Interpretation of Statutes – Literal Rule, Mischief Rule and Golden Rule

Jojy George Koduvath

Purpose of Legislation – Curb Public Evil or to Effectuate Public Benefit

Justice G.P. Singh, in ‘Principles of Statutory Interpretation’, said:

  • “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.” Quoted in: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company, 2018-9 SCC 1: AIR 2018 SC 3606 (Five Judge Bench).

Interpretation and Construction

  • Interpretation is to ascertain or clarify the true meaning of the words, and explain the purpose of the legislation from the words of the statute.
  • Construction is a serious consideration of the statute than a mere interpretation. The purpose is to draw conclusions beyond the language of the statute. It is also used for clarifying inconsistencies or ambiguities in a serious way (beyond the language of the statute)  by considering the statute as a whole or by taking note of the purpose of legislation etc.

Cardinal principle of construction of statutes

  • Ordinarily, the language used by the legislature is indicative of legislative intent. In Kanailal Sur v. Paramnidhi Sadhu Khan, AIR 1957 SC 907,  Gajendragadkar, J. opined that “the first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself.”
  • But when the words are capable of bearing two or more constructions, they should be construed in light of the object and purpose of the enactment. The purposive construction of the provision must be “illumined by the goal, though guided by the word.” Kanta Goel v. BP Pathak, 1977 SCR (3) 412; X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi, AIR  2022 SC 4917.
  • The cardinal principle of the construction of statutes is to identify the intention of the legislature and the true legal meaning of the enactment.
  • The intention of the legislature is derived by considering the meaning of the words used in the statute, with a view to understanding the purpose or object of the enactment, the mischief, and its corresponding remedy that the enactment is designed to actualise. Justice G.P Singh, G.P. Singh: Principles Of Statutory Interpretation, (Lexis Nexis, 2016), at page 12; State of Himachal Pradesh v. Kailash Chand Mahajan, 1992 Supp (2) SCC 351; Union of India v. Elphinstone Spinning and Weaving Co. Ltd., (2001) 4 SCC 139; X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi, AIR  2022 SC 4917.  
  • See also: Ashoka Marketing Ltd. v. Punjab National Bank, AIR 1991 SC 855, 1990 (3) SCR 649. (New India Assurance Company Ltd. v. Nusli Neville Wadia, 2007 (14) SCALE 556, (2008) 3 SCC 279. Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (SB Sinha, J.), (2008) 13 SCC 30).

Duty of Court – See Whether a Particular Case Falls Within the Law  Enacted

  •  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.  Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company, 2018-9 SCC 1: AIR 2018 SC 3606 (Five Judge Bench).

Interpretation – General Clauses Act:

  • 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. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).

Interpretation – Internal aids and external aids:

  • 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, and thesaurus. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).

Interpretation – Proviso to a Section in a Statute

The scope of the proviso in a Section in a Statute is to explain, modify or carve out an exception to the ‘main’ provision or section. The Supreme Court observed in Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal ((1991) 3 SCC 442) as under:

  • “It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field, which is covered by the main provision, it carves out an exception to the main provision to which it has been enacted by the proviso and to no other. The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is to confine to that case. Where the language of the main enactment is explicit and unambiguous, the proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it, by implication what clearly falls within its express terms. The scope of the proviso, therefore, is to carve out an exception to the main enactment and it excludes something which otherwise would have been within the rule. It has to operate in the same field and if the language of the main enactment is clear, the proviso cannot be torn apart from the main enactment nor can it be used to nullify by implication what the enactment clearly says nor set at naught the real object of the main enactment, unless the words of the proviso are such that it is its necessary effect.”

Ejusdem Generis and Noscitur a Sociis

Ejusdem Generis is the principle of interpretation of applying meaning to a doubtful word or words taken from the associated words. Usually this principle is applied when doubts are arisen whether the word or words fall within the general words like – other articles, etc., such things, similar acts, etc.

Our Apex Court, in DN Singh v. Commissioner of Income Tax (2023), the question came for consideration was whether ‘bitumen’ (used for tarring roads) would fall under “other valuable article” stated in “any money, bullion, jewellery or other valuable article” in Section 69A of the Income Tax. Section 69A reads as under:

  • “69A. Unexplained money, etc. – Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and … not recorded in the books of account, …  may be deemed to be the income of the assessee for such financial year.”

It was held in DN Singh v. Commissioner of Income Tax (2023) that ‘bitumen is not a valuable article’ when the Principle of Ejusdem Generis is applied.

Noscitur a Sociis is a rule is broader than the maxim ejusdem generis.  It contains the basic philosophy that the meaning of a doubtful word is ascertained by reference to the meaning of words associated with it.

Marginal Note – Prima Facie Furnishes Some Clue

  • It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or to show what the section is dealing with (Collins MR in Bushel v. Hammond Bushel v. Hammond, [1904] 2 KB 563).
  • It cannot control the interpretation of the words of a section particularly when the language of the section is clear and unambiguous (Bhinka & ors. v. Charan Singh [1959 Supp. (2) SCR 798) but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section. (Bengal Immunty Company Limited v. State of Bihar, [1955] 2 SCR 603; K.P. Varghese v. Income-tax Officer, Ernakulam [(1981) 4 SCC 173; Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30.)

Function of the Courts is only to Expound and Not to Legislate

  • The function of the Courts is only to expound and not to legislate. District Mining Officer vs. Tata Iron and Steel Co., (2001) 7 SCC 358. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

THREE RULES OF INTERPRETATION

There are three rules of Interpretation of Statutes and Documents.

  • They are:
  • LITERAL RULE,
  • MISCHIEF RULE, and
  • GOLDEN RULE. 

THE LITERAL RULE

  • According to this rule, the words in the statute or the document are taken in its literal or plain meaning. It is also called the ‘plain meaning rule or Grammatical Rule’. This rule can be applied only when the language in the statute or the document renders only one meaning, and the intention of the legislature or author is unambiguous and completely clear. When a court has to give effect to the statute or document, it has to simply give effect to the language of the statute or document and it need not look into the consequences that may be arisen therefrom.

