JUNE 01, 2024

By Dr Sanjay Kalra, LLM, PhD (GST Law), Advocate, KPS Legal

Introduction

TAXING Statutes refer to the laws and legal regulations that govern the imposition, administration and collection of taxes within a jurisdiction. In India Taxing Statutes or Tax Laws are enacted by the legislature and interpreted by the judiciary. The executive branch of the government shall act within the four walls of such law as enacted by the Legislature and interpreted by the Judiciary.

Legislature derives its power of imposing taxes from Article 265 of the Constitution which states that "No tax can be levied or collected unless it has the authority of law". It is through this article that the legislature acquires the right to impose tax and prescribe various conditions under which such tax is applicable.

Interpretation of Statutes means to give meaning to some words which are ambiguous or unclear by looking into the intention of the legislature, purpose which the law fulfils or the mischief it eliminates which existed prior to enactment of that law. It is a common rule that words are to be given their direct and grammatical meaning. But in case there are any ambiguities then the help of interpretation is taken by understanding the context in which such words are used. In the words of Salmond "interpretation or construction is 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."

Principles of Interpretation: The principles of Interpretation of Taxing Statutes including GST Acts may be discussed broadly in following categories - (A) Primary rules of Interpretation, (B) Secondary rules of Interpretation, (C) International aids in Interpretation, (D) External aids in interpretation, (E) Other rules of interpretation, (F) Judicial Principles

(A). Primary Rules of Interpretation of Statute

1. Rule of Literal Construction (Rule of litra legis): In construing statutes, the cardinal rule is to construe its provisions literally and grammatically giving the words their ordinary and natural meaning. (also known as the plain meaning rule). The words, phrases and sentences of a statute are to be understood in their natural, ordinary or popular and grammatical meaning, unless such a construction leads to an absurdity or the statute suggests a different meaning. Every word in the law should be given meaning as no word is unnecessarily used and one should not presume any omissions and if a word is not there in the Statute, it shall not be given any meaning. First rule is that the words and phrases of technical legislation are used in their technical meaning if they have acquired one, and otherwise in their ordinary meaning, and Second is that the phrases and sentences are to be construed according to the grammar rule.This rule is used if the words used in a statute are lucid & Language used is simple. In other words, if literal meaning is clear & unambiguous; and there is nothing to imply that the words/language has been used in a special sense different from their ordinary grammatical sense, interpretation is done according to this Rule. In Dayal Singh v Union of India [AIR 2003 SC 1140], the Apex Court held that where the language of the statute is clear & unambiguous, nothing can be read into it by implication & the intention of the legislature has to be gathered from the language used.

2 Rule of Reasonable Construction (Rule of ratio legis): Rule of Reasonable Construction implies that a statute must be construed reasonably. A statute or any enacting provision therein must be so construed as to make it effective and operative. As per this rule, the Court will reject the construction which will defeat the plain intention of the legislature even though there may be lack of accuracy in the language used. Preference should be given to such construction which affords consistency and certainty, facilitating smooth working of the legal system. As far as possible all the words used in statute must be given meaning as the legislature is not expected to use unnecessary words. Superfluous or insignificant words are not used by the makers of statute. This Rule is applied when (a) the ordinary meaning is absurd. If letter of the law is logically defective due to any ambiguity, inconsistency or incompleteness, then interpretation must be done according to the Purpose, Policy, Object and Spirit of the law, (b) the narrow meaning fails to achieve the purpose. If the ordinary meaning contradicts with the apparent purpose of the enactment, the Court may modify the meaning of the words used.

3 Rule of Harmonious Construction: This rule of interpretation says that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. When there is a conflict between two or more provisions of the law they should be followed in such way that maximum benefit can be obtained and no rule need to be violated in the process of following the other one. Two conflicting provisions should be so interpreted that, if possible, effect may be given to both. Courts must try to avoid a conflict between the provisions of Statute and whenever it is possible to do so to construe provisions which appear to conflict so that they harmonize. Such a harmonious construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statute. The essence of this Rule lies in reconciling conflicting provisions of a particular Statute. One Section or provision is not allowed to defeat the other provisions of a particular Act. An interpretation which reduces one of the provisions to a dead letter is not harmonious interpretation. Apex Court in the case of 'Sultana Begum v Prem Chand Jain' [AIR 1997 SC 1006] laid down the following proposition:-

(a) if the two provisions appear to be conflicting with each other, principle of harmonious interpretation should be adopted, any head on clash between them should be avoided:

(b) if it is not possible to harmonize them (the conflicting provisions) they should be so interpreted / inter-related that effect is given to all of them:

(c) one section should not be allowed to defeat the other provisions of the Act, unless it is impossible to harmonise them or to give effect to all the provisions.

