Exempting provision in taxing statute should be construed strictly: Supreme Court

  • Aishwarya Iyer
  • 10:25 PM, 24 Jan 2022

"An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications", remarked the Supreme Court recently.

The Court further said that it is settled law that the notification has to be read as a whole and if any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification.

"While the exemption notification should be liberally construed, beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise", added the court.

A bench of Justices MR Shah and Sanjiv Khanna noted that the exemption notification should be given meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions, the bench said.

Talking about the aspect of interpretation, the court said that in a taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining defined meaning.

"Strict interpretation to the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it alleges to absurd results,...", it stated.

An appeal was filed by the State of Gujarat against an order of the High Court whereby it had upheld the decision of the Gujarat Value Added Tax Tribunal, Ahmedabad holding that Arcelor Mittal Nippon Steel India Limited was entitled to the exemption from payment of amount of sales tax as per the original Entry No.255(2) vide F.D.’s Notification dated March 5, 1992, which was issued under Section 49(2) of the Gujarat Sales Tax Act, 1969.

The bench noted that the intention of the State to provide the incentive under the incentive policy was to give benefit of exemption from payment of purchase tax was to the specific class of industries and, more particularly, as per the list of ‘eligible industries’.

"Exemption was not available to the industries listed in the ‘ineligible’ industries. It was never the intension of the State Government while framing the incentive policy to grant the benefit of exemption to ‘ineligible industries’ like the power producing industries like the EPL, which as such was put in the list of ‘ineligible’ industries.", said the bench.

As per the incentive policy declared by the State Government, the bench further noted that the power generating company was put in the list of ‘ineligible industries’ and thus, independently was not entitled to the exemption under the original Entry No.255(2).

With this view, the Supreme Court reinstated the order of the Revenue levying demand of purchase tax and imposing penalty on Arcelor Mittal Nippon Steel India Limited for availing tax benefits without fulfilling all the eligibility criteria/condition of the Scheme For Special Incentives to Prestigious Units floated by the Gujarat Government in 1991.

Cause Title: State of Gujarat v Arcelor Mittal Nippon Steel India Limited