Sukumar Mukhopadhyay: Interpret purpose, not fine print

EXPERT EYE

In a recent case of textile machinery imported under a Customs notification relating to an export-promotion scheme, the Supreme Court came down heavily on Revenue and held that the interpretation given to the expression "capital goods" in the notification should not be interpreted so strictly that its purpose is obliterated.

The court said "capital goods required for manufacture of textile garments" would include all capital goods for processing, packing, knitting and whatever else is necessary.

As long as he meets the export obligation, no restriction can be imposed by twist of language.

In this judgment in the case of CC Kolkata vs Rupa and Co, reported In 2004 (170) ELT 129 (SC), the court said the expression "goods required for manufacture" would also include goods that are indirectly required.

Without such an interpretation the purpose of the notification, which is to promote exports, would be defeated. Generally, the interpretation should be strict if it is a notification.

But the purpose has to be kept in view. If it is interpreted so strictly that the purpose of the exemption is defeated, then it does not make any sense.

In an income tax case of Commissioner of Income Tax vs Strawboard Manufacturing Co. Ltd., 1989 Supp.(2)SCC523, the question was about interpreting the expression "strawboard industry".

Revenue did not want to include it in the paper and pulp industry and deny the development rebate. The Supreme Court observed that the provision for rebate has been made for the purpose of encouraging new industry and, therefore, paper and paper pulp has to be interpreted to take into account the strawboard industry also.

In a central excise case, Tata Oil Mills vs CCE, 1989(43) ELT 183 (SC), there was an exemption from excise duty for using minor oil in soap.

Revenue disallowed it on the ground that the minor oil was processed in another factory. The Supreme Court held that the intention was to promote the use of minor oil in soap making and, therefore, a liberal and not a strict interpretation would be appropriate.

In another central excise case, Swadeshi Polytex Ltd vs Collector of Central Excise, 1990(2) SCC358, the Supreme Court made the general observation that in a fiscal provision, if the benefit of the exemption is to be considered, it should be strictly construed.

But this does not mean that the full effect of the exemption notification should not be given by any circuitous process of interpretation.

In a more recent judgment, Asiatic Oxygen vs A, C, Customs, 1998 (97) ELT563 (Cal), the high court held that the objective of a project import being the promotion of industrialisation, the interpretation should be liberal.

"Initial setting up" can, therefore, mean phased implementation of the project. I have chosen only these cases out of numerous ones on the subject because the court has made some generalisations also on this subject and not just given decision on the facts of the case.

The conclusion, therefore, is that if an exemption is designed to promote certain industrial or other activities, a deliberately circuitous interpretation should not be given by Revenue so as to defeat the very purpose of the exemption.

While exemption notification has to be interpreted strictly, the promotional exemptions have to be interpreted liberally keeping the intention in view. The interpretation should serve the intention.

smukher2000@yahoo.com