Fanatastic analysis of Purposive interpretation, strict interpretation & ‘literal interpretation’, by Supreme court
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3327 OF 2007
COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI …APPELLANT(S)
M/S. DILIP KUMAR AND COMPANY & ORS. …RESPONDENT(S)
N . V . RAMA NA , J .
1. This Constitution Bench is setup to examine the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 [hereinafter referred as ‘Sun Export Case’ for brevity], namely the question is What is the interpretative rule to be applied while interpreting a tax exemption Reportable
2. In Sun Export Case (supra), a three Judge Bench ruled that an ambiguity in a tax exemption provision or notification must be interpreted so as to favour the assessee claiming the benefit of such exemption. Such a rule was doubted when this appeal was placed before a Bench of twoJudges. The matter then went before a threeJudge Bench consisting one of us (Ranjan Gogoi, J.). The threeJudge Bench having noticed the unsatisfactory state of law as it stands today, opined that the dicta in Sun Export Case (supra), requires reconsideration and that is how the matter has been placed before this Constitution Bench.
3. Few facts necessary, to appreciate the issue involved are as follows the respondents imported a consignment of Vitamin – E50 powder (feed grade) under Bill of Entry No. 8207, dated 19.08.1999.
They claimed the benefit of concessional rate of duty at 5%, instead of standard 30%, as per the Customs Notification No. 20/1999 and classified the product under Chapter 2309.90 which admittedly pertains to prawn feed. They relied on the ratio in Sun Export Case (supra) and claimed the benefit of exemption. The benefit of Customs Notification No. 20/1999 was, however, denied to the respondents on the plea of the department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed, as such, the concessional rate of duty under the extant notification was not available. The department classified the consignment under Chapter 29 which attracts standard rate of customs duty. The adjudicating authority, namely, the Assistant Commissioner of Customs, distinguished Sun Export Case (supra), while accepting the plea of the department to deny the concessional rate. The Commissioner of Customs (Appeals) reversed the order of the Assistant Commissioner and came to the conclusion that Sun Export Case (supra) was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner of Customs (Appeals). Aggrieved thereby, the present appeal is filed.
4. When the appeal was placed, as noticed earlier, before a Bench of twoJudges, the ruling in Sun Export Case (supra) was doubted, observing as follows4
“We have serious doubts as to whether the Bombay High Court judgment affirmed in Sun Export Corporation’s case is correct. First and foremost, it is clear that the subsequent exemption Notification largely expanded the first Notification which referred only to animal feeds and nothing else. That being the case, it would be difficult to say that a large number of other categories which have subsequently been added would be clarificatory and therefore, retrospective. Further, we also feel that in view of the catena of judgments of this Court which have held that an exemption Notification has to be strictly construed (that is, if the person claiming exemption does not fall strictly within the letter of the Notification, he cannot claim exemption), have also been ignored by this Court in Sun Export Corporation’s case in paragraph 13 thereof. Apart from this, the view of this Court in paragraph 13 that it is wellsettled that if two views are possible, one favourable to the assessee in matters of taxation has to be preferred is unexceptionable. However, this Court was not concerned in that case with the charging Section of a taxation statute. It was concerned with the interpretation of an Exemption Notification which, as has been stated above, would require the exactly opposite test to be fulfilled.”
Further this Court found that the subsequent judgment in Collector of Customs and Central Excise, Guntur and Ors. V. Surendra Cotton Oil Mills andFertilizers Co. and Ors., 2001 (1) SCC 578 [hereinafter referred as ‘Surendra Cotton Oil Mills Case’ for brevity], distinguished Sun Export Case (supra), which mandated this Court to take a relook at the proposition laid down by the earlier cases in the following manner“
We also find that in the subsequent judgment of this Court, Surendra Cotton Oil Mills’s case, this Court has distinguished the Sun Export Corporation’s case and held that it dealt with ‘animal feed’ which was large enough to include ‘animal feed supplements’ whereas the facts of Surendra Cotton Oil Mills’s case showed that ingredients of animal feed could not be held to be included in ‘animal feed’. In our opinion, this Court did not adequately deal with why Sun Exports Corporation’s case which is a binding decision of a three Judges Bench should not be followed, apart from a specious distinction between ‘ingredients’ and ‘supplements’ which is logically speaking a distinction without a difference. …
This being the unsatisfactory state of law as it stands today, we feel that this matter should be placed before Hon’ble the Chief Justice of India to constitute an appropriate Bench to resolve the doubts pointed out by us in the body of this Order.” (emphasis supplied)
5. We feel that the reference to Surendra Cotton Oil Mills Case (supra), may not be necessary as the distinction was drawn on a factual footing, which this Court may not concern itself with, as we are only concerned with the principle of law. With this, the Division Bench was of the tentative view that the opinion expressed in Sun Export Case (supra) would require reconsideration, as the proposition laid down therein was unsatisfactory, and therefore placed before the Chief Justice of India for constituting an appropriate Bench.
