Read exemption notification liberally

EXPERT EYE

The Supreme Court has given a pro-industrial ruling for giving a liberal interpretation to an exemption notification designed to promote industrial development.

In the case of Zuari Industries Ltd vs. Commissioner of Central Excise & Customs "� 2007 (210) ELT 648(SC), the apex court was interpreting a customs exemption notification No.11/97 dated 1.3.1997 allowing nil rate of duty for goods required for fertiliser plant.

This was under entry 98.01, which is for Project Import. The fertiliser company imported a captive power plant for the fertiliser project and it was brought as a part of the project. Revenue did not allow the exemption to the power plant claiming that it is an independent plant and cannot be taken as part of a fertiliser plant.

Even the Tribunal also agreed to this view. The Supreme Court, however, held that this exemption was to be liberally interpreted as it deals with industrialisation.

The Supreme Court held, agreeing with a previous judgement of the same court in the case of Appraiser, Madras Customs v. Tamil Nadu Newsprint Papers Ltd. "� 1988 (36) ELT 272(SC), that once some machinery is imported under Project Imports then those items will fall under the specific entry of 98.01 for Project Import.

Asserting that such a pro-industrial exemption has to be liberally interpreted, the Supreme Court held that even the captive power plant has to be taken as a fertiliser plant for the purpose of giving the exemption.

Preciously in a similar case, namely, Asiatic Oxygen ..vs.. A,C., Customs "�1998 (97) ELT563(Cal), the Calcutta High Court had held that a project import object being the promotion of industrialisation, the interpretation should be liberal. This view of the Calcutta High Court has now been confirmed by the Supreme Court.

This interpretation by the Supreme Court in this case has been in consonance with the principles enunciated by it in its previous judgements. In an Income Tax case, Broach District Cooperative Society .vs. CIT, Ahmedabad AIR 1989 SC 1493, the Supreme Court held that the object of Section 81(i) was to encourage and promote the growth of the Cooperative Societies and so a liberal interpretation should be given to the exemption notification such that the entire activities of marketing and processing and ginning would enjoy the exemption from Income Tax and not merely the processing and ginning.

In a Central Excise case, Tatal Oil Mills ..vs.. CCE "� 1989(43) E.L.T.183(S.C.), there was an exemption from excise duty for using minor oil in soap. Revenue disallowed the exemption on the ground that the minor oil was processed in another factory before using for soap in this factory. The Supreme Court held that the intention was to promote the use of minor oil in making soap and therefore, only a liberal and not a strict interpretation would be appropriated.

In another central excise case, Swadeshi Polytex Ltd .vs. Collector of Central Excise "� 1990(2) SCC358, the Supreme Court made the following general observation, which is the key to the interpretation of promotional exemption.

"It is true that when in a fiscal provision, if benefit of exemption is to be considered, this should be strictly construed. But the strictness of the construction of exemption notification does not mean that the full effect of the exemption notification should not be given by any circuitous process of interpretation".

The above observation of the Supreme Court, therefore, should be taken as the conclusion on the controversy about when an exemption notification is to be interpreted strictly and when it should be interpreted liberally to implement its intention.

The interpretation should not be so circuitous as to defeat the intention itself.