Interpretation of

Statutes

Tarun Jain
 An introduction to myself
Advocate
LL.M. (Taxation), London School of Economics
B.B.A., LL.B. (Hons.), National Law University, Jodhpur (Gold Medalist)

Author
Goods and Services Tax: Constitutional Law and Policy (2018)
More than 100 academic papers in tax, constitutional and other laws.
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 Overview

• Part A – General rules for interpretation

• Part B – Special considerations in interpretation of fiscal legislations

• Part C – Case Studies

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 Part – A
General rules for interpretation

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 What is interpretation : Basic tenets
• Interpretation – “the action of explaining the meaning of something”
• Not a function of law
• But a function of language
• Deciphering the plain meaning – (i.e. what the words say)
• Deciphering the intent (subjective) – (i.e. what the words mean)
• Francis Bennion
“It is, as so often in the linguistic field, a question of feel. A reader may ‘interpret’
anything from a single work to an entire Act. One ‘construes’ a sentence a longer passage,
but not a word by itself. Interpretation perhaps connotes, more than construction does, the
idea of determining the legal effect. Construction is more concerned with extracting a
grammatical meaning.”
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 What is interpretation : Legal meaning
• Justice GP Singh – ‘Interpretation’ is the method by which true sense of the word
or meaning is understood.

• Salmond - The process by which the Courts seek to ascertain the meaning of the
Legislature through the medium of authoritative forms in which it is expressed.

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 Interpretation of Statute: Why it differs!
• Legislature does not interact directly with the subjects.
• Legislature expresses its mandate in form of statutes.
• Legislature does not lay guidelines besides enactment of the law. It is the duty of
the Executive and the subjects to understand and follow.
Additional considerations
• Legislature delegates in its wisdom and trust on delegate
• In the realm of ‘separation of powers’, Legislature legislates where the Judiciary
interprets.

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 Literal Construction: Dynamics
• Phrases and sentences of a statute are interpreted according to the ordinary or popular and
grammatical meaning.
• Basic and preferred rule of interpretation unless such a construction leads to an absurdity or the
content or object of the statute suggest a different meaning.
• Most widely used Rule of Interpretation in taxing statutes.
• CIT vs. T.V. Sundaram Iyyengar (1975) 101 ITR 764 (SC)
“The hypothetical illustration which was cited before the Income-tax Officer and which is relied
upon by the High Court may at the highest, if its fundamental premise is true, show that the
interpretation canvassed by the Revenue may conceivably work out injustice. But if the
language of the statute is clear and unambiguous, and if two interpretations are not
reasonably possible, it would be wrong to discard the plain meaning of the words used in
order to meet a possible injustice.”
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 Literal Construction: Thumb Rule
• CCE v. Bhalla Enterprises 2004 (173) E.L.T. 225 (S.C.)
“The basic rule in interpretation of any statutory provision is that the plain words of the statute must be given
effect to……”
• Tata Iron and Steel Co. Ltd. v. UOI 1988 (33) E.L.T. 297 (Pat.)
“21. ….The first rule of interpretation of a document is to give it a literal construction. Other rules of
interpretation are attracted only when the literal construction does not bring out the idea correctly and fully
and that there is some ambiguity left in it. In giving a literal construction there is no ambiguity I do not think
why it should not be given a literal construction.”
• Commissioner v. Doaba Steel Rolling Mills 2011 (269) E.L.T. 298 (S.C.)
“19. The principle that a taxing statute should be strictly construed is well settled. It is equally trite that the
intention of the Legislature is primarily to be gathered from the words used in the statute. Once it is shown
that an assessee falls within the letter of the law, he must be taxed however great the hardship may appear to
the judicial mind to be.”
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Golden Rule or Rule of ‘purposive construction’
• Alternate to Literal Rule
• Applies in case where literal interpretation of the taxing statute is likely to lead to a manifest
absurdity
• Provides that the meaning of the words should be so effected that such an absurdity is avoided and
legislative intention is given effect.
•  Periyar and Pareekanni Rubbers Ltd. State of Kerela (2008) 13 VST 538 (SC)
“28. Tax liability of the business concern is not in dispute. Correctness of the orders of assessment
is also not under challenge. The Tribunal or for that matter the High Court were, therefore, not
concerned with the liability fastened upon the dealer. The only question was as to what extent the
appellant was liable therefore. It is impossible for the legislature to envisage all situations.
Recourse to statutory interpretations therefore should be done in such a manner so as to give
effect to the object and purport thereof. Doctrine of purposive construction should, for the said
purpose, be taken recourse to.”
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 Golden Rule (cont.)
• Tata Consultancy Services v. State of AP [2004] 271 ITR 401(SC)
“68. It is now well-settled that when an expression is capable of more than one meaning, the
Court would attempt to resolve that ambiguity in a manner consistent with the purpose of the
provisions and with regard to the consequences of the alternative constructions. [See Clark &
Tokeley Ltd. (t/a Spellbrook) v. Oakes [1998 (4) All ER 353].
69. In Inland Revenue Commissioners v. Trustees of Sir John Aird's Settlement [1984] Ch. 382, it
is stated:
Two methods of statutory interpretation have at times been adopted by the court. One,
sometimes called literalist, is to make a meticulous examination of the precise words used. The
other sometimes called purposive, is to consider the object of the relevant provision in the light
of the other provisions of the Act - the general intendment of the provisions. They are not
mutually exclusive and both have their part to play even in the interpretation of a taxing statute.”
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 Mischief rule (Heydon’s Rule) 
• An alternative rule of interpretation
• Applies for those cases where legislation carries a particular background / context
• Rule stipulates that law be interpreted taking note of the ‘mischief’ (anomaly)
should to be addressed by it.
• Requires examination of following ingredients
• What was the law prior to the enactment of the statute?
• What was the defect or mischief which the law failed to rectify?
• What remedy did the Legislature provide by way of the statute enacted?
• What was the legislative intent behind such remedy?
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 Mischief rule (cont.)
• Engee Industrial Services v. UOI 2004 (164) E.L.T. 242 (Kar.)
“17. When the material words in a statute are capable of bearing two or more
considerations, the most firmly established rule for construction of such words is the rule
in Heydon’s case (1584) 76 ER 637 which has now attained the status of a classic
described by the Supreme Court in the case of Kanailal Sur v. Paramnidhi Sadhukhan -
AIR 1957 SC 307. In the case of Anderton v. Ryan - 1985 (2) All. ER 355, it was held that
the rule in Heydon’s (supra) case which is also known as “purposive construction” or
“mischief rule”, enables consideration of four matters in construing an Act : (i) what was
the law before the making of the Act; (ii) what was the mischief or defect for which the
law did not provide; (iii) what is the remedy that the Act has provided, and (iv) what is the
reason of the remedy. The rule then directs that the Courts must adopt that construction
which shall suppress the mischief and advance the remedy.”
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 Rule of harmonious construction
• Reconciling different provisions.
• CTO v. Binani Cements Ltd. (2014) 68 VST 459 (SC) 
“30. Generally, the principle has found vast application in cases of there being two statutes: general or specific
with the latter treating the common subject matter more specifically or minutely than the former. Corpus Juris
Secundum, 82 C.J.S. Statutes § 482 states that when construing a general and a specific statute pertaining
to the same topic, it is necessary to consider the statutes as consistent with one another and such statutes
therefore should be harmonized, if possible, with the objective of giving effect to a consistent legislative
policy. On the other hand, where a general statute and a specific statute relating to the same subject matter
cannot be reconciled, the special or specific statute ordinarily will control. ..” 
• Kamrup Industrial Gases Ltd. v. Commissioner 2004 (172) E.L.T. 454 (All.)
“15. The provisions of one section of the statute cannot be used to defeat those of another unless it is
impossible to effect reconciliation between them. Thus a construction that reduces one of the provisions to a
“useless lumber” or “dead letter” is not a harmonised construction. To harmonise is not to destroy.”
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 To look out for in interpretative space …
Rajinder Singh v. State of Punjab (2015) 6 SCC 477 [reiterating Standard Chartered Bank (2005) 4 SCC 530]
The distinction between a strict construction and a more free one has disappeared in modern times and now mostly the
question is ‘what is true construction of the statute?’ A passage in Craies on Statute Law, 7th Edn. reads to the following
effect:
‘The distinction between a strict and a liberal construction has almost disappeared with regard to all classes of statutes, so
that all statutes, whether penal or not, are now construed by substantially the same rules. “All modern Acts are framed with
regard to equitable as well as legal principles.” “A hundred years ago”, said the court in Lyons case [R. v. Lyons, 1858 Bell
CC 38 : 169 ER 1158] , “statutes were required to be perfectly precise and resort was not had to a reasonable construction
of the Act, and thereby criminals were often allowed to escape. This is not the present mode of construing Acts of
Parliament. They are construed now with reference to the true meaning and real intention of the legislature.’
At p. 532 of the same book, observations of Sedgwick are quoted as under:
‘The more correct version of the doctrine appears to be that statutes of this class are to be fairly construed and faithfully
applied according to the intent of the legislature, without unwarrantable severity on the one hand or unjustifiable lenity on
the other, in cases of doubt the courts inclining to mercy.’

