One of the latest judgments by the Supreme Court in the case of CCE vs. Favourite Industries – 2012(278)ELT145(SC), has ruled that the exemption claimed by the manufacturer should be admissible because it is a promotional exemption which needs to be liberally interpreted. The exemption was admissible if the goods were manufactured using raw material produced or manufactured in India. Revenue wanted to deny the exemption on the ground that the raw material was purchased from the DTA clearance by an EOU which imports goods from outside.
It is a perpetual controversy about when an exemption notification is to be interpreted strictly and when it should be interpreted liberally. There are umpteen judgments of the Supreme Court which lay down that an exemption notification is to be interpreted strictly but a promotional exemption is to be interpreted liberally.
Nowhere in the judicial decisions it has been clarified what exactly a promotional notification is. All exemption notifications are necessarily concessional. So when one says that a particular notification is not a promotional notification and therefore it should be interpreted strictly, one assumes that the concession is not promotional. But can there be a concession which is not promotional? From the very fact that a concession has been given in the form of an exemption and also from the fact that the notification has to explicitly state that the concession given is in the public interest, does it not necessarily follow that the concession is promotional? I say, that it does.
The best way to judge this issue is to examine all those cases where the Supreme Court has held that the exemptions should be interpreted liberally or strictly depending on whether they are promotional in nature or not. Some of these important examples are discussed below:
Exemptions for strict interpretation
(i) Exemption for food and food products not extendible to beverages – CCE vs. Parle Products -1988(38)ELT741(SC).
(ii) Exemption for charitable purpose not extendible if purpose is not fully proved as charitable – CST vs. Carmell Book Stall -1989(74)STC89(Ker.).
(iii) Exemption for Polypropylene spun yarn could not be extended to blended yarn – Rajasthan Spinning Mills vs. CCE - 1995(77)ELT474(SC)
In the above three cases the interpretation had to be strict because it could not be extended to those who do not deserve it.
Exemptions of promotional nature for liberal interpretation
(i) Exemption for processing of cotton antecedent to marketing extended to ginning also since it was for promotion of growth of co-operative societies. Broach Dist. Cooperative Cotton Ginning Society vs. CIT – AIR1989SC1493.
(ii) Exemption for promotion of minor oil for making of soap – Tata Oil Mills vs. CCE – 1989(43)ELT183(SC).
(iii) CCE vs. Favourite Industries – discussed above.
Now coming to the general point what we see from all the above cases, is the following:
Exemption notification is basically a concession and has to be necessarily in the public interest. Since it gives a lower rate of compared to the general rate, the incumbent must be the one for whom it is intended. So the intention of the notification must be served if it is extended to somebody who claims it. This part has to be strictly interpreted so that it is not enjoyed by the undeserving. But while implementing this intention the approach should be strict or liberal will really depend on the facts of the case. The proper approach has been laid down by the Supreme Court in the case of Swadeshi Polytex vs CCE – 1990(2)SCC358 in the following words, “It is true that when in a fiscal provision, if benefit of exemption is to be considered, this should be strictly construed. But the strictness of the construction of exemption notification does not mean that the full effect of the exemption notification should not be given by any circuitous process of interpretation”.
Finally it comes to saying that interpretation of an exemption should be that much strict which will not allow the undeserving to get it and it should be that much liberal which should allow the deserving to avail of it. It is a very razor edge distinction.
So really speaking all exemptions are promotional and there is nothing like a promotional exemption as such.