Reportable INTHESUPREMECOURTOFINDIA CIVILAPPELLATEJURISDICTION CIVILAPPEALNO.3327OF2007 COMMISSIONEROFCUSTOMS(IMPORT),MUMBAIAPPELLANT(S) VERSUS M/S.DILIPKUMARANDCOMPANY&ORS.RESPONDENT(S) JUDGMENT
[ENTITY],J.
1. This [ACT] Bench is setup to examine the correctness of the ratio in [PRECEDENT] What is the interpretative rule to be applied while interpreting a tax exemption provision/notificationwhenthereisanambiguityas toitsapplicabilitywithreferencetotheentitlement oftheassesseeortherateoftaxtobeapplied?
2. In SunExportCase (supra),athreeJudgeBench ruled that an ambiguity in a tax exemption provisionornotificationmustbeinterpretedsoasto favour the assessee claiming the benefit of such exemption. Such a rule was doubted when this appeal was placed before a Bench of twoJudges. The matter then went before a threeJudge Bench consistingoneofus([ENTITY],J.). Thethree JudgeBenchhavingnoticedtheunsatisfactorystate oflaw asitstandstoday,opinedthatthedictain SunExportCase (supra),requiresreconsideration andthatishowthematterhasbeenplacedbefore this[ACT]Bench.
3. Fewfactsnecessary,toappreciatetheissueinvolved are as follows the respondents imported a consignmentofVitaminE50powder(feedgrade) under Bill of Entry No. 8207, dated 19.08.1999. Theyclaimedthebenefitofconcessionalrateofduty at5%,insteadofstandard30%,aspertheCustoms NotificationNo.20/1999andclassifiedtheproduct under [SECTION] which admittedly pertains to prawn feed. They relied on the ratio in Sun Export Case (supra) and claimed the benefit of exemption.ThebenefitofCustomsNotificationNo. 20/1999 was, however, denied to the respondents onthepleaofthedepartmentthatthegoodsunder import contained chemical ingredients for animal feedandnotanimalfeed/prawnfeed,assuch,the concessional rate of duty under the extant notification was not available. The department classifiedtheconsignmentunderChapter29which attracts standard rate of customs duty. The adjudicating authority, namely, the Assistant Commissioner of Customs, distinguished Sun ExportCase(supra),whileacceptingthepleaofthe department to deny the concessional rate. The Commissioner of Customs (Appeals) reversed the order of the Assistant Commissioner and came to theconclusionthat SunExportCase (supra)was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal(CESTAT),whichaffirmedtheorderofthe Commissioner of Customs (Appeals). Aggrieved thereby,thepresentappealisfiled.
4. When the appeal was placed, as noticed earlier, before a Bench of twoJudges, the ruling in Sun Export Case (supra) was doubted, observing as follows [ENTITY] the Bombay High Court judgment affirmed in Sun Export Corporation's caseiscorrect.Firstandforemost,itis clear that the subsequent exemption Notification largely expanded the first Notification which referred only to animal feeds and nothing else. That being the case,itwouldbedifficultto 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 heldthatanexemptionNotificationhas to be strictly construed (that is, if the personclaimingexemptiondoesnotfall strictly within the letter of the Notification, he cannot claim exemption), have also been ignored by thisCourtinSunExportCorporation's case in paragraph 13 thereof. Apart from this, the view of this Court in paragraph13thatitiswellsettledthat iftwoviewsarepossible,onefavourable to the assessee in matters of taxation hastobepreferredisunexceptionable. However,thisCourtwasnotconcerned inthat casewiththechargingSection ofataxationstatute.Itwasconcerned withtheinterpretationofanExemption Notification which, as has been stated above, would require the exactly oppositetesttobefulfilled. FurtherthisCourtfoundthatthesubsequentjudgment in CollectorofCustomsandCentralExcise,Guntur and Ors. V. Surendra Cotton Oil Mills and FertilizersCo.andOrs.,2001(1)SCC578[hereinafter referred as Surendra Cotton Oil Mills Case for brevity],distinguished SunExportCase (supra),which mandatedthisCourttotakearelookattheproposition laiddownbytheearliercasesinthefollowingmanner We also find that in the subsequent judgment of this Court, SurendraCottonOilMills'scase,this Court has distinguished the Sun Export Corporation's case and held thatitdealtwith'animalfeed'which was large enough to include 'animal feed supplements' whereas the facts of Surendra Cotton Oil Mills's case showed that ingredients of animal feedcouldnotbeheldtobeincluded in 'animalfeed'.Inouropinion,this Court did not adequately deal with why Sun Exports Corporation's case whichisabindingdecisionofathree JudgesBenchshouldnotbefollowed, apart from a specious distinction between 'ingredients' and 'supplements' which is logically speaking a distinction without a difference.
Thisbeingthe unsatisfactorystate of law as it stands today, we feel that this matter should be placed beforeHonbletheChiefJusticeof India to constitute an appropriate Bench to resolve the doubts pointed out by us in the body of thisOrder. (emphasissupplied)
5. Wefeelthatthereferenceto SurendraCottonOil 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 are onlyconcernedwiththeprincipleoflaw.Withthis, theDivisionBenchwasofthetentativeviewthatthe opinion expressed in Sun Export Case (supra) would require reconsideration, as the proposition laiddownthereinwasunsatisfactory,andtherefore placed before the Chief Justice of India for constitutinganappropriateBench.
6. WhenthematterwasplacedbeforeathreeJudgeBench presidedoverbyoneofus([ENTITY],J.),theBench reiterated the view for reconsideration of the Sun Export Case (supra) and again placed the matter, beforeHonbletheChiefJusticeofIndiaforconstitution ofanappropriateBench,consideringthefactthat Sun Export Case (supra) was decided by a Bench comprisingofthreelearnedjudgesofthisCourt.Hence, thismattercametobeplacedbeforethisBenchofFive Judgeswithfollowingobservations Inparagraph13oftheorderof this Court in Suns case, views havebeenexpressedwithregard to the interpretation of an exemption notification to support the conclusion reached.
The same may require a reconsideration.
That apart, in the referral order it has been noticed that Suns Case (supra) has been distinguished in Collector of Central Excise, Guntur vs.SurendraCottonOilMills&Fert.
Co. The basis on which the said distinction has been drawn needs tobefurtherpursued.
Havingconsideredthematterat some length, we are of the tentative view, that the opinion expressed in Suns case (supra) may require a reconsideration.
Being a coordinate Bench, we believe we ought not to proceed anyfurtherinthematter.Hence, wedirecttheRegistrytolaythe papers before the Honble the Chief Justice of India for appropriateorders. (emphasissupplied)
7. The learned Additional Solicitor General, Ms. [ENTITY], submits that a tax exemption statute or notificationneedstobestrictlyinterpreted. According to her, strict interpretation is literal rule of interpretation,whichmeansthatCourthastoapplythe provision reading the language therein and no interpretationisrequiredifthelanguageisclear.Inthe eventofanyambiguity,accordingtoher,thebenefithas tobegiventotherevenueandthatsuchambiguityin 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 exemptionnotification. Sheelaboratedherarguments byrelyingonvariousjudgmentsandcontendsthatthe ratioinSunExportCase(supra),whichwasdoubtedin SurendraCottonOilMillsCase(supra),isnotcorrect 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 acceptedbytheCourt.
