Interpretation of Taxing Statute as Strict Construction and Exemptions

Taxation is statutory filed. No tax can be levied and collected except according to the authority of law. There is fiscal legislation every year much of it
prepared in great secrecy and under server pressured of time, and it directly affects most people. This legislation is complicated and elaborated
because of intricate prepositions it has to express, and the verity of circumstances and conditions in which it falls to be applied and the refined
distinctions it embodies in order to attempt to cater expressly for them. Consequently, the body of tax statues as whole is voluminous and complex in
structure as well as in concept and expression. There is another reason for the fiscal legislation being complex and complicated. In fact, taxes are as
complex as life. The moralist calls for just taxes, but taxes cannot just be just, if we recall the scheme of special bearer bonds for mopping up black
money. They cannot simply be simple. The businessman demands practical taxes, but financially history proves that it is impracticable to make them
practical. Exemption Notifications have to be strictly construed; if exemption is available on complying with certain conditions, conditions have to be
complied with; plea of 'substantial compliance' depends upon facts of each

Statues imposing taxes or monetary burdens are strictly construed. The logic behind this principle is that imposition of taxes is also a kind of
imposition of penalty which can only be imposed if the language of the statute unequivocally says so

Tax Systems in India

The tax system of British India reflected characteristics of a traditional agriculture economy. Revenues of the central government were dominated by
custom duties as domestic requirements for manufactured goods were dominated by custom duties as domestic requirements for manufactured
goods were met mostly from imports, chiefly from Britain and other commonwealth countries. Import duties were levied on all most all items of imports
whereas major items subject to export duties were jute and tea in which India enjoyed near monopoly in the world market. Various custom and tariff
enactments were passed from time to time.

Principle of Interpretation
Principle of interpretation which have evolved are those based on plain meaning of the words used and their grammatical meaning and those based
on the intention or purpose of the legislature.

In India tax law provides a useful set of cases for exploring the interpretative approaches of the judiciary in India. Some general observations made by
the courts are first mentioned before analyzing the cases on different approaches. Interpretation of statute means that the court has to ascertain the
facts and then interpret the law to apply to such facts. It is the function of the legislature to say what shall be the law and it is for the court to say that
what the law is. Where the language is plain and unambiguous and admits of only one meaning no question of construction of statute arises for the
statute speaks for itself.

The term interpretation means “to give meaning to” there are three bodies which divided government power namely legislature, the executive and the
judiciary. Interpretation of statutes to render justice is primary function of the judiciary. The most common rule of interpretation is that every part of the
statute must be understood in a harmonious manner by reading and construing every part of it together.
The maxim “A Verbis legis non est recedendum” means that you must not very the words of the statute while interpreting it.

2.3 Principle of Strict Construction

The manner in which the Income-Tax Act has been drafted leaves great scope for litigation. For this purpose, principles of interpretation have to be
applied. These principles themselves are not infallible and would depend on the facts of each case. The two well-settled principles of interpretation, as
applicable in taxing statutes, are:

(1) There is no equity in tax, and the principle of strict or literal construction applies in interpreting tax statutes. Hence, on the plain language of the
statute, if the assessee is entitled to two benefits, he has to be granted both these benefits; and

(2) If there are two reasonable interpretations of taxing statutes, the one that favors the assessee has to be accepted.

The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J. in his classic statement in Cape Brandy Syndicate v I.R.C. (1
KB 64, 71): "In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used." In the revenue
satisfied the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is covered within
the four corners of the provision of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intention of the
legislature and by considering what was the substance of the matter. Tax relief application is a mandatory requirement for refund purpose. It is well
settled principle that tax exemptions are strictly against taxpayers. Tax refunds in the nature of tax exemption, are resolved strictly against the
claimant.

In Innamuri Gopalam and Maddala Nagendrudu v State of A. P., the exemption was denied to the assessee on the ground that the intention of the
notification was to avoid double taxation, and as this was not a case of double taxation no exemption could be granted.

The Supreme Court held that on the plain language of the notification, the assessee was entitled to exemption, and since the intention was not
reflected in plain words, it could not be taken into consideration.

As observed by the apex court: "In construing a statutory provision the first and foremost rule of construction is the literary construction. All that the
court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is
clear, the court need not call into aid the other rules of construction of statutes. The other rules of construction are called into aid only when the
legislative intent is not clear."

In the case of C.I.T. v B. M. Kharwar,

The assessee transferred some machinery of a firm to a private limited company. He sought to avoid the liability to be taxed on the excess realised
over the written down value of the machinery on the plea that the substance of the transaction was only a step to readjust the business relation of the
partners inter se. The Supreme Court rejected this contention holding that while the taxing authorities were entitled to determine the true legal relation
resulting from a transaction to unravel the device adopted by a party, the legal effect of a transaction could not be displaced by probing the "substance
of the transaction".

In case of Steel Authority of India Ltd. v C.C.E

The question was whether raw naphtha intended for use in the manufacture of fertilisers was exempted although it was not actually used.

It was held that the exemption notification only required proof that the raw naphtha was intended for use in the manufacture of fertilisers, and there
was no further requirement that it was actually so used. Hence, if it was purchased with the intention to be used for the manufacture of fertilizers, it
was exempt, even though it could not be used for some reason subsequently.

Doctrine of Substantial Compliance

The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can
reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the "essence" or the "substance"
of the requirements. Like the concept of "reasonableness", the acceptance or otherwise of a plea of "substantial compliance" depends upon the facts
and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the
object and purpose of the rule or the regulation. Such a defense cannot be pleaded if a clear statutory prerequisite which effectuates the object and
the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so
as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means "actual
compliance in respect to the substance essential to every reasonable objective of the statute" and the court should determine whether the statute has
been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. Fiscal statute
generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of
an exemption clause that are important.