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 Meaning should be given to every word
• Bansal Wire Industries Ltd. 2011 (269) E.L.T. 145 (S.C.)
“34. It is a settled principle of law that the words used in the section, rule or notification should not be
rendered redundant and should be given effect to. It is also one of the cardinal principles of interpretation of
any statue that some meaning must be given to the words used in the section. Expression “Wire rods and
wires” which is mentioned in item no. (xv) would not and cannot cover the expression “tools, alloy and special
steels” of entry no. (ix) nor it would refer to the expression “Iron and Steel” as each item used in entry nos.
(ix) and (xv) are independent items not depending on each other at all as has been held in the case of Pyare
Lal Mehrotra (supra).”
• Gujarat State Fertilizers Co. 1997 (91) E.L.T. 3 (S.C.)
“If the express language of the notification does not indicate a contrary intention conveyed by the wide words
employed by the notification, full effect has to be given to the wide terminology employed by the notification
otherwise the result would be that in trying to search for the supposed intention underlying the notification, the
intention flowing from the express language of the notification would get stultified or truncated.”

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 Doctrine of ‘reading down’
• Making provision consistent with Constitutional norms
• Arun Kumar v. UOI [2006] 155 Taxman 659 (SC) 
“ doctrine of 'reading down' is well-known in the field of Constitutional Law. Colin Howard in his well- known work "Australian
Federal Constitutional Law" states;
Reading down puts into operation the principle that so far as it is reasonably possible to do so, legislation should be construed as
being within power. It has the practical effect that where an Act is expressed in language of a generality which makes it capable, if
read literally, of applying to matters beyond the relevant legislative power, the Court will construe it in a more limited sense so as to
keep it within power” 
• Commissioner of Sales Tax v. Radhakrishnan [1979] 118 ITR 534 (SC)
“In considering the validity of a statute the presumption is in favour of its constitutionality and the burden is upon him who
attacks it to show that there has been a clear transgression of constitutional principles. For sustaining the presumption of
constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the
times and may assume every state of facts which can be conceived it must always be presumed that the Legislature understands and
correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds. It is well settled that
courts will be justified in giving a liberal interpretation to the section in order to avoid constitutional invalidity. These principles
have given rise to rule of reading down the section if it becomes necessary to uphold the validity of the sections.”
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 Doctrine of Ejusdem Generis
• General word contain in the statute may be construed with reference to the antecedent matter and the
construction may be narrowed down by treating them as applying to the things of the same kind as those
previously mentioned.
• CCE v. Maharashtra Fur Fabric Ltd. 2002 (145) E.L.T. 287 (S.C.)
A careful reading of the proviso to the notification would show that by resorting not only to the process of
bleaching, dyeing, printing, shrink proofing, tentering, heat-setting, crease-resistant processing, but also to
“any other process or any two or more of these processes”, the respondent would lose the benefit of the
exemption. It is a well established principle that general terms following particular expressions take their
colour and meaning as that of the preceding expressions, applying the principle of ejusdem generis rule,
therefore, in construing the words “or any other process”, the import of the specific expressions will have to
be kept in mind. It follows that the words “or any other process” would have to be understood in the same
sense in which the process, including tentering, would be understood. Thus understood, a process akin to
stentering/tentering would fall within the meaning of the proviso and, consequently, the benefit of the
notification cannot be availed by the respondent.
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 Doctrine of Noscitur a Socitus
• Word should be known from its accompanying words
• Oswal Agro 1993 (66) E.L.T. 37 (S.C.)
There is no quarrel with the proposition that in ascertaining the meaning of the word or a clause or sentence in the
statute in its interpretation, everything which is logically relevant should be admissible. It is no doubt true that the
doctrine of Noscitur A Sociis, meaning thereby, that it is a legitimate rule of construction to construe words in an
Act of Parliament with reference to words found in immediate connection with them i.e. when two or more words
which are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate
sense. They take, as it were, their colour from each other, the meaning of the more general is restricted to a sense
analogous to a less general. The philosophy behind it is that the meaning of the doubtful words may be ascertained
by reference to the meaning of words associated with it. This doctrine is broader than the doctrine of ejusdem
generis. This doctrine was accepted by this Court in catena of cases but its application is to be made to the context
and the setting in which the words came to be used or associated in the statute or the statutory rule.
• Kartos International 2011 (268) E.L.T. 289 (S.C.)
Nositur a Sociis means that when two words are capable of being analogously defined, then they take colour from
each other. The term ejusdem generis is a facet of Nositur a Sociis. The aforesaid principle means that the general
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words following certain specific words would take colour from the specific words.
 Expressio Unis Est Exclusio Alterius
• Express mention of one thing implies exclusion of other
• GVK Industries Ltd. (2011 (4) SCC 36)
“in this case it is the territory of India that is specified by the phrase ‘for the
whole or any part of the territory of India’. Expressio unius est exclusio alterius
- the express mention of one thing implies the exclusion of another. In this case
Parliament has been granted powers to make laws ‘for’ a specific territory -
and that is India or any part thereof, by implication, one may not read that
Parliament has been granted powers to make laws ‘for’ territories beyond
India.”