If the words are plain and clear no need for any interpretation

  • The need to resort to any   interpretative   process   arises   only where the meaning is not manifest on the plain words of the statute.  If the words are plain   and   clear   and   directly   convey   the meaning,   there   is   no   need   for   any interpretation. Mangalore   Chemicals & Fertilizers Ltd.   v. Dy. Commissioner of Commercial Taxes, (1992) Supp. 1 SCC 21; Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company, 2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).

Plain reading of the statute & strict interpretation

  • 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 self-contradictory. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Literal rules of construction

  • The literal rules of construction require the wording of the Act to be construed according to its literal and grammatical meaning whatever the result may be. Unless otherwise provided, the same word must normally be construed throughout the Act in the same sense, and in the case of old statutes regard must be had to its contemporary meaning if there has been no change with the passage of time. Punjab Land Development and Reclamation Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court Chandigarh, (1990) 3 SCC 682, (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • Literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Strict interpretation & Literal or Plain Meaning Test

  • Strict interpretation of a statute certainly involves literal or plain meaning test. The other tools of interpretation, namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).
  • ‘Strict   interpretation’   does   not   encompass   such literalism, which lead to absurdity and go against the legislative intent. As noted above, if literalism is at the far   end   of   the   spectrum,   wherein   it   accepts   no implications   or   inferences,   then   ‘strict   interpretation’ can   be   implied   to   accept   some   form   of   essential inferences which literal rule may not accept. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).
  • Equity has no place in interpretation of a tax statute. Strictly one has to look to the   language   used;   there   is   no   room   for   searching intendment   nor   drawing   any   presumption. Furthermore, nothing has to be read into nor should anything   be   implied   other   than   essential   inferences while considering a taxation statute. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).
  • A taxing statute is to be strictly construed. …. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. Justice G.P. Singh, in his treatise ‘Principles of Statutory Interpretation’ (14th ed. 2016 p. – 879) Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).

‘Strict Interpretation’ – Black’s Law Dictionary (10th Edn.)

  • An interpretation according to the narrowest, most literal meaning of the words without regard for context and other permissible meanings.   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 strict construction, literal interpretation; literal construction; restricted interpretation; interpretatio stricta; interpretatio restricta; interpretatio verbalis. The philosophy underlying strict interpretation of statues. Also termed as close interpretation; interpretatio restrictive. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • Willam M. Lile et al., Brief Making and the Use of Law Books, 343 (Roger W. Cooley  & Charles Lesly Ames eds., 3d ed. 1914).
  • “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.’ (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

‘Strict Interpretation’ – Salmond, Jurisprudence  (Glanville L. Williams ed., 10th ed. 1947).

  • “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.”
  • 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.
  • ‘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.
  • 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.

Plain Construction

  • 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.
  • 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. Assistant Commissioner v. Mathapathi Basavannewwa, (1995) 6 SCC 355: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • 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. (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Words capable of one construction only – Not be open to hypothetical construction

  • It is settled law that where the intention of statutory amendment is clear and expressive, words cannot be interpolated. Indian Administrative Services (SCS) Association, U.P. v. Union of India [1993 Supp. (1) SCC 730], Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30
  • If the language is plain, clear and explicit, it must be given effect and the question of interpretation does not arise. Indian Administrative Services (SCS) Association, U.P. v. Union of India [1993 Supp. (1) SCC 730], Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30.
  • 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. Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

THE MISCHIEF RULE

  • Heydon’s case, (1584)
  • This rule called Heydon’s rule, is originated, by Lord Poke in Heydon’s case, (1584) 3 Co Rep 7a: (1584) 76 ER 637. It is also called purposive construction rule, for the aim of this rule is to cure or prevent the mischief of the language of the statute or document, and give effect to its intention or purpose. As per this rule, the meaning and purport of the statute or document is explored and interpreted in that way.  The rule of purposive interpretation was articulated in Heydon’s case  in the following terms:
  • “for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered:
    • 1st. What was the common law before the making of the Act.
    • 2nd. What was the mischief and defect for which the common law did not provide.
    • 3rd. What remedy Parliament hath resolved and appointed to cure the disease of the commonwealth.
    • And, 4th. The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico” (Quoted in: X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi, AIR 2022 SC 4917)
  • Smith v. Huges, 1960 WLR 830:
  • In 1959, the Street Offences Act was enacted in the UK with a view to prohibit prostitutes from soliciting public passing on the roads. Thereon, the prostitutes started soliciting from balconies and windows of the buildings by the side of the roads. The prostitutes were charged under the Act. The courts applied the mischief rule of interpretation and gave effect to the intention of the Act.
  • Kanwar Singh v. Delhi Administration, AIR 1965 SC 871:
  • Issues of the case were as follows-  Delhi Corporation Act, 1902 authorised the corporation to round up the abandoned cattle grazing on the government land. The MCD rounded up the cattle belonging to Kanwar Singh. It was contended by Kanwar Singh that the word abandoned means the loss of ownership and those cattle which were round up belonged to him and hence, was not abandoned. The court held that the mischief rule had to be applied and the word abandoned must be interpreted to mean let loose or left unattended and even the temporary loss of ownership would be covered as abandoned.
  • In Bengal Immunity Co. v. State of Bihar, (1955) 2 SCR 603 41 (1988) 3 SCC 60  the Constitution Bench applied the mischief rule in Heydon’s case in the construction of Article 286 of the Constitution.

