PURPOSIVE INTERPRETATION OF GST LAW.

[Sadanand Bulbule]

1. Interpretation of law defined:

A.Universally tax is a complex subject. Some trends are very hard to understand. When a businessman has a question, he wants an answer. How often does it happen that an entrepreneur asks a question and then, after a few weeks, receives a long memo with all the rules, case law and background information and finally a 'conclusion' with three options from which he must choose. Likewise the taxation provisions are often little unclear or leave room for interpretation. Just having a decision is not enough for this. As an entrepreneur, he needs clarity and nothing more than that. However, there are big differences in the approach and elaboration. The dish is the same, but the ingredients and taste may vary in quality.

B.Under the indirect tax system, the dealers only have to collect and remit tax like the GST in the States/Interstate in which they have the business of supply of goods and services. How do they know what they are supplying is taxable? What’s the correct GST rate? This is a tricky part of GST compliance. There are certain supply of goods and services that are often tax-exempt or taxed at a lower rate, which are under still grey area. So they are seeking for the right solutions for such ticklish issues under the GST. Interpretation of GST law is a great place to start in this endeavor.

C. Interpretation or construction of a law is an age-old process and as old as language. Interpretation of law is the correct understanding of the law. This process is commonly adopted by the courts for determining the exact intention of the legislature. Because the objective of the court is not only merely to read the law but is also to apply it in a meaningful manner to suit from case to case.

D.To interpret the law, one has to sometimes consider the context in which it has been made, the purpose and the object which it seeks to achieve. A too literal interpretation may sometimes frustrate the very object of the law and such an approach should be avoided. Therefore it is essential know the importance and value of interpretation of the law with its intention also known popularly as “Purposive Construction”. When a word is not defined in the Act itself, it is permissible to refer to dictionaries to find out the general sense in which that word is understood in common parlance without compromising the essence of the law.

E.The “purposive approach” is a method used by the courts to interpret what the laws mean. The purposive approach requires a court to look at the purpose of the statute and Parliament's (or a legislature's) intention when they created the law, as well as the words written in the law itself. So when there is a conflict between the purpose and the material, the purpose prevails, because in the absence of the prescribed material a substitute can be used, for the material is subordinate to the purpose.

F. Maxwell in his book of “Interpretation of Law” has stated:

That a thing which is within the letter of a law is not within the law unless it be also within the real intention of the Legislature and the words, if sufficiently flexible, must be construed in the sense which, if less correct grammatically, is more in harmony within that intention. Language is rarely so free from ambiguity as to be incapable of being used in more than one sense and to adhere rigidly to its literal and primary meaning in all cases would be to miss its real meaning in many.

G.Thus, in both the systems of interpretation, it is emphasized that the intention of a law has often to be seen to properly interpret it and never to depart from the literal rule of interpretation. It all depends on the context, the subject-matter, the purpose for which the provision was made, etc.

H. Tax laws need to be read as per words used. But some of the statutory authorities are travelling beyond the ring-fence of the Act to the extent of purposive interpretation of law to twist the facts to impose predetermined decisions. Time has witnessed the reversal of many assessments/appeals/ revisions by the judicial courts due to unlawful interpretation of statute. This is something serious and clear trespassing the jurisdiction. Thus the statutory authorities have jurisdiction only for literal interpretation of the law ex facie. It’s only the constitutional bodies like the Supreme Court and the High Courts have the jurisdiction to make purposive interpretation of the statute. In case the statutory authorities venture to make such interpretation, it does not have force, binding power or validity.

I. Therefore to interpret the law, factual evidences have to be corroborated by the authorities or have to be contradicted by the defence side to establish the respective opinion or understanding of the law. It is pertinent to remember that, these days tax advocates are tougher & more knowledgeable than the authorities think. The authorities can’t take their well-researched arguments for granted. It is no more tolerated by the honest tax payers and they can knock the doors of the Hon’ble Apex Court, if need be to seek justice/relief. Moreover, the question of law cannot be decided in a vacuum. The facts put forward by the advocates would help the Courts in determining the question of law correctly.

 J. The Hon’ble Supreme Court and the High Courts have often emphasised that, it is only the advocates who argue and assist the Courts to unfold the truth and uphold the justice to the litigants. The executive authorities however they are capable and efficient, they are not entitled to do it. Therefore the role of advocates needs to be acknowledged and respected the way Apex Court and the High Courts do it. The least authorities can do is to listen to them to understand the matter patiently. If the lower authority does not get convinced or  gets confused, certainly the advocates would convince the superior authorities, who usually listen carefully to understand the issue exactly to reach the truth of the matter. If the authorities are passionate & impartial enough to accept the truth at the initial stage itself, half of the battle is won for both. Therefore it is high time for the authorities to enhance the clarity, substance, perception and to rise above the normal standards to win the legal battle. What happens ultimately at the higher forums, should happen at the primary level only. That is the victory of factual merits & the law.

