construed in favour
of the subject. In subsequent cases, this Court diluted the pr inciple
saying that mandatory requirements of exemption clause shoul d be
interpreted strictly and the directory conditions of s uch exemption
notification can be condoned if there is sufficient compliance with the
main requirements. This, however, did not in any manner tinker with the
view that an ambiguous exemption clause should be interpreted favouring
the revenue. Here again this Court applied differe nt tests when
considering the ambiguity of the exemption notification which requires
strict construction and after doing so at the stage of applying the
notification, it came to the conclusion that one has to consider liberally.
28.With the above understanding the stage is now set to consider
the core issue. In the event of ambiguity in an exemption notification,
should the benefit of such ambiguity go to the subject/assessee or should
such ambiguity should be construed in favour of the revenue, denying
the benefit of exemption to the subject/assessee? The re are catena of
case laws in this area of interpretation of an exemption notification, which
we need to consider herein. The case of Commissioner of Inland
1215
Revenue vs. James Forrest , [(1890) 15 AC 334 (HL)] – is a case
which does not discuss the interpretative test to be applied to exemption
clauses in a taxation statute – however, it was observed tha t ‘it would
be unreasonable to suppose that an exemption was wi de as
practicable to make the tax inoperative, that it cannot be assumed
to have been in the mind of the Legislature ’ and that exemption ‘from
taxation to some extent increased the burden on other membe rs of
the community ’. Though this is a dissenting view of Lord Halsbury,
LC, in subsequent decisions this has been quoted vividly to support the
conclusion that any vagueness in the exemption clauses must go to the
benefit 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 matter
if the taxpayer escapes the tax net on account of Legislatures’ failure to
express itself clearly (See the passage extracted he reinabove from
Kesoram Industries Case (supra)).
29.The first case with which we need to concern ourselves is the
case in Union of India v. The Commercial Tax Officer, West Bengal
and Ors ., AIR 1956 SC 202. It may be noted that this case was deal t
with by five learned Judges of this Court resulting in two dif ferent
opinions; one by the then Chief Justice of India, S.R. Das for the
majority, and Justice B.P. Sinha (as His Lordship then was) rendering
minority view. The question before this Court was whether the sale of
goods made by one private mill to the Government of India, Ministry of
Industries and Supplies were to be deducted as taxable turnover of the
mill for the exemption given under Section 5 of the Bengal Finance (Sales
Tax) Act, 1941 (Bengal Act VI of 1941). The exemption under Section
5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941 pro vided for
exemption ‘ to sales to the Indian Stores Department, the Suppl y
Department of the Government of India, and any railway or water
transport administration ’. The Court was to interpret the aforesaid
provision in order to ascertain whether the sale to the Gove rnment of
India, Ministry of Industries and Supplies would be covered under the
Section.
30. The majority was of the view that the Government of India,
Ministry of Industries and Supplies was not similar to those mentioned in
the exemption notification. The majority extensively reli ed on the
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
history and origin of Ministry of Industries and Supplies and concluded
that the functions of the aforesaid Ministry were different f rom the
erstwhile departments mentioned under the exemption provision. The
majority reasoned that the exemption being the creation of the s tatute
itself, it should have to be construed strictly and the interpretation cannot
be extended to sales to other departments. We might find some clue as
to the content of a strict construction also. It was canvassed before the
Court that the object of Section 5(2)(a)(iii) of the relevant statute, was
to give exemption not to the particular departments but t o the sale of
such goods to those departments and, therefore, sale of those good s
made to any Departments of the Government of India, which came to
be charged with the duty of purchasing those goods should also come
within the purview of the exemption. The Court while repell ing the
aforesaid interpretation, reasoned as under:
“We are unable to accept this line of reasonin g. This
interpretation will unduly narrow the scope and ambit of the
exemption by limiting it to sales of only those goods as, at the date
of the Act, used to be sold to those two departments and sales of
other goods even to those two departments, however necessary
for the prosecution of the war, would not get benefit of the
exemption. Such could not possibly be the intention of the
Legislature as expressed by the language used by it in framing
the Section.”