Court gives effect to the intent of the statute

  • In X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917, it is observed as under: “While much of law’s benefits were (and indeed are) rooted in the institution of marriage, the law in modern times is shedding the notion that marriage is a precondition to the rights of individuals (alone or in relation to one another). Changing social mores must be borne in mind when interpreting the provisions of an enactment to further its object and purpose. Statutes are considered to be “always speaking.” (Dharni Sugars and Chemicals Ltd v. Union of India, (2019) 5 SCC 480)”.
  • Where the meaning of the Statute is neither clear nor sensible, and where a purposive construction is warranted and it is expedient to give effect to the intent of the statute, the court’s endeavour would be to give a meaning to the provisions and not render it otiose. Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30
  • If they (words) should be added, the statute would more than likely fail to carry out the legislative intent. The words are the skin of the language which the legislature intended to convey. Where the meaning of the statute is clear and sensible, either with or without omitting the words or adding one, interpolation is improper, since the primary purpose of the legislative intent is what the statute says to be so. Indian Administrative Services (SCS) Association, U.P. v. Union of India [1993 Supp. (1) SCC 730], Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30.
  • 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. District Mining Officer vs. Tata Iron and Steel Co., (2001) 7 SCC 358
  • 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. District Mining Officer vs. Tata Iron and Steel Co., (2001) 7 SCC 358, (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Courts to carry out Purpose of the Act -Look Text as a Whole

  • In Principles of Statutory Interpretation by Justice G.P. Singh, it is stated that a statute must be read in its context when attempting to interpret its purpose. Justice G.P Singh, G.P. Singh: Principles of Statutory Interpretation, (LexisNexis, 2016), at page 35 (See: X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917)
  • A court’s power to purposively interpret a statutory text does not imply that a judge can substitute legislative intent with their own individual notions. The alternative construction propounded by the judge must be within the ambit of the statute and should help carry out the purpose and object of the Act in question. (X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917)
  • Context includes reading the statute as a whole, referring to the previous state of law, the general scope of the statute, surrounding circumstances and the mischief that it was intended to remedy. (Union of India v. Sankalchand Himatlal Sheth, (1977) 4 SCC 193, Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., (1987) 1 SCC 424 ; X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917.)

The treatise, Principles of Statutory Interpretation by Justice G.P. Singh, explains –

  • “For ascertaining the purpose of a statute one is not restricted to the internal aid furnished by the statute itself, although the text of the statute taken as a whole is the most important material for ascertaining both the aspects of ‘intention’. Without intending to lay down a precise and exhaustive list of external aids, Lord Somervell has stated:
  • “The mischief against which the statute is directed and, perhaps though to an undefined extent the surrounding  circumstances can be considered. Other statutes in pari materia and the state of the law at the time are admissible.”
  • “These external aids are also brought in by widening the concept of ‘context’ “as including not only other enacting provisions of the same statute, but its preamble, the existing state of the law, other statutes in pari materia, and the mischief which the statute was intended to remedy.” In the words of Chinappa Reddy, J.: “Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted.” (X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi, AIR 2022 SC 4917.)

In Kehar Singh v. State (Delhi Admn.), a three-judge Bench of our Apex Court held:

  • “231. During the last several years, the “golden rule” has been given a go-by. We now look for the “intention” of the legislature or the “purpose” of the statute. First, we examine the words of the statute. If the words are precise and cover the situation in hand, we do not go further. We expound those words in the natural and ordinary sense of the words. But, if the words are ambiguous, uncertain or any doubt arises as to the terms employed, we deem it as our paramount duty to put upon the language of the legislature rational meaning. We then examine every word, every section and every provision. We examine the Act as a whole. We examine the necessity which gave rise to the Act. We look at the mischiefs which the legislature intended to redress. We look at the whole situation and not just one-to-one relation. We will not consider any provision out of the framework of the statute. We will not view the provisions as abstract principles separated from the motive force behind. We will consider the provisions in the circumstances to which they owe their origin. We will consider the provisions to ensure coherence and consistency within the law as a whole and to avoid undesirable consequences.…” (Quoted in: X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917; Indian Handicrafts Emporium v. Union of India, 2003-7 SCC 589, National Insurance Co.  Ltd.  v. Laxmi Narain Dhut,  2007-3 SCC 700)

Call in external and internal aids

In Kehar Singh v. State (Delhi Admn.), a three-judge Bench of the Apex Court further held:

  • “233. For this purpose, we call in external and internal aids:
  • “External aids are: the Statement of Objects and Reasons when the Bill was presented to Parliament, the reports of the Committee, if any, preceding the Bill, legislative history, other statutes in pari materia and legislation in other States which pertain to the same subject matter, persons, things or relations.
  • Internal aids are: Preamble, scheme, enacting parts of the statutes, rules of languages and other provisions in the statutes.” X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi AIR 2022 SC 4917.

Progressive legislation must be interpreted in favour of the beneficiaries

Progressive and beneficial legislation must be interpreted in favour of the beneficiaries when it is possible to take two views of a legal provision.

  • Kerala Fishermen’s Welfare Fund Board v. Fancy Food, (1995) 4 SCC 341  
  • Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi, (1986) 2 SCC 614 
  • Bombay Anand Bhavan Restaurant v. ESI Corpn., (2009) 9 SCC 61
  • Union of India v. Prabhakaran Vijaya Kumar, (2008) 9 SCC 527 
  • X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi , AIR 2022 SC 4917

In KH Nazar v. Mathew K Jacob, (2020) 14 SCC 126, Nageshwar Rao, J. observed as under:

  • “11. Provisions of a beneficial legislation have to be construed with a purpose-oriented approach. The Act should receive a liberal construction to promote its objects. Also, literal construction of the provisions of a beneficial legislation has to be avoided. It is the court’s duty to discern the intention of the legislature in making the law. Once such an intention is ascertained, the statute should receive a purposeful or functional interpretation.” (Quoted in X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi , AIR 2022 SC 4917).

