2018 INSC 0480
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3327 OF 2007   
C OMMISSIONER   OF   CUSTOMS  (I MPORT ), M UMBAI              …A PPELLANT ( S )
VERSUS
M/ S . D ILIP  K UMAR   AND  C OMPANY  & O RS .                 …R ESPONDENT ( S )
J U D G M E N T
N . V .   R A M A N A ,   J .
1. This   Constitution   Bench   is   setup   to   examine   the
correctness   of   the   ratio   in   Sun   Export
Corporation,   Bombay   v.   Collector   of   Customs,
Bombay ,   (1997)   6   SCC   564   [ hereinafter   referred   as
‘ Sun Export  Case ’   for brevity ], namely the question
is   ­   What   is   the   interpretative   rule   to   be   applied
while   interpreting   a   tax   exemption Reportable

provision/notification when there is an ambiguity as
to   its   applicability   with   reference   to   the   entitlement
of the assessee or the rate of tax to be applied? 
2. In   Sun   Export   Case   (supra),   a   three­Judge   Bench
ruled   that   an   ambiguity   in   a   tax   exemption
provision or notification must be interpreted so as to
favour   the   assessee   claiming   the   benefit   of   such
exemption.     Such   a   rule   was   doubted   when   this
appeal   was   placed   before   a   Bench   of   two­Judges.
The   matter   then   went   before   a   three­Judge   Bench
consisting   one   of   us   (Ranjan   Gogoi,   J.).     The   three­
Judge Bench having noticed the  unsatisfactory state
of   law   as   it   stands   today,   opined   that   the   dicta   in
Sun   Export   Case   (supra),   requires   reconsideration
and   that   is   how   the   matter   has   been   placed   before
this Constitution Bench.  2

3. Few facts necessary, to appreciate the issue involved
are   as   follows   ­   the   respondents   imported   a
consignment   of   Vitamin   –   E50   powder   (feed   grade)
under   Bill   of   Entry   No.   8207,   dated   19.08.1999.
They claimed the benefit of concessional rate of duty
at 5%, instead of standard 30%, as per the Customs
Notification  No.  20/1999  and  classified  the product
under   Chapter   2309.90   which   admittedly   pertains
to   prawn   feed.     They   relied   on   the   ratio   in   Sun
Export   Case   (supra)   and   claimed   the   benefit   of
exemption.   The benefit of Customs Notification No.
20/1999   was,   however,   denied   to   the   respondents
on the plea of the department that the goods under
import   contained   chemical   ingredients   for   animal
feed   and   not   animal   feed/prawn   feed,   as   such,   the
concessional   rate   of   duty   under   the   extant
notification   was   not   available.     The   department
classified the consignment under Chapter 29 which 3

attracts   standard   rate   of   customs   duty.   The
adjudicating   authority,   namely,   the   Assistant
Commissioner   of   Customs,   distinguished   Sun
Export Case  (supra), while accepting the plea of the
department   to   deny   the   concessional   rate.     The
Commissioner   of   Customs   (Appeals)   reversed   the
order   of   the   Assistant   Commissioner   and   came   to
the   conclusion   that   Sun   Export   Case   (supra)   was
indeed   applicable.     The   department   then
approached   the   Customs,   Excise   and   Service   Tax
Tribunal   (CESTAT),   which   affirmed   the   order   of   the
Commissioner   of   Customs   (Appeals).     Aggrieved
thereby, the present appeal is filed.
4. When   the   appeal   was   placed,   as   noticed   earlier,
before   a   Bench   of   two­Judges,   the   ruling   in   Sun
Export   Case   (supra)   was   doubted,   observing   as
follows­ 4

“We   have   serious  doubts   as  to   whether
the   Bombay   High   Court   judgment
affirmed   in   Sun   Export   Corporation's
case is correct. First and foremost, it is
clear   that   the   subsequent   exemption
Notification   largely   expanded   the   first
Notification   which   referred   only   to
animal   feeds   and   nothing   else.   That
being   the   case,   it   would   be   difficult   to
say   that   a   large   number   of   other
categories   which   have   subsequently
been   added   would   be   clarificatory   and
therefore,   retrospective.   Further,   we
also   feel   that   in   view   of   the   catena   of
judgments   of   this   Court   which   have
held that an exemption Notification has
to   be   strictly   construed   (that   is,   if   the
person claiming exemption does not fall
strictly   within   the   letter   of   the
Notification,   he   cannot   claim
exemption),   have   also   been   ignored   by
this   Court   in   Sun   Export   Corporation's
case   in   paragraph   13   thereof.   Apart
from   this,   the   view   of   this   Court   in
paragraph 13 that it is well­settled that
if two views are possible, one favourable
to   the   assessee   in   matters   of   taxation 5

has   to   be   preferred   is   unexceptionable.
However, this Court was not concerned
in   that   case   with   the   charging   Section
of   a   taxation   statute.   It   was   concerned
with the interpretation of an Exemption
Notification   which,   as   has   been   stated
above,   would   require   the   exactly
opposite test to be fulfilled.”
Further this Court found that the subsequent judgment
in   Collector   of   Customs   and   Central   Excise,   Guntur
and   Ors.   V.   Surendra   Cotton   Oil   Mills   and
Fertilizers Co. and Ors. , 2001 (1) SCC 578  [ hereinafter
referred   as   ‘ Surendra   Cotton   Oil   Mills   Case ’   for
brevity ] ,  distinguished   Sun  Export   Case   (supra),  which
mandated this Court to take a re­look at the proposition
laid down by the earlier cases in the following manner­
“ We   also   find   that   in   the
subsequent   judgment   of   this   Court,
Surendra Cotton Oil Mills's case, this
Court   has   distinguished   the   Sun
Export   Corporation's   case   and   held 6

that   it   dealt   with   'animal   feed'   which
was   large   enough   to   include   'animal
feed   supplements'   whereas   the   facts
of   Surendra   Cotton   Oil   Mills's   case
showed   that   ingredients   of   animal
feed could not be held to be included
in   'animal   feed'.   In   our   opinion,   this
Court   did   not   adequately   deal   with
why   Sun   Exports   Corporation's   case
which is a binding decision of a three
Judges Bench should not be followed,
apart   from   a   specious   distinction
between   'ingredients'   and
'supplements'   which   is   logically
speaking   a   distinction   without   a
difference.
…
This   being   the   unsatisfactory   state
of   law   as   it   stands   today,   we   feel
that   this   matter   should   be   placed
before   Hon’ble   the   Chief   Justice   of
India   to   constitute   an   appropriate
Bench   to   resolve   the   doubts
pointed   out   by   us   in   the   body   of
this Order.”
(emphasis supplied)7

5. We   feel   that   the   reference   to   Surendra   Cotton   Oil
Mills   Case   (supra) ,   may   not   be   necessary   as   the
distinction   was   drawn   on   a   factual   footing,   which
this   Court   may   not   concern   itself   with,   as   we   are
only   concerned  with   the  principle  of  law.  With  this,
the Division Bench was of the tentative view that the
opinion   expressed   in   Sun   Export   Case   (supra)
would   require   reconsideration,   as   the   proposition
laid down  therein  was unsatisfactory, and  therefore
placed   before   the   Chief   Justice   of   India   for
constituting an appropriate Bench. 
6. When the matter was placed before a three Judge Bench
presided over by one of us (Ranjan Gogoi, J.), the Bench
reiterated   the   view   for   reconsideration   of   the   Sun
Export   Case   (supra)   and   again   placed   the   matter, 8

before Hon’ble the Chief Justice of India for constitution
of an  appropriate  Bench,  considering the fact that   Sun
Export   Case   (supra)   was   decided   by   a   Bench
comprising of three learned judges of this Court.  Hence,
this matter came to be placed before this Bench of Five
Judges with following observations­
“In   paragraph   13   of   the   order   of
this   Court   in      Sun’s   case,      views
have   been        expressed   with   regard
to   the   interpretation   of   an
exemption   notification   to
support   the   conclusion   reached.
The   same   may   require   a
reconsideration.
That   apart,   in   the   referral   order   it
has   been   noticed   that   Sun’s   Case
(supra)   has   been   distinguished   in
‘ Collector   of   Central   Excise,   Guntur
vs. Surendra Cotton Oil Mills & Fert.
Co.   The   basis   on   which   the   said
distinction   has   been   drawn   needs
to be further pursued. 9

Having   considered   the   matter   at
some   length,   we   are   of   the
tentative   view,   that   the   opinion
expressed   in   Sun’s   case   (supra)
may   require   a   reconsideration.
Being   a   co­ordinate   Bench,   we
believe   we   ought   not   to   proceed
any further in the matter. Hence,
we   direct   the   Registry   to   lay   the
papers   before   the   Hon’ble   the
Chief   Justice   of   India   for
appropriate orders .”
( emphasis supplied )
7. The   learned   Additional   Solicitor   General,   Ms.   Pinky
Anand,   submits   that   a   tax   exemption   statute   or
notification   needs   to   be   strictly   interpreted.     According
to   her,   strict   interpretation   is   literal   rule   of
interpretation, which means that Court has to apply the
provision   reading   the   language   therein   and   no 10

interpretation is required if the language is clear.  In the
event of any ambiguity, according to her, the benefit has
to   be   given   to   the   revenue   and   that   such   ambiguity   in
tax   exemption   provision   must   not   be   interpreted   to
benefit   the   assessee   who   fails   to   demonstrate   without
any   doubt   that   such   assessee   is   covered   by   the   tax
exemption   notification.     She   elaborated   her   arguments
by   relying  on   various   judgments  and  contends   that  the
ratio  in  Sun Export Case  (supra),  which was doubted in
Surendra Cotton Oil Mills Case   (supra) , is not correct
law.     On   merits   of   the   case,   she   submitted   that   the
artificial   distinction   created   by   Surendra   Cotton   Oil
Mills   Case   (supra),   in   distinguishing   the   ingredients
from   supplements   is   not   sound   and   may   not   be
accepted by the Court.
8. Per contra , among others, Mr. Somnath Shukla, learned
counsel   appearing   on   behalf   of   the   respondents   would 11

