NOVEMBER 08, 2023

By Vijay Kumar

RECENTLY Chief Justice of India Chandrachud is reported to have stated,

We can't profess to be right. We are final not because we are right, but we are right because we are final.

In Sun Export Corporation Vs Collector of Customs, Bombay - 2002-TIOL-118-SC-CX-LB, on July 7th 1997, the Supreme Court held:

Even assuming that there are two views possible, it is well settled, that one favourable to the assessee in matters of taxation has to be preferred .

This was a three-member bench decision of the Apex Court and was final and so obviously right.

In a judgement delivered on October 08 2015, a two member bench observed, (Commissioner of Customs (Import), Mumbai Vs Dilip Kumar - 2015-TIOL-313-SC-CUS)

we 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 Corporation's. Apart from this, the view of this Court that it is well-settled that 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, would require the exactly opposite test to be fulfilled.

This being the unsatisfactory state of the law as it stands today, we feel that this matter should be placed before Hon'ble the Chief Justice of India to constitute an appropriate Bench to resolve the doubts pointed out by us in the body of this Order.

So, the case reached another three member bench - Commissioner of Customs (Import), Mumbai Vs Dilip Kumar - 2016-TIOL-67-SC-CUS-LB.

This three-member bench on May 02, 2016, ordered:

Having considered the matter at some length, we are of the tentative view, that the opinion expressed in Sun's case may require a reconsideration. Being a co-ordinate Bench, we believe we ought not to proceed any further in the matter. Hence we direct the Registry to lay the papers before the Hon'ble the Chief Justice of India for appropriate orders.

And so the matter reached a five-member constitution bench in Commissioner of Customs (Import), Mumbai Vs Dilip Kumar - 2018-TIOL-302-SC-CUS-CB which on July 30 2018 observed,

10. There cannot be any doubt that the ratio in Sun Export Case that, if two views are possible in interpreting the exemption notification, the one favourable to the assessee in 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.

14. An Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences. It is for the Court to see whether a particular case falls within the broad principles of law enacted by the Legislature. Here, the principles of interpretation of statutes come in handy. In spite of the fact that experts in the field assist in drafting the Acts and Rules, there are many occasions where the language used and the phrases employed in the statute are not perfect. Therefore, Judges and Courts need to interpret the words.

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. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the Legislature.

19. The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences.

20. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose. Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation.

21. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocent might become victims of discretionary decision making. Insofar as taxation statutes are concerned, Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature.

The Court asked the core question - In the event of ambiguity in an exemption notification, should the benefit of such ambiguity go to the subject/assessee or such ambiguity should be construed in favour of the revenue, denying the benefit of exemption to the subject/assessee?

The Bench answered the reference as:

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

(2) When there is ambiguity in exemption notification 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.

(3) The ratio in Sun Export case is not correct and all the decisions which took similar view as in Sun Export Case stands overruled.

Thus, the Sun export case of 1997 was overruled in 2018 - 21 years later - rightly and finally. Really?

In Ramnath and Company Vs Commissioner of Income Tax - 2020-TIOL-100-SC-IT, a two-member bench of the Supreme Court observed,

20. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue.

Thus, at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the person claiming such deduction, it could be construed liberally in regard to other requirements, which may be formal or directory in nature.

In Government of Kerala Vs Mother Superior Adoration Convent - 2021-TIOL-156-SC-MISC, a two-member bench of the Supreme Court with reference to the decision of the Five Member Bench in Dilip Kumar case observed,

23. It may be noticed that the 5-Judge Bench judgment did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. We cannot agree with Shri Gupta's contention that sub-silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what may logically follow from it (see Quinn v. Lea them [1901] AC 495 as followed in State of Orissa v. Sudhansu Sekhar Misra (1968) 2 SCR 154 at 162,163)

24. This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.

In his book, The Cases That India Forgot , Chintan Chandrachud states:

this book seeks to dispel the myth that courts have the ‘final word' on all the questions that arise for their determination. Conventional wisdom dictates that while legislatures and governments enact legislation and make policy decisions, courts finally and decisively adjudicate on their constitutionality and legality. This paints a simplistic picture of what is, in practice, far more complicated and messy.

And in an interview with BQ Prime, he says,

it's rather simplistic to say that when the court decides a matter that matter is final - as matter of practice that's simply not how things turn out.

They carried the story with the title -

Often, The Supreme Court Is Neither Right Nor Final: Chintan Chandrachud