In S. Gopal Reddy v. State of A.P., (1996) 4 SCC 596 while interpreting the Dowry Prohibition Act 1961 (a beneficial legislation), this Court interpreted the meaning of “dowry” by adopting the purposive interpretation approach:

  • “12. It is a well-known rule of interpretation of statutes that the text and the context of the entire Act must be looked into while interpreting any of the expressions used in a statute. The courts must look to the object which the statute seeks to achieve while interpreting any of the provisions of the Act. A purposive approach for interpreting the Act is necessary. We are unable to persuade ourselves to agree with Mr Rao that it is only the property or valuable security given at the time of marriage which would bring the same within the definition of “dowry” punishable under the Act, as such an interpretation would be defeating the very object for which the Act was enacted. Keeping in view the object of the Act, “demand of dowry” as a consideration for a proposed marriage would also come within the meaning of the expression dowry under the Act. If we were to agree with Mr Rao that it is only the “demand” made at or after marriage which is punishable under Section 4 of the Act, some serious consequences, which the legislature wanted to avoid, are bound to follow.
  • Take for example a case where the bridegroom or his parents or other relatives make a “demand” of dowry during marriage negotiations and later on after bringing the bridal party to the bride’s house find that the bride or her parents or relatives have not met the earlier “demand” and call off the marriage and leave the bride’s house, should they escape the punishment under the Act. The answer has to be an emphatic “no”. It would be adding insult to injury if we were to countenance that their action would not attract the provisions of Section 4 of the Act. Such an interpretation would frustrate the very object of the Act and would also run contrary to the accepted principles relating to the interpretation of statutes.” (Quoted in X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi , AIR 2022 SC 4917).

Law be Interpreted in terms of Changing Needs

  • In Badshah v. Urmila Badshah Godse, (2014) 1 SCC 188 our Apex Court observed that the law should be interpreted in terms of the changing needs of the times and circumstances. AK Sikri, J. speaking for a two-judge Bench of this Court, said that it is the duty of courts to bridge the gap between law and society by advancing a purposive interpretation of statutes:
  • “16. The law regulates relationships between people. It prescribes patterns of behaviour. It reflects the values of society. The role of the court is to understand the purpose of law in society and to help the law achieve its purpose. But the law of a society is a living organism. It is based on a given factual and social reality that is constantly changing. Sometimes change in law precedes societal change and is even intended to stimulate it. In most cases, however, a change in law is the result of a change in social reality. Indeed, when social reality changes, the law must change too. Just as change in social reality is the law of life, responsiveness to change in social reality is the life of the law. It can be said that the history of law is the history of adapting the law to society’s changing needs. In both constitutional and statutory interpretation, the court is supposed to exercise discretion in determining the proper relationship between the subjective and objective purposes of the law.” (Quoted in X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi, AIR 2022 SC 4917).
  • In X v. Principal Secretary, Health and Family Welfare Department, Govt.  of NCT of Delhi , AIR 2022 SC 4917, it is observed as under: “As society changes and evolves, so must our mores and conventions. A changed social context demands a readjustment of our laws. Law must not remain static and its interpretation should keep in mind the changing social context and advance the cause of social justice.”

Subordinate legislation must be in consonance with legislative policy  and purpose

  • A subordinate legislation must be reasonable and in consonance with the legislative policy. It should be interpreted in a meaningful manner, so as to give effect to the purpose and object of the enabling Act. The interpretation which is in consonance with the statutory scheme and gives effect to the statute must be adopted. X v. Principal Secretary, Health And Family Welfare Department, Govt. of NCT of Delhi, AIR 2022 SC 4917.
  • The interpretation of a subordinate legislation should be consistent with the enabling Act. Kedarnath Jute Manufacturing Co. v. Commercial Tax Officer, AIR 1966 SC 12; Union of India v. Tulsiram Patel, (1986) 3 SCC 398; M.L. Kamra v. Chairman-cum-Managing Director, New India Assurance Co. Ltd. (1992) 1 SCR 220; St Johns Teachers Training Institute v. Regional Director National Council of Teacher Education, (2003) 3 SCC 321; X v. Principal Secretary, Health And Family Welfare Department, Govt.  of NCT of Delhi, AIR 2022 SC 4917

Armchair Rule

  • Interpreting a statute court will put itself in the armchair of the reasonable legislature. Entertainment Network v. Super Cassette Industries, (SB Sinha, J.), 2008-13 SCC 30, AIR  2009 SC 1150.

THE GOLDEN RULE

  • It is a deviation from the literal rule. It also applies to the interpretation of Statutes and all Instruments.
  • It applies when literal rule fails for the words used by the author of a document or legislature could not be given their natural meaning, or when it is unclear or renders more than one meaning.
  • In such cases the apt meaning is given by interpretation, modifying  the meaning of the absurd term, or choosing one meaning from more than one meaning.
  • But, in certain decisions it is observed that the Golden Rule of Interpretation is “the interpretation in conformity with the plain language” of the statute. (See: M/S Patil Automation Private Ltd. v. Rakheja Engineers Private Ltd., AIR 2022 SC 3848, 2022-10 SCC 1).

Grey v. Pearson, 1857

  • The golden rule of interpretation was propounded for the first time by Lord Wensleydale, in Grey v. Pearson, 1857 (6) HLC 61, in the construction of a Will. (See: Ms. Eera Through Dr. Manjula v.  State  (Govt. Of NCT of Delhi), , (2017) 15 SCC 133). It requires giving effect to the actual meaning of the words used in statutes and other documents.  This rule gives effect to the literal or ordinary meaning of the words used.
  • In Grey v. Pearson, 1857 (6) HLC 61, Lord Wensleydale declared as under:
  • “I have been long and deeply impressed with the wisdom of the rule, now, I believe, universally adopted, at least in the Courts of Law in Westminster Hall, that in construing wills and indeed statutes, and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no farther. This is laid down by Mr. Justice Burton, in a very excellent opinion, which is to be found in the case of Warburton v. Loveland.”

“Golden Rule” covers Wills, Statutes and all Instruments

After quoting the  above passage from Grey v. Pearson, 1857 (6) HLC 61, it is observed in Ms. Eera Through Dr. Manjula v.  State (Govt. Of NCT of Delhi), AIR 2017 SC 34577, as under:

  • “This celebrated passage has since come to represent what has been described as the ‘Golden Rule’ of interpretation of statutes. The construction of a clause in a will was before the House of Lords and not the construction of a statute. Nevertheless, the “Golden Rule” was held to cover the construction of wills, statutes and all other written instruments.”

