Does the two-views rule also apply when you claim an exemption?
No — it reverses. An exemption notification is construed strictly, the burden is on you to fall squarely within it, and any ambiguity goes to the revenue. The contrary rule in Sun Export was overruled.
Decided by the Supreme Court (Constitution Bench — Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer JJ) on 2018-07-30, reported as (2018) 9 SCC 1. It bears on the Income Tax Act 1961, in How Tax Law Is Read matters.
It is the answer the department gives whenever Vegetable Products is cited on an exemption or deduction claim, and it comes from a Constitution Bench. Knowing which side of the charging/exemption line your provision sits on is the whole argument.
Binding on every court and authority in India.
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The importer brought in a consignment of Vitamin E50 powder (feed grade) under a bill of entry of 19 August 1999, claiming a concessional duty of 5 per cent instead of the standard 30 per cent under Customs Notification No. 20 of 1999 and classifying the goods under Chapter heading 2309.90, which covers prawn feed, relying on Sun Export Corporation. The department refused, saying the goods were chemical ingredients for animal feed rather than animal or prawn feed, and classified them under Chapter 29. The Assistant Commissioner distinguished Sun Export and denied the concession; the Commissioner (Appeals) reversed him and the Tribunal affirmed that. On the department's appeal a two-judge Bench doubted Sun Export, a three-judge Bench agreed that it needed reconsideration, and the matter was placed before a Bench of five judges to settle the interpretive rule.
Answering the reference, the Constitution Bench held: (1) an exemption notification is to be interpreted strictly, and the burden of proving applicability is on the assessee, to show that his case comes within the parameters of the exemption clause or notification; (2) where there is ambiguity in an exemption notification, which is subject to strict interpretation, the benefit of that ambiguity cannot be claimed by the assessee and must be interpreted in favour of the revenue; and (3) the ratio in Sun Export Corporation is not correct, and all decisions taking a similar view stand overruled. The Court decided nothing else. It did not rule on whether the imported Vitamin E50 powder qualified as prawn feed; the civil appeal was directed to be placed before an appropriate Bench for consideration on merits.
Taxation statutes are construed strictly because Article 265 forbids the State from extracting tax without authority of law, and under a written Constitution there is no implied power of taxation. From that same premise the Court drew the distinction that decides the case: ambiguity in a charging provision goes to the assessee, because the State must bring the subject clearly within the tax, but ambiguity in an exemption goes to the revenue, because it is for the person claiming relief from a liability otherwise established to bring himself clearly within the exemption. The Court took care to say that 'strict interpretation' is not the same as strict literalism: literalism that leads to absurdity and defeats the apparent legislative intent is not what strict construction means, and strict interpretation admits essential inferences, though contextual and purposive tools and outside material have no place in a taxing statute. It traced the line of authority - Hansraj Gordhandas, Wood Papers, Mangalore Chemicals, Novopan India, Tata Iron & Steel - holding that a person invoking an exemption must establish clearly that he is covered by it and that in case of doubt the benefit goes to the State, and concluded that Sun Export Corporation, which had applied the charging-provision rule to an exemption, had ignored that line and produced an unsatisfactory state of law. It also distinguished the separate question decided in Hari Chand Shri Gopal, which concerns the difference between conditions of an exemption requiring strict compliance and those requiring only substantial compliance, saying that it was pointing this out to dispel doubt because the case before it was concerned only with ambiguity in an exemption notification. Its own conclusion at para 41 is that every part of a taxing statute, including the exemption clause at the threshold stage, is to be construed strictly.
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.
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Handle my notice → Ask a CA on WhatsAppNo — it reverses. An exemption notification is construed strictly, the burden is on you to fall squarely within it, and any ambiguity goes to the revenue. The contrary rule in Sun Export was overruled. This was decided by the Supreme Court (Constitution Bench — Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer JJ) and bears on the Income Tax Act 1961. It is reported as (2018) 9 SCC 1. It is the answer the department gives whenever Vegetable Products is cited on an exemption or deduction claim, and it comes from a Constitution Bench. Knowing which side of the charging/exemption line your provision sits on is the whole argument. If it applies to you, the first step is this: Identify whether the provision in issue is a charging provision or an exemption — the presumption flips.
