Benefit of ambiguity in tax exemption notification must be in state’s favour: SC

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

Aug 1, 2018 13:18 IST
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The Supreme Court of India on July 31, 2018 held that the benefit of any ambiguity in notification related to tax exemptions must be interpreted in favour of the State thus, overruling its 21-year-old verdict.

The ruling was made by a five-judge constitution bench headed by Justice Ranjan Gogoi. Other members of the bench included Justices N V Ramana, R Banumathi, M M Shantanagoudar and S Abdul Nazeer.

The Ruling: Key Highlights

The constitution bench said that the benefit of ambiguity in tax exemption notification of the government, which is subject to strict interpretation, cannot be claimed by the assessee and should go in favour of the revenue/ state.

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

It ruled that the exemption notification should be interpreted strictly and the burden of proving the applicability of benefit would be on the assessee to show that his/her case comes within the parameters of the exemption clause or exemption notification.

The court said that there is abundant jurisprudential justification for this reasoning as in the governance of rule of law by a written Constitution, there is no implied power of taxation.

It said that the tax power must be specifically conferred and it should be strictly in accordance with the power endowed by the Constitution itself.

The apex court, however, reiterated that if in the event of ambiguity in a taxation liability statute or charging provisions, the benefit should go to the subject or assessee.

It said there cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax.

Other Details

The apex court justified its reasoning and interpretation by saying that an act of Parliament cannot foresee all types of situations and all types of consequences.

It said that it is for the court to see whether a particular case falls within the broad principles of law enacted by the legislature.

It added that 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.

The court said that the purpose of interpretation is essential to know the intention of the legislature.


In 1997, a three-judge Supreme Court bench had ruled 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.

The court had delivered the verdict while hearing the case of Sun Export Corporation versus Collector of Customs, Bombay.

A firm named Dilip Kumar and Company had imported a consignment of Vitamin-E50 powder (feed grade) and claimed the benefit of concessional rate of duty at 5 per cent, instead of standard 30 per cent.

The relief was, however, denied by the customs department, which had led to the litigation.


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