31. The aforesaid placitum is suggestive of the fact that the Courts
utilized the rule of strict interpretation in order to decipher the intention
of the Legislature and thereafter provide appropriate interpretation for
the exemption provided under the provisions of the Act whic h was
neither too narrow nor too broad. It may be noted that the majority did
not take a narrow view as to what strict interpretatio n would literally
mean; rather they combined legislative intent to ascertain the meaning
of the statute in accordance with the objective intent of the Legislature.
32.On the contrary, the minority opinion of Justice B.P. Sinha (as
His Lordship then was) provided a purposive interpretation for Section
5(2)(a)(iii) of the Act, which is clear from the following passage:
“The judgment under appeal is based chiefly on the consideration
that the exemption clause in question does not in terms refer to
the newly created department which now goes by the name of
1217
the Ministry of Industry and Supply. But this department in so far
as it deals with industry, is not concerned with the main purchasing
activities of the Government of India. The exemption was granted
in respect of the purchasing activity of the Government of India
and that function continues to be assigned to the S upply
Department which has now become a wing of the newly created
department of the Government. The question therefore arises
whether in those circumstances the Government of India could
claim the benefit of the exemption. The High Court in answering
that question in the negative has gone upon mere nomenclature.
It has emphasized the change in the name and overlooked the
substance of the matter.”
33. The minority construed ‘strict interpretation’ t o be an
interpretation wherein least number of “determinate s in terms of
quantity” would fall under the exemption. The minority referred to an
old English case of Commissioner of Inland Revenue v. James Forrest,
(1890) 15 AC 334. It may be relevant to note that the minority could not
find the justification to apply strict interpretation as t he exemption
notification was broad enough to include exemptions for commodities
purchased by the Government of India. The Court was of the opinion
that the strict interpretation provided by the majority was uncalled for as
there was no additional burden on others by giving such exemptions .
The relevant observations are as follows-
“The High Court referred to the observations of Lord
Halsbury in the case of Commissioner of Inland Revenue v. James
Forrest (1890) 15 AC 334, to the effect that exemptions from
taxation should be strictly construed because otherwise the burden
of taxation will fall on other members of the community. Those
observations, in my opinion, have no relevance to the facts and
circumstances of the present controversy, because we know that
the exemption was granted to the Government of India in t he
department dealing with purchase of certain commodities and
articles without reference to quantity. As already pointed out, the
Indian Stores Department was concerned with purchase of stores
for public services on behalf of all Central Depart ments of
Government and local Government, etc., and the Government of
Bengal as then constituted was one of the provinces of India which
have been receiving subsidies and subventions to make up t he
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
deficit in their budgets. As a matter of fact, as stated on behalf of
the Bengal Government the concession was granted in order to
enable business communities within the province of Bengal to
compete on favourable terms with others outside Bengal in the
matter of supplying the needs of the Government. Hence, there
is no question of liberal construction of the exemption resulting in
throwing a greater burden on other citizens. On the other hand,
the larger the sales in the province of Bengal as it used to be, the
greater the benefit to the business community doing business within
that province. It was therefore stated at the Bar that though the
present case involved taxes amounting to less than Rs.10,000, the
question arising for determination in this case affected much larger
amounts because such sales within the province amounted to
several crores. I should have thought that the business community
in the province of Bengal having had the advantage of the
transactions of sale, the Government of Bengal in all fairness should
have allowed the purchasing agency of the Government of India
the benefit of the exemption until that benefit was in terms
withdrawn sometimes in the beginning of 1949.”
34. In Hansraj Gordhandas v. H.H. Dave, Asst. Collector of
Central Excise & Customs, Surat and Ors., AIR 1970 SC 755 = (1969)
2 SCR 253 [ hereinafter referred as ‘Hansraj Gordhandas Case ’ for
brevity ], wherein this Court was called upon to interpret an exemption
notification issued under the Central Excise Act. It would be relevant to
understand the factual context which gave rise to the aforesa id case
before the Court. The appellant was sole proprietor who used to
procure cotton from a co-operative society during the relevant period.
