OCTOBER 09, 2024

 By Vijay Kumar

IS the Supreme Court right? Many people asked me immediately after the recent judgement of the top court in the famous SAFARI RETREATS case - 2024-TIOL-101-SC-GST, which set the tax net on fire with almost everybody expressing an opinion immediately after the judgement was made public and some even before. There is no question of the Supreme Court being wrong; it is always right, because it is final - of course subject to acceptance by the government. This eminence is shared by the GST officers also - they are always right. If you dare to think they are not right, you can start from the Inspector and go up to the Supreme Court and get a judgement that they were not right and then they will make a retrospective law that they were always deemed to be right. I am not discussing the complex judgement, but I am fascinated by a question that the Supreme Court had to deal with in this case.

Whether the definition of "plant and machinery" in the explanation to Section 17 of the CGST Act applies to the expression "plant or machinery" used in clause (d) of sub-section (5) of Section 17?

At the outset, the Supreme Court made an interesting observation:

Very detailed submissions have been made by the parties. We find that the submissions made by the learned counsel for the assessees and the intervenors are repetitive. There are a large number of decisions relied upon, whether relevant or irrelevant. Brevity is the hallmark of good advocacy. It would be ideal if parties on one side file joint written submissions. The Judges and lawyers are humans. Sometimes, bulky compilations and submissions can be counterproductive.

Assessees submitted that:

a) Clause (d) exempts "plant or machinery" from blocked credit, which is distinct from the expression "plant and machinery" used in Clause (c).

b) The expression "plant and machinery" has been used at least ten times in Chapters V and VI of the CGST Act, and the expression "plant or machinery" occurs only once in Section 17(5)(d). Therefore, the intention of the legislature to treat the expression "plant or machinery" differently from the expression "plant and machinery" is apparent.

c) In the model GST law, which the GST Council Secretariat circulated in November 2016 for inviting suggestions and comments, the expression "plant and machinery" was used both in clauses (c) and (d) of Section 17(5). However, while enacting the law, the legislature has used the expression "plant and machinery" in clause (c) and "plant or machinery" in clause (d) of Section 17(5). Therefore, the intention of the legislature cannot be brushed aside by contending that the use of the word "or" in Section 17(5)(d) is a mistake of the legislature.

d) The expression "plant or machinery" has not been defined under the CGST Act. The definition of "plant and machinery" provided in the explanation to Section 17 will not apply to the expression "plant or machinery". Since the legislature has intentionally used two different expressions in clauses (c) and (d) of Section 17(5), different meanings will have to be assigned to these expressions.

Revenue opposed this contention by submitting that 'or' must be read as 'and' stating it to be the mistake of the legislature.

The Additional Solicitor General submitted:

a) The expression "plant or machinery" must be read as "plant and machinery". It is not uncommon to read "and" as "or" or "or" as "and".

b) He accepted that the expression "plant and machinery" occurs ten times in Chapter V and Chapter VI and the expression "plant or machinery" occurs only once in Section 17(5)(d).

c) For identifying what would constitute plant and machinery/plant or machinery, it is not necessary to refer to decisions under the Income Tax Act as the same have no relevance. There is no concept of ITC in the Income Tax Act. The scheme of the Act is completely different.

Supreme Court considered the issue

Whether the definition of "plant and machinery" in the explanation appended to Section 17 of the CGST Act applies to the expression "plant or machinery" used in clause (d) of sub-section (5) of Section 17?

The Court observed:

- The explanation defines the meaning of the expression "plant and machinery". However, the expression "plant or machinery" has not been defined under the CGST Act

- The question is whether the explanation that lays down the meaning of the expression "plant and machinery" in Section 17 will apply to the expression "plant or machinery" used in Section 17 (5)(d).

- Learned ASG himself accepted that the expression "plant and machinery" appears at ten different places in Chapters V (Input Tax Credit) and VI (Tax Invoice, Credit and Debit Notes) of the CGST Act. According to him, the expression "plant or machinery" appears only in clause (d) of Section 17(5).

