SC overrules its 21-yr-old verdict on tax exemption notification

The Supreme Court has overruled its 21-year-old verdict and held that benefit of any ambiguity in notification related to tax exemptions must be interpreted in favour of the State.

In 1997, the apex court had said that in case of any ambiguity in a tax exemption provision or notification, it must be interpreted so as to favour the assessee claiming the benefit of such exemptions.

It, however, reiterated that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject or assessee.

A five-judge Constitution bench said that benefit of ambiguity in exemption notification of the government, which is subject to strict interpretation, cannot be claimed by the assessee.

The bench headed by Justice Ranjan Gogoi said the burden of proving applicability of benefit would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.

The bench, also comprising justices N V Ramana, R Banumathi, M M Shantanagoudar and S Abdul Nazeer overruled the three-judge bench verdict given in 1997 in a case of Sun Export Corporation versus Collector of Customs, Bombay, in which it was held that in case of an ambiguity in a tax exemption provision or notification, it must be interpreted so as to favour the assessee claiming the benefit of such exemption.

"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 bench said today.

It held that the ratio in Sun Export case is not correct and all the decisions which took similar view as in Sun Export Case stand overruled.

It said, "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."