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 Internal Aids for interpretation
• Long Title
• E.g. - Income Tax Act – “An Act to consolidate and amend the law relating to income-tax and
super-tax”
• Preamble
• “The Preamble of a statute like the Long Title is a part of the Act and is an admissible aid to
construction. Although not an enacting part, the Preamble is expected to express the scope, object
and purpose of the Act more comprehensibly than the Long Title. It may recite the ground and
cause of making the statute, the evils sought to be remedied or the doubts which may be intended to
be settled.” [G.P. Singh, 14th ed., pg. 174]
• Headings
• Marginal Notes
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 Internal Aids for interpretation (Cont.)
• Punctuation
• “a minor element in the construction of a statute” [Ashwini Ghose AIR 1952 SC 369 (5 judges)]
• Illustrations
• “part of the statute and although forming no part of the section, are of relevance and value in the construction
of the text of the section”. [G.P. Singh, 14th ed., pg. 192]
• Definitions / Interpretation provisions
• Means [restrictive and exhaustive definitions]
• Includes [expansive definitions] [Ramala Sahkari 2016 (334) ELT 3 (SC)]
• Excludes
• “unless the context otherwise requires” [Srinivasa Setty 128 ITR 294][definition of ‘capital asset’ rejected in
context of ‘goodwill’ as contextually repugnant]
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 Internal Aids for interpretation (Cont.)
• Proviso – generally exception to the main provision
• Explanation – generally to explain the meaning of the provision
• Explanation in fiscal legislations;
• Can be clarificatory [Sedco Forex (2005) 12 SCC 717]
• Can be substantive charge [Martin Lottery (2009) 12 SCC 209
• Schedule – part of the enactment (generally to avoid encumbering the provisions
in statute with excessive details)
• Non-obstante clauses / ‘Subject to’ clauses – conferring overriding effect to
another part / statute.
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 External aids for Interpretation
• Legislative history [Abhiram Singh v. C.D. Commachen (2017 – SC) 7 judges]
• In pari materia statutes [statutes dealing with the same subject-matter or forming part
of the same statute]
• Prior-enacted statutes
• “when a particular form of legislative enactment, which has received authoritative interpretation
whether by judicial decision or by a long course of practice, is adopted in the framing of a later
statute, it is a sound rule of construction to hold that the words so adopted were intended by the
Legislature to bear the meaning which has been so put upon them.” [GP Singh, 14 th ed., pg. 335]
• Subsequently-enacted statutes
• Normally not a useful tool for interpretation of earlier statute.
• However may be used to ascertain legislative intent, clarifications, etc.
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 External aids for Interpretation (Cont.)
• Legislation by incorporation and by reference
• Legislative devices to avoid verbatim reproduction of the provisions of an earlier statute into the later.
• Incorporation – implies the referred provisions becoming part and parcel of the subsequent legislation. However
the two statutes remain different and distinct.
• Reference – refers to a situation of constant interaction between the two statutes. Any changes in the former
statute (even subsequent to enactment of later statute) extend to construction of later statute.
• Reference versus Incorporation –
• “in the former case a modification, repeal or re-enactment of the statute that is referred will also have effect fro the statute in
which it is referred; but in the latter case any changes in incorporated statute by way of amendment or repeal has no repercussions
on the incorporating statute.” [GP Singh, 14th ed., pg. 359]
• “The distinction is one of difference in degree and is often blurred. The fact that no clear-cut guidelines or distinguishing features
have been spelt out is ascertain whether it belongs to one or the other category makes the task of identification difficult. …
Ultimately, it is a matter of probe into legislative intention and / or taking an insight into the working of the enactment if one or
the other view is adopted.” [MSRTC v. State of Maharashtra (2003) 4 SCC 200]
• Western Coal Fields Ltd. v. Sp. Area Dev. Authority (1982) 1 SCC 125. 17-02-2018 25
 External aids for Interpretation (Cont.)
• Relevance of usage and practice for interpretation
• Usage and practice are relevant guides but do not stop the court in giving to the Act its true construction. [Punjab
Traders (1991) 1 SCC 86]
• Non-implementation of statutory mandate does not imply repeal or non-application. Statutory enactments “cannot
fall into desuetude or become inoperative through obsolescence or by lapse of time” [Monnet Ispat and Energy
Ltd. (2012) 11 SCC 1]
• Dictionaries
• Meaning considered but limits on application. [CGT v. N.S. Getty Chettiar (1971) 82 ITR 599 (SC)]
• How far dictionaries can be used for interpretations construction of statutes [Dy. Chief Controller of Exports &
Imports, New Delhi v. K.T. Kosalram (AIR 1971 SC 1283) Krishna Iyer J.]
• Foreign decisions
• Relevant from perspective of Judicial comity and appreciation of international standards
• Subject to constitutional and legal limitations.
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 Significance of ‘General Clauses Act, 1897’
• Interpretation standard across all statutes [S.3 – “In this Act, and in all Central
Acts and regulations made after the commencement of this Act, unless there is
anything repugnant in the subject or context- …”]
• Postulates specific and crucial rules relating to operation of statutes;
• S.5 – “Where any Central Act is not expressed to come into operation on particular day, then
it shall come into operation on the day on which it receives the assent …”
• S. 6 - “effect of repeal”
• S.9 – “commencement and termination of time” specified under statutes
• S.10 - “computation of time” prescribed under statutes

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 Significance of ‘General Clauses Act, 1897’
(Cont.)
• Postulates specific and crucial rules relating to operation of statutes;
• S. 11 – “Measurement of distances” (“in a straight line on a horizontal plane”)
• S. 12 – Pro-rata duty – “Where, by any enactment now in force or hereafter to be in force,
any duty of customs or excise, or excise, or in the nature thereof, is leviable on any given
quantity, by weight, measure or value of any goods or merchandise, then a like duty
is leviable according to the same rate on any greater or less quantity.”
• S. 13 – “Gender and Number” – “In all Central Acts or Regulations, unless there is anything
repugnant in the subject or context- (1) words importing the masculine gender shall be taken
to include females; and (2) words in the singular shall include the plural, and vice versa.”
• S. 16 – “Power to appoint to include power to suspend or dismiss”.

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 Significance of ‘General Clauses Act, 1897’
(Cont.)
• Postulates specific and crucial rules relating to operation of statutes;
• S. 20 – Expressions employed in rules / bye-laws etc. to be attributed same meaning as in the
Act
• S. 21 – “Power to issue, to include power to add to, amend, vary or rescind notifications,
orders, rules or bye-laws”.
• S. 24 – “Continuation of orders, etc. issued under enactments repealed and re-enacted”.
• S. 27 – “Meaning of service by post”

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 Part – B
Special considerations in interpretation of fiscal
legislations