The society had agreed to carry out the weaving work for the appellant
on payment of fixed weaving charges at Re.0.19 np. per yard which
included expenses the society would have to incur in transport ing the
aforesaid cotton fabric. In the years 1959 and 1960, the Gove rnment
issued an exemption notification which exempted cot ton fabrics
produced by any co-operative society formed of owners of cotton power
looms, registered on or before 31 st March, 1961. The question before
the Court was whether the appellant who got the cotton fabric produced
from one of the registered co-operative society was also covered under
the aforesaid notification. It may be of some signific ance that the
revenue tried to interpret the aforesaid exemption by relying on the
purposive interpretation by contending that the object of granting the
1219
above exemption was to encourage the formation of c o-operative
societies which not only produced cotton fabrics but also consisted of
members, not only owning but having actually operated not more than
four power looms during the three years immediately precedi ng their
having joined the society. The policy was that instead of eac h such
member operating his looms on his own, he should combine with others
by forming a society to produce clothes. It was argued that the goods
produced for which exemption could be claimed must be goods
produced on his own and on behalf by the society. The court did not
countenance such purposive interpretation. It was held that a taxing
legislation should be interpreted wholly by the lan guage of the
notification. The relevant observations are:
“It is well-established that in a taxing statut e there is no
room for any intendment but regard must be had to the clear
meaning of the words. The entire matter is governed wholly by
the language of the notification. If the tax-payer is wit hin the
plain terms of the exemption it cannot be denied its bene fit by
calling in aid any supposed intention of the exempting authority.
If such intention can be gathered from the construction of the
words of the notification or by necessary implication therefrom,
the matter is different, but that is not the case h ere. In this
connection we may refer to the observations of Lord Watson in
Salomon vs. Salomon & Co., (1897) AC 22):
‘Intention of the Legislature is a common but very slippery phrase,
which, popularly understood may signify anything from intention
embodied in positive enactment to speculative opinion as to what
the legislature probably would have meant, although there has
been an omission to enact it. In a Court of Law or Equity, what
the Legislature intended to be done or not to be done can only be
legitimately ascertained from that which it has chosen t o enact,
either in express words or by reasonable and necess ary
implication.’
It is an application of this principle that a statutory not ification
may not be extended so as to meet a casus omissus. As appears
in the judgment of the Privy Council in Crawford v. Spooner.
‘… we cannot aid the Legislature’s defective phrasing of the Act,
we cannot add, and mend, and, by construction, make up
deficiencies which are left there.’
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
Learned Counsel for the respondents is possibly right in his
submission that the object behind the two notificatio ns is to
encourage the actual manufacturers of handloom cloth to switch
over to power looms by constituting themselves in co-operative
Societies. But the operation of the notifications has to be judged
not by the object which the rule making authority had in mind but
by the words which it has employed to effectuate the legislative
intent.”
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 of
finding out the eligibility to seek exemption and stage of applying the
nature of exemption was made. Relying on the decision in Collector of
Central Excise vs. Parle Exports (P) Ltd. , (1989) 1 SCC 345, it was
held “ Do not extend or widen the ambit at the stage of applicabi lity.
But once that hurdle is crossed, construe it libera lly ”. The
reasoning for arriving at such conclusion is found in para 4 of Wood
Papers Ltd. Case (supra), which reads-
“… Literally exemption is freedom from liability, tax or dut y.