submit   that   the   ratio   and   observations   in   Sun   Export
Case   (supra)   has   to   be   considered   holistically   without
giving   any   narrow   meaning   to   the   conclusion   arrived
therein.     The   rule   of   strict   interpretation   cannot   be
applied in abstract.  It has to be applied keeping in view
the   interpretation   to   be   used   in   relation   to   Customs
Tariff   Entry.     According   to   the   learned   counsel,   when
the   Customs   Tariff   Entry   is   interpreted   broadly,   the
same   should   be   adopted   in   interpreting   exemption
notification.     Indeed,   the   learned   senior   counsel   would
contend   that   the   rule   of   strict   interpretation   should   be
limited   to   the   eligibility   conditions   of   an   exemption
notification   and   while   conferring   the   benefits   to   such
exemption.  He distinguished all the judgments relied on
by   the   appellants   and   submits   that   “ prawn   feed
supplements ”   would   also   be   included   under   the   head
“ prawn   feed ”,   and   the   judgment   of   the   Tribunal 12

impugned   in   these   appeals   does   not   warrant   any
interference.  
9. Sun   Export   Case   (supra)   was   a   case   against   the
judgment   of   the   High   Court   of   Judicature,   Bombay.     It
was concerned with  the  interpretation  of tax   exemption
notification,   being   Notification   No.   234/1982   –   CE,
dated   01.11.1982,   issued   by   the   Central   Government
under sub­section (1) of Section 25 of the Customs Act.
The   High   Court   considered   the   issue   whether   Vitamin
AD­3 mix (feed grade)/animal feed supplement could be
included   under   the   head   ‘animal   feed,   including
compound   livestock   feed’.     The   Bombay   High   Court
decided,   in   the   affirmative,   in   favour   of   the   assessee.
The   case   then   landed   in   this   Court,   which   was
persuaded to expand the meaning of ‘animal feed’ in the
light   of   subsequent   notification   issued   in   1984,   which
largely   expanded   the   scope   of   exemption   to   the   effect 13

that   ‘ animal   feed,   including   compound   livestock   feed,
animal  feed  supplements  and  animal feed  concentrates ’.
This   Court   indeed   countenanced   the   plea,   namely,
whenever   there   is   ambiguity   as   to   whether   the   subject
matter was included or not, then the benefit of the same
should   be   conferred   on   the   assessee.     The   relevant
portion in  Sun Export Case  (supra) , reads as follows:
“13.   We   are   in   agreement   with   the   above
view   expressed   by   the   Bombay   High
Court.   No   doubt   it   was   contended   on
behalf   of   the   Revenue   that   the   contrary
view   taken   by   the   Tribunal   has   been
challenged   in   this   Court   which   was
rejected   in   limine   at   the   admission   stage.
We   do   not   think   that   dismissal   at   the
admission   stage   can   be   relied   upon   as   a
binding   precedent.   Even   assuming   that
there   are   two   views   possible,   it   is   well
settled   that   one   favourable   to   the
assessee   in   matters   of   taxation   has   to
be preferred .”
( emphasis supplied )14

10. There cannot be any doubt that the  ratio  in  Sun Export
Case   (supra)   that,   if   two   views   are   possible   in
interpreting   the   exemption   notification,   the   one
favourable to the assesseee in the matter of taxation has
to   be   preferred.     This   principle   created   confusion   and
resulted   in   unsatisfactory   state   of   law .     In   spite   of
catena of judgments of this Court, which took the  contra
view,   holding   that   an   exemption   notification   must   be
strictly   construed,   and   if   a   person   claiming   exemption
does   not   fall   strictly   within   the   description   of   the
notification otherwise then he cannot claim exemption.
11. About three years after  Sun Export Case  (supra) , in the
year   2000,   this   Court   in   Surendra   Cotton   Oil   Mills
Case   (supra) ,   expressed   reservations   as   to   the
soundness   of   the   dicta   in   Sun   Export   Case   (supra) ,
observing that  Sun Export Case  (supra)  ignored catena15

of judgments of this Court expressing   contra   view.   This
Court   prima facie   came to the conclusion with regard to
the   principle   that   when   two   views   are   possible,   one
favourable to the assessee in matters of taxation has to
be   preferred,   is   unexceptionable   when   interpreting   the
charging   section   of   a   taxation   statute,   but   the   opposite
principle   would   be   applicable   in   interpretation   of
exemption   notification.     The   three­Judge   Bench   in   the
referral order further observed that the views expressed
in   Sun   Export   Case   (supra)   with   regard   to
interpretation   of   exemption   notification   to   support   the
conclusion, required reconsideration.
12. We   may,   here   itself   notice   that   the   distinction   in
interpreting   a   taxing   provision   (charging   provision)   and
in the matter of interpretation of exemption notification
is  too   obvious  to   require   any  elaboration.    Nonetheless,
in   a   nutshell,   we   may   mention   that,   as   observed   in 16

Surendra Cotton Oil Mills Case   (supra) , in the matter
of   interpretation   of   charging   section   of   a   taxation
statute, strict rule of interpretation is mandatory and if
there   are   two   views   possible   in   the   matter   of
interpretation   of   a   charging   section,   the   one   favourable
to   the   assessee   need   to   be   applied.     There   is,   however,
confusion   in   the   matter   of   interpretation   of   exemption
notification   published   under   taxation   statutes   and   in
this area also, the decisions are galore 1
.
13. We   may   passingly,   albeit,   briefly   reiterate   the   general
principles of interpretation, which were also adverted to
1   See:   Sun   Export   Corporation,   Bombay   v.   Collector   of
Customs,   Bombay   and   Anr.,   (1997)   6   SCC   564;
Commissioner   of   Central   Excise,   Pune   v.   Abhi
Chemicals  and  Pharmaceuticals  Pvt.  Ltd ., (2005) 3 SCC
541;   Collector   of   Central   Excise,   Bombay­1   and   Anr.   v.
Parle   Exports   (Pvt.)   Ltd .,   (1989)   1   SCC   345;
Commissioner   of   Customs   (Import),   Mumbai   v.   Konkan
Synthetic   Fibres ,   (2012)   6   SCC   339;   Collector   of
Customs,   Bombay   v.   Swastic   Wollens   (Pvt.)   Ltd.   And
Ors .,   (1988)   Supp.   SCC   796;   Commissioner   of   Customs
(Preventive), Gujarat v. Reliance Petroleum Ltd ., (2008) 7
SCC 220. 17

by   both   the   counsel.   In   his   treatise,   ‘ Principles   of
Statutory   Interpretation ’   Justice   G.P.   Singh,   lucidly
pointed   the   importance   of   construction   of   statutes   in   a
modern State as under :
“Legislation   in   modern   State   is
actuated   with   some   policy   to   curb
some   public   evil   or   to   effectuate   some
public   benefit.     The   legislation   is
primarily   directed   to   the   problems
before   the   Legislature   based   on
information   derived   from   past   and
present   experience.     It   may   also   be
designed   by   use   of   general   words   to
cover   similar   problems   arising   in
future.     But,   from   the   very   nature   of
things,   it   is   impossible   to   anticipate
fully   the   varied   situations   arising   in
future   in   which   the   application   of   the
legislation   in   hand   may   be   called   for,
and,   words   chosen   to   communicate
such indefinite ‘referents’ are bound to
be,   in   many   cases   lacking   in   clarity
and   precision   and   thus   giving   rise   to 18

controversial   questions   of
construction.” 
14. An Act of Parliament/Legislature cannot foresee all types
of situations and all types of consequences.  It is for the
Court   to   see   whether   a   particular   case   falls   within   the
broad   principles   of   law   enacted   by   the   Legislature.
Here, the principles of interpretation of statutes come in
handy.     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.  
15. In   doing   so,   the   principles   of   interpretation   have   been
evolved in common law.  It has also been the practice for
the   appropriate   legislative   body   to   enact   Interpretation
Acts   or   General   Clauses   Act.     In   all   the   Acts   and
Regulations,   made   either   by   the   Parliament   or 19

Legislature,   the   words   and   phrases   as   defined   in   the
General Clauses Act and the principles of interpretation
laid   down   in   General   Clauses   Act   are   to   be   necessarily
kept   in   view.   If   while   interpreting  a  Statutory   law,   any
doubt arises as to the meaning to be assigned to a word
or a phrase or a clause used in an enactment and such
word,   phrase   or   clause   is   not   specifically   defined,   it   is
legitimate and indeed mandatory to fall back on General
Clauses   Act.     Notwithstanding   this,   we   should
remember  that  when   there  is  repugnancy  or conflict  as
to   the   subject   or   context   between   the   General   Clauses
Act   and   a   statutory   provision   which   falls   for
interpretation,   the   Court   must   necessarily   refer   to   the
provisions of statute.
16. The  purpose   of  interpretation   is  essentially  to   know  the
intention   of   the   Legislature.     Whether   the   Legislature
intended   to   apply   the   law   in   a   given   case;   whether   the 20

Legislature   intended   to   exclude   operation   of   law   in   a
given   case;   whether   Legislature   intended   to   give
discretion   to   enforcing   authority   or   to   adjudicating
agency   to   apply   the   law,   are   essentially   questions   to
which   answers   can   be   sought   only   by   knowing   the
intention   of   the   legislation.       Apart   from   the   general
principles of interpretation of statutes, there are certain
internal   aids   and   external   aids   which   are   tools   for
interpreting the statutes.
17. The   long   title,   the   preamble,   the   heading,   the   marginal
note, punctuation, illustrations, definitions or dictionary
clause,   a   proviso   to   a   section,   explanation,   examples,   a
schedule   to   the   Act   etc.,   are   internal   aids   to
construction.     The   external   aids   to   construction   are
Parliamentary debates, history leading to the legislation,
other   statutes   which   have   a   bearing,   dictionaries,
thesaurus. 21