8. [ENTITY],amongothers,Mr.[ENTITY]learned counselappearingonbehalfoftherespondentswould submitthatthe ratio andobservationsin SunExport Case (supra) has to be considered holistically without giving any narrow meaning to the conclusion arrived therein. The rule of strict interpretation cannot be appliedinabstract.Ithastobeappliedkeepinginview the interpretation to be used in relation to Customs Tariff Entry. According to the learned counsel, when the Customs Tariff Entry is interpreted broadly, the same should be adopted in interpreting exemption notification. Indeed,thelearnedseniorcounselwould contendthattheruleofstrictinterpretationshouldbe limited to the eligibility conditions of an exemption notification and while conferring the benefits to such exemption.Hedistinguishedallthejudgmentsreliedon 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 judgmentoftheHighCourtofJudicature,Bombay. It wasconcernedwiththeinterpretationoftaxexemption notification, being Notification No. 234/1982 CE, dated 01.11.1982, issued by the Central Government undersubsection(1)ofSection25oftheCustomsAct. TheHigh Courtconsidered theissuewhetherVitamin AD3mix(feedgrade)/animalfeedsupplementcouldbe included under 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 persuadedtoexpandthemeaningofanimalfeedinthe light ofsubsequent notificationissued in 1984,which largely expanded the scope of exemption to the effect that animal feed, including compound livestock feed, animalfeedsupplementsandanimalfeedconcentrates. This Court indeed countenanced the plea, namely, wheneverthereisambiguityastowhetherthesubject matterwasincludedornot,thenthebenefitofthesame should be conferred on the assessee. The relevant portioninSunExportCase(supra),readsasfollows:
13.Weareinagreementwiththeabove 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 been challenged in this Court which was rejected inlimine attheadmissionstage. We do not think that dismissal at the admissionstagecanberelieduponasa binding precedent. Even assuming that therearetwoviewspossible,itiswell settled that one favourable to the assesseeinmattersoftaxationhasto bepreferred. (emphasissupplied)
10. TherecannotbeanydoubtthattheratioinSunExport Case (supra) that, if two views are possible in interpreting the exemption notification, the one favourabletotheassesseeeinthematteroftaxationhas to be preferred. This principle created confusion and resulted in unsatisfactory state of law. In spite of catenaofjudgmentsofthisCourt,whichtookthecontra view, holding that an exemption notification must be strictlyconstrued,andifapersonclaimingexemption does not fall strictly within the description of the notificationotherwisethenhecannotclaimexemption.
11. AboutthreeyearsafterSunExportCase(supra),inthe 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), observingthatSunExportCase(supra)ignoredcatena ofjudgmentsofthisCourtexpressingcontraview.This Courtprimafaciecametotheconclusionwithregardto the principle that when two views are possible, one favourabletotheassesseeinmattersoftaxationhasto bepreferred,isunexceptionablewheninterpretingthe chargingsectionofataxationstatute,buttheopposite principle would be applicable in interpretation of exemptionnotification. ThethreeJudgeBenchinthe referralorderfurtherobservedthattheviewsexpressed in Sun Export Case (supra) with regard to interpretation of exemption notification to support the conclusion,requiredreconsideration.
12. We may, here itself notice that the distinction in interpretingataxingprovision(chargingprovision)and inthematterofinterpretationofexemptionnotification istooobvioustorequireanyelaboration. Nonetheless, in a nutshell, we may mention that, as observed in SurendraCottonOilMillsCase(supra),inthematter of interpretation of charging section of a taxation statute,strictruleofinterpretationismandatoryandif there are two views possible in the matter of interpretationofachargingsection,theonefavourable totheassesseeneedtobeapplied. Thereis,however, confusion in thematterofinterpretation ofexemption notification published under taxation statutes and in thisareaalso,thedecisionsaregalore1.
13. We may passingly, albeit, briefly reiterate the general principlesofinterpretation,whichwerealsoadvertedto 1 See: [PRECEDENT]; [PRECEDENT]; [PRECEDENT]; CommissionerofCustoms(Import),Mumbaiv.Konkan Synthetic Fibres, (2012) 6 SCC 339; [PRECEDENT]; [PRECEDENT]
by both the counsel. In his treatise, Principles of Statutory Interpretation Justice [ENTITY], lucidly pointedtheimportanceofconstructionofstatutesina modernStateasunder:
Legislation in modern State is actuated with some policy to curb somepublicevilortoeffectuatesome 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 futureinwhichtheapplicationofthe legislationinhandmaybecalledfor, and, words chosen to communicate suchindefinitereferentsareboundto be, in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction.
14. AnActofParliament/Legislaturecannotforeseealltypes ofsituationsandalltypesofconsequences.Itisforthe Courttoseewhetheraparticularcasefallswithinthe broad principles of law enacted by the Legislature. Here,theprinciplesofinterpretationofstatutescomein 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, JudgesandCourtsneedtointerpretthewords.
15. In doing so, the principles of interpretation have been evolvedincommonlaw.Ithasalsobeenthepracticefor theappropriatelegislativebodytoenactInterpretation Acts or [ACT]. In all the Acts and Regulations, made either by the Parliament or Legislature, the words and phrases as defined in the GeneralClausesActandtheprinciplesofinterpretation laiddowninGeneralClausesActaretobenecessarily keptinview. IfwhileinterpretingaStatutorylaw,any doubtarisesastothemeaningtobeassignedtoaword oraphraseoraclauseusedinanenactmentandsuch word,phraseorclauseisnotspecificallydefined,itis legitimateandindeedmandatorytofallbackon[ACT]. Notwithstanding this, we should rememberthatwhenthereisrepugnancyorconflictas tothesubjectorcontextbetweentheGeneralClauses Act and a statutory provision which falls for interpretation, theCourt mustnecessarilyrefertothe provisionsofstatute.
16. Thepurposeofinterpretationisessentiallytoknowthe intention of the Legislature. Whether the Legislature intendedtoapplythelawinagivencase;whetherthe Legislature intended to 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 from the general principlesofinterpretationofstatutes,therearecertain internal aids and external aids which are tools for interpretingthestatutes.