Fiscally, it may assume varying shapes, specially, in a growing
economy. For instance tax holiday to new units, concessional
rate of tax to goods or persons for limited period or with the specific
objective etc. That is why its construction, unlike ch arging
provision, has to be tested on different touchstone. In fact, an
exemption provision is like an exception and on normal principle
of construction or interpretation of statutes it is construed strictly
either because of legislative intention or on economic justification
of inequitable burden or progressive approach of fiscal provisions
intended to augment State revenue. But once excepti on or
exemption becomes applicable no rule or principles requires it to
be construed strictly. Truly speaking liberal and strict
construction of an exemption provision are to be invoked
at different stages of interpreting it. When the question is
whether a subject falls in the notification or in the exemption
clause then it being in nature of exception is to be construed
strictly and against the subject, but once ambiguity or doubt
about applicability is lifted and the subject falls in the
notification then full play should be given to it and it calls
for a wider and liberal construction… ”
(emphasis supplied )
1221
36. In Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Com-
missioner of Commercial Taxes , (1992) Supp. 1 SCC 21 [ hereinafter
referred as ‘ Mangalore Chemicals Case ’ for brevity ], the facts of
the case were that the State Government issued a no tification in
exercise of power under Section 8-A of the Karnataka Sales Tax Act,
1957, providing certain incentives to entrepreneurs starting new
industries in the State pursuant to State’s policy for “rapid
industrialization”. The notification contains a package of r eliefs and
incentives including one concerning relief from payment of sale s tax
with which the case was concerned. There was no dispute t hat the
appellant was entitled to the benefit of the Notification dated June 30,
1969. There was also no dispute that the refunds were eligible to be
adjusted against sales tax payable for respective year s. The only
controversy was whether the appellant, not having actually secured the
“prior permission” would be entitled to adjustment having regard to the
words of the Notification of August 11, 1975, that “until permission of
renewal is granted by the Deputy Commissioner of Commercial Taxes,
the new industry should not be allowed to adjust the refunds”. The
contention of the appellants therein was that the permission for the three
years had been sought well before the commencement of the respective
years but had been withheld for reasons which were dem onstrably
extraneous. Therefore, contention was that if, in these circumsta nces,
the Deputy Commissioner could withold the permission.
37.This Court while accepting the interpretation provided by the
appellant, observed on the aspect of strict construction of a provision
concerning exemptions as follows:
“… There is support of judicial opinion to the view that
exemptions from taxation have a tendency to increase the burden
on the other unexempted class of tax payers and shou ld be
construed against the subject in case of ambiguity. It is an equally
well known principle that a person who claims an exemption has
to establish his case.
… The choice between a strict and a liberal construction arises
only in case of doubt in regard to the intention of the legislature
manifest on the statutory language. Indeed, the need to resort to
any interpretative process arises only where the meaning is not
manifest on the plain words of the statute. If the words are plain
and clear and directly convey the meaning, there is no need f or
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
any interpretation. It appears to us the true rule of construction
of a provision as to exemption is the one stated by this Court in
Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 = 1990
SCC (Tax) 422 = JT (1991) SC 151]”
Three important aspects which comes out of the discussion ar e
the recognition of horizontal equity by this court as a consideration for
application of strict interpretation, subjugation of strict interpretation to
the plain meaning rule and interpretation in favour of exclusion in light of
ambiguity.
38.We will now consider another Constitution Bench decision in
Commissioner of Central Excise, New Delhi v. Hari C hand Shri
Gopal, (2011) 1 SCC 236 [hereinafter referred as ‘Hari Chand Case ’
for brevity ]. We need not refer to the facts of the case which gave rise
to the questions for consideration before the Constitutional Bench. K.S.