18. It   is   well   accepted   that   a   statute   must   be   construed
according   to   the   intention   of   the   Legislature   and   the
Courts   should   act   upon   the   true   intention   of   the
legislation   while   applying   law   and   while   interpreting
law.     If   a   statutory   provision   is   open   to   more   than   one
meaning,   the   Court   has   to   choose   the   interpretation
which   represents   the   intention   of   the   Legislature.     In
this connection, the following observations made by this
Court   in   District   Mining   Officer   vs.   Tata   Iron   and
Steel Co. , (2001) 7 SCC 358, may be noticed:
“…  A  statute  is  an   edict  of  the  Legislature
and   in   construing   a   statute,   it   is
necessary,   to   seek   the   intention   of   its
maker.     A   statute   has   to   be   construed
according   to   the   intent   of   them   that   make
it and the duty of the Court is to act upon
the   true   intention   of   the   Legislature.     If   a 22

statutory   provision   is   open   to   more   than
one interpretation the Court has to choose
that   interpretation   which   represents   the
true intention of the Legislature.  This task
very often raises the difficulties because of
various   reasons,   inasmuch   as   the   words
used may  not  be scientific symbols having
any   precise   or   definite   meaning   and   the
language   may   be   an   imperfect   medium   to
convey  one’s thought or that the assembly
of   Legislatures   consisting   of   persons   of
various   shades   of   opinion   purport   to
convey   a   meaning   which   may   be   obscure.
It   is   impossible   even   for   the   most
imaginative   Legislature   to   forestall
exhaustively   situations   and   circumstances
that   may   emerge   after   enacting   a   statute
where   its   application   may   be   called   for.
Nonetheless,   the   function   of   the   Courts   is
only   to   expound   and   not   to   legislate.
Legislation   in   a   modern   State   is   actuated
with   some   policy   to   curb   some   public   evil
or   to   effectuate   some   public   benefit.     The
legislation   is   primarily   directed   to   the
problems   before   the   Legislature   based   on
information  derived  from  past  and  present
experience.  It may also be designed by use 23

of general words to cover  similar problems
arising   in   future.     But,   from   the   very
nature   of   things,   it   is   impossible   to
anticipate   fully   the   varied   situations
arising   in   future   in   which   the   application
of the legislation in hand may be called for,
and,   words   chosen   to   communicate   such
indefinite   referents   are   bound   to   be   in
many cases lacking in clarity and precision
and   thus   giving   rise   to   controversial
questions   of   construction.     The   process   of
construction   combines   both   literal   and
purposive approaches.   In other  words the
legislative   intention   i.e.,   the   true   or   legal
meaning   of   an   enactment   is   derived   by
considering the meaning of the words used
in   the   enactment   in   the   light   of   any
discernible   purpose   or   object   which
comprehends   the   mischief   and   its   remedy
to which the enactment is directed…”
19. The   well   settled   principle   is   that   when   the   words   in   a
statute are clear, plain  and unambiguous and only one
meaning   can   be   inferred,   the   Courts   are   bound   to   give 24

effect to the said meaning irrespective of consequences.
If the words in the statute are plain and unambiguous,
it   becomes   necessary   to   expound   those   words   in   their
natural and ordinary sense.  The words used declare the
intention   of   the   Legislature.     In   Kanai   Lal   Sur   v.
Paramnidhi   Sadhukhan ,   AIR   1957   SC   907,   it   was
held   that   if   the   words   used   are   capable   of   one
construction   only   then   it   would   not   be   open   to   the
Courts  to  adopt any other  hypothetical construction  on
the   ground   that   such   construction   is   more   consistent
with the alleged object and policy of the Act.
20. In   applying   rule   of   plain   meaning   any   hardship   and
inconvenience cannot be the basis to alter the meaning
to   the   language   employed   by   the   legislation.     This   is
especially   so   in   fiscal   statutes   and   penal   statutes.
Nevertheless, if the plain language results in absurdity,
the   Court   is   entitled   to   determine   the   meaning   of   the 25

word in  the context in   which  it is used  keeping  in  view
the   legislative   purpose. 2
    Not   only   that,   if   the   plain
construction  leads to  anomaly and absurdity, the court
having   regard   to   the   hardship   and   consequences   that
flow   from   such   a   provision   can   even   explain   the   true
intention   of   the   legislation.   Having   observed   general
principles   applicable   to   statutory   interpretation,   it   is
now time to consider rules of interpretation with respect
to taxation.
21. In   construing   penal   statutes   and   taxation   statutes,   the
Court   has   to   apply   strict   rule   of   interpretation.     The
penal statute which tends to deprive a person of right to
life   and   liberty   has   to   be   given   strict   interpretation   or
else   many   innocent   might   become   victims   of
discretionary   decision   making.     Insofar   as   taxation
statutes  are  concerned,   Article  265  of the Constitution 3
2   Assistant Commissioner, Gadag Sub­Division, Gadag 
v. Mathapathi Basavannewwa , 1995 (6) SCC 355.
3   265. Taxes not to be imposed save by authority of law ­
No tax shall be levied or collected except by authority of law. 26

prohibits the State from extracting tax from the citizens
without   authority   of   law.     It   is   axiomatic   that   taxation
statute   has   to   be   interpreted   strictly   because   State
cannot   at   their   whims   and   fancies   burden   the   citizens
without   authority   of   law.   In   other   words,   when
competent   Legislature   mandates   taxing   certain
persons/certain   objects   in   certain   circumstances,   it
cannot be expanded/interpreted to include those, which
were not intended by the Legislature.
22. At   the   outset,   we   must   clarify   the   position   of   ‘plain
meaning   rule   or   clear   and   unambiguous   rule’   with
respect   of   tax   law.   ‘ The   plain   meaning   rule’   suggests
that   when   the   language   in   the   statute   is   plain   and
unambiguous,   the   Court   has   to   read   and   understand
the   plain   language   as   such,   and   there   is   no   scope   for
any interpretation.   This salutary maxim flows from the
phrase   “ cum   inverbis   nulla   ambiguitas   est,   non   debet 27

admitti   voluntatis   quaestio” .   Following   such   maxim,   the
courts   sometimes   have   made   strict   interpretation
subordinate   to   the   plain   meaning   rule 4
,   though   strict
interpretation is used in the precise sense.   To say that
strict interpretation involves plain reading of the statute
and to say that one has to utilize strict interpretation in
the event of ambiguity is self­contradictory.  
23. Next,   we  may   consider   the  meaning   and   scope  of  ‘strict
interpretation’,   as   evolved   in   Indian   law   and   how   the
higher Courts have made a distinction while interpreting
a   taxation   statute   on   one   hand   and   tax   exemption
notification on the other. In Black’s Law Dictionary (10 th
Edn.) ‘strict interpretation’ is described as under:
Strict   interpretation.   (16c)   1.   An
interpretation according to the narrowest,
most literal meaning of the words without
regard   for   context   and   other   permissible
4   Mangalore Chemicals Case   (Infra  para 37 ) .28

meanings.   2.   An   interpretation   according
to   what   the   interpreter   narrowly   believes
to   have   been   the   specific   intentions   or
understandings   of   the   text’s   authors   or
ratifiers,   and   no   more.­   Also   termed   (in
senses   1   &   2)   strict   construction,   literal
interpretation;   literal   construction;
restricted   interpretation;   interpretatio
stricta;   interpretatio   restricta;
interpretatio   verbalis.   3.   The   philosophy
underlying   strict   interpretation   of
statues.­   Also   termed   as   close
interpretation; interpretatio restrictive.
See   strict   constructionism   under
constructionism.   Cf.   large   interpretation;
liberal interpretation (2).
“Strict   construction   of   a   statute   is
that   which   refuses   to   expand   the   law   by
implications   or   equitable   considerations,
but  confines  its operation  to  cases which
are clearly within the letter of the statute,
as   well   as   within   its   spirit   or   reason,   not
so   as   to   defeat   the   manifest   purpose   of
the   legislature,   but   so   as   to   resolve   all
reasonable   doubts   against   the
applicability   of   the   statute   to   the
particular   case.’   Willam   M.   Lile   et   al., 29

Brief   Making   and   the   use   of   Law   Books
343   (Roger   W.   Cooley   &   Charles   Lesly
Ames eds., 3d ed. 1914).
“Strict   interpretation   is   an   equivocal
expression,   for   it   means   either   literal   or
narrow.   When   a   provision   is   ambiguous,
one of its meaning may be wider than the
other, and the strict (i.e., narrow) sense is
not   necessarily   the   strict   (i.e.,   literal)
sense.”   John   Salmond   ,   Jurisprudence
171   n.   (t)   (Glanville   L.   Williams   ed.,   10 th
ed. 1947).
24. As   contended   by   Ms.   Pinky   Anand,   learned   Additional
Solicitor   General,   the   principle   of   literal   interpretation
and   the   principle   of   strict   interpretation   are   sometimes
used interchangeably.  This principle, however, may not
be   sustainable   in   all   contexts   and   situations.     There   is
certainly scope to sustain an argument that all cases of
literal   interpretation   would   involve   strict   rule   of
interpretation,   but   strict   rule   may   not   necessarily
involve   the   former,   especially   in   the   area   of   taxation. 30