17. Thelongtitle,thepreamble,theheading,themarginal note,punctuation,illustrations,definitionsordictionary clause,a proviso toasection,explanation,examples,a schedule to the Act etc., are internal aids to construction. The external aids to construction are Parliamentarydebates,historyleadingtothelegislation, 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 act upon the true intention of the legislation while applying law and while interpreting law. Ifastatutoryprovisionisopentomorethanone meaning, the Court has to choose the interpretation which represents the intention of the Legislature. In thisconnection,thefollowingobservationsmadebythis Court in [PRECEDENT]
AstatuteisanedictoftheLegislature and in construing a statute, it is necessary, to seek the intention of its maker. A statute has to be construed accordingtotheintentofthemthatmake itandthedutyoftheCourtistoactupon thetrueintentionoftheLegislature. Ifa statutory provision is open to more than oneinterpretationtheCourthastochoose that interpretation which represents the trueintentionoftheLegislature.Thistask veryoftenraisesthedifficultiesbecauseof various reasons, inasmuch as the words usedmaynotbescientificsymbolshaving any precise or definite meaning and the languagemaybeanimperfectmediumto conveyonesthoughtorthattheassembly of Legislatures consisting of persons of various shades of opinion purport to conveyameaningwhichmaybeobscure. It is impossible even for the most imaginative Legislature to forestall exhaustivelysituationsandcircumstances that may emerge after enacting a statute where its application may be called for. Nonetheless,thefunctionoftheCourtsis only to expound and not to legislate. Legislation inamodernStateisactuated withsomepolicytocurbsomepublicevil ortoeffectuatesomepublicbenefit. The legislation is primarily directed to the problems before the Legislature based on informationderivedfrompastandpresent experience.Itmayalsobedesignedbyuse ofgeneralwordstocoversimilarproblems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising infutureinwhichtheapplication ofthelegislationinhandmaybecalledfor, and, words chosen to communicate such indefinite referents are bound to be in manycaseslackinginclarityandprecision and thus giving rise to controversial questionsofconstruction. Theprocessof construction combines both literal and purposiveapproaches.Inotherwordsthe legislative intention i.e., the true or legal meaning of an enactment is derived by consideringthemeaningofthewordsused in the enactment in the light of any discernible purpose or object which comprehendsthemischiefanditsremedy towhichtheenactmentisdirected
19. Thewell settledprinciple isthat when the words in a statuteareclear,plainandunambiguousandonlyone meaningcanbeinferred,theCourtsareboundtogive effecttothesaidmeaningirrespectiveofconsequences. Ifthewordsinthestatuteareplainandunambiguous, itbecomesnecessarytoexpoundthosewordsintheir naturalandordinarysense.Thewordsuseddeclarethe intention of the Legislature. In [PRECEDENT], it was held that if the words used are capable of one construction only then it would not be open to the Courtstoadoptanyotherhypotheticalconstructionon the ground that such construction is more consistent withtheallegedobjectandpolicyoftheAct.
20. In applying rule of plain meaning any hardship and inconveniencecannotbethebasistoalterthemeaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless,iftheplainlanguageresultsinabsurdity, the Court is entitled to determine the meaning of the wordinthecontextinwhichitisusedkeepinginview the legislative purpose.2 Not only that, if the plain constructionleadstoanomalyandabsurdity,thecourt 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 nowtimetoconsiderrulesofinterpretationwithrespect totaxation.
21. Inconstruingpenalstatutesandtaxationstatutes,the Court has to apply strict rule of interpretation. The penalstatutewhichtendstodepriveapersonofrightto lifeand libertyhasto be given strict interpretation or else many innocent might become victims of discretionary decision making. Insofar as taxation statutesareconcerned,Article265ofthe[ACT] 3 2AssistantCommissioner,GadagSubDivision,Gadag v.MathapathiBasavannewwa,1995(6)SCC355. 3 265.Taxesnottobeimposedsavebyauthorityoflaw Notaxshallbeleviedorcollectedexceptbyauthorityoflaw. prohibitstheStatefromextractingtaxfromthecitizens withoutauthorityoflaw. Itisaxiomaticthattaxation statute has to be interpreted strictly because State cannotattheirwhimsandfanciesburdenthecitizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannotbeexpanded/interpretedtoincludethose,which werenotintendedbytheLegislature.
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 theplainlanguageassuch,andthereisnoscopefor anyinterpretation.Thissalutarymaximflowsfromthe phrase cum inverbis nulla ambiguitas est, non debet admittivoluntatisquaestio.Following suchmaxim,the courts sometimes have made strict interpretation subordinate to the plain meaning [SECTION], though strict interpretationisusedintheprecisesense.Tosaythat strictinterpretationinvolvesplainreadingofthestatute andtosaythatonehastoutilizestrictinterpretationin theeventofambiguityisselfcontradictory.
23. Next,wemayconsiderthemeaningandscopeofstrict interpretation, as evolved in Indian law and how the higherCourtshavemadeadistinctionwhileinterpreting a taxation statute on one hand and tax exemption notificationontheother.InBlacksLawDictionary(10th Edn.)strictinterpretationisdescribedasunder:
Strict interpretation. (16c) 1. An interpretationaccordingtothenarrowest, mostliteralmeaningofthewordswithout regard forcontextandother permissible 4MangaloreChemicalsCase(Infrapara37).
meanings.2.Aninterpretationaccording towhattheinterpreternarrowlybelieves to have been the specific intentions or understandings of the texts authors or ratifiers, and no more. Also termed (in senses 1 & 2) strict construction, literal interpretation; literal construction; restricted interpretation; interpretatio stricta; interpretatio restricta; interpretatio verbalis. 3. The philosophy underlying strict interpretation of statues. Also termed as close interpretation;interpretatiorestrictive. See strict constructionism under constructionism.Cf.largeinterpretation; liberalinterpretation(2).
Strict construction of a statute is thatwhichrefusestoexpandthelawby implications or equitable considerations, butconfinesitsoperationtocaseswhich areclearlywithintheletterofthestatute, aswellaswithinitsspiritorreason,not so as to defeat the manifest purpose of the legislature, but so as to resolve all reasonable doubts against the applicability of the statute to the particular case. [ENTITY] et al., Brief Making and the use of Law Books 343 ([ENTITY] & [ENTITY].,3ded.1914).
Strict interpretation is an equivocal expression, for it means either literal or narrow.Whenaprovisionisambiguous, oneofitsmeaningmaybewiderthanthe other,andthestrict(i.e.,narrow)senseis not necessarily the strict (i.e., literal) sense. [ENTITY] , Jurisprudence 171n.(t)(GlanvilleL.Williamsed.,10th ed.1947).
24. As contended by Ms. [ENTITY], learned Additional Solicitor General, the principle of literal interpretation andtheprincipleofstrictinterpretationaresometimes usedinterchangeably.Thisprinciple,however,maynot besustainableinallcontextsandsituations. Thereis certainlyscopetosustainanargumentthatallcasesof 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 [PRECEDENT], made the saiddistinction,andexplainedtheliteralrule The literal rules of construction require the wording of the Act to be construed according to its literal and grammatical meaning whatever the result may be.