Radhakrishnan, J., who wrote the unanimous opinion for the
Constitution Bench, framed the question, viz., whether manufacturer of
a specified final product falling under Schedule to the Cent ral Excise
Tariff Act, 1985 is eligible to get the benefit of exemption of remission of
excise duty on specified intermediate goods as per the Central
Government Notification dated 11.08.1994, if captively consumed for
the manufacture of final product on the ground that the records kept by
it at the recipient end would indicate its “intended use” and “substantial
compliance” with procedure set out in Chapter 10 of the Central Excise
Rules, 1994, for consideration? The Constitution Bench answering the
said question concluded that a manufacturer qualified to seek exemption
was required to comply with the pre-conditions for claiming exemption
and therefore is not exempt or absolved from following the sta tutory
requirements as contained in the Rules. The Constitution Bench then
considered and reiterated the settled principles qua the test of
construction of exemption clause, the mandatory requirements to be
complied with and the distinction between the eligibility criteria with
reference to the conditions which need to be strictly complied with and
the conditions which need to be substantially complie d with. The
Constitution Bench followed the ratio in Hansraj Gordhandas Case
(supra), to reiterate the law on the aspect of interpretation of exemption
clause in para 29 as follows-
1223
“The law is well settled that a person who claims exemption
or concession has to establish that he is entitled to that exemption
or concession. A provision providing for an exemption, concession
or exception, as the case may be, has to be construed strictly with
certain exceptions depending upon the settings on whic h the
provision has been placed in the statute and the object and purpose
to be achieved. If exemption is available on complying with certain
conditions, the conditions have to be complied with. The mandatory
requirements of those conditions must be obeyed or ful filled
exactly, thought at times, some latitude can be shown, if there is
failure to comply with some requirements which are directory in
nature, the non-compliance of which would not affect the essence
or substance of the notification granting exemption.”
39. The Constitution Bench then considered the doctrine of
substantial compliance and “intended use”. The relevant portions of the
observations in paras 31 to 34 are in the following terms –
“31. Of course, some of the provisions of an exemption notification
may be directory in nature and some are mandatory in nature. A
distinction between the provisions of a statute which a re of
substantive character and were built in with certain specific
objectives of policy, on the one hand, and those which are merely
procedural and technical in there nature, on the other, must be
kept 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 a
party does all that can reasonably be expected of it, but failed or
faulted in some minor or inconsequent aspects which cannot be
described as the “essence” or the “substance” of the requirements.
Like the concept of “reasonableness”, the acceptance or otherwise
of a plea of “substantial compliance” depends upon the facts and
circumstances of each case and the purpose and object to be
achieved and the context of the prerequisites which are essential
to achieve the object and purpose of the rule or the re gulation.
Such a defence cannot be pleased if a clear statutory prerequisite
which effectuates the object and the purpose of the st atute has
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
not been met. Certainly, it means that the Court should determine
whether the statute has been followed sufficiently so as to carry
out the intent for which the statute was enacted and not a mirror
image type of strict compliance. Substantial compliance means
“actual compliance in respect to the substance essential to every
reasonable objective of the statute” and the Court should determine
whether the statute has been followed sufficiently so as to carry
out the intent of the statute and accomplish the re asonable
objectives for which it was passed.
33. A fiscal statute generally seeks to preserve the need to comply
strictly with regulatory requirements that are important, especially
when a party seeks the benefits of an exemption clause tha t are
important. 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 substantially
complied with notwithstanding the non-compliance of directory
requirements. In cases where substantial compliance has be en
found, there has been actual compliance with the statute, a lbeit
procedurally faulty. The doctrine of substantial compliance seeks
to preserve the need to comply strictly with the conditi ons or
requirements that are important to invoke a tax or duty exemption
and to forgive non-compliance for either unimportant and tangential
requirements or requirements that are so confusingly or incorrectly
written that an earnest effort at compliance should be accepted.
34. The test for determining the applicability of the substantial
compliance doctrine has been the subject of a myriad of cases
and quite often, the critical question to be examined is whethe r
the requirements relate to the “substance” or “essence” of the
statute, if so, strict adherence to those requireme nts is a
precondition to give effect to that doctrine. On the other hand, if
the requirements are procedural or directory in that they are not
of the “essence” of the thing to be done but are given with a view
to the orderly conduct of business, they may be fulfil led by
substantial, if not strict compliance. In other words, a mere
attempted compliance may not be sufficient, but actual compliance
with those factors which are considered as essential.”