6. When the matter was placed before a three Judge Bench presided over by one of us (Ranjan Gogoi, J.), the Bench reiterated the view for reconsideration of the Sun Export Case (supra) and again placed the matter, before Hon’ble the Chief Justice of India for constitution of an appropriate Bench, considering the fact that Sun Export Case (supra) was decided by a Bench comprising of three learned judges of this Court. Hence, this matter came to be placed before this Bench of Five Judges with following observations
“In paragraph 13 of the order of this Court in Sun’s case, views have been expressed with regard to the interpretation of an exemption notification tosupport the conclusion reached.
The same may require a reconsideration.
That apart, in the referral order it has been noticed that Sun’s Case (supra) has been distinguished in ‘Collector of Central Excise, Guntur vs. Surendra Cotton Oil Mills & Fert. Co.The basis on which the said distinction has been drawn needs to be further pursued.
Having considered the matter at some length, we are of the tentative view, that the opinion expressed in Sun’s case (supra) may require a reconsideration.
Being a coordinate Bench, we believe we ought not to proceed any further in the matter. Hence, we direct the Registry to lay the papers before the Hon’ble the Chief Justice of India for appropriate orders.” (emphasis supplied)
7. The learned Additional Solicitor General, Ms. Pinky Anand, submits that a tax exemption statute or notification needs to be strictly interpreted. According to her, strict interpretation is literal rule of interpretation, which means that Court has to apply the provision reading the language therein and no interpretation is required if the language is clear. In the event of any ambiguity, according to her, the benefit has to be given to the revenue and that such ambiguity in tax exemption provision must not be interpreted to benefit the assessee who fails to demonstrate without any doubt that such assessee is covered by the tax exemption notification. She elaborated her arguments by relying on various judgments and contends that the ratio in Sun Export Case (supra), which was doubted in Surendra Cotton Oil Mills Case (supra), is not correct law. On merits of the case, she submitted that the artificial distinction created by Surendra Cotton Oil Mills Case (supra), in distinguishing the ingredients from supplements is not sound and may not be accepted by the Court.
8. Per contra, among others, Mr. Somnath Shukla, learned counsel appearing on behalf of the respondents would submit that the ratio and observations in Sun Export Case (supra) has to be considered holistically without giving any narrow meaning to the conclusion arrived therein. The rule of strict interpretation cannot be applied in abstract. It has to be applied keeping in view the interpretation to be used in relation to Customs Tariff Entry. According to the learned counsel, when the Customs Tariff Entry is interpreted broadly, the same should be adopted in interpreting exemption notification. Indeed, the learned senior counsel would contend that the rule of strict interpretation should be limited to the eligibility conditions of an exemption notification and while conferring the benefits to such exemption. He distinguished all the judgments relied on by the appellants and submits that “prawn feed supplements” would also be included under the head “prawn feed”, and the judgment of the Tribunal impugned in these appeals does not warrant any interference.
9. Sun Export Case (supra) was a case against the judgment of the High Court of Judicature, Bombay. It was concerned with the interpretation of tax exemption notification, being Notification No. 234/1982 – CE, dated 01.11.1982, issued by the Central Government under subsection (1) of Section 25 of the Customs Act. The High Court considered the issue whether Vitamin AD3 mix (feed grade)/animal feed supplement could be included under the head ‘animal feed, including compound livestock feed’. The Bombay High Court decided, in the affirmative, in favour of the assessee.
The case then landed in this Court, which was persuaded to expand the meaning of ‘animal feed’ in the light of subsequent notification issued in 1984, which largely expanded the scope of exemption to the effect that ‘animal feed, including compound livestock feed, animal feed supplements and animal feed concentrates’.
This Court indeed countenanced the plea, namely, whenever there is ambiguity as to whether the subject matter was included or not, then the benefit of the same should be conferred on the assessee. The relevant portion in Sun Export Case (supra), reads as follows:
“13. We are in agreement with the above view expressed by the Bombay High Court. No doubt it was contended on behalf of the Revenue that the contrary view taken by the Tribunal has been challenged in this Court which was rejected in limine at the admission stage.