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 Deconstructing Fiscal Statutes
• Four components;
“The components which enter into the concept of a tax are well known. The first is the
character of the imposition known by its nature which prescribes the taxable event
attracting the levy, the second is a clear indication of the person on whom the levy is
imposed and who is obliged to pay the tax, the third is the rate at which the tax is
imposed, and the fourth is the measure or value to which the rate will be applied for
computing the tax liability. If those components are not clearly and definitely
ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty
or vagueness in the legislative scheme defining any of those components of the levy
will be fatal to its validity.”
[Govind Saran Ganga Saran 1985 Supp SCC 205]
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 Linkage between ‘charging’ and ‘computation’ provisions
• “While interpreting the provisions of the Income Tax Act one cannot read the charging sections of that Act dehors the machinery sections. The
Act is to be read as an integrated code.” [GE India Technology Centre (2010) 327 ITR 456 (SC)]
• “The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the
computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it
is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain
income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the
Act is against such a conclusion.” [B.C. Srinivasa Setty (1981) 128 ITR 294 (SC)]
• “Section 9 is not the beginning and end of the levy of royalty. The royalty has to be quantified for purpose of levy and that cannot be done
unless the provisions of the Second Schedule are taken into consideration. For the purpose of levying any charge, not only has the charge to be
authorised by law, it has also to be computed. The charging provision and the computation provision may be found at one place or at two
different places depending on the draftsman's art of drafting and methodology employed. In the latter case, the charging provision and
the computation provision, though placed in two parts of the enactment, shall have to be read together as constituting one integrated provision.
The charging provision and the computation provision do differ qualitatively. In case of conflict, the computation provision shall give way
to the charging provision. In case of doubt or ambiguity the computing provision shall be so interpreted as to act in aid of charging provision. If
the two can be read together homogeneously then both shall be given effect to, more so, when it is clear from the computation provision that it
is meant to supplement the charging provision and is, on its own, a substantive provision in the sense that but for the computation provision
the charging provision alone would not work. The computing provision cannot be treated as mere surplusage or of no significance; what
necessarily flows therefrom shall also have to be given effect to.” [National Mineral Development Corporation (2004) 6 SCC 281]
• The levy under one statute can be sustained, however, if it adopts machinery provisions under other statute. [Mahim Patram (2007) 3 SCC 668]
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 Interpretative Standard
• Strict Construction is the norm;
“It is no doubt, true that in construing fiscal statutes and in determining the
liability of a subject to tax one must have regard to the strict letter of the law
and not merely to the spirit of the statute or the substance of the law. If the
Revenue satisfies 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 not covered within
the four corners of the provisions of the taxing statute, no tax can be imposed
by inference or by analogy or by trying to probe into the intentions of the
legislature and by considering what was the substance of the matter.”
[A.V. Fernandez AIR 1957 SC 657]
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 Interpretative Standard (Cont.):
No levy by implication
• The person should be covered under the charging section clearly.
• Bank of Chettinad v. Income-tax Commr. - AIR 1940 PC 183
“It is no doubt true that in construing fiscal statutes and in determining the liability of a
subject to tax one must have regard to the strict letter of the law and not merely to the
spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the
case falls strictly within the provision of the law, the subject can be taxed. If, on the other
hand, the case is not covered within the four corners of the provisions of the taxing
statute, no tax can be imposed by inference or by analogy or by trying to probe into the
intentions of the legislature and by considering what was the substance of the matter.”
• Modi Sugar Mills Ltd. AIR 1961 SC 1047 (CB)
• Kasturi and Sons Ltd. AIR 1999 SC 1275
• Ellis Bridge Gymkhana AIR 1998 SC 120 17-02-2018 34
 Constitutional sanctions
• Article 265, Constitution of India
265. Taxes not to be imposed save by authority of law.
No tax shall be levied or collected except by authority of law.
Rule against ‘discrimination’: Extending Article 14
• UOI v. N.S. Rathnam 2015 (322) ELT 353 (SC)
• Exemption Notification artificially distinguishing between importers struck down to the extent of discrimination
• Shree Bhagwati Steel Rolling Mills v. CCE 2015 (326) ELT 209 (SC)
• Penalty provision treating bonafide defaults and evaders alike struck down
• Extending Article 14 to tax disputes
• Jai Vijay Metal Udyog Pvt. Ltd. 2010 (253) ELT 161 (SC)
• Corporation Bank 2009 (233) ELT 3 (SC)
• MRF Ltd. 2006 (206) ELT 6 (SC)
• Pepsi Foods Pvt. Ltd. v. Assistant Commissioner (2015) 376 ITR 87 (Del)
[GAAR and ‘Rule of Law’: Mutually Incompatible? Chartered Accountant Practice Journal, Vol. 43 (August 2013)(pp. 424-
444)]
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 Legal Stipulations: No role of ‘Equity’
• Cape Brandy Syndicate v. Commissioner of Inland Revenue, (1921) 1 KB 64, per Rowlett J.
“in a taxing Act 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 only look fairly at the language used".
• Kapil Mohan (1999) 235 ITR 278 (SC)
“As to the argument based on equity, it has long been recognised that tax and equity are strangers. Just as
reliance upon equity does not avail an assessee, so it does not avail the Revenue. The legal
representative of a deceased depositor cannot be made to pay income tax upon the annuity only because the
original depositor had not been required to pay income tax on the amount of the annuity deposit, on the
basis that what the Revenue had lost out on then should be recouped to it now. The original depositor did not
voluntarily make the annuity deposit; he was required by the Act and the Scheme to do so. Insofar as he was
concerned, the Act provided that the annuity he received would be taxable as income. Whether advisedly or
otherwise, the Act did not provide that the annuity would be taxed as income in the hands of his legal
representative, and there it must remain.”
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 Legal Stipulations: No role of ‘Morality’
“In our opinion, the High Court has adopted an emotional and moral approach rather than a
legal approach. We fully agree with the High Court that the assessee was committing a highly
immoral act in illegally manufacturing and selling heroin. However, cases are to be decided by
the court on legal principles and not on one's own moral views. Law is different from morality,
as the positivist jurists Bentham and Austin pointed out.
The Explanation to Section 37 has really nothing to do with the present case as it is not a case
of a business expenditure, but of business loss. Business losses are allowable on ordinary
commercial principles in computing profits. Once it is found that the heroin seized formed
part of the stock-in-trade of the assessee, it follows that the seizure and confiscation of such
stock-in-trade has to be allowed as a business loss. Loss of stock-in-trade has to be considered
as a trading loss vide CIT v. S.N.A.S.A. Annamalai Chettiar (1973) 3 SCC 339”
T.A. Quereshi (Dr.) v. CIT, (2006) 287 ITR 547 (SC).
17-02-2018 37
 Legal Stipulations: ‘Hardship’ does not dilute rigours !!!
• No fundamental right to be immune from taxation
• Article 19(1)(g) generally not available as a defence.
• No legal prescription against intended double taxation
• “A feeble plea that the tax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced.
Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserves the
least attention. There is nothing in Article 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad
economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western
India Theatres [Cantonment Board Poona v. Western India Theatres Ltd., AIR 1954 Bom 261] . Some undeserving contentions die hard, rather
survive after death. The only epitaph we may inscribe is: Rest in peace and don't be re-born ! If on the same subject-matter the legislature chooses to
levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist.” Avinder Singh (1979) 1 SCC 137].
• Prohibition against Double Taxation: A wavering principle in Indian Tax Jurisprudence ITR's Taxation Tribunal Reports, (2014) 36 ITR(T) (Journal)
21-37.
• Hardship not a basis to give respite against application of fiscal provisions
“In taxing statutes, even if the literal interpretation results in hardship or inconvenience, it has to be followed. This Court in CIT
(Ag) v. Keshab Chandra Mandal [AIR 1950 SC 265], has held that hardship or inconvenience cannot alter the meaning of the
language employed by the legislature if such meaning is clear and apparent. Hence departure from the literal rule should only
be done in very rare cases, and ordinarily there should be judicial restraint to do so.” [Calcutta Knitwears (2014) 362 ITR 673
(SC)] 17-02-2018 38
 Rule of beneficial construction
• Where two interpretations are possible, the one which is beneficial to the assessee should be preferred. 
• CCE v. Lotus Links 1996 (87) E.L.T. 580 (S.C.)
“Even if two views were possible the one in favour of the assessee would guide our decision” 
• CCE v. Velliappa Textiles 2003 (157) E.L.T. 369 (S.C.)
“42. The observations in Tolaram Relumal v. State of Bombay [AIR 1954 SC 496], Bijaya Kumar
Agarwala v. State of Orissa 1996 (5) SCC 1, Sanjay Dutt v. State 1994 (5) SCC 410, Niranjan Singh v.
Jitendra Bhimraj Bijjaya 1990 (4) SCC 76, make it clear that while interpreting a penal statute, if more
than one view is possible, the court is obliged to lean in favour of the construction which exempts a
citizen from penalty than the one which imposes the penalty. The observations of Lord Esher, MR in
formulating, “the settled rule of construction of penal Sections”, that “if there is a reasonable
interpretation which will avoid the penalty in any particular case, we must adopt that construction. If
there are two reasonable constructions, we must give the more lenient one”.
17-02-2018 39
 Retrospectivity
• Provision creating new liability is generally not retrospective (unlike procedural
amendments)
• Martin Lottery 2009 (14) STR 593 (SC)
• V. Damodaran (1980) 1 SCC 173
• Clarificatory rules are retrospective in operation
• WPIL Ltd. 2005 (181) ELT 359 (SC)
• Shivganga Paper Converters 2014 TIOL 16 SC-CT
• Sedco Forex International Drilling Inc. (2005) 12 SCC 717
• Patel Brothers & Co. Ltd. (1995) 4 SCC 485
• Podar Cements Pvt. Ltd. (1997) 5 SCC 482
17-02-2018 40
 Retrospectivity (cont.)
• Substituted provisions do not have retrospective effect
• Maharaja Chintamani Saran Nath Shahdeo (1999) 8 SCC 16
• Thirumangal Mills Ltd. (1972) 1 SCC 176
• Kanak Exports 2015 (326) ELT 26 (SC)
• Subordinate legislation cannot have retrospective effect unless specific power vested with Government to
make such rules
• Hukam Chand v. Union of India (1972) 2 SCC 601
• Vasu Knitware (2010) 254 ELT 214 (PH)
•  Beneficial circular applies retrospectively. Oppressive circular applies prospectively
• Suchitra Operations Ltd 2007 (208) ELT 321 (SC)
• Mysore Electricals Industries Ltd (2006) 204 ELT 517 (SC)
[Monetary limits of Appeals: Retrospectivity of Departmental Instructions Income Tax Reports, (2018) 400 ITR (Journal) 44-59]
17-02-2018 41
 Principle of Fairness !!!
• CIT v. Vatika Township (2014) 367 ITR 466 (SC) (5-judges)
“If the concerned provision of the taxing statute is ambiguous and vague and is susceptible to
two interpretations, the interpretation which favours the subjects, as against there the revenue,
has to be preferred. This is a well established principle of statutory interpretation, to help
finding out as to whether particular category of assessee are to pay a particular tax or not. No
doubt, with the application of this principle, Courts make endeavour to find out the intention of
the legislature. At the same time, this very principle is based on “fairness” doctrine as it lays
down that if it is not very clear from the provisions of the Act as to whether the particular tax is
to be levied to a particular class of persons or not, the subject should not be fastened with any
liability to pay tax. This principle also acts as a balancing factor between the two
jurisprudential theories of justice – Libertarian theory on the one hand and Kantian
theory along with Egalitarian theory propounded by John Rawls on the other hand.”
17-02-2018 42
 Principle of Fairness (cont.)
• Limitations
• Not a general rule as per the decisions in Vatika Township.
• Principally acts as a bar against retrospective operation of fiscal legislations.
• Not of unequivocal application as subsequent decisions reveals;
• Jayam and Co. (2016) 96 VST 1 (SC)
• Eurotex Industries (2017) 104 VST 1 (SC)
Doctrine of ‘Fairness’: Countering ‘Implied Retrospectivity’ of Fiscal Enactments, (2017) 397 ITR
(Journal) 21-35.

