Taxing Statutes, Penal Statutes and Welfare Legislation

In one line

Three classes of statute carry their own rules: a tax is not imposed unless the charging words are clear, a person is not punished unless the penal words are clear, and a welfare statute is read generously in favour of the class it protects.

In the wording a student can write in an exam: a taxing statute is construed strictly, so that a subject is not to be taxed unless the charge falls plainly within the letter of the law, there being no equity about a tax and no room for intendment; an exemption from tax is also construed strictly, but in the opposite direction, so that the burden of showing that a case falls within the exemption lies on the assessee and an ambiguity in an exemption notification is resolved in favour of the revenue; a penal statute is construed strictly, so that where two possible and reasonable constructions can be put upon it the court leans towards the one that exempts the subject from penalty; and welfare legislation is construed beneficially, in favour of the class it was passed to protect, so as to advance the remedy and suppress the mischief.

Taxing statutes

The classic rule

There is no equity about a tax. Nothing is to be read in and nothing implied. The court looks fairly at the language used, and if the subject is not caught by the plain words, the tax is not payable, however clearly the legislature can be seen to have intended to catch them.

Two constitutional supports are worth naming. Article 265 provides that no tax shall be levied or collected except by authority of law, so the charge must be found in a law and not in an inference. And a taxing provision imposes a burden, so restrictive construction applies for the reason given in [Interpretation by Subject Matter and Purpose: Restrictive and Beneficial Construction].

The counter-rule for an exemption, and it is the examinable point

Students learn "taxing statutes are construed strictly" and then apply it to an exemption, assuming that strictness always favours the taxpayer. It does not.

Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, AIR 2018 SC 3606, settled the position.

Facts. Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, AIR 2018 SC 3606. A reference to a Constitution Bench of five judges asked what happens when an exemption notification in a fiscal statute is ambiguous: whether the benefit of the doubt goes to the assessee, as an earlier decision in Sun Export had held, or to the revenue.

Held. The Court answered the reference by holding, first, that an exemption notification should be interpreted strictly, the burden of proving applicability lying on the assessee to show that the case comes within the parameters of the exemption clause or notification; second, that when there is an ambiguity in an exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the assessee and it must be interpreted in favour of the revenue; and third, that the ratio in Sun Export was not correct and all decisions taking a similar view stood overruled.