Unlessotherwiseprovided,thesameword must normally be construed throughout theActinthesamesense,andinthecase of old statutesregardmustbehadtoits contemporary meaning if there has been nochangewiththepassageoftime. That strict interpretation does not encompass strict literalismintoitsfold. Itmayberelevanttonotethat simply juxtaposing strict interpretation with literal rulewouldresultinignoringanimportantaspectthat isapparentlegislativeintent. Wearealivetothefact that there may be overlapping in some cases between theaforesaidtworules.Withcertainty,wecanobserve that, strict interpretation does not encompass such literalism, which lead to absurdity andgo against the legislativeintent. Asnotedabove,ifliteralismisatthe far end of the spectrum, wherein it accepts no implications or inferences, then strict interpretation can be implied to accept some form of essential inferenceswhichliteralrulemaynotaccept.
25. Wearenotsuggestingthatliteralruledehorsthestrict interpretation nor one should ignore to ascertain the interplay between strict interpretation and literal interpretation. We may reiterate at the cost of repetitionthatstrictinterpretationofastatutecertainly involvesliteralorplainmeaningtest.Theothertoolsof interpretation, namely contextual or purposive interpretationcannotbeappliednoranyresortbemade to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxationstatute,thereisnoroomforanyintendment; that regard must be had to the clear meaning of the wordsandthatthemattershouldbegovernedwhollyby thelanguageofthenotification.Equityhasnoplacein interpretationofataxstatute.Strictlyonehastolookto the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences whileconsideringataxationstatute.
26. Justice [ENTITY], in his treatise Principles of StatutoryInterpretation(14th ed.2016p.879)after referring to Re, Micklethwait, (1885) 11 Ex 452; [PRECEDENT]; [PRECEDENT], [PRECEDENT] and [PRECEDENT] A taxing statute is to be strictly construed.Thewellestablishedruleinthe familiar words of LORD [ENTITY], reaffirmed by LORD [ENTITY] AND LORD [ENTITY], means: The subject is nottobetaxedwithoutclearwordsforthat purpose; and also that every Act of Parliamentmustbereadaccordingtothe natural construction of its words. In a classic passage LORD [ENTITY] stated the principlethus:Ifthepersonsoughttobe taxedcomeswithintheletterofthelawhe mustbetaxed,howevergreatthehardship mayappeartothejudicialmindtobe.On the other hand, if the Crown seeking to recover the tax, cannot bring the subject withintheletterofthelaw,thesubjectis free, however apparently within the spirit oflawthecasemightotherwiseappearto be. Inotherwords,iftherebeadmissible inanystatute,whatiscalledanequitable construction, certainly, such a constructionisnotadmissibleinataxing statutewhereyoucansimplyadheretothe words of the statute. [ENTITY] quoted with approval a passage from [ENTITY], J. expressing the principle in the following words: In a taxing Act one hastolookmerelyatwhatisclearlysaid. Thisisnoroomforanyintendment.There is no equity about a tax. There is no presumption as to tax. Nothing is to be readin,nothingistobeimplied.Onecan onlylookfairlyatthelanguageused. Itwasfurtherobserved:
Inalltaxmattersonehastointerpretthe taxation statute strictly. Simply because oneclassoflegalentitiesisgivenabenefit whichisspecificallystatedintheAct,does notmeanthatthebenefitcanbeextended tolegalentitiesnotreferredtointheActas thereisnoequityinmattersoftaxation. Yetagain,itwasobserved:
Itmaythusbetakenasamaximof tax law, which although not to be overstressed ought not to be forgotten that,thesubjectisnottobetaxedunless the words of the taxing statute unambiguously impose the tax on him, [[PRECEDENT]. The propercourseinconstruingrevenueActs is to 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 equitableconstructionofthewordsisnot permissible [Ormond Investment Co. v. Betts,(1928)AC143]. Considerationsof hardship, injustice or anomalies do not playanyusefulroleinconstruingtaxing statutes unless there be some real ambiguity[Mappv[PRECEDENT] the courts willbeunabletoregarditasofanyeffect [[PRECEDENT]. Further elaborating on this aspect, the learned authorstatedasfollows:
Therefore, if the words used are ambiguous and reasonable open to two interpretations benefit of interpretation is given to the subject [[PRECEDENT] clearly andthetaxpayer escapesby notbeingbroughtwithintheletterofthe law, no question of unjustness as such arises[CITv[PRECEDENT]]. But equitable considerations are not relevant in construing a taxing statute,[CIT,W.B.v. Central India Industries, AIR 1972 SC 397],andsimilarlylogicorreasoncannot be of much avail in interpreting a taxing statute [[PRECEDENT] in determining eligibility to tax and it is for the Legislature to determine the same [[PRECEDENT]]. Similarly, hardship or equity is not relevant in interpreting provisions imposing stamp duty,whichisatax,andthecourtshould notconcernitselfwiththeintentionofthe Legislature when the languageexpressing suchintentionisplainandunambiguous [[PRECEDENT]]. But just as reliance upon equity does not avail an assesse,soitdoesnotavailtheRevenue. The passages extracted above, were quoted with approval by this Court in at least two decisions being [PRECEDENT] and [PRECEDENT] [hereinafter referred as Kesoram IndustriesCaseforbrevity].Inthelaterdecision, a Bench of seven Judges, after citing the above [ENTITY],summed up the following principles applicable to the interpretationofataxingstatute:
(i) In interpreting a taxing statute, equitableconsiderationsareentirelyoutof place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed;itcannotimplyanythingwhich 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 withintheambitofthechargingsectionby clearwordsusedinthesection;and(iii)If thewordsareambiguousandopentotwo 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 catch him on account of Legislatures failuretoexpressitselfclearly.
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, thisCourtinsomecaseshastakentheview thatthe ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the principle saying that mandatoryrequirementsofexemptionclauseshouldbe interpretedstrictlyandthedirectoryconditionsofsuch exemption notification can be condoned if there is sufficientcompliancewiththemainrequirements.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 different tests when considering the ambiguityoftheexemptionnotificationwhichrequires strict construction and after doing so at the stage of applyingthenotification,itcametotheconclusionthat onehastoconsiderliberally.
28. With the above understanding the stage is now set to considerthecoreissue.Intheeventofambiguityinan exemption notification, should the benefit of such ambiguity go to the subject/assessee or should such ambiguityshouldbeconstruedinfavouroftherevenue, denying the benefit of exemption to the subject/assessee?Therearecatenaofcaselawsinthis area of interpretation of an exemption notification, which we need to consider herein. The case of CommissionerofInlandRevenuevs.JamesForrest, [(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 wasobservedthatitwouldbeunreasonabletosuppose thatanexemptionwaswideaspracticabletomakethe taxinoperative,thatitcannotbeassumedtohavebeen inthemindoftheLegislatureandthatexemptionfrom taxation to some extent increased the burden on other membersofthecommunity.Thoughthisisadissenting viewofLordHalsbury,LC,insubsequentdecisionsthis hasbeenquotedvividlytosupporttheconclusionthat anyvaguenessintheexemptionclausesmustgotothe benefitoftherevenue.Bethatasitis,inourcountry, atleastfrom1955,thereappearstobeaconsistentview that if the words in a taxing statute (not exemption clause)areambiguousandopentotwointerpretations, thebenefitofinterpretationisgiventothesubjectandit doesnotmatterifthetaxpayerescapesthetaxneton accountofLegislaturesfailuretoexpressitselfclearly (Seethepassageextractedhereinabovefrom Kesoram IndustriesCase(supra .