• Nonetheless, a substantive movement in fiscal jurisprudence.

17-02-2018 43
 Contemporanea expositio
• Meaning of words in an enactment will be understood in the sense which they bore when the
enactment was passed.
• Recognizes role of subordinate authorities in statutory interpretation;
• Circulars
• Instructions
• Trade Notices
•  Azadi Bachao Andolan (SC)
“The Rule of contemporanea expositio is that administrative construction (i.e. contemporaneous
construction placed by administrative or executive officers) generally should be clearly wrong
before it is overturned; such a construction commonly referred to as practical construction,
although non- controlling, is nevertheless entitled to considerable weight, it is highly
persuasive.” 17-02-2018 44
 Relevance of ‘comma’ in fiscal legislations
• Crucial for interpretation
• Sree Durga Distributors (2007) 4 SCC 476
• Indian Petrochemicals Corp (2015) 15 SCC 783
• Gujarat Composite Ltd. (1999) 8 SCC 675
• Bharat Nidhi Ltd. (1982) ILR (Del) 197
• Minor / negligible role in interpretation
• Hindustan Construction Co. Ltd. (1994) 208 ITR 291 (Bom)
• Cine Super & Pvt. Ltd. (1994) 72 ELT 20 (Bom)

17-02-2018 45
 Penalty provisions under fiscal statutes
• Contradistinguish from penal statutes
• Not ‘criminal act’ but ‘civil wrong’
• Essentially infractions and not ‘offence’
• Leading to differential interpretation standards;
• Civil disputes (burden of proof on ‘preponderance of probability’) versus Criminal cases
(burden of proof ‘beyond reasonable doubt’)
• Mens rea not an essential condition [Gujarat Travancore Agency (1989) 177 ITR 455 (SC) – S.
271(1)(a) versus S. 276-C]
• Appreciation of conduct in quasi-judicial proceedings without rigous of standards under
Evidence Law.
17-02-2018 46
 Additional considerations for subordinate
legislation
• Low position in ‘hierarchy of norms’.
• Their interpretation must conform to the statutory enactments.
• Interpretation must be such which furthers legislative intent and effectuates the
provision rather than rendering it otiose.
• While statute (with validation provisions) can deviate from law declared by
courts, subordinate legislation do not carry force of law when decisions hold
otherwise. [Ratan Melting & Wire Industries (2008) 13 SCC 1]

