An exemption notification has to be interpreted stricto sensu: Madras High Court (Madurai Bench)

An exemption notification has to be interpreted stricto sensu: Madras High Court (Madurai Bench)

The Madurai Bench of the Madras High Court has ruled that it is a fundamental legal principle that an exemption notification has to be interpreted stricto sensu. No external aids can be brought in to interpret an exemption notification. If the assessees, who claim benefit of exemption notification, fail to fulfil any one of the conditions contained therein, the benefit cannot be extended. Courts have to read the exemption notification as such without substituting the words or phrases.

As to the facts of the case, the assessees imported Latex Gloves in bulk and filed bills of entry for clearance of those goods, which after clearance were packed in pouches, after undergoing a process of sterilization and were sold in the retail market with the brand name.

The assessee filed applications for refund of Special Additional Duty of Customs (SAD) paid by them by relying on a Notification dated 14 September 2007. The original Authority had sanctioned refund in respect of 77 bills of entry and in respect of the remaining 69 bills of entry, they were not sanctioned.

The contention of the Revenue was that in terms of Section 2(f)(iii) of the Central Excise Act, 1944, packing, re-packing, labelling, re-labelling, printing of MRP on packages or any treatment of goods to render them marketable would amount to manufacture. Therefore, the Department proposed that the assessee had not fulfilled the conditions specified in the Notification No. 102/2007, wherein there is a specific condition that the imported goods shall be sold as such and without being subjected to any further process amounts to manufacture.

According to the assessee, the process of sterilization would not amount to manufacture as the use and character of the imported gloves remain the same even after packing and no new product has been created on account of the said process of sterilization and repacking. Further, in terms of the notification, if the importer can establish that the goods sold were the same as imported, the benefit of exemption would apply and there is no specification in the notification that the goods are required to be sold as such.

The Revenue submitted that exemption is given only if the importer fulfills the conditions specified in the Notification and one such condition being the imported goods sold as "imported goods" without being subjected to any further process, which amounts to manufacture. Repacking, relabelling etc., shall amount to manufacture and the imported goods no more remain the imported goods as required under the Clauses 2(d), 2(e)(ii) of the Notification No.102/2007.

The division bench of Justices T.S. Sivagnanam and S.Ananthi held that, "On a reading of Notification No.102/2007, we find that nowhere there is indication that it is a supersession of an earlier Notification. Therefore, the question would be whether the Tribunal could have come to the conclusion that Notification No.102/2007 was in supersession of the earlier notification, which uses only the expression "subsequently sold" will stand fulfilled in the case of the assessees."

The court further held that the Tribunal found fault with the Adjudicating Authority in not granting relief in respect of the imports after 11.07.2014 and while granting the relief to the assessees proceeded on the basis that the earlier Notification No.56/1998 required the imported goods to be sold "as such" and it had a more stringent condition and there is no such requirement in the Notification No.102/2007.

According to the Court, this finding prima facie appeared to be not sustainable as the issue whether the Notification No. 102/2007 was in supersession of Notification No.56/1998 was required to be considered and decided.

The Court said, "Those orders passed by the Assistant Commissioner of Customs were based upon the order in original No.1/2016, dated 19.04.2016, which is to be set aside and the matter to be remanded back to the file of the Commissioner of Customs for fresh decision.

In such circumstances, we are of the considered view that the writ petitioners should not be left without any remedy and since we are remanding the matter back to the file of the Commissioner of Customs for reconsideration, after setting aside the order passed by the Tribunal, we deem it appropriate that the orders passed by the Assistant Commissioner of Customers rejecting the refund applications are required to be set aside and the refund applications should stand restored to the file of the Assistant Commissioner of Customs to be taken up for fresh consideration after the Commissioner of Customs completes de novo adjudication based on the order of remand in this appeal."

The Court set aside the order passed by the Tribunal and remanded the matter to the Commissioner of Customs, Tuticorin, to consider the issue afresh, after affording opportunity to the assessees.