29. Thefirstcasewithwhichweneedtoconcernourselves isthecaseinUnionofIndiav.TheCommercialTax Officer,WestBengalandOrs., AIR1956SC202. It may be noted that this case was dealt with by five learnedJudgesofthisCourtresultingintwodifferent opinions; one by the then Chief Justice of India, [ENTITY] for the majority, and Justice [ENTITY] (as His Lordship then was) rendering minority view. The questionbeforethisCourtwaswhetherthesaleofgoods made by one private mill to the Government of India, MinistryofIndustriesandSuppliesweretobededucted astaxableturnoverofthemillfortheexemptiongiven [ACT]. The exemption under [ACT] provided for exemption to sales to the Indian Stores Department, the Supply Department of the GovernmentofIndia,andanyrailwayorwatertransport administration. The Court was to interpret the aforesaid provision in order to ascertain whether the saletotheGovernmentofIndia,MinistryofIndustries andSupplieswouldbecoveredundertheSection.
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 relied on the historyandoriginofMinistryofIndustriesandSupplies and concluded that the functions of the aforesaid Ministryweredifferentfromtheerstwhiledepartments mentionedundertheexemptionprovision.Themajority reasonedthattheexemptionbeingthecreationofthe statuteitself,itshouldhavetobeconstruedstrictlyand theinterpretationcannotbeextendedtosalestoother departments. We might find some clue as to the contentofastrictconstructionalso. Itwascanvassed beforetheCourtthattheobjectofSection5(2)(a)(iii)of therelevantstatute,wastogiveexemption not tothe particulardepartmentsbuttothesaleofsuchgoodsto those departments and, therefore, sale of those goods madetoanyDepartmentsoftheGovernmentofIndia, whichcametobechargedwiththedutyofpurchasing thosegoodsshouldalsocomewithinthepurviewofthe exemption. The Court while repelling the aforesaid interpretation,reasonedasunder:
We are unable to accept this line of reasoning. This interpretation will unduly narrowthescopeandambitoftheexemption bylimitingittosalesofonlythosegoodsas, at the date of the Act, used to be sold to those two departments and sales of other goods even to those two departments, howevernecessaryfortheprosecutionofthe war,wouldnotgetbenefitoftheexemption. Suchcouldnotpossiblybetheintentionof theLegislatureasexpressedbythelanguage usedbyitinframingtheSection.
31. Theaforesaidplacitumissuggestiveofthefactthatthe Courtsutilizedtheruleofstrictinterpretationinorder to decipher the intention of the Legislature and thereafter provide appropriate interpretation for the exemption provided under the provisions of the Act whichwasneithertoonarrownortoobroad.Itmaybe notedthatthemajoritydidnottakeanarrowviewasto what strict interpretation would literally mean; rather they combined legislative intent to ascertain the meaningofthestatuteinaccordancewiththeobjective intentoftheLegislature.
32. On the contrary, the minority opinion of Justice [ENTITY]
Thejudgmentunderappealisbased chiefly on the consideration that the exemption clausein questiondoes not in terms refer to the newly created department whichnowgoesby thename of 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 GovernmentofIndia. Theexemptionwas granted in respect of the purchasing activity of the Government of India and that functioncontinuestobeassignedto the Supply Department which has now become a wing of the newly created department of the Government. The questionthereforeariseswhetherinthose circumstances the Government of India could claim the benefit of the exemption. TheHighCourtinansweringthatquestion in the negative has gone upon mere nomenclature. It has emphasized the change in the name and overlooked the substanceofthematter.
33. The minority construed strict interpretation to be an interpretationwhereinleastnumberofdeterminatesin termsofquantitywouldfallundertheexemption.The minority referred to an old English case of [PRECEDENT] Itmayberelevanttonotethatthe minoritycouldnotfindthejustificationtoapplystrict interpretationastheexemptionnotificationwasbroad enough to include exemptions for commodities purchasedbytheGovernmentofIndia.TheCourtwas oftheopinionthatthestrictinterpretationprovidedby themajoritywasuncalledforastherewasnoadditional burden on others by giving such exemptions. The relevantobservationsareasfollows The High Court referred to the [PRECEDENT] construed because otherwise the burden of taxation will fall on other members of the community. Those observations, in my opinion,havenorelevancetothefactsand circumstances of the present controversy, because we know that the exemption was granted to the Government of India in the departmentdealingwithpurchaseofcertain commodities and articles without reference to quantity. As already pointed out, the Indian Stores Department was concerned withpurchaseofstoresforpublicserviceson behalf of all Central Departments of GovernmentandlocalGovernment,etc.,and the Government of Bengal as then constitutedwasoneoftheprovincesofIndia which have been receiving subsidies and subventions tomakeupthe deficitintheir budgets. As a matter offact,as statedon behalf of the Bengal Government the concession was granted in order to enable businesscommunitieswithintheprovinceof Bengaltocompeteonfavourabletermswith 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 throwingagreaterburdenonothercitizens. Ontheotherhand,thelargerthesalesinthe province of Bengal as it used to be, the greater the benefit to the business community doing business within that province. ItwasthereforestatedattheBar thatthoughthepresentcaseinvolvedtaxes amounting to less than Rs.10,000, the question arising for determination in this caseaffectedmuchlargeramountsbecause suchsaleswithintheprovinceamountedto 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 thepurchasingagencyoftheGovernmentof Indiathebenefitoftheexemptionuntilthat benefitwasintermswithdrawnsometimesin thebeginningof1949.