We do not think that dismissal at the admission stage can be relied upon as a binding precedent. Even assuming that there are two views possible, it is well settled that one favourable to the assessee in matters of taxation has to be preferred.” (emphasis supplied)
10.There cannot be any doubt that the ratio in Sun Export Case (supra) that, if two views are possible in interpreting the exemption notification, the one favourable to the assesseee in the matter of taxation has to be preferred. This principle created confusion and resulted in unsatisfactory state of law. In spite of catena of judgments of this Court, which took the contra view, holding that an exemption notification must be strictly construed, and if a person claiming exemption does not fall strictly within the description of the notification otherwise then he cannot claim exemption.
11.About three years after Sun Export Case (supra), in the year 2000, this Court in Surendra Cotton Oil Mills Case (supra), expressed reservations as to the soundness of the dicta in Sun Export Case (supra), observing that Sun Export Case (supra) ignored catena of judgments of this Court expressing contra view. This Court prima facie came to the conclusion with regard to the principle that when two views are possible, one favourable to the assessee in matters of taxation has to be preferred, is unexceptionable when interpreting the charging section of a taxation statute, but the opposite principle would be applicable in interpretation of exemption notification. The threeJudge Bench in the referral order further observed that the views expressed in Sun Export Case (supra) with regard to interpretation of exemption notification to support the conclusion, required reconsideration.
12.We may, here itself notice that the distinction in interpreting a taxing provision (charging provision) and in the matter of interpretation of exemption notification is too obvious to require any elaboration. Nonetheless, in a nutshell, we may mention that, as observed in Surendra Cotton Oil Mills Case (supra), in the matter of interpretation of charging section of a taxation statute, strict rule of interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to the assessee need to be applied. There is, however, confusion in the matter of interpretation of exemption notification published under taxation statutes and in this area also, the decisions are galore1.
13.We may passingly, albeit, briefly reiterate the general principles of interpretation, which were also adverted to 1 See: Sun Export Corporation, Bombay v. Collector of Customs, Bombay and Anr., (1997) 6 SCC 564; Commissioner of Central Excise, Pune v. Abhi Chemicals and Pharmaceuticals Pvt. Ltd., (2005) 3 SCC 541; Collector of Central Excise, Bombay1 and Anr. v. Parle Exports (Pvt.) Ltd., (1989) 1 SCC 345; Commissioner of Customs (Import), Mumbai v. Konkan Synthetic Fibres, (2012) 6 SCC 339; Collector of Customs, Bombay v. Swastic Wollens (Pvt.) Ltd. And Ors., (1988) Supp. SCC 796; Commissioner of Customs(Preventive), Gujarat
“Legislation in modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the Legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for, and, words chosen to communicate such indefinite ‘referents’ are bound to be, in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction.”
14.An Act of Parliament/Legislature cannot foresee all types of situations and all types of consequences. It is for the Court to see whether a particular case falls within the broad principles of law enacted by the Legislature. Here, the principles of interpretation of statutes come in handy. In spite of the fact that experts in the field assist in drafting the Acts and Rules, there are many occasions where the language used and the phrases employed in the statute are not perfect. Therefore, Judges and Courts need to interpret the words.
15. In doing so, the principles of interpretation have been evolved in common law. It has also been the practice for the appropriate legislative body to enact Interpretation Acts or General Clauses Act. In all the Acts and Regulations, made either by the Parliament or Legislature, the words and phrases as defined in the General Clauses Act and the principles of interpretation laid down in General Clauses Act are to be necessarily kept in view. If while interpreting a Statutory law, any doubt arises as to the meaning to be assigned to a word or a phrase or a clause used in an enactment and such word, phrase or clause is not specifically defined, it is legitimate and indeed mandatory to fall back on General Clauses Act. Notwithstanding this, we should remember that when there is repugnancy or conflict as to the subject or context between the General Clauses Act and a statutory provision which falls for interpretation, the Court must necessarily refer to the provisions of statute.
16.The purpose of interpretation is essentially to know the intention of the Legislature. Whether the Legislature intended to apply the law in a given case; whether the Legislature intended to exclude operation of law in a given case; whether Legislature intended to give discretion to enforcing authority or to adjudicating agency to apply the law, are essentially questions to which answers can be sought only by knowing the intention of the legislation. Apart from the general principles of interpretation of statutes, there are certain internal aids and external aids which are tools for interpreting the statutes.