Lee v. Knapp, (1967) 2 QB 442

  • In this case, it was required to interpret the world ‘stop’. Under the relevant Act, a driver causing an accident had to ‘stop’ after the accident. But, the driver in this case stopped the vehicle for a moment after causing the accident and then moved away. Applying the golden rule the Court held that requirement of the section had not been followed for the driver did not ‘stop for a reasonable period of time’ and made an attempt to look for the interested persons to make necessary inquiries for him about the accident.

U. P. Bhoodan Yagna Samiti v. Brij Kishore, AIR 1988 SC 2239

  • In this case Section 14 of the U.P Bhoodan Yagna Act, 1953 had to be interpreted. This Section provided land for “landless person”. It was interpreted as the “landless agricultural labourers” though the Section did not specify that such landless persons should be agricultural labourers or whose source of livelihood should be agriculture; and source of livelihood of those persons should not be trade and business.

Rakesh Kumar Paul v. State of Assam, (2017)

  • Our Apex Court in Rakesh Kumar Paul v. State of Assam, (2017) 15 SCC 67 held as under:
  • “67. While interpreting any statutory provision, it has always been accepted as a Golden rule of Interpretation that the words used by the legislature should be given their natural meaning. Normally, the courts should be hesitant to add words or subtract words from the statutory provision. An effort should always be made to read the legislative provision in such a way that there is no wastage of words and any construction which makes some words of the statute redundant should be avoided. No doubt, if the natural meaning of the words leads to an interpretation which is contrary to the objects of the Act or makes the provision unworkable or highly unreasonable and arbitrary, then the courts either add words or subtract words or read down the statute, but this should only be done when there is an ambiguity in the language used.” Quoted in: V. Senthil Balaji Vs. The State represented by Deputy Director (2023)

Advantages of Golden rule

  • This rule simply puts the words in the statute or deed work. It is destined to operate in between ‘literal interpretation’ and ‘mischief-rule interpretation’.
  • It gives effect to the words used by the legislature or author, in its ordinary meaning; but, picking up the most sensible and apt meaning to the words used the statute or deed – susceptible to more than one meaning.
  • Applying the Golden Rule, one can deviate from the meaning of words given previously, if it is susceptible to more than one meaning.
  • Drafting errors in status and documents can be corrected without much effort.

Disadvantage of Golden Rule

  • There is no definite frame-work or guidelines.
  • It is susceptible for change according to the interpreter or court, if it is accommodative of more than one meaning.

Ambiguous Statute, the court can at best iron out the creases

  • If found ambiguous or unintended, the court can at best iron out the creases. Any wrong order or defective legislation cannot be righted merely because it is wrong. At best the court can quash it, if it violates the fundamental rights or is ultra vires of the power or manifestly illegal vitiated by fundamental laws or gross miscarriage of justice. Indian Administrative Services (SCS) Association, U.P. v. Union of India [1993 Supp. (1) SCC 730], Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30.
  • If   the   words   used   are ambiguous   and   reasonable   open   to   two interpretations benefit of interpretation is given   to   the   subject   [Express   Mill   v. Municipal Committee, Wardha, AIR 1958 SC 341].  Justice G.P. Singh, in his treatise ‘Principles of Statutory Interpretation’ (14th ed. 2016 p. – 879) Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).

JUDICIAL REVIEW OF LEGISLATION

Judiciary Protector of Constitution as ultimate arbiter in interpretation of the Constitution

The right and authority to do the Judicial Review of enactments promulgated by Legislatures are vested with the High Courts and the Supreme Court. By Judicial Review, the Courts test the validity of enactments under the provisions of the Constitution.

In Binoy Viswam v. Union of India, (2017) 7 SCC 59, our Apex Court held as follows:

  • “88. Undoubtedly, we are in the era of liberalised democracy. In a democratic society governed by the Constitution, there is a strong trend towards the constitutionalisation of democratic politics, where the actions of democratically elected Government are judged in the light of the Constitution. In this context, judiciary assumes the role of protector of the Constitution and democracy, being the ultimate arbiter in all matters involving the interpretation of the Constitution.
  • 89. Having said so, when it comes to exercising the power of judicial review of legislation, the scope of such a power has to be kept in mind and the power is to be exercised within the limited sphere assigned to the judiciary to undertake the judicial review. This has already been mentioned above. Therefore, unless the petitioner demonstrates that Parliament, in enacting the impugned provision, has exceeded its power prescribed in the Constitution or this provision violates any of the provision, the argument predicated on “limited governance” will not succeed. One of the aforesaid ingredients needs to be established by the petitioners in order to succeed.” (Quoted in Dr. Jaya Thakur v. Union of India, 2023)

Judicial Review

The Apex Court held in this case (Dr. Jaya Thakur Vs. Union of India) as under –

  • “It could thus be seen that the role of the judiciary is to ensure that the aforesaid two organs of the State i.e. the Legislature and the Executive function within the constitutional limits. Judicial review is a powerful weapon to restrain unconstitutional exercise of power by the legislature and executive. The role of this Court is limited to examine as to whether the Legislature or the Executive has acted within the powers and functions assigned under the Constitution. However, while doing so, the court must remain within its self-imposed limits.”