K. It is well established rule of interpretation of taxing laws in words of Lord Simonds that, subject is not to be taxed without clear words for that purpose and that every Act of Parliament must be read according to natural construction of its words. Further the WESTINGHOUSE SAXBY FARMER LTD. VERSUS COMMR. OF CENTRAL EXCISE CALCUTTA [2021 (3) TMI 291 - SUPREME COURT] has allowed the appeals on the impugned misclassification of goods in favour of the appellant.

L. If the law is interpreted in the negative direction, the entire approach would be fallacious and runs contrary to object and intention behind the legislation. An interpretation that makes the provision unworkable or leads to absurd results are always rejected by the judicial courts. It is settled principle of interpretation that where the same Statute, uses different terms and expressions, then it is clear that Legislature is referring to distinct and different things. It is fairly well settled that the interpretation is to be in the manner which will subserve and promote the object and intention behind the legislation. If it is not interpreted in the manner as required it would defeat the very intention of the legislation.

2. It is not new that, many a times taxes are levied on the basis of the unsustainable clarifications via Circulars issued. Recently the JENEFA INDIA VERSUS UNION OF INDIA, REPRESENTED BY ITS SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, [CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS) , NEW DELHI, TAX RESEARCH UNIT, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NEW DELHI, COMMISSIONER OF CGST & CENTRAL EXCISE, MADURAI [2021 (11) TMI 227 - MADRAS HIGH COURT] while quashing the CBIC Circular in respect of fish meal used for making cattle / poultry / aquatic feed held that, the CBIC is not empowered to issue clarification on GST rate. It is further held that “No such attempt since has been made either by the Parliament or by the Central Government, by issuing a mere Circular exercising the powers under Section 168 of the CGST Act, 2017, such kind of right already vested, to get exemption, on the assessee, cannot be taken away by way of a clarificatory Circular, that too issued only to the benefit of the officials and staff of the department, as culled out from the language used in Section 168 of the Act. Therefore, for that reason also this Court feels that the impugned Circular would not stand in the legal scrutiny,” the court noted.

3. The Hon’ble Supreme Court in its recent judgement dated 12/01/2022 rendered in the case of THE AUTHORITY FOR CLARIFICATION AND ADVANCE RULING & ANR. VERSUS M/S. AAKAVI SPINNING MILLS (P) LTD. [2022 (2) TMI 1111 - SUPREME COURT] in Special Leave to Appeal (C) No. 306/2022 on the issue of tax exemption to “Hank Yarn” under the depleted TNVAT Act has held as under:

“11.As noticed, the Entry in question, as inserted into the Fourth Schedule to the Act, is clear and specific that is, “Hank Yarn”; it carries neither any ambiguity nor any confusion. Undoubtedly, the yarn in the hank form (which is a unit of measure), has come for exemption under the said Entry 44; and obviously, that exemption ensures to the benefit of the handloom industry too. However, for that matter, if the benefit of this broad and unambiguous entry also goes to any other industry, there is absolutely no reason to deny such benefit. In other words, we find no reason to restrict the Entry in its operation to the handloom industry alone or to any particular class of hank yarn like “Cotton Hank Yarn” only. The exemption Entry being clear and unambiguous, no external aid for interpretation is called for, whether in the form of Budget speech or any other notification under any other enactment”.

And the petition filed by the authority is dismissed

4. Likewise, the Hon’ble Karnataka High Court in its recent division bench judgement dated 07/02/2022 rendered in the case of TAGHAR VASUDEVA AMBRISH VERSUS APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA, COMMISSIONER OF CENTRAL TAX BANGALORE, ASSISTANT COMMISSIONER OF COMMERCIAL TAXES LGSTO-90, BENGALURU [2022 (2) TMI 780 - KARNATAKA HIGH COURT] has held as under:

"The service provided by the petitioner i.e., leasing out residential premises as hostel to students and working professionals is covered under Entry 13 of Notification No.9/2017 dated 28.09.2017 namely 'Services by way of renting of residential dwelling for use as residence' issued under the Act. The petitioner is held to be entitled to benefit of exemption notification.” Consequently it has quashed the orders dated 31/08/2020 of the AAAR.

