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Strict Interpretation in Taxing Statutes - To what extent?

OCTOBER 04, 2022

By Mr Sumanth Chanda, Joint Partner & Ms Ritu Shiv Kumar, Associate, Lakshmikumaran and Sridharan, Attorneys, Hyderabad

STRICT interpretation of taxing statutes is one of the fundamental principles in taxation, and the same has been upheld time and again by a catena of cases, including landmark decisions such as UOI v. Ind-Swift Laboratories 1, CST, U.P. v. Modi Sugar Mills Ltd. 2, Gauri Plasticulture P. Ltd. and Ors v. the CCE and Ors 3, etc.

What is pertinent to note is that each of these decisions categorically observed that when it comes to a fiscal statute, what is not expressly stated shall not be read into the statute. However, that raises a question as to what end does this principle hold true and are there any exceptions to the same? Let's find out.

In a recent judgement of the Hon'ble High Court of Andhra Pradesh in the case of M/s Sembcorp Energy India Limited v. State of Andhra Pradesh 4, the Hon'ble Court while deciding on whether or not refund under Section 54 (3) of the CGST Act, 2017 can be granted where electricity was exported without filing shipping bills which is against the requisite laid down in Rule 89(2)(b) of the CGST Rules, 2017, observed that doctrine of impossibility carves out an exception to strict interpretation of statutes.

In this case the supremacy of the age-old maxim 'Lex Non Cogit Ad Impossibilia' which states that law does not compel a man to do things he cannot possibly perform was upheld, and the exporter was allowed to take refund of accumulated Input tax credit ("ITC") in terms of Section 54 (3) of the CGST Act, 2017 despite non-production of shipping bills, which is a requisite as per plain reading of the law.

In the instant case, since the electricity was exported through transmission lines and not through customs station, the requirement for filing of shipping bills under the Customs Law did not arise. Therefore, the aforesaid rendered production of shipping bills for claiming of the refund impossible. Here, the Hon'ble Court allowed the exporter to present their Regional Energy Account ("REA") report, which is a document issued by Southern Regional Power Committee (a unit of Central Electricity Authority of Government of India) giving the quantum of electricity exported.

The aforesaid was done in lines of the amended Rule 89 (2) of the CGST Rules, 2022, which no longer mandates production of shipping bills for claiming refund. Wherefore, in essence the amendment brought in vide notification 14/2022-CT dated 05.07.2022 and as clarified by Circular No. 175/07/2022 dated 06.07.2022 was given retrospective effect on account of the same being curative and clarificatory in nature.

The Hon'ble Court in this case while discussing the retrospective application of an amendment, made the following observations:

i. when a benefit gets accrued by way of legislation, the same cannot be denied or curtailed, more so when the said legislation is clarificatory in nature.

ii. if by bare perusal of an amendment, it is clear that the same was introduced so as to clarify an anomaly, then the same is prima facie applicable retrospectively.

iii. in the event that the original provision can by no way address the problem at hand for which the amendment was brought into force, then such an amendment is always curative or clarificatory in nature, and, therefore, retrospective.

Another noteworthy observation made was that the Hon'ble Court held that in the event an appellate authority has already made a decision in respect of a similar issue for the same party on the same grounds asking for the same relief, then such an appeal [against order-in-original] serves no useful purpose and hence a Writ in such case [i.e. against order-in-original] is not barred by the principle of availability of alternative remedy.

In view of the observations made by the Hon'ble Court, the instant case may be seen as a useful precedent governing interpretation of a taxing statute, as it lays down essential principles of law such as prevalence of the impossibility doctrine over strict interpretation and retrospective operation of curative amendments.

[The views expressed are strictly personal.]

1 2011-TIOL-21-SC-CX

2 2002-TIOL-977-SC-CT-CB

3 2019-TIOL-1248-HC-MUM-CX-LB

4 2022-TIOL-1258-HC-AP-GST

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