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August 16, 2018
All Articles by: Mr.M. GOVINDARAJAN       View Profile
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The Court requires interpreting the provisions of any law for the purpose of rendering justice.  There are many ways to interpret the provisions of law.   One of the methods if ‘doctrine of reading down’.  In Maharao Saheb Shri Bhim Singhji v. Union of India  1985 (7) TMI 377 - SUPREME COURT it was held that reading down meanings of words with loose lexical amplitude is permissible as part of the judicial process.  To sustain a law by interpretation is the rule.  Courts can and must interpret words and read their meanings so that public good is promoted and power misuse is interdicted.   This doctrine is basically evolved in line of doctrine of purposive construction of Statute.

In ‘Delhi Transport Corporation v. DTC Mazdoor Congress’ - 1990 (9) TMI 334 - SUPREME COURT, a Constitution Bench of the Supreme Court explained in what cases the doctrine of reading down of statutes to save their constitutionality could be deployed:

The doctrine of reading down or of recasting the statute can be applied in limited situations. It is essentially used,-

  • Firstly, for saving a statute from being struck down on account of its unconstitutionality. It is an extension of the principle that when two interpretations are possible--one rendering it constitutional and the other making it constitutional the former should be preferred. The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution.
  • The second situation which summons its aid is where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made.

However, when the provision is cast in a definite and unambiguous language and its intention is clear, it is not permissible either to mend or bend it even if such recasting is in accord with good reason and conscience. In such circumstances, it is not possible for the Court to remake the statute. Its only duty is to strike it down and leave it to the legislature if it so desires, to amend it. If the remaking of the statute by the courts is to lead to its distortion that course is to be scrupulously avoided. The doctrine can never be called into play where the statute requires extensive additions and deletions.

The Supreme Court further held that the Courts, though, have no power to amend the law by process of interpretation, but do have power to mend it so as to be in conformity with the intendment of the legislature. Doctrine of reading down is one of the principles of interpretation of statute in that process. But when the offending language used by the legislature is clear, precise and unambiguous, violating the relevant provisions in the constitution, resort cannot be had to the doctrine of reading down to blow life into the void law to save it from unconstitutionality or to confer jurisdiction on the legislature.

In ‘Arise India Limited and other v. Commissioner Of Trade & Taxes, Delhi And others’ - W.P.(C) 2106/2015 – New Delhi- decided on 26.10.2017 [2017 (10) TMI 1020 - DELHI HIGH COURT], the writ petitions raised a challenge to the constitutional validity of Section 9 (2) (g) of the Delhi Value Added Tax, 2004 (DVAT Act) as being violative of Articles 14 and 19 (1) (g) of the Constitution of India. Section 9 (2) of the VAT Act sets out the conditions under which tax credit or ITC would not be allowed. Section 9(2)(g) of  the  Act provides that credit for ITC would not be allowed  to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period.

The petitioners contended that Section 9 (2) (g) of the DVAT Act denies to a bona fide purchaser, the benefit of the ITC only because of the default of the selling dealer over whom such purchasing dealer has not control. This measure qua the purchasing dealer is arbitrary, irrational and unduly harsh and, therefore, violative of Article 14 of the Constitution.  The condition under Section 9 (2) (g) of the DVAT Act that the selling dealer has actually deposited should be read as selling dealer "ought to have deposited" tax. Alternatively, the expression dealer occurring therein should be read down to exclude a purchasing dealer who, on his  part, has duly complied with the requirements under the DVAT Act.

The Revenue contended that arbitrariness cannot be a ground for challenging the statute as being violative of Article 14 of the Constitution. He further submitted that mere hardship caused by the impossibility of compliance of the provisions cannot be a ground for striking down a statute. 

The High Court held that while denial of ITC could be justified where the purchasing dealer has acted without due diligence, i.e. by proceeding with the transaction without first ascertaining if the selling dealer is a registered dealer having a valid registration, denial of ITC to a purchasing dealer who has taken all the necessary precautions fails to distinguish such a diligent purchasing dealer from the one that has not acted bona fide. This failure to distinguish bona fide purchasing dealers from those that are not results in Section 9 (2) (g) applying equally to both the classes of purchasing dealers. This would certainly be hit by Article 14 of the Constitution as explained in several decisions which will be discussed hereinafter.

The High Court further held that the expression dealer or class of dealers occurring in Section 9 (2) (g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression dealer or class of dealers in Section 9 (2) (g) is read down in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution.  The result of such reading down would be that the Department is precluded from invoking Section 9 (2) (g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under Section 40A of the DVAT Act.

The High Court allowed the writ petition and set aside the assessment orders of tax, interest and penalty of the Authority.


By: Mr.M. GOVINDARAJAN - August 16, 2018


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Very useful sir.

We are going to encounter large number of cases of similar nature in GST also due to the mismatch concept. However the proposed amendments in GST return is in line with this judgment of Delhi HC.

By: Ashwarya Agarwal
Dated: 17/08/2018


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