NEW DELHI: The onus of proving a tax exemption where the guidelines aren’t clear would be on the assessee, and he cannot claim the benefit of any such ambiguity in provisions, a constitution bench of the Supreme Court said.
Experts said the ruling would completely alter precedents as also the principle of law where the assessee was given the benefit of doubt. This will have significant ramifications for taxpayers and influence decision on past as well as future litigation over tax disputes, they said.
The five-member bench, comprising Justices Ranjan Gogoi, NV Ramana, R Banumathi, Mohan M Shantanagoudar and S Abdul Nazeer, was constituted to look into what is the rule to be applied while interpreting a tax exemption provision or notification when there is an ambiguity.
“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,” it said in an 83-pages judgement delivered on Monday.
“When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject or assessee and it must be interpreted in favour of the revenue,” the bench ruled.
PRAWN FEED OR CHEMICAL INGREDIENTS?
The case pertains to assessee Dilip Kumar, and overturns decision in case of Sun Export Corporation, who imported a consignment of feed grade Vitamin-E50 powder in 1999. The assessee claimed the benefit of a concessional 5% duty instead of the standard 30%, classifying the product as prawn feed that attracted the lower rate.
Exemption was denied by customs on the ground that the imports contained chemical ingredients for animal feed and were not animal feed or prawn feed as such, and so were not eligible for the concessional rate.
The revenue department approached the apex court following adverse ruling in the appellate fora. A two-judge bench referred the matter to a three-judge bench, which opined it required reconsideration, bringing it before the constitution bench.
HIGHER RISK FOR INDUSTRY
Tax experts said this decision would have wide ramifications for tax payers. “Till now, the general understanding was that to determine the eligibility, an exemption notification has to be interpreted strictly but once having determined so, it ought to be interpreted liberally to ensure that benefit can be provided to the assessee,” pointed out Pratik Jain, indirect taxes leader at PwC.
With this decision, in all cases an exemption notification has to be interpreted strictly and in case of ambiguity or alternate views, the benefit of doubt should go to the government, Jain said, calling it a landmark decision that would have a widespread impact on past as well as future litigation.
“From industry standpoint, it would mean that rigours of interpreting an exemption notification have to be much more as the risk goes up substantially in case of disputes,” he said.
Other tax experts concurred with the view.
“The ruling is likely to have far-reaching ramifications, as going forward tax authorities are going to interpret exemption notifications in a constrict way and would thus insist on strict adherence to conditions attached to claiming benefit under the notifications,” said Harpreet Singh, partner-indirect taxes at KPMG. “Any deviation from conditions or ambiguity is likely to deny the benefit of exemption/concession.”