34. [ENTITY][ENTITY],Asst.Collector of Central Excise & Customs, Surat and Ors., AIR 1970SC755=(1969)2SCR253[hereinafterreferred as [ENTITY] Case for brevity], wherein this Court was called upon to interpret an exemption notification issued under the [ACT]. It would be relevant to understand the factual context whichgaverisetotheaforesaidcasebeforetheCourt. Theappellantwassoleproprietorwhousedtoprocure cotton from a cooperative society during the relevant period.Thesocietyhadagreedtocarryouttheweaving work for the appellant on payment of fixed weaving charges at Re.0.19 np. per yard which included expensesthesocietywouldhavetoincurintransporting theaforesaidcottonfabric.Intheyears1959and1960, theGovernmentissuedanexemptionnotificationwhich exempted cotton fabrics produced by any cooperative society formed of owners of cotton power looms, registeredonorbefore31stMarch,1961.Thequestion beforetheCourtwaswhethertheappellantwhogotthe cotton fabric produced from one of the registered co operativesocietywasalsocoveredundertheaforesaid notification. It may be of some significance that the revenue tried to interpret the aforesaid exemption by relying on the purposive interpretation by contending thattheobjectofgrantingtheaboveexemptionwasto encouragetheformationofcooperativesocietieswhich notonlyproducedcottonfabricsbutalsoconsistedof members,notonlyowningbuthavingactuallyoperated notmorethanfourpowerloomsduringthethreeyears immediately preceding their having joined the society. The policy was that instead of each such member operatinghisloomsonhisown,heshouldcombinewith othersbyformingasocietytoproduceclothes. Itwas argued that the goods produced for which exemption couldbeclaimedmustbegoodsproducedonhisown and on behalf by the society. The court did not countenancesuchpurposiveinterpretation.Itwasheld thatataxinglegislationshouldbeinterpretedwhollyby the language of the notification. The relevant observationsare:
It is wellestablished that in a taxing statutethereisnoroomforanyintendment butregardmustbehadtotheclearmeaning ofthewords. Theentirematterisgoverned whollybythelanguageofthenotification.If thetaxpayeriswithintheplaintermsofthe exemptionitcannotbedenieditsbenefitby callinginaidanysupposedintentionofthe exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implicationtherefrom,thematterisdifferent, but that is not the case here. In this connectionwemayrefertotheobservations of Lord [ENTITY] in Salomon vs. Salomon & Co.,(1897)AC22):
IntentionoftheLegislatureisacommonbut very slippery phrase, which, popularly understood may signify anything from intentionembodiedinpositiveenactmentto speculativeopinionastowhatthelegislature probablywouldhavemeant,althoughthere hasbeenanomissiontoenactit.InaCourt 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 to enact, either in express words or by reasonable and necessaryimplication. It is an application of this principle that a statutorynotificationmaynotbeextendedso astomeetacasusomissus. Asappearsin the judgment of the Privy Council in [PRECEDENT].
wecannotaidtheLegislaturesdefective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencieswhichareleftthere. LearnedCounselfortherespondentsis possibly right in his submission that the object behind the two notifications is to encourage the actual manufacturers of handloom cloth to switch over to power looms by constituting themselves in co operativeSocieties.Buttheoperationofthe notifications has to be judged not by the objectwhichtherulemakingauthorityhad in mind but by the words which it has employedtoeffectuatethelegislativeintent.
35. In the judgment of two learned Judges in [PRECEDENT] [hereinafter referred as Wood Papers Ltd. Case for brevity],adistinctionbetweenstageoffindingoutthe eligibilityto seekexemption andstageofapplying the natureofexemptionwasmade.Relyingonthedecision in [PRECEDENT]Butonce that hurdle is crossed, construe it liberally. The reasoning for arriving at such conclusion is found in para4ofWoodPapersLtd.Case(supra),whichreads Literally exemption is freedom from liability,taxorduty.Fiscally,itmayassume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or personsforlimitedperiodorwiththespecific objectiveetc. Thatiswhyitsconstruction, unlike charging provision, has to be tested on different touchstone. In fact, an exemptionprovisionislikeanexceptionand on normal principle of construction or interpretation of statutes it is construed strictlyeitherbecauseoflegislativeintention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principles requires it to be construed strictly. Truly speakingliberalandstrictconstructionof anexemptionprovisionaretobeinvoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemptionclausethenitbeinginnature 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 notificationthenfullplayshouldbegiven to it and it calls for a wider and liberal construction (emphasissupplied)
36. In [PRECEDENT], the facts of the case were that the State Government issued a notification in exercise of power under [SECTION] of the [ACT] for rapid industrialization. The notification contains a package of reliefs and incentives including one concerning relief from payment of sales tax with whichthecasewasconcerned. [ENTITY] that 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 againstsalestaxpayableforrespectiveyears.Theonly controversy was whether the appellant, not having actually secured the prior permission would be entitledtoadjustmenthavingregardtothewordsofthe NotificationofAugust11,1975,thatuntilpermission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowedtoadjusttherefunds. Thecontentionofthe appellantsthereinwasthatthepermissionforthethree yearshadbeensoughtwellbeforethecommencementof therespectiveyearsbuthadbeenwithheldforreasons which were demonstrably extraneous. Therefore, contention was that if, in these circumstances, the DeputyCommissionercouldwitholdthepermission.
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:
Thereissupportofjudicialopinionto the view that exemptions from taxation haveatendencytoincreasetheburdenon the other unexemptedclassoftaxpayers and should be construed against the subject in case of ambiguity. It is an equallywellknownprinciplethataperson whoclaimsanexemptionhastoestablish hiscase.
Thechoicebetweenastrictanda liberal constructionarisesonlyincaseof 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 wherethemeaningisnotmanifestonthe plainwordsofthestatute.Ifthewordsare plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemptionistheonestatedbythisCourt in [PRECEDENT] [[PRECEDENT] Three important aspects which comes out of the discussion are the recognition of horizontal equity by this court as a consideration for application of strict interpretation,subjugationofstrictinterpretationtothe plain meaning rule and interpretation in favour of exclusioninlightofambiguity.
38. We will now consider another [ACT] Bench decision in [PRECEDENT] [hereinafter referred as Hari Chand Case for brevity]. Weneednotrefertothefactsofthecasewhichgave rise to the questions for consideration before the [ACT]al Bench. [ENTITY], J., who wrote the unanimous opinion for the [ACT] Bench,framedthequestion,viz.,whethermanufacturer ofaspecifiedfinalproductfallingunderScheduletothe [ACT] is eligible to get the benefit of exemption of remission of excise duty on specified intermediate goods as per the Central GovernmentNotification dated11.08.1994,ifcaptively consumedforthemanufactureoffinalproductonthe groundthattherecordskeptbyitattherecipientend would indicate its intended use and substantial compliancewithproceduresetoutinChapter10ofthe [ACT], for consideration? The [ACT] Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the pre conditionsforclaimingexemptionandthereforeisnot exempt or absolved from following the statutory requirements as contained in the Rules. The [ACT]Benchthenconsideredandreiteratedthe settled principles qua the test of construction of exemption clause, the mandatory requirements to be compliedwithandthedistinctionbetweentheeligibility criteriawithreferencetotheconditionswhichneedto bestrictlycompliedwithandtheconditionswhichneed to be substantially complied with. The [ACT] BenchfollowedtheratioinHansrajGordhandasCase (supra), to reiterate the law on the aspect of interpretationofexemptionclauseinpara29asfollows Thelawiswellsettledthataperson whoclaimsexemptionorconcessionhasto establish that he is entitled to that exemption or concession. A provision providingforanexemption,concessionor exception, as thecasemaybe,hastobe construed strictly with certain exceptions dependinguponthesettingsonwhichthe provision has been placed in the statute andtheobjectandpurposetobeachieved. Ifexemptionisavailableoncomplyingwith certain conditions,the conditions haveto be complied with. The mandatory requirementsofthoseconditionsmustbe obeyed or fulfilled exactly, thought at times,somelatitudecanbeshown,ifthere is failure to comply with some requirements which are directory in nature, the noncompliance of which wouldnotaffecttheessenceorsubstance ofthenotificationgrantingexemption.