The scope of the judicial review in examining the legislative functions of the Legislature with regard to validity of the Amendments were considered in the following decisions-

  • Asif Hameed v. State of Jammu and Kashmir, 1989 Supp (2) SCC 364
  • Frankfurter, J. of the U.S. Supreme Court dissenting in the controversial expatriation case of Trop v. Dulles [356 US 86]
  • Binoy Viswam v. Union of India and others2222 (2017) 7 SCC 59

The Apex Court (Dr. Jaya Thakur v. Union of India) elaborately quoted  Binoy Viswam v. Union of India, (2017) 7 SCC 59, to pointed out  the following –

a. Judicial Review – Grounds available (on the validity of a piece of legislation): The grounds of judicial review that are available to adjudge the validity of a piece of legislationare two and “there is no third ground.”  (State of A.P. v. McDowell & Co., 1996-3 SCC 709, State of M.P. v. Rakesh Kohli, 2012- 6 SCC; State of M.P. v. Rakesh Kohli, 2012-6 SCC 312). The grounds are:

  • First, Legislation, not within the competence of the legislature, and
  • Second, Legislation, in contravention of any of the fundamental rights stipulated in Part III of the Constitution or any other right/provision of the Constitution.

b. Arbitrariness and Unreasonableness By Itself Do Not Constitute A Ground For striking down a statute (though they are Grounds for Administrative Action): Pointing out that there are only two grounds, (1) lack of legislative competence and (2) violation of any of the fundamental rights, and no third ground to invalidate any piece of legislation, it was observed in State of A.P. v. McDowell & Co. 1996-3 SCC 709, as under:

  • “No enactment can be struck down by just saying that it is arbitrary [An expression used widely and rather indiscriminately – an expression of inherently imprecise import. The extensive use of this expression in India reminds one of what Frankfurter, J. said in Hattie Mae Tiller v. Atlantic Coast Line Railroad Co., 87 L Ed 610 : 318 US 54 (1943): “The phrase begins life as a literary expression; its felicity leads to its lazy repetition and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas”, said the learned Judge.] or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. An enactment cannot be struck down on the ground that court thinks it unjustified. Parliament and the legislatures, composed as they are of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them.
  • The court cannot sit in judgment over their wisdom. In this connection, it should be remembered that even in the case of administrative action, the scope of judicial review is limited to three grounds viz.
    • unreasonableness, which can more appropriately be called irrationality,
    • illegality, and
    • procedural impropriety
  • (see: Council of Civil Service Unions v. Minister for the Civil Service, 1984-3 All ER 935 (HL) which decision has been accepted by this Court as well).
  • The applicability of doctrine of proportionality even in administrative law sphere is yet a debatable issue.
  • (See the opinions of Lords Lowry and Ackner in R. v. Secy. of State for the Home Deptt., ex p Brind, (1991) 1 All ER 720 (HL).
  • It would be rather odd if an enactment were to be struck down by applying the said principle when its applicability even in administrative law sphere is not fully and finally settled.” (Quoted in State of M.P. v. Rakesh Kohli, 2012-6 SCC 312)
  • A legislation cannot be challenged simply on the ground of unreasonableness because that by itself does not constitute a ground. The validity of a constitutional amendment and the validity of plenary legislation have to be decided purely as questions of constitutional law. This Court in State of Rajasthan v. Union of India [State of Rajasthan v. Union of India, (1977) 3 SCC 592] said : (SCC p. 660, para 149)”
  • Also referred: State of WB v. EITA India Ltd., (2003) 5 SCC 239, Rajbala v. State of Haryana, (2016) 2 SCC 445 : AS Krishna v. State of Madras, AIR 1957 SC 297.
  • A fortiori, a law cannot be invalidated on the ground that the legislature did not apply its mind or it was prompted by some improper motive.
  • In K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1, it was observed as under:
  • “205. Plea of
    • unreasonableness,
    • arbitrariness,
    • proportionality, etc.
  • always raises an element of subjectivity on which a court cannot strike down a statute or a statutory provision, especially when the right to property is no more a fundamental right. Otherwise the court will be substituting its wisdom to that of the legislature, which is impermissible in our constitutional democracy.”

c. Judicial Review – First Ground – Ultra Vires The Constitution: In Ashoka Kumar Thakur v. Union of India, (2008) 6 SCC 1, following pertinent observations were made –

  • “219. A legislation passed by Parliament can be challenged only on constitutionally recognised grounds. Ordinarily, grounds of attack of a legislation is whether the legislature has legislative competence or whether the legislation is ultra vires the provisions of the Constitution. If any of the provisions of the legislation violates fundamental rights or any other provisions of the Constitution, it could certainly be a valid ground to set aside the legislation by invoking the power of judicial review.

d. 2nd Ground – Violation of Fund. Rigt. – Presumption In Favour of Constitutionality

  • In Mohd. Hanif Quareshi v. State of Bihar, AIR 1958 SC 731, it was observed as under:
  • ’15. The courts, it is accepted, must presume that the legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. It must be borne in mind that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest …” (reiterated in Mahant Moti Das v. S.P. Sahi, AIR 1959 SC 942.)
  • In Mohd. Hanif Quareshi v. State of Bihar, AIR 1958 SC 731, it was observed that there was always a presumption in favour of constitutionality of an enactment and the burden is upon him, who attacks it. It stated as under:
  • ’15. … and finally that in order to sustain 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 existing at the time of legislation.” (reiterated in Mahant Moti Das v. S.P. Sahi, AIR 1959 SC 942.)
  • In Hamdard Dawakhana v. Union of India, AIR 1960 SC 554, reiterated the principle that presumption was always in favour of constitutionality of an enactment and observed as under:
  • ‘8. Therefore, when the constitutionality of an enactment is challenged on the ground of violation of any of the articles in Part III of the Constitution, the ascertainment of its true nature and character becomes necessary i.e. its subject-matter, the area in which it is intended to operate, its purport and intent have to be determined. In order to do so it is legitimate to take into consideration all the factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy for the disease which the legislature resolved to cure and the true reason for the remedy.’ (referred Mahant Moti Das v. S.P. Sahi, AIR 1959 SC 942, Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661, Charanjit Lal Chowdhury v. Union of India, 1950 SCC 833 : AIR 1951 SC 41, and State of Bombay v. F.N. Balsara,  1951 SCC 860 : AIR 1951 SC 318.)

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Interpretation of Penal and Taxation Statutes

In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation.