4 Rule of Purposive Construction (Hyden's rule / mischief rule): The mischief rule of statutory interpretation is the oldest of the rules. The mischief rule attempts to determine the legislator's intention. Its main aim is to determine the 'mischief and defect' of the statute. The mischief rule was established in Heydon's Case in 1584. It was held that the mischief rule should only be applied where there is ambiguity in the statute. Under the mischief rule the Court's role is to suppress the mischief and advance the remedy. The Courts while applying the principle tries to find out the real intention behind the enactment. The mischief rule directs that the Courts must adopt that construction which "shall suppress the mischief and advance the remedy". But this does not mean that a construction should be adopted which ignores the plain natural meaning of the words or disregard the context and the collection in which they occur. For application of this Rule, the following Methodology is adopted:

(a) The background of the Statute is firstly considered.

(i) The law before making of the Act is ascertained.

(ii) Ascertain the mischief for which the law did not provide any remedy.

(iii) Determine the remedy which the Act has provided.

(iv) Find out the reason for the remedy

(b) Adopt the interpretation which will Advance the remedy and suppress the mischief

5 Rule of Exceptional Construction: General Rule is that full effect must be given to every word contained in a statute. However, an exception has been carved to the above rule whereby words in a particular statute may be eliminated if no sensible meaning can be drawn. As such, in a situation where certain words are capable of only one interpretation, but that interpretation would defeat the real object of concerned enactment, such words may be eliminated. Hon'ble Supreme Court, in the case of Novopan India Ltd. v Collector of Central Excise & Custom, - 2002-TIOL-89-SC-CX-LB, held as under:

"…The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that the said principle is good and sound - does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it."

6 Rule of Ejusdem Generis: Ejusdem generis, means "of the same kind or species"- means Items of the same class or species. According to this Rule, general words following specific words are to be construed with reference to the words preceding them. It is of great help to the Courts, to find out the true intention of the legislature. In order to invoke the doctrine of Ejusdem Generis for its application, a distinct 'category' or 'genus' must be present. The specific words must apply not to different objects of widely different category but to something which can be called a class or kind of object. This implies that the enumeration of specific words preceding the genera should necessarily constitute a distinct genus - it must be of some class. Then only after the application of Ejusdem Generis, the general words can be restricted to the dame class or genus. In order to unlock the true value of this doctrine, the key is to make sure that the class which is identified should have some objective relationship with the purpose of the statute. Example: If a law refers to automobiles, trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would not include airplanes, since the list was of land-based transportation.

Judicial pronouncements

(a) In the case of S.R. Tamrakar v State of M.P [(1978) 41 STC 376], it was observed that the rule of Ejusdem Generis is to be applied with caution & should not be pushed too far unless we find a category covering the various items. The inclusion of several articles under the same heading does not mean that they all constitute one commodity when it is apparent that a particular article belongs to a distinct category.

(b) Hon'ble Supreme Court in the case of Commissioner of Trade Tax U.P v Kartos International [2011-TIOL-39-SC-CT] observed as under:-

"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 (a small part) of Nositur a Sociis. The aforesaid principle means that the general words following certain specific words would take colour from the specific words"

[Nositur a sociis in Latin means 'it is known by its associates'. This rule suggests that a word is given meaning by its context or association with surrounding words and phrases]

(c) Hon'ble Supreme Court in the case of Collector of Central Excise v Maharashtra Fur Fabric Ltd.[ 2002 (145) E.L.T.287 (S.C.)] dealing with subject observed as under:

"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."

Note: This Part-1 of the series contained the Primary Rules of Interpretation of Taxing Statutes. The Part-2 of the series, next week, would contain the remaining Principles of Interpretation under category of Secondary rules of Interpretation, International aids in Interpretation, External aids in interpretation, Other Rules of Interpretation and some of the important Judicial Principles.

[The views expressed are strictly personal.]