Implication of the above judgements:

5. From the judgements (supra), what emerges is the principle of “purposive interpretation” has been fully applied while interpreting an exemption notification and the regard has been focussed to its purpose and object. As a result, the exemption of tax entitled to fish meal, all kinds of hank yarn and leasing out of residential premises as “hostel” for students and working professionals is kept intact.

6.  16th Century play- Classic case of interpretation of law:

The interpretation with regard to the entitlement of tax exemption or notified rate of tax is considered, I am reminded of the very famous play published about 1605, “The Merchant of Venice“ by the great William Shakespeare. In the final scene of the play, the dispute gets settled quietly and inevitably between Shylock, the Jewish pawn broker and Antonio, the borrower of money to woo his young darling Portia. The money was borrowed under a bond that, if Antonio fails to repay the debt, Shylock shall receive one pound of Antonio‘s flesh. At the end when Antonio fails to repay the debt to Shylock, the dispute goes for adjudication. During adjudication proceedings, Portia saves Antonio‘s life by disguising herself as a young lawyer and cleverly interpreting the law prevents Shylock from receiving his bond of a pound of Antonio‘s flesh. The incredible verdict of Portia, a brainy and the beautiful young lady who uses her intelligence to solve the dispute, is like this:

―You may take “a pound of flesh” as per the bond, but in the act of doing so, not a drop of blood shall be spilled.”

This famous verdict of 16th century matches with the present GST regime, particularly with regard to the interpretation of entitlement of tax exemption or reduced rate of tax. This is real life and not a comedy play.

7. The well settled judicial precedents heavily emphasize that, the executive authority has less than minimum role to interpret the law, which sometimes lacks the neutrality resulting in the threat to the object of the statute. Generally the bureaucracy is deeply sceptical about some judicial rulings. What this conveys to the tax payers besides judicial discipline? If an evidence-based proceeding is concluded, what is due for revenue will always be there and vice versa. Thus the interpretation of law is essentially the domain of courts.

8. My expressions:

A.Business is the most trusted institution in the world. Businesses increasingly demonstrate both ways why they are trustworthy and how. They are contributing humongous amount of tax.

B. Tax reporting is a mandatory compliance system founded on trust basis. However tax is an area where one will make bonafide mistakes often, especially at first and especially if one goes at it alone. In reality, the opposite party may also be almost true on fact/law. It is an honour and a privilege to provide justice to the deserving litigants. The adjudication opens the doors to agree or to disagree the interpretations emanating from different perspective. At the end, the endeavour is to protect the interest of the tax payers and the revenue the way it is guaranteed under the GST law and to prevent the possible damage. And that leads to the real issue that needs to be determined judiciously without leaning towards the other sides of the coin.

C. Therefore the adjudicating authorities, who are the crucial officers, are the catalysts between the law and the tax payers to provide harmonious solutions, who sometimes run out of options. A transaction which is not liable to tax, it can’t be made liable to tax artificially. And a transaction which is taxable, can’t be claimed/made exempt also. Despite the herculean efforts in the game of hide & seek to twist the facts, the truth pours naturally, however belatedly. In the process, an unalloyed decision is bound to take birth. The substance of decision is determined by its impact, quality productivity and not saddled with tax burden.

9.CONCLUSION.

A. Doubtlessly interpretation is not an aerospace mission. However a true interpretation will push the conventional walls further to create certainty, equity & positivity in tax administration. To achieve this, objective mind is much more essential to interpret the issue with clear awareness of factual and legal position. A clear scrutiny of the taxing statute, uninfluenced by uniformed understanding is essential to enforcing the rule of law. Therefore the authority like a skilled third umpire shall take decision essentially under clarity.

B. Human intelligence guides to take the right decisions at the right time to carry out the statutory functions under the GST law.  So the authority need not see who is right but see what is right. The authority should not expect a tax payer to capitulate during decision proceedings. Otherwise the decision becomes ‘a boat bigger than the bridge’. So any legal decision without the purposive interpretation of the law is not justified.

C. The “interpretations” are obviously shaped by the interpreters’ wealth of experience and are extremely meaningful and purposeful in terms of structure as well as the vocabulary used. So everything is achievable through a sparkling interpretation of law. Thus the advantage of purposive interpretation is also more effective in reducing the litigations at the beginning itself. The purposive interpretation of law is a win-win for both business and administration. However in the absence of the purposive interpretation of law, it may cause the destruction of the truth, which shall not happen.