39. The[ACT]Benchthenconsideredthedoctrineof substantial compliance and intended use. The relevantportionsoftheobservationsin paras31to34 areinthefollowingterms 31. Of course,someoftheprovisionsof anexemptionnotificationmaybedirectoryin nature and some are mandatory in nature. A distinction between the provisions of a statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technicalintherenature,ontheother,must bekeptclearlydistinguished Doctrine of substantial compliance and intendeduse
32. Thedoctrineofsubstantialcompliance is a judicial invention, equitable in nature, designedtoavoidhardshipincaseswherea party does all that can reasonably be expectedofit,butfailedorfaultedinsome minororinconsequentaspectswhichcannot be described as the essence or the substance of the requirements. Like the conceptofreasonableness,theacceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstancesofeachcaseandthepurpose andobjecttobeachievedandthecontextof the prerequisites which are essential to achievetheobjectandpurposeoftheruleor the regulation. Such a defence cannot be pleased if a clear statutory prerequisite whicheffectuatestheobjectandthepurpose ofthestatutehasnotbeenmet.Certainly,it means that the Court should determine whether the statute has been followed sufficientlysoastocarryouttheintentfor which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means actual compliance in respect to the substance essentialtoeveryreasonableobjectiveofthe 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 reasonable objectivesforwhichitwaspassed.
33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirementsthat areimportant, especiallywhenapartyseeksthebenefitsof an exemption clause that are important. Substantialcompliancewithanenactmentis insisted, where mandatory and directory requirements are lumped together, for in suchacase,ifmandatoryrequirementsare complied with,itwillbeproper to say that the enactment has been substantially complied with notwithstanding the non compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantialcomplianceseekstopreservethe needtocomplystrictlywiththeconditionsor requirementsthatareimportanttoinvokea tax or duty exemption and to forgive non compliance for either unimportant and tangentialrequirementsorrequirementsthat aresoconfusinglyorincorrectlywrittenthat an earnest effort at compliance should be accepted.
34. The test for determining the applicability of the substantial compliance doctrinehasbeenthesubjectofamyriadof casesandquiteoften,thecriticalquestionto be examined is whether the requirements relatetothesubstanceoressenceofthe statute, if so, strict adherence to those requirementsisapreconditiontogiveeffect tothatdoctrine. Ontheotherhand,ifthe requirements are procedural or directory in thattheyarenotoftheessenceofthething tobedonebutaregivenwithaviewtothe orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attemptedcompliancemaynotbesufficient, but actual compliance with those factors whichareconsideredasessential.
40. Afterconsideringthevariousauthorities,someofwhich areadvertedtoabove,wearecompelledtoobservehow trueitistosaythatthereexistsunsatisfactorystateof law in relation to interpretation of exemption clauses. Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed(wearejustifiedtosaythis)thatthepositionis wellsettledintheinterpretationofataxingstatute:Itis thelawthatanyambiguityinataxingstatuteshould enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue and such exemption should be allowed to be availed onlytothosesubjects/assesseswhodemonstratethata caseforexemptionsquarelyfallswithintheparameters enumerated in thenotification andthat theclaimants satisfy all the conditions precedent for availing exemption. Presumably for this reason the Bench whichdecidedSurendraCottonOilMillsCase(supra) observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriouslydoubtedtheconclusionin SunExportCase (supra)thattheambiguityinanexemptionnotification shouldbeinterpretedinfavouroftheassessee.
41. Afterthoroughlyexaminingthevariousprecedentssome of which were cited before us and after giving our anxiousconsideration,wewouldbemorethanjustified toconcludeandalsocompelledtoholdthateverytaxing statueincluding,charging,computationandexemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions,thebenefitmustnecessarilygoinfavourof subject/assessee, but the same is not true for an exemptionnotificationwhereinthebenefitofambiguity must be strictly interpreted in favour of the Revenue/State.
42. In [PRECEDENT], this Court pointed out three components of a taxing statute, namely subjectofthetax;personliabletopaytax;andtherate at which the tax is to be levied. If there is any ambiguityinunderstandinganyofthecomponents,no taxcanbeleviedtilltheambiguityordefectisremoved bythelegislature[See [PRECEDENT] [PRECEDENT] [PRECEDENT]
43. Thereisabundantjurisprudentialjustificationforthis. In the governance of rule of law by a written [ACT],thereisnoimpliedpoweroftaxation.The taxpowermustbespecificallyconferredanditshould bestrictlyinaccordancewiththepowersoendowedby the [ACT] itself. It is for this reason that the Courts insist upon strict compliance before a State demandsandextractsmoneyfromitscitizenstowards varioustaxes. Any ambiguityina taxation provision, therefore, is interpreted in favour of the subject/assessee.Thestatementoflawthatambiguity inataxationstatuteshouldbeinterpretedstrictlyand intheeventofambiguitythebenefitshouldgotothe 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 thingsliabletopaytax,andwhethertherevenuehas established conditions before raising and justifying a demand.Similaristhecaseinropingallpersonswithin the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or personliabletopaytax.Thatiswhyitisoftensaidthat subject is not to be taxed, unless the words of the statuteunambiguouslyimposeataxonhim,thatone hastolookmerelyatthewordsclearlystatedandthat thereisnoroomforanyintendmentnorpresumptionas totax.Itisonlytheletterofthelawandnotthespirit ofthelawtoguidetheinterpretertodecidetheliability totaxignoringanyamountofhardshipandeschewing equityintaxation.Thus,wemayemphaticallyreiterate thatifintheeventofambiguityinataxationliability statute,thebenefitshouldgotothesubject/assessee. But,inasituationwherethetaxexemptionhastobe interpreted,thebenefitofdoubtshouldgoinfavourof the revenue, the aforesaid conclusions are expounded onlyasapreludetobetterunderstandjurisprudential basis for our conclusion. We may now consider the decisionswhichsupportourview.
44. In [ENTITY] Case (supra), the [ACT]alBenchunanimouslypointedoutthatan exemptionfromtaxationistobeallowedbasedwholly by the language of the notification and exemption cannot be gathered by necessary implication or by constructionofwords;inotherwords,onehastolookto the language alone and the object and purpose for grantingexemptionisirrelevantandimmaterial.