1225
40.After considering the various authorities, some of which are
adverted to above, we are compelled to observe how true it is to say that
there exists unsatisfactory state of law in relation to i nterpretation of
exemption clauses. Various Benches which decided the ques tion of
interpretation of taxing statute on one hand and exemption notification
on the other, have broadly assumed (we are justified to say this) that the
position is well settled in the interpretation of a taxing statute: It is the
law that any ambiguity in a taxing statute should enure to the benefit of
the subject/assessee, but any ambiguity in the exemptio n clause of
exemption notification must be conferred in favour of revenue – and
such exemption should be allowed to be availed only to those subjects/
assesses who demonstrate that a case for exemption squarely falls within
the parameters enumerated in the notification and that the claimants
satisfy all the conditions precedent for availing exemption. Presumably
for this reason the Bench which decided Surendra Cotton Oil Mills
Case (supra) observed that there exists unsatisfactory state of law and
the Bench which referred the matter initially, seriously d oubted the
conclusion in Sun Export Case (supra) that the ambiguity in an
exemption notification should be interpreted in favour of the assessee.
41.After thoroughly examining the various precedents some of
which were cited before us and after giving our anxious consideration,
we would be more than justified to conclude and also compelled to hold
that every taxing statue including, charging, computation and exemption
clause (at the threshold stage) should be interpreted strictly. Further, in
case of ambiguity in a charging provisions, the benefit must necessarily
go in favour of subject/assessee, but the same is n ot true for an
exemption notification wherein the benefit of ambiguity must be strictly
interpreted in favour of the Revenue/State.
42.In Govind Saran Ganga Saran v. Commissioner of Sales
Tax , 1985 Supp (SCC) 205, this Court pointed out three components of
a taxing statute, namely subject of the tax; person liable to pay tax; and
the rate at which the tax is to be levied. If there is any ambiguity in
understanding any of the components, no tax can be levied ti ll the
ambiguity or defect is removed by the legislature [See Mathuram
Agrawal v. Sate of Madhya Pradesh , (1999) 8 SCC 667; Indian Banks’
Association vs. Devkala Consultancy Service , (2004) 4 JT 587 = AIR
2004 SC 2615; and Consumer Online Foundation vs. Union of India ,
(2011) 5 SCC 360.]
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
43.There is abundant jurisprudential justification for this. In the
governance of rule of law by a written Constitution, there is no implied
power of taxation. The tax power must be specifically conferred and it
should be strictly in accordance with the power so endowed by t he
Constitution itself. It is for this reason that the Courts insist upon strict
compliance before a State demands and extracts mone y from its
citizens towards various taxes. Any ambiguity in a taxation provision,
therefore, is interpreted in favour of the subject/ assessee. The
statement of law that ambiguity in a taxation statu te should be
interpreted strictly and in the event of ambiguity the benefit should go to
the subject/assessee may warrant visualizing different situations. For
instance, if there is ambiguity in the subject of tax, that is to say, who are
the persons or things liable to pay tax, and whether the r evenue has
established conditions before raising and justifying a demand. Similar is
the case in roping all persons within the tax net, in which event the State
is to prove the liability of the persons, as may arise w ithin the strict
language of the law. There cannot be any implied concept eit her in
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, unless the words of the
statute unambiguously impose a tax on him, that one has to look merely
at 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 the
spirit of the law to guide the interpreter to decide the li ability to tax
ignoring any amount of hardship and eschewing equity in taxation. Thus,
we may emphatically reiterate that if in the event of a mbiguity in a
taxation liability statute, the benefit should go to the subje ct/assessee.
But, in a situation where the tax exemption has to be interpre ted, the
benefit of doubt should go in favour of the revenue, the a foresaid
conclusions are expounded only as a prelude to better u nderstand
jurisprudential basis for our conclusion. We may now c onsider the
decisions which support our view.
