Statutory Interpretation

How to interpret a taxing statute

CIT v. Kasturi and Sons Ltd. (1999) 3 SCC 346 and State of W.B. v. Kesoram Industries Ltd. (2004) 10 SCC 201. In the later decision, a Bench of five Judges, summed up the following principles applicable to the interpretation of a taxing statute:

“(i) 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;

(ii) 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

(iii) 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 the legislature’s failure to express itself clearly.”

Supreme Court  noticed the economic superiority principle for the purpose of levy of turnover tax while holding that the interpretation of statute would not depend upon contingency. It is trite law which the Court would ordinary take recourse to golden rule of strict interpretation while interpreting taxing statutes. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation and this is what has been considered by  Supreme Court in Commissioner of Customs(Import), Mumbai Vs. Dilip Kumar and Company and Others 2018(9) SCC 1 in para 24 and 34 .

Article 265 of the Constitution 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 the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the 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.