Interpretation should not lead to absurd result

EXPERT EYE

An interpretation of fiscal statute which has been reiterated in a recent judgement by the Supreme Court in the case of Commissioner of Customs versus Tullow India Operations Ltd"�2005 (189)ELT 401 (SC) is that no interpretation should lead to absurd results.

It is strange that the Supreme Court had to once again repeat this fundamental proposition, but this was necessary because a decision by the commissioner of Customs in this particular case had led to an absurd conclusion.

An importer was denied an exemption because he was not able to produce a certificate, which was necessary at the time of import. The certificate was, however, produced at a later stage.

The Supreme Court set aside the order of the commissioner of Customs on the ground that it would lead to an absurd result, besides many other reasons.

Even earlier, on a similar issue of how to understand the expression, "at the time of importation," the tribunal had given a decision that if this was interpreted too literally, it would lead to absurd results.

The tribunal said "at the time of importation" literally meant at the time when the ship entered India. It would lead to an absurd situation since nobody could claim exemption at that time. The tribunal extended the meaning of "at the time of importation" to "at the time of clearance of goods". The crux of the matter is that depending on the situation of importation, the meaning must lead to a practical result and not an absurd situation.

The same principle was reiterated by the Supreme Court in the case of ACC versus Commissioner of Customs "� 2001 (128) ELT 21 (SC). In this case, the question was about valuation of a drawing and design. The Supreme Court observed that it would be absurd to value such articles or similar articles like paintings for the purpose of Customs duty merely on the basis of the cost of the canvass or the cost of the oil paints.

In another judgment, in CCE versus Acer India Ltd. "� 2004 (172) ELT 289 (SC), the Supreme Court observed in relation to the value of operating software that "the principle of purposive construction should be adhered to when a literal meaning may result in absurdity."

In the case of TCS versus State of Andhra Pradesh "� 2004 (178) ELT 22 (SC), where the issue was chargeability of computer software in canned form to sales tax, the Supreme Court quoted the above judgment of ACC versus Commissioner of Customs (supra) with approval.

In one of the latest judgments in the case of Compack Pvt Ltd versus CCE "� 2005 (189) ELT 3 (SC), the Supreme Court observed in relation to availing of Modvat credit that if it was not written very clearly in a notification that the final product had to be made "only" or "purely" from certain inputs, the exemption cannot be denied because it has used other inputs as well. That sort of interpretation would create an absurd situation.

The Supreme Court, therefore, observed that a notification had to be construed in terms of the language used, unless the literal meaning led to an anomaly or absurdity. If there is no such absurdity in the literal interpretation, there is no need to go for the intention or the purpose of the notification.

The conclusion is that we have to first resort to literal interpretation of the statute or expression. However, if that leads to an absurd result, we have to look for the intention or the purpose of the legislation so that the legislation itself does not become invalid.

The high courts and the Supreme Court have always chosen interpretations which do not lead to an anomaly over the one which leads to an anomaly or an absurdity.