44. In Hansraj Gordhandas Case (supra), the Constitutional
Bench unanimously pointed out that an exemption from taxation is to be
allowed based wholly by the language of the notification and exemption
cannot be gathered by necessary implication or by construction of words;
in other words, one has to look to the language alone and the object and
purpose for granting exemption is irrelevant and immaterial.
1227
45.In Parle Exports Case (supra), a bench of two Judges of this
Court considered the question whether non-alcoholic beverage base like
Gold spot base, Limca base and Thumps Up base, were exempted from
payment of duty under the Central Government notification of March,
1975. While considering the issue, this Court pointed out the Strict
interpretation to be followed in interpretation of a notific ation for ex-
emption. These observations are made in para 17 of the judgment, which
read as follows:
“How then should the courts proceed? The expressions in the
Schedule and in the notification for exemption should be understood
by the language employed therein bearing in mind the context in
which the expressions occur. The words used in the provision,
imposing taxes or granting exemption should be understood in the
same way in which these are understood in ordinary parlance in
the area in which the law is in force or by the people who ordinarily
deal with them. It is, however, necessary to bear in mind certain
principles. The notification in this case was issued under Rule 8
of the Central Excise Rules and should be read along with the
Act. The notification must be read as a whole in the context of
the other relevant provisions. When a notification is issue d in
accordance with power conferred by the statute, it has statutory
force and validity and, therefore, the exemption un der the
notification is as if it were contained in the Act itself. See in this
connection the observations of this Court in Orient Weaving Mills
(P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC
98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790.
The principle is well settled that when two views of a notification
are possible, it should be construed in favour of the subject a s
notification is part of a fiscal enactment. But in this connection, it
is well to remember the observations of the Judicial Committee in
Coroline M. Armytage v. Frederick Wilkinson, (1878) 3 AC 355,
that it is only, however, in the event of there being a real difficulty
in ascertaining the meaning of a particular enactment that the
question of strictness or of liberality of construction arises. The
Judicial Committee reiterated in the said decision at page 369 of
the report that in a taxing Act provisions enacting an exception to
the general rule of taxation are to be construed strictly against
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
those who invoke its benefit. While interpreting an exempti on
clause, liberal interpretation should be imparted to the language
thereof, provided no violence is done to the language employed.
It must, however, be borne in mind that absurd resu lts of
construction should be avoided.”
In the above passage, no doubt this Court observed that “ when
two views of a notification are possible, it should be construed in
favour of the subject as notification is part of fi scal document ”.
This observation may appear to support the view that ambi guity in a
notification for exemption must be interpreted to benefit t he subject/
assessee. A careful reading of the entire para, as extracted hereinabove
would, however, suggest that an exception to the general rule of tax has
to be construed strictly against those who invoke for their benefit. This
was 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)
1 SCC 345, this Court while accepting that exemption clause
should be construed liberally applied rigorous test for determing if
expensive items like Gold Spot base or Limca base of Thums Up
base were covered in the expression food products and f ood
preparations used in Item No. 68 of First Schedule of Central
Excises and Salt Act and held ‘that it should not be in consonance
with spirit and the reason of law to give exemption for non-alcoholic
beverage basis under the notification in question’. Rationale or
ratio is same. Do not extend or widen the ambit at st age of
applicability. But once that hurdle is crossed construe it liberally.
Since the respondent did not fall in the first clause of the notification
there was no question of giving the clause a liberal construction
and hold that production of goods by respondent mentioned in the
notification were entitled to benefit.”
46.The above decision, which is also a decision of two-Judge
Bench of this Court, for the first time took a view that liberal and strict
construction of exemption provisions are to be invoked at different stages
of interpreting it. The question whether a subject falls in the notification
or in the exemption clause, has to be strictly construed. When once the
ambiguity or doubt is resolved by interpreting the appli cability of
exemption clause strictly, the Court may construe the notifi cation by
1229
giving full play bestowing wider and liberal construction. The ratio of
Parle Exports Case (supra) deduced as follows:
“Do not extend or widen the ambit at stage of applicability. But
once 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 our
concurrence to this view which has been subsequently, elabora ted by
the Constitution Bench in Hari Chand Case (supra).
