Rule of fairness in interpretation of statutes

EXPERT EYE

In one of its latest judgements, in the Commissioner of Customs vs Tullow India Operations Ltd case, 2005(189) ELT 401 (SC), the Supreme Court has stamped its authority on the latest trend of interpretation, which is that the rule of fairness will prevail over any rule leading to unfairness, if such fairness can be meted out without doing violence to the language of the statute.

The theme is equity and not hardship. In this case, an exemption notification was interpreted by the revenue department to deny a benefit to the importer. The Supreme Court found that on merit the benefit of exemption must go to the importer.

So the apex court observed that the revenue department's interpretation would be iniquitous because it would mean that the importer would lose heavily on import duty just because somebody somewhere had delayed giving the required certificate to him. An interpretation could not be construed in a way, which would prove to be oppressive in nature, it said.

Time was when equity was at a discount. It was a heyday of the rule of interpretation that favoured the principle of taking the words of law as they were. There was no accommodation for the theory of equity.

This theory was epitomised in the often cited dictum of Rowlatt J. "In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. 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." This was state in the Cape Brandy Syndicate vs Inland Revenue Commissioners case (1921) 1 KB 64 at page 71).

Since then there have been several apex court judgments, which have ruled that in interpreting a taxing statute, equitable considerations are entirely out of place. Some of the judgments are: the Commissioner of Income Tax vs Jalgaon Electric Supply Company case, AIR 1960 SC 1182; the Commissioner of Sales Tax vs Modi Sugar Mills case, AIR 1961 SC 1047; the Commissioner of Income Tax (West Bengal) vs Central India Industries Ltd, AIR 1972 SC 397; and the Tarulata Shyam vs the Commissioner of Income Tax, 1977 (3) SCC 305.

The attitude towards interpretation in favour of fairness and equity developed in later years in the Supreme Court judgments. In the Empire Industries vs Union of India case, 1985 (20) ELT 179 (SC), while the apex court held that in some cases hardship might result in a particular interpretation but that would not influence the court in the construction of statute. But the apex court hastened to add that in this particular case there was no hardship.

More and more judgments came from the apex court, which underlined the importance of equity in an interpretation. The theory came to be crystallised that if there was only one interpretation and no other, and that interpretation was not in favour of equity, then the court had to adopt that interpretation. But if there are two possible interpretations, the one leading to hardship and another in favour of equity, the latter should be preferred.

Judgments in the Commissioner of Income Tax vs JH Gotla case, AIR 1985 SC 1698; the Keshavji Ravji and Company vs Commissioner of Income Tax case, 1990 (183) ITR 1 (SC); the Hindustan Petroleum Corporation vs Commissioner of Central Excise case, 1995 (77) ELT 256 (SC); and RC Tobacco Pvt Ltd vs Union of India case, 2005 (188) ELT 129 (SC), favoured this attitude of the judiciary.

The Supreme Court held that in a case of exemption given and withdrawn and again given and withdrawn while the constitutionality couldn't be challenged, principles of equity should give way to express statutory provision. Thus if there is only one interpretation that has to be accepted irrespective of equity but when there are two possible interpretations, one fostering inequity and the other favouring equity and fairness, the latter will prevail.

The author is a former member of Central Board of Excise & Customs

smukher2000@yahoo.com