17-02-2018 47
 Exemptions (under subordinate legislation)
• Stages: (1) Strict construction on eligibility and (2) Liberal construction on amenability of benefit
• Wood Papers Ltd. (1990) 4 SCC 256
“In fact an exemption provision is like an exception and on normal principle of construction or interpretation of
statutes it is construed strictly either because of legislative intention or on economic justification of inequitable
burden or progressive approach of fiscal provision intended to augment State revenue. But once exception or
exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking liberal and
strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the
question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is
to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the
subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction.”
• IVRCL Infrastructure and Projects 2015 (319) E.L.T. 194 (S.C.)
“Eligibility criteria in exemption notification has to be construed strictly, once that is satisfied, it has to be construed
liberally”
• Hari Chand Shri Gopal 2010 (260) ELT 3 (SC) (5 judges)
• Novopan India Ltd. 1994 (73) ELT 769 (SC)
17-02-2018 48
 Treaty Interpretation
• Vienna Convention on the Law of Treaties (1969)
• Not ratified by India.
• Still relevant in view of its apparent status as customary international law.
• VCLT principles
• Pacta Sunt Servanda
• Latin: “agreements must be kept”
• VCLT - Every treaty in force is binding upon the parties to it and must be performed by them in
good faith. [Art. 26]
• Non-retroactivity of treaties [Art. 28]
• Application of successive treaties relating to the same subject-matter [Art. 30]
17-02-2018 49
 Treaty Interpretation (cont.)
VCLT – Art. 31 - General Rules of Interpretation
• “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given
to the terms of the treaty in their context and in the light of its object and purpose.” [1]
• “The context for the purpose of the interpretation of a treaty shall comprise, in addition to the
text, including its preamble and annexes: …” [2]
• “There shall be taken into account, together with the context: (a) Any subsequent agreement
between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of
the parties regarding its interpretation; (c) Any relevant rules of international law applicable in
the relations between the parties.” [3]
• “A special meaning shall be given to a term if it is established that the parties so intended.” [4].
17-02-2018 50
 Treaty Interpretation (cont.)
VCLT – Art. 32 – Supplementary Means of Interpretation
• Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine
the meaning when the interpretation according to article 31 :
(a) Leaves the meaning ambiguous or obscure; or
(b) Leads to a result which is manifestly absurd or unreasonable.

17-02-2018 51
 Leading Indian decisions on Treaty Interpretation
• Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey (1984) 2 SCC 534 – Indian legal process
to execute / ratify treaties and their constitutional status.
• Abu Salem Abdul Qayoom Ansari (2011) 11 SCC 214 – relevance of political imputations and other
ancillary factors in treaty interpretation.
• Azadi Bachao Andolan (2003) 263 ITR 706 (SC) – special considerations of DTAA and their status
under IT Act.
• Sanofi Pasteur (2013) 354 ITR 316 (AP) – giving fullest effect to DTAA
• New Skies Satellite BV (2016) 382 ITR 114 (Del) – unilateral amendments to DTAA
• Relevance of treaties in domestic law interpretation
• Sakshi (2004) 5 SCC 518 – Criminal Law
• Meghmani Organics Ltd. (2016) 10 SCC 28 – applying WTO rules to interpret Indian statutory provisions
• Karan Dileep Nevatia 2010 SCC Online Bom 23 – enforcing WTO obligations before Indian courts
17-02-2018 52
 Part – C
Case Studies

17-02-2018 53
 Case Study – A

CIT v. Anjum M.H. Ghaswala (2001) 252 ITR 1 (SC)

• 5 judges
• Powers of Settlement Commission to waive / reduce ‘interest’ by way of
settlement terms.

17-02-2018 54
 Provision and issue under consideration
Section 245-D.
(4) After examination of the records and the report of the Commissioner, received under sub-section (1), and the report,
if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the
Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after
examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in
accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application
and any other matter relating to the case not covered by the application, but referred to in the report of the
Commissioner under sub-section (1) or sub-section (3).
(6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by
way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other
matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently
found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.”
(Issue) “The moot question, therefore, for our consideration is: does sub-section (6) which contemplates providing for the
terms of settlement of tax, penalty or interest empower the Commission, in any manner, either to waive or reduce interest
payable under Section 234-A, 234-B or 234-C in any case that arises for settlement before the Commission? If so, would
this waiver of interest be in accordance with the provisions of the Act as mandated in sub-section (4) of17-02-2018
the Act?” 55
 Relevant extract of SC judgment

“The Commission in the impugned order placed strong reliance on the wording of Section 245-
D(6) the language of which, according to the Commission, empowers it to waive or reduce
statutory interest because of the reintroduction of the expression “interest” in that sub-section.
According to the findings of the Commission, the inclusion of the expression “interest”
clearly indicates that the statute has permitted it to pass such orders as it deems fit in
regard to payment of interest when an order under sub-section (4) of Section 245-D is made
by it. This assumption of the Commission proceeds on the hypothesis that sub-section (6) of
Section 245-D is a substantive provision. We are unable to agree with this view of the
Commission. The substantive provision in regard to settlement in Chapter XIX-A, in our
opinion, is sub-section (4) of Section 245-D. It is under this provision of the Act that the
Commission will have to pass orders as it thinks fit on the matters covered by the application. In
our opinion, sub-section (6) of Section 245-D is only procedural in nature. It provides for
fixing the terms by which the amount settled in sub-section (4) will have to be paid. It is not a
17-02-2018 56
section which empowers the Commission either to waive or reduce the interest.”
 Relevant extract of SC judgment (cont.)
“If this position in law is presumed to be correct then the very purpose of the settlement contemplated in
Chapter XIX-A would defeat the object of the principal Act itself. As held by the Commission itself, Chapter
XIX-A was included for the purpose of quick settlement of the cases before it so that the tax due to the Revenue is
collected at the earliest. The object of Chapter XIX-A is not to give amnesty to a tax-evader from paying the tax
due. Hence, it would be preposterous to hold that the Commission has been conferred with the power of either
reducing or waiving the tax due. We are aware that the Commission in the impugned order has not gone to the
extent of holding that it has the power of either waiving or reducing the tax payable but then that would be the
logical conclusion if we accept the interpretation given by the Commission in regard to the expression “interest” in
Section 245-D(6) of the Act. … The expression “terms” used in that sub-section does not refer to the power of
the Commission to waive or reduce tax, penalty or interest because quantification of amount payable under each
of those expressions is dealt with under separate provisions of the Act like the payment of the tax is governed by
various provisions of the Act as defined in Section 2(43) of the Act while penalty is covered by Section 245-H and
interest under Sections 234-A, 234-B and 234-C of the Act. Therefore, all that the expression “term” in Section
245-D(6) means is that the Commission can stipulate the conditions of payment like instalments, last date for
payment etc. Beyond that, in our opinion, sub-section (6) does not authorise the waiver or reduction of tax,
penalty or interest settled under sub-section (4) of Section 245-D.” 17-02-2018 57
 Key learnings
• Designating provisions as Substantive versus Procedural
• The statute does not provide any guide to delineate provision as substantive or procedural.
• Larger scheme of the Act, underlying mandate, nature of powers being exercised, etc. constitute
relevant consideration to distinguish.
• Such distinction presupposes and results in differential positioning and effect to provisions within the
same statute.
• Object of Settlement Scheme pressed upon
• Objective underlying the provision is a relevant guide, albeit a larger one.
• An interpretation which leads to defeating the objective, even if arrived at by literal interpretation, can
be rejected towards larger goal of realigning the provisions in context of the objective.
• Consequence led interpretation
• Regard must be had to consequences of the interpretation being adopted.
• Current interpretative exercise must not provide a window for unacceptable interpretative results by
analogy. 17-02-2018 58
 Case Study – B

State of Gujarat v. Reliance Industries Ltd.