48.The next authority, which needs to be referred is the case in
Mangalore Chemicals (supra). As we have already made reference
to the same earlier, repetition of the same is not necess ary. From the
above decisions, the following position of law would, therefore, clear.
Exemptions from taxation have tendency to increase the burden on the
other unexempted class of tax payers. A person claiming exem ption,
therefore, has to establish that his case squarely falls within the
exemption notification, and while doing so, a notification should be
construed against the subject in case of ambiguity.
49. The ratio in Mangalore Chemicals Case (supra) was
approved by a three-Judge Bench in Novopan India Ltd. v. Collector
of Central Excise and Customs , 1994 Supp (3) SCC 606. In this case,
probably for the first time, the question was posed as to whether the
benefit of an exemption notification should go to the subject/as sessee
when there is ambiguity. The three-Judge Bench, in the background of
English and Indian cases, in para 16, unanimously held as follows:
“We are, however, of the opinion that, on principle, the decision of
this Court in Mangalore Chemicals – and in Union of India v.
Wood Papers, referred to therein – represents the correct view
of law. The principle that in case of ambiguity, a taxing statute
should be construed in favour of the assessee – assuming that the
said principle is good and sound – does not apply to the construction
of an exception or an exempting provision, they have to be
construed strictly. A person invoking an exception or an exemption
provision to relieve him of the tax liability must establish clearly
that he is covered by the said provision. In case of doubt or
ambiguity, benefit of it must go to the State….”
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]
50.In Tata Iron & Steel Co. Ltd. v. State of Jharkhand , (2005)
4 SCC 272, which is another two-Judge Bench decision, this Court laid
down that eligibility clause in relation to exemption notification must be
given strict meaning and in para 44, it was further held –
“The principle that in the event a provision of fiscal st atute is
obscure such construction which favours the assessee may be
adopted, would have no application to construction of an exemption
notification, as in such a case it is for the assessee to show that he
comes within the purview of exemption (See Novopan India Ltd.
v. CCE and Customs).”
51. In Hari Chand Case (supra), as already discussed, the
question was whether a person claiming exemption is required to
comply with the procedure strictly to avail the benefit. The question
posed and decided was indeed different. The said decision, which we
have already discussed supra, however, indicates that while construing
an exemption notification, the Court has to distinguish the condi tions
which require strict compliance, the non-compliance of whic h would
render the assessee ineligible to claim exemption and those which
require substantial compliance to be entitled for exemptio n. We are
pointing out this aspect to dispel any doubt about the legal position as
explored in this decision. As already concluded in para 50 abo ve, we
may reiterate that we are only concerned in this case with a situation
where there is ambiguity in an exemption notification or exemption clause,
in which event the benefit of such ambiguity cannot be extended to the
subject/assessee by applying the principle that an obscure and/or
ambiguity or doubtful fiscal statute must receive a construction favouring
the assessee. Both the situations are different and while considering an
exemption notification, the distinction cannot be ignored.
52.To sum up, we answer the reference holding as under -
(1) Exemption notification should be interpreted strictly; the burden
of proving applicability would be on the assessee to show that his
case comes within the parameters of the exemption clause or
exemption notification.
(2) When there is ambiguity in exemption notification whi ch is
subject to strict interpretation, the benefit of such ambiguity cannot
be claimed by the subject/assessee and it must be interpreted in
favour of the revenue.
1231
(3) The ratio in Sun Export case (supra) is not correct and all the
decisions which took similar view as in Sun Export Case (supra)
stands over-ruled.
53. The instant civil appeal may now be placed befor e
appropriate Bench for considering the case on merits af ter obtaining
orders from the Hon’ble Chief Justice of India.
Kalpana K. Tripathy Referred question answered.
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI v.
M/S. DILIP KUMAR AND COMPANY & ORS. [N. V. RAMANA, J.]