The   decision   of   this   Court   in   Punjab   Land
Development   and   Reclamation   Corporation   Ltd.,
Chandigarh   v.   Presiding   Officer,   Labour   Court
Chandigarh   and   Ors. ,   (1990)   3   SCC   682,   made   the
said distinction, and explained the literal rule­
“The   literal   rules   of   construction   require
the   wording   of   the   Act   to   be   construed
according   to   its   literal   and   grammatical
meaning   whatever   the   result   may   be.
Unless   otherwise   provided,   the   same   word
must   normally   be   construed   throughout
the Act in the same sense, and in the case
of   old   statutes   regard   must   be   had   to   its
contemporary   meaning   if   there   has   been
no change with the passage of time.”  
That   strict   interpretation   does   not   encompass   strict­
literalism   into   its   fold.     It   may   be   relevant   to   note   that
simply   juxtaposing   ‘strict   interpretation’   with   ‘literal
rule’   would   result   in   ignoring   an   important   aspect   that 31

is   ‘apparent   legislative   intent’.     We   are   alive   to   the   fact
that   there   may   be   overlapping   in   some   cases   between
the aforesaid two rules.   With certainty, we can observe
that,   ‘strict   interpretation’   does   not   encompass   such
literalism,   which   lead   to   absurdity   and   go   against   the
legislative   intent.   As   noted   above,   if   literalism   is   at   the
far   end   of   the   spectrum,   wherein   it   accepts   no
implications   or   inferences,   then   ‘strict   interpretation’
can   be   implied   to   accept   some   form   of   essential
inferences which literal rule may not accept. 
25. We are not suggesting that literal rule   de hors   the strict
interpretation   nor   one   should   ignore   to   ascertain   the
interplay   between   ‘strict   interpretation’   and   ‘literal
interpretation’.     We   may   reiterate   at   the   cost   of
repetition that strict interpretation of a statute certainly
involves literal or plain meaning test. The other tools of
interpretation,   namely   contextual   or   purposive 32

interpretation cannot be applied nor any resort be made
to   look   to   other   supporting   material,   especially   in
taxation   statutes.     Indeed,   it   is   well   settled   that   in   a
taxation   statute,   there   is   no   room   for   any   intendment;
that   regard   must   be   had   to   the   clear   meaning   of   the
words and that the matter should be governed wholly by
the language of the notification.   Equity has no place in
interpretation of a tax statute. Strictly one has to look to
the   language   used;   there   is   no   room   for   searching
intendment   nor   drawing   any   presumption.
Furthermore,   nothing   has   to   be   read   into   nor   should
anything   be   implied   other   than   essential   inferences
while considering a taxation statute.
26. Justice   G.P.   Singh,   in   his   treatise   ‘ Principles   of
Statutory Interpretation ’ (14 th  
ed. 2016 p. – 879) after
referring   to   Re,   Micklethwait ,   (1885)   11   Ex   452;
Partington   v.   A.G. ,   (1869)   LR   4   HL   100;   Rajasthan33

Rajya   Sahakari   Spinning   &   Ginning   Mills
Federation Ltd. v. Deputy CIT, Jaipur , (2014) 11 SCC
672,   State   Bank   of   Travancore   v.   Commissioner   of
Income   Tax ,   (1986)   2   SCC   11   and   Cape   Brandy
Syndicate v. IRC , (1921) 1 KB 64, summed up the law
in the following manner ­
“A   taxing   statute   is   to   be   strictly
construed.  The well­established rule in the
familiar   words   of   LORD   WENSLEYDALE,
reaffirmed   by   LORD   HALSBURY   AND
LORD   SIMONDS,   means:   ‘The   subject   is
not to be taxed without clear words for that
purpose;   and   also   that   every   Act   of
Parliament   must   be   read   according   to   the
natural   construction   of   its   words.     In   a
classic   passage   LORD   CAIRNS   stated   the
principle  thus:   “If   the   person   sought  to   be
taxed comes within the letter of the law he
must be taxed, however great the hardship
may appear to the judicial mind to be.  On
the   other   hand,   if   the   Crown   seeking   to
recover   the   tax,   cannot   bring   the   subject
within   the   letter   of   the   law,   the   subject   is 34

free,   however   apparently   within   the   spirit
of   law   the   case   might   otherwise   appear   to
be.    In   other   words,   if   there  be   admissible
in  any   statute, what is  called  an  equitable
construction,   certainly,   such   a
construction   is   not   admissible   in   a   taxing
statute where you can simply adhere to the
words   of   the   statute.     VISCOUNT   SIMON
quoted   with   approval   a   passage   from
ROWLATT,   J.   expressing   the   principle   in
the   following   words:   “In   a   taxing   Act   one
has   to   look   merely   at   what   is   clearly   said.
This is no room for any intendment. There
is   no   equity   about   a   tax.   There   is   no
presumption   as   to   tax.     Nothing   is   to   be
read in, nothing is to be implied.   One can
only look fairly at the language used.” 
It was further observed:
“In all tax matters one has to interpret the
taxation   statute   strictly.     Simply   because
one class of legal entities is given a benefit
which is specifically stated in the Act, does
not mean that the benefit can be extended
to legal entities not referred to in the Act as
there is no equity in matters of taxation….” 35

Yet again, it was observed:
“It may  thus  be taken  as a  maxim   of
tax   law,   which   although   not   to   be
overstressed   ought   not   to   be   forgotten
that, “the subject is not to be taxed unless
the   words   of   the   taxing   statute
unambiguously   impose   the   tax   on   him”,
[Russel   v.   Scott,   (1948)   2   All   ER   1].     The
proper   course  in construing  revenue  Acts
is   to   give   a   fair   and   reasonable
construction   to   their   language   without
leaning   to   one   side   or   the   other   but
keeping   in   mind   that   no   tax   can   be
imposed   without   words   clearly   showing
an   intention   to   lay   the   burden   and   that
equitable construction of the words is not
permissible   [Ormond   Investment   Co.   v.
Betts,   (1928)   AC   143].     Considerations   of
hardship,   injustice   or   anomalies   do   not
play   any   useful   role   in   construing   taxing
statutes   unless   there   be   some   real
ambiguity [Mapp v. Oram, (1969) 3 All ER
215].   It   has   also   been   said   that   if   taxing
provision is “so wanting in clarity that no
meaning   is   reasonably   clear,   the   courts
will be unable to regard it as of any effect 36

[IRC v. Ross and Coutler, (1948) 1 All ER
616].”
Further   elaborating   on   this   aspect,   the   learned
author stated as follows: 
“Therefore,   if   the   words   used   are
ambiguous   and   reasonable   open   to   two
interpretations   benefit   of   interpretation   is
given   to   the   subject   [Express   Mill   v.
Municipal   Committee,   Wardha,   AIR   1958
SC 341].   If the Legislature fails to express
itself   clearly   and   the   taxpayer   escapes   by
not   being   brought   within   the   letter   of   the
law,   no   question   of   unjustness   as   such
arises   [CIT   v.   Jalgaon   Electric   Supply   Co.,
AIR   1960   SC   1182].     But   equitable
considerations   are   not   relevant   in
construing   a   taxing   statute,   [CIT,   W.B.   v.
Central   India   Industries,   AIR   1972   SC
397],   and   similarly   logic   or   reason   cannot
be   of   much   avail   in   interpreting   a   taxing
statute   [Azam   Jha   v.   Expenditure   Tax
Officer, Hyderabad, AIR 1972 SC 2319].   It
is   well   settled   that   in   the   field   of   taxation,
hardship   or   equity   has   no   role   to   play   in
determining   eligibility   to   tax   and   it   is   for 37

the   Legislature   to   determine   the   same
[Kapil   Mohan   v.   Commr.   of   Income   Tax,
Delhi,   AIR   1999   SC   573].     Similarly,
hardship   or   equity   is   not   relevant   in
interpreting   provisions   imposing   stamp
duty, which is a tax, and the court should
not concern itself with the intention of the
Legislature   when   the   language   expressing
such   intention   is   plain   and   unambiguous
[State   of   Madhya   Pradesh   v.   Rakesh   Kohli
&   Anr.,   (2012)   6   SCC   312].     But   just   as
reliance   upon   equity   does   not   avail   an
assesse, so it does not avail the Revenue.”
The   passages   extracted   above,   were   quoted   with
approval   by   this   Court   in   at   least   two   decisions
being   Commissioner   of   Income   Tax   vs.   Kasturi
Sons   Ltd . ,   (1999)   3   SCC   346   and   State   of   West
Bengal vs. Kesoram Industries Limited ,  (2004) 10
SCC   201   [ hereinafter   referred   as   ‘ Kesoram
Industries Case ’   for brevity ].     In the later decision,
a   Bench   of   seven   Judges,   after   citing   the   above 38

passage from Justice G.P. Singh’s treatise, summed
up   the   following   principles   applicable   to   the
interpretation of a taxing statute:
“(i)   In   interpreting   a   taxing   statute,
equitable considerations are entirely out of
place.     A   taxing   statute   cannot   be
interpreted   on   any   presumption   or
assumption.     A   taxing   statute   has   to   be
interpreted   in   the   light   of   what   is   clearly
expressed; it  cannot  imply  anything  which
is   not   expressed;   it   cannot   import
provisions   in   the   statute   so   as   to   supply
any   deficiency;   (ii)   Before   taxing   any
person,   it   must   be   shown   that   he   falls
within the ambit of the charging section by
clear words used in the section; and (iii) If
the  words are ambiguous and  open  to two
interpretations,   the   benefit   of
interpretation   is   given   to   the   subject   and
there   is   nothing   unjust   in   a   taxpayer
escaping   if   the   letter   of   the   law   fails   to
catch   him   on   account   of   Legislature’s
failure to express itself clearly”.
   39

27. Now   coming   to   the   other   aspect,   as   we   presently
discuss,   even   with   regard   to   exemption   clauses   or
exemption   notifications   issued   under   a   taxing   statute,
this   Court   in   some   cases   has   taken   the   view   that   the
ambiguity   in   an   exemption   notification   should   be
construed   in   favour   of   the   subject.     In   subsequent
cases,   this   Court   diluted   the   principle   saying   that
mandatory requirements of exemption clause should be
interpreted strictly and the directory conditions of such
exemption   notification   can   be   condoned   if   there   is
sufficient compliance with the main requirements.  This,
however,   did   not   in   any   manner   tinker   with   the   view
that   an   ambiguous   exemption   clause   should   be
interpreted   favouring   the   revenue.     Here   again   this
Court   applied   different   tests   when   considering   the
ambiguity   of   the   exemption   notification   which   requires
strict   construction   and   after   doing   so   at   the   stage   of 40

applying the notification, it came to the conclusion that
one has to consider liberally.  
28. With   the   above   understanding   the   stage   is   now   set   to
consider the core issue.  In the event of ambiguity in an
exemption   notification,   should   the   benefit   of   such
ambiguity   go   to   the   subject/assessee   or   should   such
ambiguity should be construed in favour of the revenue,
denying   the   benefit   of   exemption   to   the
subject/assessee?  There are catena of case laws in this
area   of   interpretation   of   an   exemption   notification,
which   we   need   to   consider   herein.     The   case   of
Commissioner of Inland Revenue  vs. James Forrest ,
[(1890)   15   AC   334   (HL)]   –   is   a   case   which   does   not
discuss   the   interpretative   test   to   be   applied   to
exemption   clauses   in   a   taxation   statute   –   however,   it
was observed that ‘ it would be unreasonable to suppose
that   an   exemption   was   wide   as   practicable   to   make   the 41

tax   inoperative,   that   it   cannot   be   assumed   to   have   been
in the mind of the Legislature ’ and that exemption ‘ from
taxation   to   some   extent   increased   the   burden   on   other
members of the community ’.  Though this is a dissenting
view of Lord Halsbury, LC, in subsequent decisions this
has   been   quoted   vividly   to   support   the   conclusion   that
any vagueness in the exemption clauses must go to the
benefit of the revenue.   Be that as it is, in our country,
at least from 1955, there appears to be a consistent view
that   if   the   words   in   a   taxing   statute   (not   exemption
clause) are ambiguous and open to two interpretations,
the benefit of interpretation is given to the subject and it
does   not   matter   if   the   taxpayer   escapes   the   tax   net   on
account   of   Legislatures’   failure   to   express   itself   clearly
(See   the   passage   extracted   hereinabove   from   Kesoram
Industries Case  (supra)). 42

