Interpretation of Exemption Notification

PJ/CASE STUDY/2011-12/50

03 April 2014

PJ/Case Study/2011-12/50

CASE STUDY

Prepared By:
CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]

Introduction:-

In the case under study, the issue raised before the Apex Court was regarding the interpretation of Exemption Notification. Whether the Notification granting exemption should be interpreted strictly or liberally?

Commissioner of Customs (Import), Mumbai v/s M/s Konkan Synthetic Fibres
[2012-TIOL-29-SC-CUS]

Brief Facts:-

- Respondent-assessee is an importer. It imported one unit of equipment which was declared as “Kari Mayer High Speed Draw Warping Machine with 1536 ends along with essential spares”. On import, assessee presented Bill of Entry dated 25.09.2001 before Customs Authorities, inter alia, seeking clearance of the same by extending the benefit of Notification No. 17/01-Cus dated 01.03.2001, as amended by Notification No. 44/01-Cus dated 26.04.2001.

- The Customs Authorities refused to accept the request of the assessee and accordingly directed the assessee to pay duty under the provisions of the Customs Act, 1962.

- The assessee was thus constrained to pay duty in order to clear the goods. They paid under protest so that they could file appeal before the First Appellate Authority.

- In appeal, the First Appellate Authority confirmed the view of the Customs Authority.

- Aggrieved assessee filed appeal before the Tribunal.

- The Tribunal granted relief to the assessee by giving a liberal interpretation to the beneficial Notification No. 17/01-Cus dated 01.03.2001 as amended by Notification No. 44/01-Cus dated 26.04.2001.

- Against the decision of the Tribunal, Revenue has come up in appeal before the Supreme Court.

Appellant’s Contention:-

- Revenue referring to Notification under which assessee claimed benefit for the imported goods contended that what was imported by the assessee was not in consonance with the exemption notification and, therefore, the authorities under Act were justified in denying the benefit available under the Notification to the assessee.

- It was submitted that what is imported by the assessee is High Speed Draw Warping Machine with yard tensioning without the pneumatic suction device but with a drawing machine. Since what was imported is not in accordance with Entry 8 of the table appended to the Notification, the assessee is not entitled to the benefit of the exemption notification.

Respondent’s Contention:-

- Assessee submitted that beneficial notification should be given a liberal construction and if it is done, then, what is imported by the assessee would fall within Entry 8 of the table appended to the exemption notification

Reasoning of the Supreme Court:-

- The Apex Court noted that the Central Government, in exercise of its power under Section 25 (1) of the Act, has issued an exemption notification in public interest, exempting certain articles notified under the table appended to the Notification from payment of the duty under the Act. Several items are enumerated under the table. Entry 130 of the table speaks of drawing machine. Entry 8 of the Notification speaks of the High Speed Warping machine with yarn tensioning, pneumatic suction devices and accessories. A reading of the said entry would indicate that the said machine is a composite machine. The pneumatic suction devices are machines used for the purpose of sucking of vapour/gas, while the High Speed warping machine is activated or warped.

- It was observed that there is no dispute that the assessee has imported High speed warping machine but without pneumatic suction device, but with drawing unit. The Textile Commissioner, who is well conversant with these machines, has stated vide his letter dated 27.09.2001 that the goods imported by the assessee are covered under Entry-8 of the Table appended to the Notification. He further stated vide his letter dated 24.10.2001 that drawing unit is just an essential accessory to the machines imported by assessee and therefore, is covered under said Entry. The opinion so furnished is taken note of by the Tribunal while granting relief to the assessee.

- The Supreme Court stated that it is a settled proposition in a fiscal or taxation law that while ascertaining the scope or expression used in a particular entry, the opinion of the expert in the field of trade, who deals in those goods, should not be ignored, rather it should be given due importance. The Court referred to observation given in the case of Collector of Customs v/s Swatic Woollens (P) Ltd [1988 Supp SCC 796] that:

“4. We are of the opinion that when no statutory definition is provided in respect of an item in the Customs Act or the Central Excises Act, the trade understanding in the opinion of those who deal with the goods in question is the safest guide. See Union of India v/s Delhi Cloth & General Mills, South Bihar Sugar Mills Ltd. v/s Union of India, Dunlop India Ltd v/s Union of India, In re Colgate Palmolive (India) Pvt Ltd, CST v/s S. N. Bros, Kanpur, and also the famous observations of Justice Cameron in His majesty The King v/s Planters Nut and Choclate Co. Ltd.”

- The Court stated that before deciding the issue, it is required to notice how the Supreme Court has construed beneficial notifications issued under the Act.

In Commissioner of Customs (Preventive), Mumbai v/s M. Ambalal and Company [2010-TIOL-111-SC-CUS] it was observed that the beneficial notification providing the levy of duty at a concessional rate should be given a liberal interpretation:

“16. It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact, majority of judgments emphasize that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal Statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny will reveal that there is no real contradiction amongst the judgments at all. The synthesis of the views is quite clearly that the general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to two different sets of circumstances.”

- In Commissioner of sales tax v/s Industrial Coal Enterprises [(1999) 2 SCC 607], this Court has observed:

“11. In CIT v/s Straw Board Mfg. Co. Ltd, this Court held that in taxing statutes, provision for concessional rate of tax should be liberally construed. So also in Bajaj Tempo Ltd v/s CIT it was held that provision granting incentive for promoting economic growth and development in taxing statutes should liberally construed and restriction placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the objective of the provision.”.

- In Commissioner of Central Excise, Shillong v/s North Eastern Tobacco Co. Ltd [(2003) 1 SCC 161] this Court has held:

“10. The other important principle of interpreting an exemption notification is that as far as possible liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed.”

- In AssociatedCement Companies Ltd v/s State of Bihar [(2004) 7 SCC 642], this Court while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held:

“12. Literally “exemption” is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v/s Wood Papers Ltd and Mangalore Chemicals and Fertilisers Ltd v/s Dy. Commr. of Commercial taxes to which reference has been made earlier.)”

- In G. P. Ceramics Private Limited v/s Commissioner, Trade Tax, Uttar Pradesh [(2009) 2 SCC 90], this Court has observed thus:

“29. It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally. [See CTT v/s DSM Group of Industries (SCC paras 26); TISCO v/s State of Jharkhand (SCC paras 42 to 45); State Level Committee v/s Morgardshammar India Ltd; Novopan India Ltd v/s CCE & Customs; A. P. Steel Re-Rolling Mill Ltd v/s State of Kerala and Reiz Electrocontrols (P) Ltd v/s CCE].”

In the end, the Court held that since the Tribunal has taken note of the correct principles enunciated by this Court while granting relief to the assessee, the Supreme Court cannot find fault with the impugned judgment.

Decision of the Supreme Court:-

Appeal rejected.

Conclusion:-

Thus, two aspects have emerged while interpreting a Notification granting Exemption: - Firstly, while deciding that whether exemption will be available or not i.e. the eligibility of applicant for claiming exemption, then the Notification is required to be interpreted strictly.

Secondly, once it is decided that the applicant is eligible to claim exemption benefit under a Notification, then for grant of exemption benefit, the Notification is to be construed liberally and not in a narrow manner. This judgment is very much helpful to the assessee claiming benefit of exemption who although are eligible and covered under exemption Notification but their claim is being denied because one or two conditions of the Notification are not fulfilled.

******

Comments

PJ/CASE STUDY/2011-12/50
03 April 2014

Post a Comment

Query