By TIOL News Service

NEW DELHI, JULY 30, 2018: A Constitution Bench of the Supreme Court was set up to examine the correctness of the ratio in Sun Export Corporation, Bombay -2002-TIOL-118-SC-CX-LB , namely the question - What is the interpretative rule to be applied while interpreting a tax exemption provision/notification when there is an ambiguity to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied?

The Supreme Court - 3 Judge Bench had in the referred case 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.

After thoroughly examining the various precedents and the principles of statutory interpretation the Constitution Bench inter alia observed - that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly; that in case of ambiguity in a charging provision, 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 the Revenue/State.

The Constitution Bench concluded held thus -

++ Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification;

++ When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue;

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

(See 2018-TIOL-302-SC-CUS-CB)