29. The   first   case   with   which   we   need   to   concern   ourselves
is the case in   Union of India v. The Commercial Tax
Officer,   West   Bengal   and   Ors .,   AIR   1956   SC   202.     It
may   be   noted   that   this   case   was   dealt   with   by   five
learned   Judges   of   this   Court   resulting   in   two   different
opinions;   one   by   the   then   Chief   Justice   of   India,   S.R.
Das   for   the   majority,   and   Justice   B.P.   Sinha   (as   His
Lordship   then   was)   rendering   minority   view.     The
question before this Court was whether the sale of goods
made   by   one   private   mill   to   the   Government   of   India,
Ministry of Industries and Supplies were to be deducted
as   taxable   turnover   of   the   mill   for   the   exemption   given
under   Section   5   of   the   Bengal   Finance   (Sales   Tax)   Act,
1941   (Bengal   Act   VI   of   1941).     The   exemption   under
Section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act,
1941   provided   for   exemption   ‘ to   sales   to   the   Indian
Stores   Department,   the   Supply   Department   of   the
Government of India, and any railway or water transport 43

administration ’.     The   Court   was   to   interpret   the
aforesaid   provision   in   order   to   ascertain   whether   the
sale   to   the   Government   of   India,   Ministry   of   Industries
and Supplies would be covered under the Section. 
30. The   majority   was   of   the   view   that   the   Government   of
India,   Ministry   of   Industries   and   Supplies   was   not
similar   to   those   mentioned   in   the   exemption
notification.     The   majority   extensively   relied   on   the
history and origin of Ministry of Industries and Supplies
and   concluded   that   the   functions   of   the   aforesaid
Ministry   were   different   from   the   erstwhile   departments
mentioned under the exemption provision.  The majority
reasoned   that   the   exemption   being   the   creation   of   the
statute itself, it should have to be construed strictly and
the   interpretation   cannot   be   extended   to   sales   to   other
departments.     We   might   find   some   clue   as   to   the
content   of   a   strict   construction   also.     It   was   canvassed 44

before   the   Court   that   the   object   of   Section   5(2)(a)(iii)   of
the   relevant   statute,   was   to   give   exemption   not   to   the
particular departments but to the sale of such goods to
those   departments   and,   therefore,   sale   of   those   goods
made   to   any   Departments   of   the   Government   of   India,
which   came   to   be   charged   with   the   duty   of   purchasing
those goods should also come within the purview of the
exemption.     The   Court   while   repelling   the   aforesaid
interpretation, reasoned as under:
“We   are   unable   to   accept   this   line   of
reasoning.     This   interpretation   will   unduly
narrow the scope and ambit of the exemption
by limiting it to sales of only those goods as,
at   the   date   of   the   Act,   used   to   be   sold   to
those   two   departments   and   sales   of   other
goods   even   to   those   two   departments,
however necessary for the prosecution of the
war,  would  not   get   benefit   of  the   exemption.
Such   could   not   possibly   be   the   intention   of
the Legislature as expressed by the language
used by it in framing the Section.” 45

31. The aforesaid placitum is suggestive of the fact that the
Courts   utilized   the   rule   of   strict   interpretation   in   order
to   decipher   the   intention   of   the   Legislature   and
thereafter   provide   appropriate   interpretation   for   the
exemption   provided   under   the   provisions   of   the   Act
which   was   neither   too   narrow   nor  too  broad.   It  may  be
noted that the majority did not take a narrow view as to
what   strict   interpretation   would   literally   mean;   rather
they   combined   legislative   intent   to   ascertain   the
meaning of the statute in accordance with the objective
intent of the Legislature.
32. On   the   contrary,   the   minority   opinion   of   Justice   B.P.
Sinha   (as   His   Lordship   then   was)   provided   a   purposive
interpretation   for   Section   5(2)(a)(iii)   of   the   Act,   which   is
clear from the following passage:
“The judgment under appeal is based
chiefly   on   the   consideration   that   the
exemption   clause   in   question   does   not   in 46

terms   refer   to   the   newly   created
department   which   now   goes   by   the   name
of   the   Ministry   of   Industry   and   Supply.
But   this   department   in   so   far   as   it   deals
with   industry,   is   not   concerned   with   the
main   purchasing   activities   of   the
Government   of   India.     The   exemption   was
granted   in   respect   of   the   purchasing
activity   of   the   Government   of   India   and
that   function   continues   to   be   assigned   to
the   Supply   Department   which   has   now
become   a   wing   of   the   newly   created
department   of   the   Government.     The
question   therefore   arises   whether   in   those
circumstances   the   Government   of   India
could   claim   the   benefit   of   the   exemption.
The High Court in answering that question
in   the   negative   has   gone   upon   mere
nomenclature.     It   has   emphasized   the
change   in   the   name   and   overlooked   the
substance of the matter.”
33. The   minority   construed   ‘strict   interpretation’   to   be   an
interpretation wherein least number of “determinates in
terms of quantity” would fall under the exemption.   The
minority   referred   to   an   old   English   case   of 47

Commissioner   of   Inland   Revenue   v.   James   Forrest ,
(1890)   15   AC   334.     It   may   be   relevant   to   note   that   the
minority   could   not   find   the   justification   to   apply   strict
interpretation   as   the   exemption   notification   was   broad
enough   to   include   exemptions   for   commodities
purchased by the Government of India.   The Court was
of  the  opinion   that  the   strict  interpretation   provided   by
the majority was uncalled for as there was no additional
burden   on   others   by   giving   such   exemptions.     The
relevant observations are as follows­
“The   High   Court   referred   to   the
observations  of  Lord  Halsbury  in  the  case  of
Commissioner   of   Inland   Revenue   v.   James
Forrest   (1890)   15   AC   334,   to   the   effect   that
exemptions   from   taxation   should   be   strictly
construed   because   otherwise   the   burden   of
taxation   will   fall   on   other   members   of   the
community.     Those   observations,   in   my
opinion,   have   no   relevance   to   the   facts   and
circumstances   of   the   present   controversy,
because   we   know   that   the   exemption   was
granted   to   the   Government   of   India   in   the 48

department   dealing   with   purchase  of   certain
commodities   and   articles   without   reference
to   quantity.     As   already   pointed   out,   the
Indian   Stores   Department   was   concerned
with purchase of stores for public services on
behalf   of   all   Central   Departments   of
Government and local Government, etc., and
the   Government   of   Bengal   as   then
constituted was one of the provinces of India
which   have   been   receiving   subsidies   and
subventions   to   make   up   the   deficit   in   their
budgets.     As   a   matter   of   fact,   as   stated   on
behalf   of   the   Bengal   Government   the
concession   was   granted   in   order   to   enable
business communities within the province of
Bengal   to   compete   on   favourable   terms   with
others   outside   Bengal   in   the   matter   of
supplying   the   needs   of   the   Government.
Hence,   there   is   no   question   of   liberal
construction   of   the   exemption   resulting   in
throwing   a   greater   burden   on   other   citizens.
On the other hand, the larger the sales in the
province   of   Bengal   as   it   used   to   be,   the
greater   the   benefit   to   the   business
community   doing   business   within   that
province.     It   was   therefore   stated   at   the   Bar
that   though   the   present   case   involved   taxes 49

amounting   to   less   than   Rs.10,000,   the
question   arising   for   determination   in   this
case   affected   much   larger   amounts   because
such   sales   within   the   province   amounted   to
several   crores.     I   should   have   thought   that
the   business   community   in   the   province   of
Bengal   having   had   the   advantage   of   the
transactions   of   sale,   the   Government   of
Bengal   in   all   fairness   should   have   allowed
the purchasing agency of the Government of
India   the   benefit   of   the   exemption   until   that
benefit was in terms withdrawn sometimes in
the beginning of 1949.”
34. In   Hansraj Gordhandas v. H.H. Dave, Asst. Collector
of   Central   Excise   &   Customs,   Surat   and   Ors. ,   AIR
1970   SC   755   =   (1969)   2   SCR   253   [ hereinafter   referred
as   ‘ Hansraj   Gordhandas   Case ’   for   brevity ],   wherein
this   Court   was   called   upon   to   interpret   an   exemption
notification   issued   under   the   Central   Excise   Act.     It
would   be   relevant   to   understand   the   factual   context
which   gave   rise   to   the   aforesaid   case   before   the   Court.
The   appellant   was   sole   proprietor   who   used   to   procure 50

cotton   from   a   co­operative   society   during   the   relevant
period.  The society had agreed to carry out the weaving
work   for   the   appellant   on   payment   of   fixed   weaving
charges   at   Re.0.19   np.   per   yard   which   included
expenses the society would have to incur in transporting
the aforesaid cotton fabric.  In the years 1959 and 1960,
the Government issued an exemption notification which
exempted   cotton   fabrics   produced   by   any   co­operative
society   formed   of   owners   of   cotton   power   looms,
registered on or before 31 st
  March, 1961.   The question
before the Court was whether the appellant who got the
cotton   fabric   produced   from   one   of   the   registered   co­
operative   society   was   also   covered   under   the   aforesaid
notification.     It   may   be   of   some   significance   that   the
revenue   tried   to   interpret   the   aforesaid   exemption   by
relying   on   the   purposive   interpretation   by   contending
that   the   object   of   granting   the   above   exemption   was   to
encourage  the formation  of  co­operative   societies   which 51