  • A taxing legislation should be interpreted wholly by the   language   of   the   notification. Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat  and  Ors., AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench); Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)    
  • 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. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • Insofar as taxation statutes are concerned, Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. (Art. 265 – Taxes not to be imposed save by authority of law: No tax shall be levied or collected except by authority of law) Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • In the matter of interpretation of charging section of a taxation statute, strict rule of interpretation is mandatory. Collector of Central Excise v. Parle Exports (P) Ltd., (1989) 1 SCC 345 Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • When two views are possible, in the matter of interpretation of a charging/taxation section, one favourable to the assessee has to be preferred, is unexceptionable. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Exemption   clauses or exemption notifications

  • A person who claims an exemption has to establish his case. Mangalore   Chemicals  &  Fertilizers  Ltd.   vs.  Dy. Commissioner  of Commercial  Taxes, (1992) Supp. 1 SCC 21
  • The law is well settled that a person who claims exemption or concession has to establish   that   he   is   entitled   to   that exemption   or   concession.     A   provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236.
  • If exemption is available on complying with certain conditions, the conditions have to be   complied   with.   The   mandatory requirements of those conditions must be obeyed   or   fulfilled   exactly,   thought   at times, some latitude can be shown, if there is   failure   to   comply   with   some requirements   which   are   directory   in nature,   the   non¬compliance   of   which would not affect the essence or substance of the notification granting exemption. Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236.
  • This, however, did not in any manner tinker with the view that   an   ambiguous   exemption   clause   should   be interpreted   favouring   the   revenue.  Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1. But, exemption notification should be interpreted strictly. 
  • The burden of   proving applicability of Exemption clause or notification  would be on the assesse.  (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • In a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words.  The entire matter is governed wholly by the language of the notification.  If the tax¬payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.   If such intention can be   gathered   from   the   construction   of   the words   of   the   notification   or   by   necessary implication therefrom, the matter is different, but   that   is   not   the   case   here. Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat, AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench); Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • Lord Watson in Salomon vs. Salomon & Co., (1897) AC 22) observed: ‘Intention of the Legislature is a common but very   slippery   phrase,   which,   popularly understood   may   signify   anything   from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it.  In a Court of   Law   or   Equity,   what   the   Legislature intended to be done or not to be done can only   be   legitimately   ascertained   from   that which   it   has   chosen   to   enact,   either   in express   words   or   by   reasonable   and necessary implication.’ (See: Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat, AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench); Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • The   Privy   Council   in Crawford v. Spooner observed:  ‘… we cannot aid the Legislature’s defective phrasing   of   the   Act,   we   cannot   add,   and mend,   and,   by   construction,   make   up deficiencies which are left there.’ (See: Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat, AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench); Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)
  • The operation of the Tax-notifications   has   to   be   judged   not   by   the object which the rule making authority had in   mind   but   by   the   words   which   it   has employed to effectuate the legislative intent. (See: Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat, AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench); Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench)

Exemption notification – directory or mandatory

  • Some of the provisions of an exemption notification may be directory in nature and some are mandatory in nature. A   distinction   between   the   provisions   of   a statute  which are of substantive character and   were   built   in   with   certain   specific objectives of policy, on the one hand, and those   which   are   merely   procedural   and technical in there nature, on the other, must be kept clearly distinguished.  Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236.
  • The exemption being the creation of the statute itself, it should have to be construed strictly and the interpretation cannot be extended to sales to other departments. (The majority in Union of India v. The Commercial Tax Officer, West Bengal, AIR 1956 SC 202).
  • A   manufacturer   qualified   to   seek exemption   was   required   to   comply   with   the   preconditions for claiming exemption and therefore is not exempt   or   absolved   from   following   the   statutory requirements   as   contained   in   the   Rules.       Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236.

Doctrine of substantial compliance

  • The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party   does   all   that   can   reasonably   be expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be   described   as   the   “essence”   or   the “substance” of the requirements.  .       Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • Like the concept of “reasonableness”, the acceptance or   otherwise   of   a   plea   of   “substantial compliance”   depends   upon   the   facts   and circumstances of each case and the purpose  and object to be achieved and the context of the   prerequisites   which   are   essential   to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleased   if   a   clear   statutory   prerequisite which effectuates the object and the purpose of the statute has not been met.  Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236.  Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • Substantial   compliance   means   “actual compliance   in   respect   to   the   substance essential to every reasonable objective of the statute”   and   the   Court   should   determine whether   the   statute   has   been   followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. .       Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • A   fiscal   statute   generally   seeks   to preserve   the   need   to   comply   strictly   with regulatory requirements that are important, especially when a party seeks the benefits of an   exemption   clause   that   are   important. The   doctrine   of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive noncompliance   for   either   unimportant   and tangential requirements or requirements that are so confusingly or incorrectly written that an   earnest   effort   at   compliance   should   be accepted. Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • An exemption from taxation is to be allowed based wholly by   the   language   of   the   notification   and   exemption cannot   be   gathered   by   necessary   implication   or   by construction of words; in other words, one has to look to the   language   alone   and   the   object   and   purpose   for granting exemption is irrelevant and immaterial.  Hansraj Gordhandas v. H.H. Dave, Asst. Collector of  Central  Excise  &  Customs,  Surat, AIR 1970 SC 755; (1969) 2 SCR 253 (Five Judge Bench) Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.

