Overruling its 21-year-old verdict, the Supreme Court held that when there is ambiguity in tax exemption notification, the benefit of such uncertainty must be interpreted in favour of the State.
However, in the event of ambiguity in a taxation liability (charging of tax) statute, the benefit should go to the subject/assessee.
It also held that the onus should be on the assessee to show that his/her case comes within the parameters of the exemption clause or exemption notification.
The verdict effectively overrules the 1997 decision of a three-judge bench of the apex court in Sun Export House vs Collector of Customs, wherein It held that in case of an ambiguity in a tax exemption provision or notification, it must be interpreted in favour of the assessee claiming the benefit of such exemption.
Significance of Judgement
The ruling is likely to give more authority to tax department to ensure that tax exemptions are granted only in those case where the eligibility is clearly established.
It also shows that exemption is an exception to the general rule and therefore should be strictly given as the burden of tax is then shifted to others.
It is also to be seen whether the judgment, which is relating to an exemption from customs duty, is also applicable for exemptions in other levies including income tax.