Civil Appeal No. 13047/2017 (22.9.2017)

• Interpreting exclusionary provisions

• Determining quantum of credit available under Value Added Scheme

17-02-2018 59
 Provision and issue under consideration
• Gujarat Value Added Tax Act [Section 11(3)(b)
(b) Notwithstanding anything contained in this section, the amount of tax credit in respect of a dealer shall be reduced by the amount of tax
calculated at the rate of four per cent on the taxable turnover of purchases within the State
(i) of taxable goods consigned or dispatched for batch transfer or to his agent outside the State, or
(ii) of taxable goods which are used as raw materials in the manufacture, or in the packing of goods which are dispatched outside the
State in the course of branch transfer or consignment or to his agent outside the State.
(iii) of fuels used for the manufacture of goods”

• “[a]fter the final product is produced, the assessee transfers these goods to its various branch offices, many
of which are located outside the State and, therefore, those goods which are so transferred would be covered
by this sub-clause and in respect of such goods which are transferred outside the State and are taxable under
the VAT Act, the tax credit is to be reduced by 4%. Since the raw material in the instant goods is in the
nature of fuels used for the manufacture of goods, it gets covered by sub-clause (iii) as well. The issue that
needs to be decided is as to whether the tax credit is to be reduced at the rate of 4% under sub-clause
(ii) and again at the same rate under sub-clause (iii) as well or deduction permissible is only once.
17-02-2018 60
 Finding of lower forums

• AO – Deduction twice over

• JC(A) - Deduction twice over
• VAT Tri. – No double deduction
• HC – No double deduction
“After clause (i), the Legislature has used the word “or”. We are conscious that at end of clause (ii) and
beginning of clause (iii), the Legislature has not once again used the word “or”, but has also not
added the expression “and”. Plain reading of the said provisions thus makes it clear that the reduction
of tax credit had to be applied to any case which satisfy the description contained in sub-clauses (i) to
(iii) not every time such description is satisfied. Further, reduction of amount of tax at the rate of 4 per
cent is to be done for the taxable goods which fall in any of the three categories contained in sub-
clauses (i) to (iii) and not every time a particular class of goods specified fall in more than one
categories.”
17-02-2018 61
 Relevant extract of SC judgment
• SC – Deduction twice over
• “…when the final product is sold and the VAT paid, component of raw material would be included again. Keeping in view this
objective, the Legislature has intended to give tax credit to some extent. However, how much tax credit is to be given and under
what circumstances, is the domain of the Legislature and the courts are not to tinker with the same”
• “taxing statutes are to be given strict interpretation”
• “Insofar as sub-clause (i) is concerned, it pertains to trading activity and there is no question of any overlap between sub-clause
(i) on the one hand and sub-clauses (ii) and (iii) on the other. Further, insofar as sub-clauses (i) and (ii) are concerned, same are
disjunctive as the word ‘or’ is inserted between these two clauses. However, when we come to clauses (ii) and (iii), where there is a
possibility of overlap (as it has happened in the instant case as well), there is no word ‘or’ used between clauses (ii) and (iii). Sub-
clause (ii) finishes with the punctuation mark full stop and then sub-clause (iii) starts. This depicts the intention of the
Legislature, namely, reduction is not confined to one of the aforesaid two sub-clauses and it can occur under both these provisions. It
is rightly pointed out by the appellant State that these are event based sub-clauses and two events are totally different. Sub-clause (ii) is
attracted in those cases where taxable goods are used as raw material (which may not necessarily be fuel but all raw materials are
included) and also the other condition which is to be fulfilled is that these goods are dispatched outside the State in the course of
branch transfer etc. Therefore, even if the taxable goods are used as raw material in the manufacture or in the packing of goods but
they are consumed or sold within the State, sub-clause (ii) would not apply. On the other hand, sub-clause (iii) is referable to only fuels
which are used for manufacture of goods. It is, thus, a totally separate category and the moment fuel is used in the manufacture of
goods, this sub-clause gets attracted and it would be immaterial whether the goods are sold within the State or outside the Sate. ”62
17-02-2018
 Case Study – C

Commissioner of Commercial Taxes v. Bajaj Auto Ltd.

(2016) 16 SCC 83

• Rejecting other considerations when provision is a ‘complete code’

17-02-2018 63
 Provisions under consideration
• Orissa Sales Tax Act
“5-A.Surcharge.—(1) Every dealer whose gross turnover during any year exceeds Rupees ten lakhs shall, in addition to the tax payable by him under
this Act, also pay a surcharge at the rate of ten per centum of the total amount of tax payable by him”
• Orissa Entry Tax Act
“4.Reduction in tax liability.—(1) Where an importer of motor vehicle liable to pay tax under sub-section (3) of Section 3 being a dealer in motor
vehicles becomes liable to pay tax under the Sales Tax Act by virtue of sale of such motor vehicles then his liability under the Sales Tax Act shall be
reduced to the extent of tax paid under this Act.
Explanation.—For the purpose of this sub-section the chassis and the vehicle with body built on the chassis shall be treated as one and the same
goods.
(2) When an importer or manufacturer of goods specified in Part III of the Schedule except motor vehicles pays tax under sub-section (1) of Section 3
or Section 26 of this Act, being a dealer under the Sales Tax Act becomes liable to pay tax under the said Act by virtue of sale of such goods, then his
liability under the Sales Tax Act shall be reduced to the extent of tax paid under this Act.
(3) The reduction in tax liability of an importer as provided in sub-section (1) or of an importer or manufacturer as provided in sub-section (2) shall not
be allowed, unless the entry tax paid and tax payable under the Sales Tax Act are shown separately in the cash memo or the bill or invoice issued by
him for the sale by virtue of which such liability accrues.”
• Orissa Entry Tax Rules
“18.Set off of entry tax against sales tax.—(1) When the importer of a motor vehicle liable to pay tax under sub-section (2) of Section 3 of this Act
being a dealer in motor vehicles becomes liable to pay tax under the Sales Tax Act by virtue of sale of such motor vehicle, his tax liability under the
Sales Tax Act shall be reduced to the extent of the tax paid under these Rules. 17-02-2018 64
 Issue before Court and contentions of parties
• [Issue] “The sole question for consideration is whether the “surcharge” under
Section 5-A of the OST Act is to be computed on the gross amount of sales tax or
on the net amount of sales tax after setting off or deducting the amount of entry
tax?”
• Tax Department – “surcharge under the OST Act shall be calculated on the
payable amount of tax due on the taxable turnover (Sections 5 and 5-A) instead of
on the reduced sales tax amount after setting off of entry tax.”
• Tax Payers – “surcharge [is to be paid] on the balance amount after deduction of
the entry tax paid on the motor vehicles.”