not   only   produced   cotton   fabrics   but   also   consisted   of
members, not only owning but having actually operated
not more than four power looms during the three years
immediately   preceding   their   having   joined   the   society.
The   policy   was   that   instead   of   each   such   member
operating his looms on his own, he should combine with
others   by   forming   a   society   to   produce   clothes.     It   was
argued   that   the   goods   produced   for   which   exemption
could   be   claimed   must   be   goods   produced   on   his   own
and   on   behalf   by   the   society.     The   court   did   not
countenance such purposive interpretation.  It was held
that a taxing legislation should be interpreted wholly by
the   language   of   the   notification.     The   relevant
observations are: 
“It   is   well­established   that   in   a   taxing
statute   there  is  no   room   for   any   intendment
but regard must be had to the clear meaning
of   the   words.     The   entire   matter   is   governed
wholly by the language of the notification.   If
the tax­payer is within the plain terms of the 52

exemption   it   cannot   be   denied   its   benefit   by
calling   in   aid   any   supposed   intention   of   the
exempting   authority.     If   such   intention   can
be   gathered   from   the   construction   of   the
words   of   the   notification   or   by   necessary
implication therefrom, the matter is different,
but   that   is   not   the   case   here.     In   this
connection   we   may   refer   to   the   observations
of   Lord   Watson   in   Salomon   vs.   Salomon   &
Co., (1897) AC 22):
‘Intention of the Legislature is a common but
very   slippery   phrase,   which,   popularly
understood   may   signify   anything   from
intention   embodied   in   positive   enactment   to
speculative opinion as to what the legislature
probably   would   have   meant,   although   there
has been an omission to enact it.  In a Court
of   Law   or   Equity,   what   the   Legislature
intended   to   be   done   or   not   to   be   done   can
only   be   legitimately   ascertained   from   that
which   it   has   chosen   to   enact,   either   in
express   words   or   by   reasonable   and
necessary implication.’
It   is   an   application   of   this   principle   that   a
statutory notification may not be extended so
as   to   meet   a   casus   omissus.     As   appears   in 53

the   judgment   of   the   Privy   Council   in
Crawford v. Spooner.
‘…   we   cannot   aid   the   Legislature’s   defective
phrasing   of   the   Act,   we   cannot   add,   and
mend,   and,   by   construction,   make   up
deficiencies which are left there.’
Learned Counsel for the respondents is
possibly   right   in   his   submission   that   the
object   behind   the   two   notifications   is   to
encourage   the   actual   manufacturers   of
handloom   cloth   to   switch   over   to   power
looms   by   constituting   themselves   in   co­
operative Societies.   But the operation of the
notifications   has   to   be   judged   not   by   the
object   which   the   rule   making   authority   had
in   mind   but   by   the   words   which   it   has
employed to effectuate the legislative intent.”
35. In   the   judgment   of   two   learned   Judges   in   Union   of
India   v.   Wood   Papers   Limited ,   (1990)   4   SCC   256
[ hereinafter   referred   as   ‘ Wood   Papers   Ltd.   Case ’   for
brevity ],   a   distinction   between   stage   of   finding   out   the
eligibility   to   seek   exemption   and   stage   of   applying   the
nature of exemption was made.  Relying on the decision 54

in   Collector   of   Central   Excise   vs.   Parle   Exports   (P)
Ltd. ,   (1989)   1   SCC   345,   it   was   held   “ Do   not   extend   or
widen   the   ambit   at   the   stage   of   applicability.   But   once
that   hurdle   is   crossed,   construe   it   liberally ”.     The
reasoning   for   arriving   at   such   conclusion   is   found   in
para 4  of  Wood Papers Ltd. Case  (supra), which reads­
“…   Literally   exemption   is   freedom   from
liability, tax or duty.  Fiscally, it may assume
varying   shapes,   specially,   in   a   growing
economy.     For   instance   tax   holiday   to   new
units,   concessional   rate   of   tax   to   goods   or
persons for limited period or with the specific
objective   etc.     That   is   why   its   construction,
unlike   charging   provision,   has   to   be   tested
on   different   touchstone.     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   or   progressive   approach   of   fiscal
provisions   intended   to   augment   State
revenue.   But   once   exception   or   exemption 55

becomes   applicable   no   rule   or   principles
requires   it   to   be   construed   strictly.     Truly
speaking liberal and strict construction of
an  exemption  provision are  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   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… ”
( emphasis supplied )
36. In   Mangalore   Chemicals   &   Fertilizers   Ltd.   vs.   Dy.
Commissioner   of   Commercial   Taxes ,   (1992)   Supp.   1
SCC   21   [ hereinafter   referred   as   ‘ Mangalore   Chemicals
Case ’   for   brevity ],   the   facts   of   the   case   were   that   the
State   Government   issued   a   notification   in   exercise   of
power   under   Section   8­A   of   the   Karnataka   Sales   Tax 56

Act, 1957, providing certain incentives to entrepreneurs
starting new industries in the State pursuant to State’s
policy   for   “rapid   industrialization”.     The   notification
contains   a   package   of   reliefs   and   incentives   including
one   concerning   relief   from   payment   of   sales   tax   with
which   the   case   was   concerned.     There   was   no   dispute
that   the   appellant   was   entitled   to   the   benefit   of   the
Notification   dated   June   30,   1969.     There   was   also   no
dispute   that   the   refunds   were   eligible   to   be   adjusted
against sales tax payable for respective years.   The only
controversy   was   whether   the   appellant,   not   having
actually   secured   the   “prior   permission”   would   be
entitled to adjustment having regard to the words of the
Notification   of   August   11,   1975,   that   “until   permission
of   renewal   is   granted   by   the   Deputy   Commissioner   of
Commercial   Taxes,   the   new   industry   should   not   be
allowed   to   adjust   the   refunds”.     The   contention   of   the
appellants therein was that the permission for the three 57

years had been sought well before the commencement of
the   respective   years   but   had   been   withheld   for   reasons
which   were   demonstrably   extraneous.     Therefore,
contention   was   that   if,   in   these   circumstances,   the
Deputy Commissioner could withold the permission.
37. This   Court   while   accepting   the   interpretation   provided
by   the   appellant,   observed   on   the   aspect   of   strict
construction   of   a   provision   concerning   exemptions   as
follows:
“…   There   is   support   of   judicial   opinion   to
the   view   that   exemptions   from   taxation
have a tendency to increase the burden on
the   other   unexempted   class   of   tax   payers
and   should   be   construed   against   the
subject   in   case   of   ambiguity.     It   is   an
equally well known principle that a person
who   claims   an   exemption   has   to   establish
his case.  
…   The   choice   between   a   strict   and   a
liberal   construction   arises   only   in   case   of 58

doubt   in   regard   to   the   intention   of   the
legislature   manifest   on   the   statutory
language.     Indeed,   the   need   to   resort   to
any   interpretative   process   arises   only
where   the   meaning   is   not   manifest   on   the
plain words of the statute.  If the words are
plain   and   clear   and   directly   convey   the
meaning,   there   is   no   need   for   any
interpretation.     It   appears   to   us   the   true
rule   of   construction   of   a   provision   as   to
exemption   is   the   one   stated   by   this   Court
in   Union   of   India   v.   Wood   Papers   Ltd.
[(1990) 4 SCC 256 = 1990 SCC (Tax) 422 =
JT (1991) SC 151]”
Three   important   aspects   which   comes   out   of   the
discussion   are   the   recognition   of   horizontal   equity   by
this   court   as   a   consideration   for   application   of   strict
interpretation, subjugation of strict interpretation to the
plain   meaning   rule   and   interpretation   in   favour   of
exclusion in light of ambiguity.  59

38. We   will   now   consider   another   Constitution   Bench
decision   in   Commissioner   of   Central   Excise,   New
Delhi   v.   Hari   Chand   Shri   Gopal ,   (2011)   1   SCC   236
[ hereinafter   referred   as   ‘ Hari   Chand   Case ’   for   brevity ].
We   need   not   refer   to   the   facts   of   the   case   which   gave
rise   to   the   questions   for   consideration   before   the
Constitutional   Bench.   K.S.   Radhakrishnan,   J.,   who
wrote   the   unanimous   opinion   for   the   Constitution
Bench, framed the question, viz., whether manufacturer
of a specified final product falling under Schedule to the
Central   Excise   Tariff   Act,   1985   is   eligible   to   get   the
benefit   of   exemption   of   remission   of   excise   duty   on
specified   intermediate   goods   as   per   the   Central
Government   Notification   dated   11.08.1994,   if   captively
consumed   for   the   manufacture   of   final   product   on   the
ground   that   the   records   kept   by   it   at   the   recipient   end
would   indicate   its   “intended   use”   and   “substantial
compliance” with procedure set out in Chapter 10 of the 60

Central   Excise   Rules,   1994,   for   consideration?   The
Constitution   Bench   answering   the   said   question
concluded   that   a   manufacturer   qualified   to   seek
exemption   was   required   to   comply   with   the   pre­
conditions   for   claiming   exemption   and   therefore   is   not
exempt   or   absolved   from   following   the   statutory
requirements   as   contained   in   the   Rules.       The
Constitution   Bench   then   considered   and   reiterated   the
settled   principles   qua   the   test   of   construction   of
exemption   clause,   the   mandatory   requirements   to   be
complied with and the distinction between the eligibility
criteria   with   reference   to   the   conditions   which   need   to
be strictly complied with and the conditions which need
to   be   substantially   complied   with.     The   Constitution
Bench followed the   ratio   in   Hansraj Gordhandas   Case
(supra),   to   reiterate   the   law   on   the   aspect   of
interpretation of exemption clause in  para 29  as follows­61