Ambiguity in Tax Exemption Clauses and Notifications  

  • Every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly.  
  • Further,   in   case   of   ambiguity   in charging provisions, the benefit must necessarily go in favour of subject/assesse.
  • Vagueness in the exemption clauses must go to the benefit of the revenue.  See: Commissioner of Inland Revenue vs. James Forrest, (1890) 15 AC 334 (HL), State  of  West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC   201.
  • A person claiming exemption, therefore, has to establish that   his   case   squarely   falls   within   the   exemption notification, and while doing so, a notification should be construed against the subject in case of ambiguity. Mangalore   Chemicals  &  Fertilizers  Ltd.   vs.  Dy. Commissioner  of Commercial  Taxes, (1992) Supp. 1 SCC 21
  • But   for   an exemption notification wherein the benefit of ambiguity must   be   strictly   interpreted   in   favour   of   the Revenue/State; the burden of   proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.  (See: Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).
  • 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. Union   of India   v.   Wood   Papers   Limited,   (1990)   4   SCC   256.
  • Even   with   regard   to   exemption   clauses or exemption notifications issued under a taxing statute, the ambiguity   in   an   exemption   notification   should   be construed   in   favour   of   the   subject.     In   subsequent cases, this   Court   diluted   the   principle   saying   that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption   notification   can   be   condoned   if   there   is sufficient compliance with the main requirements.  Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any  ambiguity   in   the   exemption   clause   of   exemption notification must be conferred in favour of revenue – and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy   all   the   conditions   precedent   for   availing exemption.    Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • Presumably   for   this   reason   the   Bench which decided Surendra Cotton Oil Mills Case (supra) observed that there exists unsatisfactory state of law and   the   Bench   which   referred   the   matter   initially, seriously doubted the conclusion in  Sun Export Case (supra) that the ambiguity in an exemption notification should be interpreted in favour of the assessee. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • If   there   is   any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature. See Mathuram Agrawal v. Sate of Madhya  Pradesh, (1999) 8 SCC 667;  Indian  Banks’ Association vs. Devkala Consultancy Service, (2004) 4 JT 587; AIR 2004 SC 2615; and Consumer Online Foundation vs. Union of India, (2011) 5 SCC 360. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1. 
  • Any ambiguity in a taxation provision, therefore,   is   interpreted   in   favour   of   the subject/assessee.  The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/ assessee   may   warrant   visualizing   different situations.   For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established  conditions  before raising and  justifying a demand. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language   of   the   law.     There   cannot   be   any   implied concept either in identifying the subject of the tax or person liable to pay tax. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. 
  • Thus, we may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • A   fiscal   statute   generally   seeks   to preserve   the   need   to   comply   strictly   with regulatory requirements that are important, especially when a party seeks the benefits of an   exemption   clause   that   are   important. The   doctrine   of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive noncompliance   for   either   unimportant   and tangential requirements or requirements that are so confusingly or incorrectly written that an   earnest   effort   at   compliance   should   be accepted. Commissioner   of   Central   Excise,   New Delhi  v.  Hari  Chand  Shri  Gopal, Constitution   Bench, (2011) 1 SCC 236. Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed.  When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by   giving   full   play   bestowing   wider   and   liberal construction.  The ratio of Parle Exports Case (supra) deduced as follows:  “Do not extend or widen the ambit at stage of applicability.  But once that hurdle is crossed, construe it liberally”.  Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.
  • 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.   In   case of   doubt   or ambiguity,   benefit of   it   must go to   the State. Mangalore   Chemicals  &  Fertilizers  Ltd. vs.  Dy. Commissioner of Commercial Taxes, (1992) Supp. 1 SCC 21; Novopan India Ltd. v. Collector of Central Excise and Customs, 1994 Supp (3) SCC 606; Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company, 2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).
  • The principle that in the event a provision of   fiscal   statute   is   obscure   such construction   which   favours   the   assessee may be adopted, would have no application to   construction   of   an   exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption (See Novopan India Ltd v. CCE and Customs). Tata Iron & Steel Co. Ltd. v. State of Jharkhand, (2005) 4 SCC 272. Tata Iron & Steel Co. Ltd. v. State of Jharkhand, (2005) 4 SCC 272.

Obscure And Ambiguity

  • Where   there   is   ambiguity   in   an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee (by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must   receive   a   construction   favouring   the   assesse).
  • Both the situations (obscure and ambiguity) are different and while considering an   exemption   notification,   the   distinction   cannot   be ignored.

Taxing statute, equitable considerations are out of place

  • But   equitable considerations   are   not   relevant   in construing a taxing statute, [CIT, W.B. v. Central India Industries, AIR 1972 SC 397], and similarly logic or reason cannot be of much avail in interpreting a taxing statute [Azam Jha v. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. 
  • It is well settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for 37 the Legislature to   determine the same [Kapil Mohan v. Commr. of Income Tax, Delhi,   AIR   1999 SC 573].    
  • Similarly, hardship or equity is not relevant in interpreting   provisions   imposing   stamp duty, which is a tax, and the court should not concern itself with the intention of the Legislature when the language expressing such intention is plain and unambiguous [State of Madhya Pradesh v. Rakesh Kohli, (2012) 6 SCC 312].  
  • But just as reliance   upon   equity   does   not   avail   an assesse, so it does not avail the Revenue. Justice G.P. Singh, in his treatise ‘Principles of Statutory Interpretation’ (14th ed. 2016 p. – 879). Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).  Commissioner of Income Tax vs. Kasturi Sons Ltd., (1999) 3 SCC 346 and  State of  West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201.
  • In   interpreting   a   taxing   statute, equitable considerations are entirely out of place.     A taxing statute cannot be interpreted on any presumption or assumption.   A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any   deficiency. State  of  West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201, Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1.

If taxpayer escapes or words of Statute are ambiguous, benefit given to the subject

  • If the Legislature fails to express itself clearly and the taxpayer escapes by not being brought within the letter of the law, no question of unjustness as such arises [CIT v. Jalgaon Electric Supply Co., AIR 1960 SC 1182].   Justice G.P. Singh, in his treatise ‘Principles of Statutory Interpretation’ (14th ed. 2016 p. – 879) Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1: AIR  2018 SC 3606 (Five Judge Bench).  
  • Before taxing any person, it   must be shown that he falls within the ambit of the charging section by clear words used in the section; and if the words are ambiguous and open to two interpretations,   the   benefit   of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of   the law fails to catch him on account   of   Legislature’s failure to express itself clearly.  State  of  West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201, Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company,  2018-9 SCC 1. 

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