Case: COMMNR. OF CUSTOMS (IMPORT), MUMBAI Vs. M/S. DILIP KUMAR AND COMPANY

3. Few facts necessary, to appreciate the issue involved are as followsts imported a consignment of Vitamin0 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 theon the plea of the department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed, as such, the concessional rate of duty under the extant notification was not available. The department classified the consignment under Chapter 29 which attracts standard rate of customs duty. The adjudicating authority, 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 conclusion that Sun Export Case (supra) was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner of Customs (Appeals). Aggrieved thereby, the present appeal is filed.In Sun Export Case (supra), aBench ruled that an ambiguity in a tax exemption provision or notification must be interpreted so as to favour the Assessee claiming the benefit of such exemption. Such a Rule was doubted when this appeal was placed before a Bench ofThe matter then went before aBench consisting one of us (Ranjan Gogoi, J.). TheBench 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.Few facts necessary, to appreciate the issue involved are ass imported a consignment ofpowder (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 theon the plea of the department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed, as such, the concessional rate of duty under the extant notification was not available. The department classified the consignment under Chapter 29 which attracts standard rate of customs duty. The adjudicating authority, 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 conclusion that Sun Export Case (supra) was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner of Customs (Appeals). Aggrieved thereby, the present appeal is filed.When the appeal was placed, as noticed earlier, before a Bench ofthe ruling in Sun Export Case (supra) was doubted, observing ashave serious doubts as to whether the Bombay High Court judgment affirmed in Sun Export Corporations case is correct. First and foremost, it is clear that the subsequent exemption 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 that 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 Corporations case in paragraph 13 thereof. Apart from this, the view of this Court in paragraph 13 that it isthat if two views are possible, one favourable to the Assessee in matters of taxation has to be preferred 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 Notification which, as has been stated above, would require the exactly opposite test to bethis 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 aat the proposition laid down by the earlier cases in the followingalso find that in the subsequent judgment of this Court, Surendra Cotton Oil Millss case, this Court has distinguished the Sun Export Corporations case and held that it dealt with animal feed which was large enough to include animal feed supplements whereas the facts of Surendra Cotton Oil Millss case showed 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 Corporations case which is a binding decision of a three Judges Bench should not be followed, apart from a specious distinction between ingredients and supplements which is logically speaking a distinction without abeing the unsatisfactory state of law as it stands today, we feel that this matter should be placed before Honble the Chief Justice of India to constitute an appropriate Bench to resolve the doubts pointed out by us in the body of this Order.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 are 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 Justice of India for constituting an appropriate Bench.When the matter was placed before a three Judge Bench 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 Honble the Chief Justice of India for constitution of an appropriate Bench, considering the fact that 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 followingparagraph 13 of the order of this Court in Suns case, views have been expressed with regard to the interpretation of an exemption notification to support the conclusion reached. The same may require aapart, in the referral order it has been noticed that Suns Case (supra) has been distinguished in Collector of Central Excise, Guntur v. Surendra Cotton Oil Mills & Fert. Co. The basis on which the said distinction has been drawn needs to be furtherconsidered the matter at some length, we are of the tentative view, that the opinion expressed in Suns case (supra) may require a reconsideration. Being aBench, we believe we ought not to proceed any further in the matter. Hence, we direct the Registry to lay the papers before the Honble the Chief Justice of India for appropriate orders."

