1. Introduction

It is a common saying that it is impossible to be sure of anything except death and taxes.[1] What this saying does not capture is that that one can always rest assured of human ingenuity to avoid taxes. Tax exemptions dilute the incidence of tax and thus offer such refuge. Whether a taxpayer or a transaction falls within the scope of the exemption provision, therefore, becomes a point of inquiry and debate. This is particularly because the issues involved are so vexed and intricate that they have led to emergence of principles which can properly be described as rules for interpretation of fiscal exemptions. This article makes an attempt to explain these principles, revisited in the light of a recent decision of the Supreme Court.


  1. “Strict” versus “purposive” construction

On one hand there is a principle that taxing statutes must be strictly constructed, which principle only accommodates a plain meaning of the statutory provision irrespective of its consequences.[2] On the other hand is the purposive construction rule which accommodates liberal expansion of the scope of the relevant exemption provision.[3] The outcome of this pendulum-like swing of judicial opinion resulted into an interpretative standard which attributed strict construction to the eligibility criteria in the exemption provision and also simultaneously accorded a liberal construction to the conditions enumerated therein for claiming exemption.[4]

  1. Interpretation based on classification of exemption provisions between “substantive” versus “procedural”

There is another conflict in the context of interpretation of exemption provisions which can be described as the substantive versus the procedural debate. This issue was addressed in great detail by a five-Judge Bench of the Supreme Court in CCE v. Hari Chand Shri Gopal[5]. However, the decision did not spell out the law clearly. On the one hand the principle of strict construction of fiscal statutes was reiterated, on the other the Supreme Court in Hari Chand[6] case acknowledged that “some of the provisions of an exemption notification may be directory in nature and some are mandatory in nature” and it is essential that “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 their nature, on the other, must be kept clearly distinguished”.[7]

On the above premise, the Supreme Court accepted that substantial compliance in certain cases could indeed be considered as sufficient for an entitlement of exemption inasmuch as 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”.[8]

  1. Burden of proof perspective

Another angle of inquiry is determining who bears the burden of proof insofar as claim for exemption is concerned? The standard principle under civil laws, which has also been extended to fiscal enactments,[9] is that the burden lies on the person asserting the fact. In Novapan India Ltd. v. CCE & Customs[10], the Supreme Court observed that “[a] person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision” and in the “case of doubt or ambiguity, benefit of it must go to the State”.[11] However, a number of decisions held to the contrary on the premise that when two views are possible on the construction of the exemption provision then the view which is in favour of the taxpayer should be adopted.[12]

  1. Decision of five-Judge Bench in Dilip Kumar

Considering the state of legal position as unsatisfactory, the Supreme Court referred the issues relating to interpretation of fiscal exemptions to a larger Bench.[13] This led to the decision of a five-Judge Bench in Dilip Kumar.[14] The five-Judge Bench, without restraint, admitted that the earlier decisions to the effect that if two views are possible in interpreting the exemption notification, the one favourable to the assessee in the matter of taxation has to be preferred … created confusion and resulted in unsatisfactory state of law” as they did so “[i]n 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.[15]

After an extensive enunciation of the legal position, the following summary was set out by the Supreme Court in Dilip Kumar:[16]

  1. To sum up, we answer the reference holding as under:

 66.1 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.

 66.2 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.

66.3 The ratio in Sun Export Corpn. v. Collector of Customs[17] is not correct and all the decisions which took similar view as in Sun Export case[18] stand overruled.

The decision in Dilip Kumar[19] made a significant impact on fiscal jurisprudence. It not only restated the legal position in context of general interpretative standard to be adopted and the manner of appreciating the exemption provisions but also went beyond to overrule a number of decisions which were to the core of fiscal jurisprudence for decades. For the taxpayers, the impact of this decision was felt almost immediately; the decision of the Delhi High Court in Union of India v. Amazon Seller Services (P) Ltd.[20] being an appropriate illustration as to the consequences which befall the taxpayer consequent to following the ratio of Dilip Kumar.[21]

  1. Mother Superior decision: Another revisit to the debate?

Notwithstanding the rigours of the additional burden upon the taxpayer, the decision in Dilip Kumar[22] was a critical restatement of law and generated an expectation that it would satisfactorily settle the legal position governing interpretation of fiscal legislations. It postulated a clear judicial fiat that the burden lies on the Revenue to establish the charge of tax whereas the burden lies upon the taxpayer to establish entitlement for exemption. The most crucial aspect of the decision in Dilip Kumar[23], which is a rare occurrence, was the declaration that “all the decisions which took similar view as in Sun Export case[24] stands overruled”. In other words, the decision in Dilip Kumar[25] implored one to start with a clean slate not being bogged down by the weight of the past precedents. A recent decision of the Supreme Court in Govt. of Kerala v. Mother Superior Adoration Convent[26] has, however, added a new dimension.

In Mother Superior[27] the Supreme Court acknowledged the existence of earlier decisions endorsing strict construction of exemption provisions but only to highlight that “there is another line of authority which states that even in tax statutes, an exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting economic growth or otherwise has some beneficial reason behind it”.[28] In Mother Superior[29] the Supreme Court further went on to examine the contours of the lis addressed in Dilip Kumar[30] to declare that “the 5-Judge Bench judgment did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. We cannot agree with Shri Gupta’s contention that sub silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench”.

Echoing the settled principle that “a decision is only an authority for what it decides and not what may logically follow from it”, in Mother Superior[31] the Supreme Court concluded that:

the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes.