- His submission is that the use of the word "or" in clause (d) is a mistake of the legislature.

- To counter this, it was submitted that in the Model GST Law, which the GST Council Secretariat circulated in November 2016 to invite suggestions and comments from the public, the expression 'plant and machinery' was used in clauses (c) and (d). However, while enacting the CGST Act, the legislature has consciously chosen to use the expression "plant or machinery" only in clause (d).

- The impugned judgment in the main Civil Appeal is more than five years old. The writ petition in which the impugned decision was rendered is a six-year-old writ petition. If it was a drafting mistake, as suggested by learned ASG, the legislature could have stepped in to correct it. However, that was not done. In such circumstances, it must be inferred that the legislature has intentionally used the expression "plant or machinery" in clause (d) as distinguished from the expression "plant and machinery", which has been used in several places.

- As the expression "plant or machinery" appears to be intentionally incorporated, it is not possible to accept the contention of the learned ASG that the word "or" in clause (d) should be read as "and".

- If the legislature intended to give the expression "plant or machinery" the same meaning as "plant and machinery" as defined in the explanation, the legislature would not have specifically used the expression "plant or machinery" in Section 17(5)(d). The legislature has made this distinction consciously. Therefore, the expression "plant and machinery" and "plant or machinery" cannot be given the same meaning.

- Therefore, if the expression "plant or machinery" is given the same meaning as the expression "plant and machinery" as per the definition contained in the explanation to Section 17, we will be doing violence to the words used in the statute.

- While interpreting taxing statutes, it is not a function of the Court to supply the deficiencies.

The Supreme Court summarised the principles governing the interpretation of the taxation statutes:

a) A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise;

b) If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity;

c) While dealing with a taxing provision, the principle of strict interpretation should be applied;

d) If two interpretations of a statutory provision are possible, the Court ordinarily would interpret the provision in favour of a taxpayer and against the revenue;

e) In interpreting a taxing statute, equitable considerations are entirely out of place;

f) A taxing provision cannot be interpreted on any presumption or assumption;

g) A taxing statute has to be interpreted in the light of what is clearly expressed. The Court cannot imply anything which is not expressed. The Court cannot import provisions in the statute to supply any deficiency;

h) There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly;

i) If literal interpretation is manifestly unjust, which produces a result not intended by the legislature, only in such a case can the Court modify the language;

j) Equity and taxation are strangers. But if construction results in equity rather than injustice, such construction should be preferred;

k) It is not a function of the Court in the fiscal arena to compel the Parliament to go further and do more;

l) When a word used in a taxing statute is to be construed and has not been specifically defined, it should not be interpreted in accordance with its definition in another statute that does not deal with a cognate subject. It should be understood in its commercial sense. Unless defined in the statute itself, the words and expressions in a taxing statute have to be construed in the sense in which the persons dealing with them understand, that is, as per the trade understanding, commercial and technical practice and usage.

What is the mistake of the legislature?

The other day, I heard a very senior Revenue Officer telling a very senior Law Officer that he had drafted some provisions of the GST Act and rather very well. This is how laws are made. Some officers in the Revenue Department draft the laws and they get passed in Parliament with or without discussions and become laws of the land and for every error, we have to look at the intent of the legislature. Can you imagine both houses of Parliament detecting the error of "or" instead of "and"? But Parliament has to own up as it has passed the law. It becomes the mistake of the legislature.

Whenever there is a doubt on what the intent of the legislature was, can't we just call the officer who drafted the law and ask him what his intent was? Let him give a clarification and let that be made part of the law with prospective effect. We can spare the Supreme Court the agony of deciding what the bureaucrat meant by "or" and call it a mistake of the legislature.

The Supreme Court says, "If it was a drafting mistake, as suggested by learned ASG, the legislature could have stepped in to correct it". They will - now. Maybe the mistake was detected only now.

To err is human, but can you collect tax on that error?

Until next week