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.

Exemption Clause - Strict Construction

Exemption Clause - Strict Construction The law is well settled that a person who claims exemption or concession has to establish that he is entitled to
that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with
certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If
exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions
must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are
directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.

In Hansraj Gordhandas v. H.H. Dave held that such a notification has to be interpreted in the light of the words employed by it and not on any other
basis. This was so held in the context of the principle that in a taxing 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, i.e., by the plain terms of the exemption.
some of the provisions of an exemption notification may be directory in nature and some are of mandatory in nature. A distinction between provisions
of 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. The principles as regard construction of an exemption
notification are no longer res integra. Whereas the eligibility clause in relation to an exemption notification is given strict meaning where for the
notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be
construed literally.

2.6 Exemption from Custom Duty

Exemptions from custom duties are provided through provision of customs act, while some are provided under Custom Tariff Act. Besides, Central
government can grant partial or full exemption from duty under section 25 of Customs Act.

Section 25(1) of custom act, 1962 authorizes Central Government to issue notifications granting exemptions from duty. Such exemption may be
unconditional or subject to conditions. Such conditions may be required to be fulfilled before or after clearance. Government can also grant exemption
by special order in exceptional circumstance. The exemption notification should be published in gazette. The notification can be issued only in ‘public
interest’.

Conclusion
As discussed in the Introduction and after going through whole project and research work at last I conclude that the hypothesis which I mentioned
earlier is proven to be correct because in my hypothesis I mentioned that Exemption Notifications have to be strictly construed; if exemption is
available on complying with certain conditions, conditions have to be complied with which is true because if the condition for taking exemption for tax
relief is not fulfill then exemption will not be granted, exemption or tax relief will be granted only when the essential condition which are complying with
must be fulfilled. In this last chapter I also conclude that the taxing statute is also strictly constructed as all statutes are interpreted strictly because
each and every statute should be interpreted in a strict manner. There is another thing that for taking exemption or tax relief one must have fulfilled the
tax relief application. It is well settled principle that tax exemptions are strictly against taxpayers. Tax refunds in the nature of tax exemption, are
resolved strictly against the claimant. Taxing enactment should be strictly construed and the right to tax should be clearly established that is strict and
favorable construction equitable construction should not be taken into account. Courts should not strain words and find unnatural meaning to fill
loopholes.

What is the object of taxing statutes?

The object of taxing Statute is to collect revenue of the government. Tax is levied for the public purpose. As we all know that tax is
a source of revenue generation for the state. The money collected in the form of tax is utilized for the welfare activities of the
public.
 Interpretation of Penal Statutes
•Penal statute is a statute that defines a criminal offense and prescribes its corresponding penalty (fine, or imprisonment).

● •As a general rule, strict construction must be applied to criminal statutes. This means that a criminal statute may not be
enlarged by implication or intent beyond the fair meaning of the language used or the meaning that is reasonably justified
by its terms.
● •Criminal statutes, therefore, will not be held to encompass offences and individuals other than those clearly described and
provided for in their language. The strict construction of criminal statutes complements the rule of lenity, which holds that
ambiguity in a criminal statute should be resolved in favor of the defendant.
● •Rule of Lenity is a judicial doctrine requiring that those ambiguities in a criminal statute relating to prohibition and penalties
be resolved in favor of the defendant if it is not contrary to legislative intent. [Merriam-Webster Dictionary]
 ● •“The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else
many innocent might become victims of discretionary decision making.” [Commissioner of Customs (Import), Mumbai v.
M/s Dilip Kumar and Company & Ors., 2018 (361) E.L.T. 577 (SC)]
● •In a modern welfare State there are many statutes prohibiting certain acts. If legislature merely provides that the act is
invalid and provides for compensation as redress to the aggrieved person it will be classed as a remedial statute. If the
statute also provides for penalties for disobedience of law, such as imprisonment or fine, it will be classed as penal statute.
●
● •If two possible constructions can be put upon a penal provision, the court must lean towards that construction which
exempts the subject from the penalty rather than the one which imposes penalty. [Lord Esher]
● •Those not covered by express language of the penal statute should not be roped in by stretching the language of the law.
● •Provisions of a penal statute cannot be presumed to have retrospective operation.
● •Legislation which deals with jurisdiction and procedure in relation to imposition of penalties will be strictly construed.
Where certain procedural requirements have been laid down by a statute to be completed (in a statute dealing with
punishments), the court is duty bound to see that all these requirements have been complied with before sentencing the
accused.
● •As long as the presumption of innocence of the accused prevails in this country, the benefit of any lacuna or casus omissus must be given to the
accused. The job of plugging the loopholes must strictly be left to the legislature and not assumed by the court.
Some Important Points (Exceptions to the general rule)

•Principal that penal statute is to be strictly construed is not of universal application. Penal statute should be construed in a manner which will suppress mischief and advance the object which the Legislature had in view.
[Lalita Jalan v. Bombay Gas Co. Ltd. (2003) 6 SCC 107].
•Even in relation to penal statute any narrow and pedantic, literal and lexical construction may not always be given effect to. The law would have to be interpreted having regard to the subject matter of the offence and the
object of the law it seeks to achieve. The purpose of the law is not to allow the offender to sneak out of meshes of law. Criminal Jurisprudence does not say so. [ Indian Handicrafts Emporium v. UOI, AIR 2003 SC
3240].