The importer brought in a consignment of Vitamin E50 powder (feed grade) under a bill of entry of 19 August 1999, claiming a concessional duty of 5 per cent instead of the standard 30 per cent under Customs Notification No. 20 of 1999 and classifying the goods under Chapter heading 2309.90, which covers prawn feed, relying on Sun Export Corporation. The department refused, saying the goods were chemical ingredients for animal feed rather than animal or prawn feed, and classified them under Chapter 29. The Assistant Commissioner distinguished Sun Export and denied the concession; the Commissioner (Appeals) reversed him and the Tribunal affirmed that. On the department's appeal a two-judge Bench doubted Sun Export, a three-judge Bench agreed that it needed reconsideration, and the matter was placed before a Bench of five judges to settle the interpretive rule. The matter was decided on 2018-07-30 by the Supreme Court (Constitution Bench — Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer JJ). On those facts the Supreme Court held as follows. Answering the reference, the Constitution Bench held: (1) an exemption notification is to be interpreted strictly, and the burden of proving applicability is on the assessee, to show that his case comes within the parameters of the exemption clause or notification; (2) where there is ambiguity in an exemption notification, which is subject to strict interpretation, the benefit of that ambiguity cannot be claimed by the assessee and must be interpreted in favour of the revenue; and (3) the ratio in Sun Export Corporation is not correct, and all decisions taking a similar view stand overruled. The Court decided nothing else. It did not rule on whether the imported Vitamin E50 powder qualified as prawn feed; the civil appeal was directed to be placed before an appropriate Bench for consideration on merits.
Taxation statutes are construed strictly because Article 265 forbids the State from extracting tax without authority of law, and under a written Constitution there is no implied power of taxation. From that same premise the Court drew the distinction that decides the case: ambiguity in a charging provision goes to the assessee, because the State must bring the subject clearly within the tax, but ambiguity in an exemption goes to the revenue, because it is for the person claiming relief from a liability otherwise established to bring himself clearly within the exemption. The Court took care to say that 'strict interpretation' is not the same as strict literalism: literalism that leads to absurdity and defeats the apparent legislative intent is not what strict construction means, and strict interpretation admits essential inferences, though contextual and purposive tools and outside material have no place in a taxing statute. It traced the line of authority - Hansraj Gordhandas, Wood Papers, Mangalore Chemicals, Novopan India, Tata Iron & Steel - holding that a person invoking an exemption must establish clearly that he is covered by it and that in case of doubt the benefit goes to the State, and concluded that Sun Export Corporation, which had applied the charging-provision rule to an exemption, had ignored that line and produced an unsatisfactory state of law. It also distinguished the separate question decided in Hari Chand Shri Gopal, which concerns the difference between conditions of an exemption requiring strict compliance and those requiring only substantial compliance, saying that it was pointing this out to dispel doubt because the case before it was concerned only with ambiguity in an exemption notification. Its own conclusion at para 41 is that every part of a taxing statute, including the exemption clause at the threshold stage, is to be construed strictly. In the words reproduced by the source cited on this page: "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."
It was decided by the Supreme Court on 2018-07-30 and is reported as (2018) 9 SCC 1. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On the sections in issue, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Answering the reference, the Constitution Bench held: (1) an exemption notification is to be interpreted strictly, and the burden of proving applicability is on the assessee, to show that his case comes within the parameters of the exemption clause or notification; (2) where there is ambiguity in an exemption notification, which is subject to strict interpretation, the benefit of that ambiguity cannot be claimed by the assessee and must be interpreted in favour of the revenue; and (3) the ratio in Sun Export Corporation is not correct, and all decisions taking a similar view stand overruled. The Court decided nothing else. It did not rule on whether the imported Vitamin E50 powder qualified as prawn feed; the civil appeal was directed to be placed before an appropriate Bench for consideration on merits. It arises in How Tax Law Is Read matters, on the relevant sections of the Income Tax Act 1961, and was decided by Constitution Bench — Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For an exemption, establish eligibility on the strict wording first; argue liberally only about scope afterwards. Where the exemption has a clear beneficial purpose, see the validity note — a later decision reads Dilip Kumar down.
Still good law. Binding but read down in part: in Government of Kerala v Mother Superior Adoration Convent (2021) the Court observed that the Constitution Bench did not refer to the line of authority distinguishing exemption provisions generally from exemption provisions having a beneficial purpose, which are to be construed liberally in line with their object. The tension with Vegetable Products is resolved by confining that case to charging provisions. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
A customs case, applied across tax law. It carries no Income Tax Act section, which is why the sections field is empty here. Two things to keep in view when citing it. The Constitution Bench answered the reference and nothing more: para 53 directs the civil appeal to be placed before an appropriate Bench for consideration on merits, so the case decides no question about the goods or the notification in issue. And the Court's summary at para 52 contains three conclusions, not more. Civil Appeal No. 3327 of 2007, decided 30 July 2018, judgment by Ramana J. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Answering the reference, the Constitution Bench held: (1) an exemption notification is to be interpreted strictly, and the burden of proving applicability is on the assessee, to show that his case comes within the parameters of the exemption clause or notification; (2) where there is ambiguity in an exemption notification, which is subject to strict interpretation, the benefit of that ambiguity cannot be claimed by the assessee and must be interpreted in favour of the revenue; and (3) the ratio in Sun Export Corporation is not correct, and all decisions taking a similar view stand overruled. The Court decided nothing else. It did not rule on whether the imported Vitamin E50 powder qualified as prawn feed; the civil appeal was directed to be placed before an appropriate Bench for consideration on merits.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.