Legal principle

An exemption notification must be construed strictly, the burden of proving applicability lies on the assessee, and where there is ambiguity in an exemption notification the benefit of such ambiguity must be interpreted in favour of the revenue, not the assessee.

Court decision

Answering the reference in favour of the revenue, the Constitution Bench held that exemption notifications must be interpreted strictly, that the burden of proving applicability rests on the assessee, and that where there is ambiguity in an exemption notification its benefit cannot be claimed by the assessee and must be interpreted in favour of the revenue. The ratio in Sun Export case was declared not correct law, and all decisions taking a similar view stand overruled; the civil appeal was directed to be placed before an appropriate Bench for consideration on merits.

Facts

The respondents, M/s. Dilip Kumar and Company, imported a consignment of Vitamin E50 powder (feed grade) under Bill of Entry No. 8207 dated 19.08.1999, claiming a concessional duty rate of 5% instead of the standard 30% under Customs Notification No. 20/1999 by classifying the goods under Chapter 2309.90 (prawn feed), relying on the Sun Export Corporation case. The department denied the exemption on the plea that the goods contained chemical ingredients for animal feed rather than animal feed/prawn feed, and classified the consignment under Chapter 29 attracting the standard rate of customs duty. The Assistant Commissioner denied the concessional rate, the Commissioner (Appeals) reversed in favour of the assessee, CESTAT affirmed the Commissioner (Appeals), and the department appealed to the Supreme Court. The Constitution Bench was set up to examine the correctness of the ratio in Sun Export Corporation v. Collector of Customs on how an ambiguous tax exemption notification is to be interpreted.

Key provisions

• Section 25, Customs Act, 1962 — Power to grant exemption from duty