45. InParleExportsCase(supra),abenchoftwoJudgesof this Court considered the question whether non alcoholicbeveragebaselikeGoldspotbase,Limcabase andThumpsUpbase,wereexemptedfrompaymentof duty under the Central Government notification of March,1975. Whileconsideringtheissue,thisCourt pointed out the Strict interpretation to be followed in interpretation of a notification for exemption. These observations are made in para 17 of the judgment, whichreadasfollows:
How then shouldthecourtsproceed? TheexpressionsintheScheduleandinthe notification for exemption should be understood by the language employed thereinbearinginmindthecontextinwhich the expressions occur. The words used in the provision, imposing taxes or granting exemptionshouldbeunderstoodinthesame 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, necessarytobearinmindcertainprinciples. The notification in this case was issued underRule8oftheCentralExciseRulesand should be read along with the Act. The notificationmustbereadasawholeinthe context of the other relevant provisions. Whenanotificationisissuedinaccordance with power conferred by the statute, it has statutory force and validity and, therefore, theexemptionunderthenotificationisasif itwerecontainedintheActitself.Seeinthis connectiontheobservationsofthisCourtin Orient Weaving Mills (P) Ltd. v. Union of India,1962Supp3SCR481=AIR1963SC
98. [PRECEDENT]. The principle is well settledthatwhentwoviewsofanotification arepossible,itshouldbeconstruedinfavour of the subject as notification is part of a fiscalenactment. Butinthisconnection,it iswelltoremembertheobservationsofthe JudicialCommitteeinCorolineM.Armytage v.FrederickWilkinson,(1878)3AC355,that itisonly,however,intheeventoftherebeing arealdifficultyinascertainingthemeaning of aparticularenactmentthatthequestion of strictness or of liberality of construction arises.TheJudicialCommitteereiteratedin the said decision atpage369of thereport that in a taxing Act provisions enacting an exceptiontothegeneralruleoftaxationare to be construed strictly against those who invoke its benefit. While interpreting an exemption clause, liberal interpretation shouldbeimpartedtothelanguagethereof, providednoviolenceisdonetothelanguage employed. It must, however, be borne in mind that absurd results of construction shouldbeavoided. Intheabovepassage,nodoubtthisCourtobserved thatwhentwoviewsofanotificationarepossible,it should be construed in favour of the subject as notification is part of fiscal document. This observation may appear to support the view that ambiguity in a notification for exemption must be interpreted to benefit the 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 construedstrictlyagainstthosewhoinvokefortheir benefit. This was explained in a subsequent decisioninWoodPapersLtd.Case(supra).Inpara 6,itwasobservedasfollows:
In [PRECEDENT] 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 of First Schedule of Central Excises and SaltActandheldthatitshouldnotbein consonance with spirit and the reason of law to give exemption for nonalcoholic beverage basis under the notification in question. Rationaleorratioissame. Do notextendorwidentheambitatstageof applicability. But once that hurdle is crossed construe it liberally. Since the respondentdidnotfallinthefirstclauseof the notification there was no question of givingtheclausealiberalconstructionand hold that production of goods by respondent mentioned in the notification wereentitledtobenefit.
46. The above decision, which is also a decision of two JudgeBenchofthisCourt,forthefirsttimetookaview that liberal and strict construction of exemption provisions are to be invoked at different stages of interpretingit. Thequestionwhetherasubjectfallsin the notification or in the exemption clause, has to be strictlyconstrued.Whenoncetheambiguityordoubtis resolved by interpreting the applicability of exemption clausestrictly,theCourtmayconstruethenotification by giving full play bestowing wider and liberal construction. Theratioof ParleExportsCase (supra) deducedasfollows:
Donotextendorwidentheambitat stageofapplicability.Butoncethathurdle iscrossed,construeitliberally.
47. We do not find any strong and compelling reasons to differ,takinga contra view,fromthis. Werespectfully record our concurrence to this view which has been subsequently,elaboratedbythe[ACT]Benchin HariChandCase(supra).
48. The next authority, which needs to be referred is the case in Mangalore Chemicals (supra). As we have alreadymadereferencetothesameearlier,repetitionof the same is not necessary. From the above decisions, the following position of law would, therefore, clear. Exemptionsfromtaxationhavetendencytoincreasethe burdenontheotherunexemptedclassoftaxpayers.A person claimingexemption,therefore,hastoestablish that his case squarely falls within the exemption notification,andwhiledoingso,anotificationshouldbe construedagainstthesubjectincaseofambiguity.
49. The ratio in Mangalore Chemicals Case (supra) was approved by a threeJudge Bench in [PRECEDENT],probablyforthe first time, the question was posed as to whether the benefit of an exemption notification should go to the subject/assesseewhenthereisambiguity. Thethree JudgeBench,inthebackgroundofEnglishandIndian cases,inpara16,unanimouslyheldasfollows:
Weare,however,oftheopinionthat, onprinciple,thedecisionofthisCourtin Mangalore Chemicals and in [PRECEDENT],referredtotherein represents the correct view of law. The principle that in case of ambiguity, a taxing statute should be construed in favouroftheassesseeassumingthatthe saidprincipleisgoodandsounddoesnot apply to the construction of an exception oranexemptingprovision,theyhavetobe construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establishclearlythatheiscoveredbythe said provision. In case of doubt or ambiguity, benefit of it must go to the State.
50. InTataIron&SteelCo.Ltd.v.StateofJharkhand, (2005)4SCC272,whichisanothertwoJudgeBench decision,thisCourtlaiddownthateligibilityclausein relation to exemption notification must be given strict meaningandinpara44,itwasfurtherheld Theprinciplethatintheeventaprovision of fiscal statute is obscure such construction which favours the assessee maybeadopted,wouldhavenoapplication to construction of an exemption notification,asinsuchacaseitisforthe assesseetoshowthathecomeswithinthe purview of exemption (See [PRECEDENT].
51. In HariChandCase (supra),asalreadydiscussed,the question was whether a person claiming exemption is requiredtocomplywiththeprocedurestrictlytoavail thebenefit.Thequestionposedanddecidedwasindeed different. The said decision, which we have already discussed supra, however, indicates that while construinganexemptionnotification,theCourthasto distinguish the conditions which require strict compliance,thenoncomplianceofwhichwouldrender the assessee ineligible to claim exemption and those whichrequiresubstantialcompliancetobeentitledfor exemption. We are pointing out this aspect to dispel anydoubtaboutthelegalpositionasexploredinthis decision. As already concluded in para 50 above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which eventthebenefitofsuchambiguitycannotbeextended to the subject/assessee by applying the principle that anobscureand/orambiguityordoubtfulfiscalstatute must receive a construction favouring the assessee. Boththesituationsaredifferentandwhileconsidering an exemption notification, the distinction cannot be ignored.
52. Tosumup,weanswerthereferenceholdingasunder (1)Exemptionnotificationshouldbeinterpreted strictly; the burden of proving applicability wouldbeontheassesseetoshowthathiscase comeswithintheparametersoftheexemption clauseorexemptionnotification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannotbeclaimedbythesubject/assesseeand itmustbeinterpretedinfavouroftherevenue. (3)TheratioinSunExportcase(supra)isnot correctandallthedecisionswhichtooksimilar view as in Sun Export Case (supra) stands overruled.
53. The instant civil appeal may now be placed before appropriate Bench for considering the case on merits afterobtainingordersfromtheHonbleChiefJusticeof India.
J. ([ENTITY]) J. ([ENTITY]) J. ([ENTITY]) J. ([ENTITY]) J. ([ENTITY]) NewDelhi July30,2018