STATUTORY CONSTRUCTION

[Mr. M. GOVINDARAJAN]

In law the word ‘shall’ generally taken in mandatory sense. It does not necessarily mean that in every case it shall have that effect.  Referring to the principles as to ‘Statutory construction’ the Supreme Court in ‘Manbodhan Lal Srivatsava V. State of U.P.’ [1957 (9) TMI 43 - Supreme Court of India] held that the use of the word ‘shall’ in a statute, though generally taken in a mandatory sense, does not necessarily means that in every case it shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding or the outcome of the proceeding, would be invalid. On the other hand, it is not always correct to say that where the word ‘may’ has been used, the statute is only permissive or directory in the sense that non compliance with those provisions will not render the proceeding invalid.

In ‘Statutory Construction’ of Crawford (Art.261 at p.516) it is indicated that the question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is closed and the meaning and intention of the Legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also considering its nature, its design and the consequence which would follow from construing it the one way or the other.

In ‘Craies on Statute Law’ 5^th Edition page 242 it is indicated that no universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullifications for disobedience.   It is the duty of courts of justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed.

In ‘State of UP and others V. Babu Ram Upadhya’ [1960 (11) TMI 116 - SUPREME COURT ]the Supreme Court held that it is for the court to ascertain the real intention of the legislature carefully examining the scope of statute.   The relevant rules of interpretation may be broadly stated that when a statute uses the word ‘shall’ prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute.   For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and all the consequences which would follow from constructing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely, that the statute provides for a contingency of the non compliance with the provisions, the fact that the non compliance with the provisions, the fact that the non compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow there from, and, above all, whether the object of the legislation will be defeated or furthered.

In ‘Kailash V. Naniku and others’ [ 2005 (4) TMI 542 - SUPREME COURT] the Supreme Court explained that notwithstanding the amendment of Order VIII, Rule 1 and the proviso thereto by the amendment Act 22 of 2006, those provisions were not mandatory but directory and they did not take away or curtail the power of the Court to take a written statement on record though filed beyond the 90 days period.  Filing of written statement under Order VIII, Rule 1 is a provision contained in the Code of Civil Procedure and belongs to domain of procedural law.   Since it is a part of procedural law, although Order VIII, Rule 1 CPC stipulates a time within which the written has to be presented, the Supreme Court held that the word ‘shall’ used were not mandatory but directory.

In ‘USA Agencies V. Commercial Tax Officer, Attur’ – 2013 (8) TMI 532 - MADRAS HIGH COURT the High Court framed a question of law i.e., ‘whether Section 19(11) of TN VAT Act, 2006 is mandatory or directory?’.

Section 19 of Tamil Nadu Value Added Tax Act, 2006 provides for availing input tax credit.   Section 19(11)  reads as follows- “In case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before end of the financial year or before ninety days from the date of purchase, whichever is earlier.”

The petitioners submitted the following-

• Section 19(11) cannot be mandatory and it could only be directory;
• The use of the word ‘shall’ in a statute does not necessarily be taken as mandatory;
• The time stipulated in Section 19(11) could only be directory;
• As per Section 18(3) of the Act, where a dealer has not adjusted the Input Tax Credit or has not made his claim for refund within the period 180 days such credit shall lapse to Government.  No such language of ‘lapse to Government’ is employed in Section 19(11) would clearly show that Section 19(11) is mandatory;
• The impugned provision does not take into account the commercial realities as in the cases of CENVAT Credit Rules with the in-built flexibility and therefore Section 19(11) is to be held as directory and not mandatory;

The Revenue contended that the time frame for availment of input tax credit is reasonable and the same has been enacted with a view to verify the details furnished by the registered dealers before the end of the financial year and Section 19(11) is equal and similar to all tax payers and there is no discrimination.

The High Court held that applying the principles of interpretation, the test to ascertain whether the word ‘shall’ used in Section 19(11) has to be examined upon the TN VAT Act and it should not go by the phraseology of the provision, but should consider the nature, its design and consequence which would follow from it. Section 19(11) specifically uses the word ‘shall’ as regards compliance with the time frame for claiming input tax credit accumulated on purchases either before or end of the financial year or before ninety days after the purchase whichever is later.   In the view of the High Court in order to verify the entries and to prevent any tax avoidance or evasion, time frame is stipulated in Section 19(11) of TN VAT Act to claim Input Tax Credit.  The use of the word ‘shall’ is ordinarily indicative of the mandatory nature of the provision.

The High Court further held that the intention of Legislature is to restrict concession of input tax credit on purchases within the particular time frame.   If input tax credit on purchases against output taxes are not claimed before the end of the financial year or 90 days from the date of purchase whichever is later, the registered dealer is not entitled to claim input tax credit.  The intention of legislature is to restrict the benefit of input tax credit within a particular time frame. Consequence of non compliance is very much available in Section 19(11) dealing with the non entitlement of input tax credit.   Therefore, it cannot be contended that Section 19(11) has not prescribed any consequence for non compliance of time frame as per Section 19(11).

If the language of the enactment is clear and unambiguous, the High Court held, that it would not be legitimate for the courts to add any words thereto and evolve there from some sense which may be said to carry out the supposed intentions of the Legislature.  The intention of the Legislature is to be gathered only from the words used by it and no such liberties can be taken by the Courts for effectuating a supposed intention of the Legislature.   Any interpretation that Section 19(11) is not mandatory but directory would not be an interpretation in consonance with the scheme of the Act. The provision is for safeguarding the interest of the Revenue and to prevent the cascading effect of tax burden on the ultimate consumer.  Therefore the High Court is of the view that Section 19(11) is mandatory and its contravention will result in forfeiture of the concession of availment of Input Tax Credit.