17-02-2018 65
 Conclusion and Reasons of Supreme Court
Conclusion
• “on a conjoint reading of Section 5 of the OST Act, Section 4 of the OET Act and Rule 18 of the Rules, we are of the considered
opinion that the amount of surcharge under Section 5-A of the OST Act is to be levied before deducting the amount of entry tax paid
by a dealer.”
Reasons
• Section 5-A of the OST Act is a self-contained provision and the surcharge, as already seen above, is leviable at the specified per
centum of tax payable under the OST Act. Tax payable under the OST Act is independent of the provisions of the OET Act. The
assessment or quantification or computation of surcharge shall have to be made in accordance with the provisions of the OST Act.”
• “On a plain reading of the provisions of the OST Act as well as the OET Act and the Rules, it can be seen that Section 5-A of the
OST Act creates a charge and imposes liability on every dealer under the OST Act to pay surcharge @ 10% on the amount of tax
payable by him under the OST Act. Section 4(1) of the OET Act, in the same way, prescribes for reduction of the tax amount payable
by the dealer to the extent of entry tax already paid for the same article for which sales tax is payable. The section does not
specifically contemplate anything, which would indicate that the provisions of the OET Act or the Rules have to be taken into
consideration while assessing the sales tax or surcharge. In essence, the provisions made in the Rules lay down the modality of
“set-off”. It is important to mention here that the OST Act was enacted in the year 1947 whereas the OET Act was enacted in 1999.
The provision of set-off has been made in the OET Act and the Rules framed thereunder and not in the OST Act. The heading of
Section 4 of the OET Act gives a broad idea regarding the provision of set-off by way of “reduction in tax liability”. Sub-sections (1)
and (2) of Section 4 of the OET Act provide for reduction of liability under the OST Act.” 17-02-2018 66
 Case Study – D

Sony India Pvt. Ltd. v. Commissioner of Trade and Taxes

(2015) 224 DLT 625 (DB)

• Ignoring literal meaning; giving impetus to legislative intent

• Employing external aids to decipher legislative intent

17-02-2018 67
 Provision and issue under consideration
Extract from Third Schedule of Delhi Value Added Tax Act
Entry 41A. Information Technology products as per the description in column (2) below, as covered
under the headings or sub-headings mentioned in column(3), as the case may be, of the Central Excise
Tariff Act, 1985 (5 of 1986)
S.No. Description Central Excise
Tariff Heading
15. Transmission apparatus (other than apparatus for radio broadcasting, 8525
transmission apparatus incorporating reception apparatus, digital still
image video cameras)

Issue – Whether “digital still image video cameras” are covered under Entry 41A (clause 15).

17-02-2018 68
 External Aids relied upon by High Court
1. White Paper of state level value added tax prepared by the Empowered Committee of State Finance Ministers.
“85.25 Transmission apparatus other than apparatus for radio broadcasting or TV broadcasting, transmission
apparatus incorporating reception apparatus, digital still image video cameras.”
[HC] The above entry three types of IT products i.e. (i) transmission apparatus other than apparatus for radio
broadcasting or TV broadcasting; (ii) transmission apparatus incorporating reception apparatus; (iii) digital still image
video cameras.
2. Corresponding entries of other state legislations
[HC] “This Court has been shown VAT legislations of the States and in particular, the legislations of Andhra Pradesh,
Assam, Bihar, Gujarat, Karnataka, Maharashtra, Mizoram and Orissa. The above basic entry in the list finalised by the
Empowered Committee has been more or less reproduced in the same manner in many of the said state legislations.”
[HC] “The above narration is useful in understanding that there is a uniform adoption by several states of the entries as
recommended by the Empowered Committee particularly with reference to IT products. Secondly, it shows that
‘digital still image video camera’ was not understood as a sub-species of ‘transmission apparatus’ but as a separate
equipment in itself.”
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 External Aids relied upon by High Court (Cont.)
3. Original file of draft legislation, etc.
“The above narration is useful in understanding that there is a uniform adoption by several states of the entries as recommended
by the Empowered Committee particularly with reference to IT products. Secondly, it shows that ‘digital still image video
camera’ was not understood as a sub-species of ‘transmission apparatus’ but as a separate equipment in itself.” …
“The note then proposes: “In order to avoid confusion in I.T. sector, it is proposed to adopt the same description of I.T. products
as adopted by Maharashtra and provide HSN codes along with the items describing I.T. products”. In other words the proposal
was that the description as adopted by Maharashtra and the corresponding HSN codes should be adopted for Delhi as well.” …
“To recapitulate as far as Entry 15 to the notification issued under the Maharashtra VAT Act 2002, Entry 85.25 is a replica of
the corresponding entry as proposed by the Empowered Committee. That being the factual position the inescapable conclusion
is that the addition of bracket in Item 15 of Entry 41-A was, apart from being totally uncalled for and unintended, without any
particular rationale. It appears that the insertion of the brackets before the words ‘other than’ and after the words ‘… video
cameras’ was not as a result of a conscious decision.
However, as a result of the addition of the brackets an entirely new and unintended meaning has been sought to be given to
Item 15 of Entry 41 A. In other words, the entry is sought to be read by the Department as essentially containing only one item,
viz., ‘transmission apparatus’ with all other items contained in the brackets that immediately follow the said words as being
excluded from the entry.”
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 Conclusion of HC
• “The brackets, if at all should have been closed immediately after the expression ‘radio broadcasting’ or after the words ‘reception
apparatus’. This is because the first two items described in entry, viz., ‘transmission apparatus other than apparatus for radio broadcasting
or TV broadcasting’ and ‘transmission apparatus incorporating reception apparatus’ can be said to belong the same species, i.e.
transmission apparatus ‘digital still image video cameras’, cannot by any stretch of imagination can be construed to be a sub-species of
‘transmission apparatus’. Therefore the exclusion of such item from ‘transmission apparatus’ makes no sense at all. A ‘transmission
apparatus’ refers to something which is capable of receiving the transmission signals. For e.g., a walkie talkie set or a cellular phone. A
DSC does neither. It falls outside the category of transmission apparatus. This explains why in some state legislations, following the
description in the list prepared by the Empowered Committee, these items have been separated by commas or a semi-colon.”
• “In the present case, the brackets really do not serve any particular purpose at all other than to bring out an anomaly which was
unintended. To accept the brackets as they are and to try to make some sense out of it would result in acknowledging that DSCs
belong to the species of transmission apparatus which it obviously is not.”
• “In the present case the Court is persuaded to adopt the above approach in order to achieve the “obvious intention and produce a
rational construction”. The Court is therefore of the view that the correct way to read Article 15 in Entry 41A of the Third
Schedule to the DVAT Act is to read it without the two brackets and to read it in a manner that the item ‘digital still image video
cameras’ is not excluded from the ambit of Entry 15. The interpretation suggested by the Respondent would have the anomalous result
of totally excluding the said item from the entry and that clearly was not the intended result. The Cabinet Note itself was triggered by the
representation of the industry regarding exclusion of certain kinds of IT products. Also the intention was to adopt the Maharashtra pattern
which did not exclude DSCs. The uniform pattern adopted by several states to bring the statutes in line with the nomenclature as suggested
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by the Empowered Committee meant that DSCs were not to be excluded from the list of items ”
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