“The  law is  well settled that  a  person
who claims exemption or concession has to
establish   that   he   is   entitled   to   that
exemption   or   concession.     A   provision
providing   for   an   exemption,   concession   or
exception,   as   the   case   may   be,   has   to   be
construed   strictly   with   certain   exceptions
depending   upon  the   settings  on  which   the
provision   has   been   placed   in   the   statute
and the object and purpose to be achieved.
If exemption is available on complying with
certain   conditions,   the   conditions   have   to
be   complied   with.   The   mandatory
requirements   of   those   conditions   must   be
obeyed   or   fulfilled   exactly,   thought   at
times, some latitude can be shown, if there
is   failure   to   comply   with   some
requirements   which   are   directory   in
nature,   the   non­compliance   of   which
would   not   affect   the   essence   or   substance
of the notification granting exemption.”
39. The Constitution  Bench then considered the doctrine of
substantial   compliance   and   “intended   use”.     The 62

relevant   portions   of   the   observations   in   paras   31   to   34
are in the following terms –
“31.   Of   course,   some   of   the   provisions   of
an exemption notification may be directory in
nature   and   some   are   mandatory   in   nature.
A   distinction   between   the   provisions   of   a
statute   which   are   of   substantive   character
and   were   built   in   with   certain   specific
objectives   of   policy,   on   the   one   hand,   and
those   which   are   merely   procedural   and
technical in there nature, on the other, must
be kept clearly distinguished…
Doctrine   of   substantial   compliance   and
“intended use”
32. The doctrine of substantial compliance
is   a   judicial   invention,   equitable   in   nature,
designed to avoid hardship in cases where a
party   does   all   that   can   reasonably   be
expected   of   it,   but   failed   or   faulted   in   some
minor or inconsequent aspects which cannot
be   described   as   the   “essence”   or   the
“substance”   of   the   requirements.     Like   the
concept   of   “reasonableness”,   the   acceptance
or   otherwise   of   a   plea   of   “substantial
compliance”   depends   upon   the   facts   and
circumstances of each case and the purpose 63

and object to be achieved and the context of
the   prerequisites   which   are   essential   to
achieve the object and purpose of the rule or
the   regulation.     Such   a   defence   cannot   be
pleased   if   a   clear   statutory   prerequisite
which effectuates the object and the purpose
of the statute has not been met.  Certainly, it
means   that   the   Court   should   determine
whether   the   statute   has   been   followed
sufficiently   so   as   to   carry   out   the   intent   for
which   the   statute   was   enacted   and   not   a
mirror   image   type   of   strict   compliance.
Substantial   compliance   means   “actual
compliance   in   respect   to   the   substance
essential to every  reasonable objective of the
statute”   and   the   Court   should   determine
whether   the   statute   has   been   followed
sufficiently   so   as   to   carry   out   the   intent   of
the   statute   and   accomplish   the   reasonable
objectives for which it was passed.
33.  A   fiscal   statute   generally   seeks   to
preserve   the   need   to   comply   strictly   with
regulatory   requirements   that   are   important,
especially when a party seeks the benefits of
an   exemption   clause   that   are   important.
Substantial compliance with an enactment is
insisted,   where   mandatory   and   directory 64

requirements   are   lumped   together,   for   in
such   a   case,   if   mandatory   requirements   are
complied   with,   it   will   be   proper   to   say   that
the   enactment   has   been   substantially
complied   with   notwithstanding   the   non­
compliance   of   directory   requirements.     In
cases   where   substantial   compliance   has
been   found,   there   has   been   actual
compliance   with   the   statute,   albeit
procedurally   faulty.     The   doctrine   of
substantial compliance seeks to preserve the
need to comply strictly with the conditions or
requirements   that   are   important   to   invoke   a
tax   or   duty   exemption   and   to   forgive   non­
compliance   for   either   unimportant   and
tangential requirements or requirements that
are so confusingly or incorrectly written that
an   earnest   effort   at   compliance   should   be
accepted.
34.   The   test   for   determining   the
applicability   of   the   substantial   compliance
doctrine has been the subject of a myriad of
cases and quite often, the critical question to
be   examined   is   whether   the   requirements
relate   to   the   “substance”   or   “essence”   of   the
statute,   if   so,   strict   adherence   to   those
requirements   is   a   precondition   to   give   effect 65

to   that   doctrine.     On   the   other   hand,   if   the
requirements   are   procedural   or   directory   in
that they are not of the “essence” of the thing
to   be   done   but   are   given   with   a   view   to   the
orderly   conduct   of   business,   they   may   be
fulfilled   by   substantial,   if   not   strict
compliance.     In   other   words,   a   mere
attempted   compliance  may   not  be   sufficient,
but   actual   compliance   with   those   factors
which are considered as essential.”
40. After considering the various authorities, some of which
are adverted to above, we are compelled to observe how
true it is to say that there exists unsatisfactory state of
law   in   relation   to   interpretation   of   exemption   clauses.
Various   Benches   which   decided   the   question   of
interpretation   of   taxing   statute   on   one   hand   and
exemption   notification   on   the   other,   have   broadly
assumed (we are justified to say this) that the position is
well settled in the interpretation of a taxing statute:  It is
the   law   that   any   ambiguity   in   a   taxing   statute   should
enure   to   the   benefit   of   the   subject/assessee,   but   any 66

ambiguity   in   the   exemption   clause   of   exemption
notification   must   be   conferred   in   favour   of   revenue   –
and   such   exemption   should   be   allowed   to   be   availed
only to those subjects/assesses who demonstrate that a
case for exemption squarely falls within the parameters
enumerated   in   the   notification   and   that   the   claimants
satisfy   all   the   conditions   precedent   for   availing
exemption.     Presumably   for   this   reason   the   Bench
which decided  Surendra Cotton Oil Mills Case  (supra)
observed   that   there   exists   unsatisfactory   state   of   law
and   the   Bench   which   referred   the   matter   initially,
seriously   doubted   the   conclusion   in   Sun   Export   Case
(supra)   that   the   ambiguity   in   an   exemption   notification
should be interpreted in favour of the assessee.
41. After thoroughly examining the various precedents some
of   which   were   cited   before   us   and   after   giving   our
anxious consideration, we would be more than justified 67

to conclude and also compelled to hold that every taxing
statue including, charging,  computation  and  exemption
clause   (at   the   threshold   stage)   should   be   interpreted
strictly.   Further,   in   case   of   ambiguity   in   a   charging
provisions,   the   benefit   must   necessarily   go   in   favour   of
subject/assessee,   but   the   same   is   not   true   for   an
exemption   notification   wherein   the   benefit   of   ambiguity
must   be   strictly   interpreted   in   favour   of   the
Revenue/State .  
42. In   Govind   Saran   Ganga   Saran   v.   Commissioner   of
Sales   Tax ,   1985   Supp   (SCC)   205,   this   Court   pointed
out   three   components   of   a   taxing   statute,   namely
subject of the tax; person liable to pay tax; and the rate
at   which   the   tax   is   to   be   levied.     If   there   is   any
ambiguity   in   understanding   any   of  the   components,   no
tax can be levied till the ambiguity or defect is removed
by   the   legislature   [See   Mathuram   Agrawal   v.   Sate   of 68

Madhya   Pradesh ,   (1999)   8   SCC   667;   Indian   Banks’
Association vs. Devkala Consultancy Service , (2004)
4   JT   587   =   AIR   2004   SC   2615;   and   Consumer   Online
Foundation vs. Union of India , (2011) 5 SCC 360.]
43. There   is   abundant   jurisprudential   justification   for   this.
In   the   governance   of   rule   of   law   by   a   written
Constitution, there is no implied power of taxation.  The
tax   power   must   be   specifically   conferred   and   it   should
be strictly in accordance with the power so endowed by
the   Constitution   itself.     It   is   for   this   reason   that   the
Courts   insist   upon   strict   compliance   before   a   State
demands   and   extracts   money   from   its   citizens   towards
various   taxes.     Any   ambiguity   in   a   taxation   provision,
therefore,   is   interpreted   in   favour   of   the
subject/assessee.    The statement of law that ambiguity
in   a   taxation   statute   should   be   interpreted   strictly   and
in   the   event   of   ambiguity   the   benefit   should   go   to   the 69

subject/assessee   may   warrant   visualizing   different
situations.     For   instance,   if   there   is   ambiguity   in   the
subject   of   tax,   that   is   to   say,   who   are   the   persons   or
things   liable   to   pay   tax,   and   whether   the   revenue   has
established   conditions   before   raising   and   justifying   a
demand.  Similar is the case in roping all persons within
the   tax   net,   in   which   event   the   State   is   to   prove   the
liability   of   the   persons,   as   may   arise   within   the   strict
language   of   the   law.     There   cannot   be   any   implied
concept   either   in   identifying   the   subject   of   the   tax   or
person liable to pay tax.  That is why it is often said that
subject   is   not   to   be   taxed,   unless   the   words   of   the
statute   unambiguously   impose   a   tax   on   him,   that   one
has to  look merely  at the words  clearly  stated and that
there is no room for any intendment nor presumption as
to tax.   It is only the letter of the law and not the spirit
of the law to guide the interpreter to decide the liability
to   tax   ignoring   any   amount   of   hardship   and   eschewing 70

equity in taxation.  Thus, we may emphatically reiterate
that   if   in   the   event   of   ambiguity   in   a   taxation   liability
statute,   the   benefit   should   go   to   the   subject/assessee.
But,   in   a   situation   where   the   tax   exemption   has   to   be
interpreted,   the   benefit   of   doubt   should   go   in   favour   of
the   revenue,   the   aforesaid   conclusions   are   expounded
only   as   a   prelude   to   better   understand   jurisprudential
basis   for   our   conclusion.   We   may   now   consider   the
decisions which support our view.
44. In   Hansraj   Gordhandas   Case   (supra),   the
Constitutional   Bench   unanimously   pointed   out   that   an
exemption   from   taxation   is   to   be   allowed   based   wholly
by   the   language   of   the   notification   and   exemption
cannot   be   gathered   by   necessary   implication   or   by
construction of words; in other words, one has to look to
the   language   alone   and   the   object   and   purpose   for
granting exemption is irrelevant and immaterial.   71