17.The long title, the preamble, the heading, the marginal note, punctuation, illustrations, definitions or dictionary clause, a proviso to a section, explanation, examples, a schedule to the Act etc., are internal aids to construction. The external aids to construction are Parliamentary debates, history leading to the legislation, other statutes which have a bearing, dictionaries, thesaurus.
18. It is well accepted that a statute must be construed according to the intention of the Legislature and the Courts should act upon the true intention of the legislation while applying law and while interpreting law. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the Legislature. In this connection, the following observations made by this Court in District Mining Officer vs. Tata Iron andSteel Co., (2001) 7 SCC 358, may be noticed:
“… A statute is an edict of the Legislature and in construing a statute, it is necessary, to seek the intention of its maker. A statute has to be construed according to the intent of them that make it and the duty of the Court is to act upon the true intention of the Legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the Legislature. This task very often raises the difficulties because of various reasons, inasmuch as the words used may not be scientific symbols having any precise or definite meaning and the language may be an imperfect medium to convey one’s thought or that the assembly of Legislatures consisting of persons of various shades of opinion purport to convey a meaning which may be obscure. It is impossible even for the most imaginative Legislature to forestall exhaustively situations and circumstances that may emerge after enacting a statute where its application may be called for.
Nonetheless, the function of the Courts is only to expound and not to legislate. Legislation in a modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the Legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for, and, words chosen to communicate such indefinite referents are bound to be in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction. The process of construction combines both literal and purposive approaches. In other words the legislative intention i.e., the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed…”
19.The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the Legislature. In Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907, it was held that if the words used are capable of one construction only then it would not be open to the Courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act.
20. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose (2 Assistant Commissioner, Gadag Sub Division, Gadag v. Mathapathi Basavannewwa, 1995 (6) SCC 355). Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation. Having observed general principles applicable to statutory interpretation, it is now time to consider rules of interpretation with respect to taxation.
21. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocent might become victims of discretionary decision making. Insofar as taxation statutes are concerned, Article 265 of the Constitution (265. Taxes not to be imposed save by authority of law No tax shall be levied or collected except by authority of law) prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature.
22.At the outset, we must clarify the position of ‘plain meaning rule or clear and unambiguous rule’ with respect of tax law. ‘The plain meaning rule’ suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio”. Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule4, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is selfcontradictory.
23.Next, we may consider the meaning and scope of ‘strict interpretation’, as evolved in Indian law and how the higher Courts have made a distinction while interpreting a taxation statute on one hand and tax exemption notification on the other. In Black’s Law Dictionary (10th Edn.) ‘strict interpretation’ is described as under: Strict interpretation. (16c) 1. An interpretation according to the narrowest, most literal meaning of the words without regard for context and other permissible 4 Mangalore Chemicals Case (Infra para 37). meanings. 2. An interpretation according to what the interpreter narrowly believes to have been the specific intentions or understandings of the text’s authors or ratifiers, and no more.Also termed (in senses 1 & 2) strict construction, literal interpretation; literal construction; restricted interpretation; interpretatio stricta; interpretatio restricta; interpretatio verbalis. 3. The philosophy underlying strict interpretation of statues.Also termed as close interpretation; interpretatio restrictive. See strict constructionism under constructionism. Cf. large interpretation; liberal interpretation (2). “Strict construction of a statute is that which refuses to expand the law by implications or equitable considerations, but confines its operation to cases which are clearly within the letter of the statute, as well as within its spirit or reason, not so as to defeat the manifest purpose of the legislature, but so as to resolve all reasonable doubts against the applicability of the statute to the particular case.’ Willam M. Lile et al., 29 Brief Making and the use of Law Books 343 (Roger W. Cooley & Charles Lesly Ames eds., 3d ed. 1914).
“Strict interpretation is an equivocal expression, for it means either literal or narrow. When a provision is ambiguous, one of its meaning may be wider than the other, and the strict (i.e., narrow) sense is not necessarily the strict (i.e., literal) sense.” John Salmond , Jurisprudence 171 n. (t) (Glanville L. Williams ed., 10th ed. 1947).
24.As contended by Ms. Pinky Anand, learned Additional Solicitor General, the principle of literal interpretation and the principle of strict interpretation are sometimes used interchangeably. This principle, however, may not be sustainable in all contexts and situations. There is certainly scope to sustain an argument that all cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation.
The decision of this Court in PunjabLand Development and Reclamation Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court Chandigarhand Ors., (1990) 3 SCC 682