Reasoning: 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, dated 01.11.1982, issued by the Central Governmentn (1) of Section 25 of the Customs Act. The High Court considered the issue whether Vitamin AD-3 mix (feed grade)/animal feed supplement could be included under the headfeed, including compound livestockThe Bombay High Court decided, in the affirmative, in favour of theThe case then landed in this Court, which was persuaded to expand the meaning ofin the light of subsequent notification issued in 1984, which largely expanded the scope of exemption to the effect that, including compound livestockfeed, animal feed supplements and animal feedThis 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. There cannot be any doubt that the ratio in Sun Export Case (supra) that, if two views are possible in interpreting the exemption notification, the one favourable to thein the matter of taxation has to be preferred. This principle created confusion 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 person claiming exemption does not fall strictly within the description of the notification otherwise then he cannot claim exemption.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 thein matters of taxation has to be preferred, is unexceptionable when interpreting the chargingof a taxation statute, but the opposite principle 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.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 elaboration. Nonetheless, in a nutshell, we may mention that, as observed in Surendra Cotton Oil Mills Case (supra), in the matter of interpretation of chargingof a taxation statute, strictof interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to theneed 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. We may passingly, albeit, briefly reiterate the general principles of interpretation, which were also adverted toun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCCCommissioner of Central Excise,) 3 SCCCollector of Central Excise,v. Parle ExportsLtd., (1989) 1 SCCCommissioner of Customs, (2012) 6 SCCCollector of Customs, Bombay) Ltd.Commissioner of Customs7 SCCby both thethe outset, we must clarify the position ofle or clear and unambiguouswith respect of tax law.suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrases nulla ambiguitas est, non debet admitti voluntatisFollowing such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is self-contradictory.we may consider the meaning and scope of, 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.We are not suggesting that literalde hors the strict interpretation nor one should ignore to ascertain the interplay between. 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 interpretation, namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxationw 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 principle saying that mandatory requirements of exemptionshould be interpreted strictly and the directory conditions of such 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 exemptionshould be interpreted favouring the revenue. Here again this Court applied different 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 considerthe above understanding the stage is now set to consider the core issue. Inthe event of ambiguity in an exemption notification, should the benefit of such ambiguity go to theor should such ambiguity should be construed in favour of the revenue, denying the benefit of exemption to the subject/assessee?There 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 RevenueJames 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, it was observed thatwould be unreasonable to suppose that an exemption was wide as practicable to make the tax inoperative, that it cannot be assumed to have been in the mind of theand that exemptiontaxation to some extent increased the burden on other members of theThough 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 offailure to express itself clearly (See the passage extracted hereinabove from Kesoram Industries Casefirst case with which we need to concern ourselves is the case in Union of India v. The Commercial Tax Officer, West Bengal andAIR 1956 SC 202 . It may be noted that this case was dealt with by five learned Judges of this Court resulting in two different 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 givenSection 5 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941). The exemptionSection 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941 provided for exemptionsales to the Indian Stores Department, the Supply Department of the Government of India, and any railway or water transportThe Court was to interpret the aforesaid provision in order to ascertain whether the sale to the Government of India, Ministry of Industries and Supplies would be covered under themajority 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 history and origin of Ministry of Industries and Supplies and concluded that the functions of the aforesaid Ministry were different from the erstwhile departments mentioned under the exemption provision. The majority reasoned that the exemption being the creation of the statute 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 to the sale of such goods to those departments and, therefore, sale of those goods 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.will now consider another Constitution Bench decision inCommissioner of Central Excise,New Delhi v. Hari Chand Shri Gopal, (2011) 1 SCC 236 [hereinafter referred asfor 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 Central 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 itswith 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 thes for claiming exemption and therefore is not exempt or absolved from following the statutory 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 complied with.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 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 (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 exemptionof exemption notification must be conferred in favour of revenueand 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 doubted the conclusion in Sun Export Case (supra) that the ambiguity in an exemption notification should be interpreted in favour of thethoroughly 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(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 not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of theis abundant jurisprudential justification for this. In the governance ofof law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to themay 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 revenue 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 within the strict language of the law. There cannot be any implied concept either 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 liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue, the aforesaid conclusions are expounded only as a prelude to better understand jurisprudential basis for our conclusion. We may now consider the decisions which support our view.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 andParle Exports Case (supra), a bench of two Judges of this Court considered the question whetherc 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 notification forthe above passage, no doubt this Court observed thattwo views of a notification are possible, it should be construed in favour of the subject as notification is part of fiscalThis 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 generalof 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).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 applicability of exemptionstrictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports Case (supra) deduced as follows:not extend or widen the ambit at stage of applicability. But once that hurdle is crossed, construe itdo 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, elaborated by the Constitution Bench in Hari Chand Casenext 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 necessary. 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 exemption, 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 ofratio 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 thewhen there is ambiguity.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 conditions which require strict compliance, the non-compliance of which would render theineligible to claim exemption and those which require substantial compliance to be entitled for exemption. 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 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 event the benefit of such ambiguity cannot be extended to the