In order to clarify the steps required to be traversed in such cases, the Supreme Court in Mother Superior[32] further observed that:

 a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.

Thus, the decision in Mother Superior[33] adds a new dimension to the law declared by Dilip Kumar[34] and an added point of inquiry before the true purport of the exemption provision can be determined.

  1. Conclusion

Interpretation of provisions dealing with exemption from tax have ignited considerable controversy. The decisions of the Supreme Court adverting to these disputes were inconsistent, which led to the emergence of multiple and often conflicting propositions on the subject which ultimately led to the constitution of a five-Judge Bench for an authoritative pronouncement. The decision in Dilip Kumar[35], being unanimous and unequivocal, did not disappoint as it laid down a categorical position to the effect that the tide was against the taxpayer. The fact that the decision in Dilip Kumar[36] overruled all conflicting past decision was also a welcome step as it implied that one was not required to reconcile any other precedents whereby their effect, whether discordant or otherwise, was subsumed in the declaration emanating from Dilip Kumar[37].

The decision in Mother Superior[38] has, however, added a caveat by insisting that the decision in Dilip Kumar[39] was confined to a limited proposition and does not address all aspects of principles relating to interpretation of exemption provisions in tax law. By insisting certain exemption provisions which “grant incentive for promoting economic growth or otherwise has some beneficial reason behind it” are a different species, it appears that doors have been set a jar for another spate of challenges wherein the taxpayers can be expected to highlight the difference in the intrinsic nature of the exemption provision being claimed. It is premature to assess the extent of these challenges but clearly, considering the ingenuity of the taxpayer, one can expect a fresh debate on the subject.

†Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.


[2]See generally, A.V. Fernandez v. State of Kerala, AIR 1957 SC 657 : 1957 SCR 837; Giridhar G. Yadalam v. CWT, (2015) 17 SCC 664 (expressly rejecting purposive construction unless there is ambiguity in language of statutory provision or it leads to absurd results); State of Karnataka v. M.K. Agrotech (P) Ltd., (2017) 16 SCC 210 (advocating literal construction of relevant fiscal provision); Martand Dairy & Farm v. Union of India (1975) 4 SCC 313; etc.

[3]For illustration, see Bajaj Tempo Ltd. v. CIT, (1992) 3 SCC 78 inter alia observing that “[s]ince a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it.” See also Commr. of Customs v. Rupa & Co Ltd., (2004) 6 SCC 408 inter alia observing that “[a]n exemption notification has to be construed strictly but that does not mean that the object and purpose of the notification is to be lost sight of and the wording used therein ignored”.

[4]For illustration, see Commr. of Customs (Imports) v. Tullow India Operations Ltd., (2005) 13 SCC 789; Compack (P) Ltd. v. CCE, (2005) 8 SCC 300; Bombay Chemical (P) Ltd. v. CCE, 1995 Supp (2) SCC 646; Mangalore Chemicals and Fertilizers Ltd. v. CCT, 1992 Supp (1) SCC 21; Union of India v. Wood Papers Ltd., (1990) 4 SCC 256; etc.

[5] (2011) 1 SCC 236 (5 Judges).

[6] Id.

[7]Id. at para 31.

[8]Id. at para 33.

[9]Uniworth Textiles Ltd. v. CCE, (2013) 9 SCC 753.

[10] 1994 Supp (3) SCC 606.


[12] For illustration, CCE v. Calcutta Springs Ltd., (2007) 15 SCC 89; Cemento Corpn. Ltd. v. CCE, (2002) 8 SCC 139; Poulose and Mathen v. CCE, (1997) 3 SCC 50; Collector of Customs v. Lotus Inks, (1997) 10 SCC 291; etc.

[13]Commr. of Customs (Import) v. Dilip Kumar, (2018) 9 SCC 40.

[14]Commr. of Customs (Import) v. Dilip Kumar & Co., (2018) 9 SCC 1.

[15]Id. at para 12.

[16]Id. at paras 66, 66.1, 66.2, and 66.3.

[17] (1997) 6 SCC 564.

[18] (1997) 6 SCC 564.

[19] (2018) 9 SCC 1.

[20] 2018 SCC OnLine Del 10984.

[21] See, Tarun Jain, Fiscal Incentives and Exemptions: Reflections on the New Interpretation Standard, (2018) 5(2) NLUJ Law Review 1, available at <HERE> for details.

[22] (2018) 9 SCC 1.

[23] Id.

[24] (1997) 6 SCC 564.

[25] (2018) 9 SCC 1.

[26] 2021 SCC OnLine SC 151.

[27] Id.

[28] Referring to decisions in CST v. Industrial Coal Enterprises, (1999) 2 SCC 607, State of Jharkhand v. Tata Cummins Ltd., (2006) 4 SCC 57, Pondicherry State Coop. Consumer Federation Ltd. v. UT of Pondicherry, (2008) 1 SCC 206, etc.

[29] 2021 SCC OnLine SC 151.

[30] (2018) 9 SCC 1.

[31] 2021 SCC OnLine SC 151.

[32] Id.

[33] Id.

[34] (2018) 9 SCC 1.

[35] Id.

[36] Id.

[37] Id.

[38] 2021 SCC OnLine SC 151.

[39] (2018) 9 SCC 1.

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One comment

  • Each and every court decided the principle in a judgment considering the surrounding circumstances of the case and issue before it not universal application of law so it would be wrong to apply the principle decided in one case and in law be applied on the other and in law. As in these both cases of Dilip Kumar in Custom laws whereas Mother Superior in Law of Kerela tax .

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