45. In  Parle Exports Case  (supra), a bench of two Judges of
this   Court   considered   the   question   whether   non­
alcoholic beverage base like Gold spot base, Limca base
and   Thumps   Up   base,   were   exempted   from   payment   of
duty   under   the   Central   Government   notification   of
March,   1975.     While   considering   the   issue,   this   Court
pointed   out   the   Strict   interpretation   to   be   followed   in
interpretation   of   a   notification   for   exemption.     These
observations   are   made   in   para   17   of   the   judgment,
which read as follows:
“How   then   should   the   courts   proceed?
The   expressions   in   the   Schedule   and   in   the
notification   for   exemption   should   be
understood   by   the   language   employed
therein bearing in mind the context in which
the   expressions   occur.     The   words   used   in
the   provision,   imposing   taxes   or   granting
exemption should be understood in the same
way   in   which   these   are   understood   in
ordinary   parlance   in   the   area   in   which   the
law   is   in   force   or   by   the   people   who 72

ordinarily   deal   with   them.     It   is,   however,
necessary to bear in mind certain principles.
The   notification   in   this   case   was   issued
under Rule 8 of the Central Excise Rules and
should   be   read   along   with   the   Act.     The
notification   must   be   read   as   a   whole   in   the
context   of   the   other   relevant   provisions.
When   a   notification   is   issued   in   accordance
with   power   conferred   by   the   statute,   it   has
statutory   force   and   validity   and,   therefore,
the   exemption   under   the   notification   is   as   if
it were contained in the Act itself.  See in this
connection   the   observations   of   this   Court   in
Orient   Weaving   Mills   (P)   Ltd.   v.   Union   of
India, 1962 Supp 3 SCR 481 = AIR 1963 SC
98.     See   also   Kailash   Nath   v.   State   of   U.P.,
AIR   1957   SC   790.   The   principle   is   well
settled   that   when   two   views   of   a   notification
are possible, it should be construed in favour
of   the   subject   as   notification   is   part   of   a
fiscal   enactment.     But   in   this   connection,   it
is   well   to   remember   the   observations   of   the
Judicial   Committee   in   Coroline   M.   Armytage
v. Frederick Wilkinson, (1878) 3 AC 355, that
it is only, however, in the event of there being
a   real   difficulty   in   ascertaining   the   meaning
of   a   particular   enactment   that   the   question 73

of   strictness   or   of   liberality   of   construction
arises.   The Judicial Committee reiterated in
the   said   decision   at   page   369   of   the   report
that   in   a   taxing   Act   provisions   enacting   an
exception   to   the   general   rule   of   taxation   are
to   be   construed   strictly   against   those   who
invoke   its   benefit.     While   interpreting   an
exemption   clause,   liberal   interpretation
should   be   imparted   to   the   language   thereof,
provided no violence is done to the language
employed.     It   must,   however,   be   borne   in
mind   that   absurd   results   of   construction
should be avoided.”
In  the above passage, no doubt this Court observed
that “ when two views of a notification are possible, it
should   be   construed   in   favour   of   the   subject   as
notification   is   part   of   fiscal   document ”.     This
observation   may   appear   to   support   the   view   that
ambiguity   in   a   notification   for   exemption   must   be
interpreted   to   benefit   the   subject/assessee.     A
careful   reading   of   the   entire   para,   as   extracted
hereinabove   would,   however,   suggest   that   an 74

exception   to   the   general   rule   of   tax   has   to   be
construed strictly against those who invoke for their
benefit.     This   was   explained   in   a   subsequent
decision in  Wood Papers Ltd. Case  (supra).  In para
6, it was observed as follows:
“…   In   Collector   of   Central   Excise   v.
Parle   Exports   (P)   Ltd.,   (1989)   1   SCC   345,
this   Court   while   accepting   that   exemption
clause   should   be   construed   liberally
applied   rigorous   test   for   determing   if
expensive   items   like   Gold   Spot   base   or
Limca   base   of   Thums   Up   base   were
covered   in   the   expression   food   products
and food preparations used in Item No. 68
of   First   Schedule   of   Central   Excises   and
Salt  Act  and  held  ‘that   it  should  not  be in
consonance   with   spirit   and   the   reason   of
law   to   give   exemption   for   non­alcoholic
beverage   basis   under   the   notification   in
question’.     Rationale   or   ratio   is   same.     Do
not   extend   or   widen   the   ambit   at   stage   of
applicability.     But   once   that   hurdle   is
crossed   construe   it   liberally.     Since   the
respondent did not fall in the first clause of 75

the   notification   there   was   no   question   of
giving the clause a liberal construction and
hold   that   production   of   goods   by
respondent   mentioned   in   the   notification
were entitled to benefit.” 
46. The   above   decision,   which   is   also   a   decision   of   two­
Judge Bench of this Court, for the first time took a view
that   liberal   and   strict   construction   of   exemption
provisions   are   to   be   invoked   at   different   stages   of
interpreting   it.     The   question   whether   a   subject   falls   in
the   notification   or   in   the   exemption   clause,   has   to   be
strictly construed.  When once the ambiguity or doubt is
resolved   by   interpreting   the   applicability   of   exemption
clause   strictly,   the   Court   may   construe   the   notification
by   giving   full   play   bestowing   wider   and   liberal
construction.     The   ratio   of   Parle   Exports   Case   (supra)
deduced as follows: 
“Do not extend or widen the ambit at
stage of applicability.  But once that hurdle
is crossed, construe it liberally”.   76

47. We   do   not   find   any   strong   and   compelling   reasons   to
differ,   taking   a   contra   view,   from   this.     We   respectfully
record   our   concurrence   to   this   view   which   has   been
subsequently,   elaborated   by   the   Constitution   Bench   in
Hari Chand Case  (supra).
48. The   next   authority,   which   needs   to   be   referred   is   the
case   in   Mangalore   Chemicals   (supra) .     As   we   have
already made reference to the same earlier, repetition of
the   same   is   not   necessary.   From   the   above   decisions,
the   following   position   of   law   would,   therefore,   clear.
Exemptions from taxation have tendency to increase the
burden on the other unexempted class of tax payers.   A
person   claiming   exemption,   therefore,   has   to   establish
that   his   case   squarely   falls   within   the   exemption
notification, and while doing so, a notification should be
construed against the subject in case of ambiguity.   77

49. The   ratio   in   Mangalore   Chemicals   Case   (supra)   was
approved   by   a   three­Judge   Bench   in   Novopan   India
Ltd.   v.   Collector   of   Central   Excise   and   Customs ,
1994  Supp (3) SCC  606.    In  this case,  probably for  the
first   time,   the   question   was   posed   as   to   whether   the
benefit   of   an   exemption   notification   should   go   to   the
subject/assessee   when   there   is   ambiguity.     The   three­
Judge   Bench,  in   the  background  of English   and  Indian
cases, in para 16, unanimously held as follows: 
“We are, however, of the opinion that,
on   principle,   the   decision   of   this   Court   in
Mangalore   Chemicals   –   and   in   Union   of
India v. Wood Papers, referred to therein –
represents   the   correct   view   of   law.     The
principle   that   in   case   of   ambiguity,   a
taxing   statute   should   be   construed   in
favour of the assessee – assuming that the
said principle is good and sound – does not
apply   to   the   construction   of   an   exception
or an exempting provision, they have to be
construed   strictly.     A   person   invoking   an
exception   or   an   exemption   provision   to 78

relieve   him   of   the   tax   liability   must
establish   clearly   that   he   is   covered   by   the
said   provision.     In   case   of   doubt   or
ambiguity,   benefit   of   it   must   go   to   the
State….”
50. In   Tata Iron & Steel Co. Ltd. v. State of Jharkhand ,
(2005)   4   SCC   272,   which   is   another   two­Judge   Bench
decision,   this   Court   laid   down   that   eligibility   clause   in
relation   to   exemption   notification   must   be   given   strict
meaning and in para 44, it was further held –
“The principle that in the event a provision
of   fiscal   statute   is   obscure   such
construction   which   favours   the   assessee
may be adopted, would have no application
to   construction   of   an   exemption
notification,  as   in  such   a  case  it   is  for   the
assessee to show that he comes within the
purview   of   exemption   (See   Novopan   India
Ltd v. CCE and Customs).”
51. In   Hari  Chand  Case   (supra),  as  already  discussed,   the
question   was   whether   a   person   claiming   exemption   is
required   to   comply   with   the   procedure   strictly   to   avail 79

the benefit.  The question posed and decided was indeed
different.     The   said   decision,   which   we   have   already
discussed   supra,   however,   indicates   that   while
construing   an   exemption   notification,   the   Court   has   to
distinguish   the   conditions   which   require   strict
compliance,   the  non­compliance   of  which   would   render
the   assessee   ineligible   to   claim   exemption   and   those
which   require   substantial   compliance   to   be   entitled   for
exemption.     We   are   pointing   out   this   aspect   to   dispel
any   doubt   about   the   legal   position   as   explored   in   this
decision.     As   already   concluded   in   para   50   above,   we
may   reiterate   that   we   are   only   concerned   in   this   case
with   a   situation   where   there   is   ambiguity   in   an
exemption   notification   or   exemption   clause,   in   which
event the benefit of such ambiguity cannot be extended
to   the   subject/assessee   by   applying   the   principle   that
an   obscure   and/or   ambiguity   or   doubtful   fiscal   statute
must   receive   a   construction   favouring   the   assessee. 80

Both   the   situations   are   different   and   while   considering
an   exemption   notification,   the   distinction   cannot   be
ignored.
52. To sum up, we answer the reference holding as under ­
(1) 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. 
(2)   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.  
(3) The ratio in   Sun Export   case   (supra) is not
correct and all the decisions which took similar
view   as   in   Sun   Export   Case   (supra)   stands
over­ruled.  
53. The   instant   civil   appeal   may   now   be   placed   before
appropriate   Bench   for   considering   the   case   on   merits 81

after obtaining orders  from the Hon’ble Chief Justice of
India.  
…………………………..J.
( Ranjan Gogoi ) 
…………………………..J.
( N.V. Ramana ) 
…………………………..J.
( R. Banumathi ) 
…………………………………..J.
( Mohan M. Shantanagoudar ) 
…………………………..J.
( S. Abdul Nazeer )
New Delhi
July 30, 2018 82