Tax/Taxation:
Exemption Notification – Interpretation of – In case of ambiguity in such Notification, whether the benefit of ambiguity would go to assessee or Revenue – Held: Exemption Notification should be interpreted strictly – The burden to prove the applicability of the exemption Notification would be on the assessee – In case of ambiguity, benefit of such ambiguity would go to Revenue and not to assessee - *Sun Export case wherein it was held that benefit of ambiguity would go to assessee is overruled. Taxing statute and Exemption Notification – Interpretation of – Held: There is distinction in interpreting a charging provision of a taxation statute and in the interpretation of exemption Notification – Any ambiguity in charging provision enures to the benefit of the assessee, but any ambiguity in the exemption clause or exemption Notification would go in favour of Revenue.
Interpretation of Statutes:
General principles of interpretation – Purpose of interpretation – Tools of interpretation – Discussed. Interpretation of fiscal statutes – Held: While interpreting fiscal statutes court has to apply strict rule of interpretation. ‘Plain meaning rule’ of interpretation – Held: When language in the statute is plain and unambiguous, Court has to seal and understand the plain language as such, and there is no scope of interpretation.
‘Strict interpretation’ and ‘Literal interpretation’ – Distinction between – Held: All cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation – Thus strict interpretation does not encompass strict literalism into its fold.
Interpretation of taxing statute – Rule of interpretation – Held: Every taxing statute including charging, computation and exemption clause (at the threshold stage) should be interpreted strictly.
Contextual or purposive interpretation – Of taxing statutes – Held: In a taxation statute there is no room for any intendment – In taxation statutes contextual or purposive interpretation cannot be applied – Nor any resort be made to look to other supporting material – Equity has no place in interpreting a tax statute. Answering the referred question, the Court
HELD: 1.1 An Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences. It is for the Court to see whether a particular case falls within the broad principles of law enacted by the Legislature. Here, the principles of interpretation of statutes come in handy. In spite of the fact that experts in the field assist in drafting the Acts and Rules, there are many occasions where the language used and the phrases employed in the statute are not perfect. Therefore, Judges and Courts need to interpret the words. [Para 14] [1206-D, E]
1.2 The principles of interpretation have been evolved in common law. It has also been the practice for the appropriate legislative body to enact Interpretation Acts or General Clauses Act. In all the Acts and Regulations, made either by the Parliament or Legislature, the words and phrases as defined in the General Clauses Act and the principles of interpretation laid down in General Clauses Act are to be necessarily kept in view. If while interpreting a Statutory law, any doubt arises as to the meaning to be assigned to a word or a phrase or a clause used in an enactment and such word, phrase or clause is not specifically defined, it is legitimate and indeed mandatory to fall back on General Clauses Act. Notwithstanding this, when there is repugnancy or conflict as to the subject or context between the General Clauses Act and a statutory provision which falls for interpretation, the Court must necessarily refer to the provisions of statute. [Para 15] [1206-F-H]
1.3 The purpose of interpretation is essentially to know the intention of the Legislature. Whether the Legislature intended to apply the law in a given case; whether the Legislature intended to exclude operation of law in a given case; whether Legislature intended to give discretion to enforcing authority or to adjudicating agency to apply the law, are essentially questions to which answers can be sought only by knowing the intention of the legislation. Apart from the general principles of interpretation of statutes, there are certain internal aids and external aids which are tools for interpreting the statutes. The long title, the preamble, the heading, the marginal note, punctuation, illustrations, definitions or dictionary clause, a proviso to a Section, explanation, examples, a schedule to the Act etc., are internal aids to construction. The external aids to construction are Parliamentary debates, history leading to the legislation, other statutes which have a bearing, dictionaries, thesaurus. [Paras 16 and 17] [1207-A-C]
1.4 A statute must be construed according to the intention of the Legislature and the Courts should act upon the true intention of the legislation while applying law and while interpreting law. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the Legislature. [Para 18] [1207-F] District Mining Officer v. Tata Iron and Steel Co., (2001) 7 SCC 358 : [2001] 1 Suppl. SCR 147
– relied on.
1.5 The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the Legislature. [Para 19] [1208-E]
Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907 : [1958] SCR 360 – relied on.
1.6 In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose. Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation. [Para 20] [1208-G; 1209-A]
Assistant Commissioner, Gadag Sub-Division, Gadag v. Mathapathi Basavannewwa, (1995) 6 SCC 355 : [1995] 2 Suppl. SCR 807 – relied on.
1.7 In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature. [Para 21] [1209-B-D]
1.8 ‘The plain meaning rule’ suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio”. Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is self-contradictory. [Para 22] [1209-E-F]
1.9 The principle of literal interpretation and the principle of strict interpretation are sometimes used interchangeably. This principle, however, may not be sustainable in all contexts and situations. All cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation. Strict interpretation does not encompass strict- literalism into its fold. Simply juxtaposing ‘strict interpretation’ with ‘literal rule’ would result in ignoring an important aspect that is ‘apparent legislative intent’. There may be overlapping in some cases between the aforesaid two rules. ‘Strict interpretation’ does not encompass such literalism, which lead to absurdity and go against the legislative intent. If literalism is at the far end of the spectrum, wherein it accepts no implications or inferences, then ‘strict interpretation’ can be implied to accept some form of essential inferences which literal rule may not accept. [Paras 24 and 25] [1210-G; 1211-C-D]
Punjab Land Development and Reclamation
Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court Chandigarh and Ors., (1990) 3 SCC
682 : [1990] 3 SCR 111 – relied on.
1.10 The other tools of interpretation, namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. In a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute. [Para 25] [1211-E-G]
Rajasthan Rajya Sahakari Spinning & Ginning Mills Federation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC
672 : State Bank of Travancore v. Commissioner of Income Tax, (1986) 2 SCC 11 : [1986] 1 SCR 25 ; Commissioner of Income Tax v. Kasturi Sons Ltd. (1999) 3 SCC 346 : [ 1999] 1 SCR 1207 ; State of West Bengal v. Kesoram Industries Limited (2004) 10 SCC
201 : [2004] 1 SCR 564 – relied on.
Cape Brandy Syndicate v. IRC (1921) 1 KB 64 ; Re, Micklethwait (1885) 11 Ex 452 – referred to. ‘Principles of Statutory Interpretation’ by Justice G. P. Singh ; Black’s Law Dictionary (10th Edn.) – referred to.
2.1 There is distinction in interpreting a taxing provision (charging provision) and in the matter of interpretation of exemption notification. In the matter of interpretation of charging section of a taxation statute, strict rule of interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to the assessee need to be applied. [Para 12] [1205-E, F]
2.2 It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue – and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. [Para 40] [1225-B, C]
2.3 Every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. [Para 41] [1225-E-F]
2.4 In the governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue. [Para 43] [1226-A-F]
2.5 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. [Para 52] [1230-G]
2.6 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. [Para 52] [1230-H]
2.7 The ratio in *Sun Export case is not correct and all the decisions which took similar view as in *Sun Export case stands over-ruled. [Para 52] [1231-A]
Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal (2011) 1 SCC 236 : [2010] 13 SCR
820 – followed.
Sun Export Corporation, Bombay v. Collector of Customs, Bombay (1977) 6 SCC 564 : [1997] 1 Suppl. SCR 434 – overruled.
Hansraj Gordhandas v. H.H. Dave, Asst. Collector of Central Excise & Customs, Surat and Ors., AIR 1970 SC 755 = [1969] 2 SCR 253 ; Collector of Central Excise v. Parle Exports (P) Ltd. (1989) 1 SCC 345 : [1988] 3 Suppl. SCR 933 ; Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner of C o m m e r c i a l Taxes (1992) 1 Suppl. SCC 21 : [1991] 3 SCR 336 ; Novopan India Ltd. v. Collector of Central Excise and Customs (1994) 3 Suppl. SCC 606 : [1994] 3 Suppl. SCR 549 ; Tata Iron & Steel Co. Ltd. v. State of Jharkhand (2005) 4 SCC 272 : [2005] 2 SCR 1207 – relied on.
Collector of Customs and Central Excise, Guntur and Ors. v.. Surendra Cotton Oil Mills and Fertilizers Co. and Ors. (2001) 1 SCC 578 : [2000] 5 Suppl. SCR
701 ; Union of India v. The Commercial Tax Officer, West Bengal and Ors. AIR 1956 SC 202 : [1955] SCR 1076 ; Union of India v. Wood Papers Limited (1990) 4 SCC 256 ; Govind Saran Ganga Saran v. Commissioner of Sales Tax (1985) Suppl. SCC 205 : [1985] SCR
985 ; Mathuram Agrawal v. Sate of Madhya Pradesh (1999) 8 SCC 667 : [1999] 4 Suppl. SCR 195 ; Indian Banks’ Association v. Devkala Consultancy Service (2004) 4 JT 587 = AIR 2004 SC 2615 ; Consumer Online Foundation v. Union of India (2011) 5 SCC
360 : [2011] 5 SCR 911 – referred to.
Commissioner of Inland Revenue v. James Forrest (1890) 15 AC 334 (HL) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.