R. MAHADEVAN, J.

1. In these writ appeals, a batch of cases is filed by the Revenue, assailing the common order dated 06.02.2017 passed by a learned Judge in WP No. https://www.mhc.tn.gov.in/judis 4/192 WA No. 1260 of 2017 etc., batch 7969 of 2014 etc., batch, holding that the proviso to Section 19 (2) (v) of the Tamil Nadu Value Added Tax Act, 2006 (in short, “the TNVAT Act ”) inserted by section 2(1) of the Tamil Nadu Value Added Tax (Fifth Amendment) Act No.28 of 2013 with effect from 11.11.2013 is not applicable to the manufacturers and allowing the writ petitions. The other writ appeals are also filed by the Revenue, assailing the orders passed in the writ proceedings by the other learned Judges, which are similar to the aforesaid order dated 06.02.2017. Whereas, WA Nos.1446 and 1447 of 2021 are filed by the assessee against the order of dismissal dated 08.12.2020 passed by the learned Judge in WP.Nos.28828 and 28829 of 2018, on the ground of limitation.

2. The writ petition No.26705 of 2016 etc. batch, has been filed by the assessees to quash the orders passed by the respective Assessing Officers insofar as the same relate to reversal of Input Tax Credit (ITC) under the proviso to Section 19 (2) (v) of the TNVAT Act and further direct the respondents therein not to apply Section 2(1) of the Amendment Act, 2013 inasmuch as they are the manufacturers of goods in the State of Tamil Nadu consequent to the omission of proviso to Section 19 (2) (v) of the Tamil Nadu Value Added Tax (Fifth Amendment) Act, 2015 read with substitution of clause (v) to section 19 (2) of the TNVAT Act.

https://www.mhc.tn.gov.in/judis 5/192 WA No. 1260 of 2017 etc., batch

3. In view of commonality of the issue involved, the instant writ appeals and writ petitions were heard together and are decided by this common judgment.

Background of the Litigation.

4. The introduction of the proviso to Section 19 (2) (v) of then TNVAT Act, 2006 by Act 28 of 2013 with effect from 11.11.2013 has triggered the department to initiate the proceedings for reversal of ITC on interstate sale of goods covered under Section 8(1) of the CST Act, which has resulted in mushrooming of cases before this Court.

5. The subject proviso reads as under:

6. Before proceeding further, it is worthwhile to note that the proviso was omitted by deletion of section 19 (2) (v) and 19 (5) (c) vide Act 5 of 2015 with effect from 01.04.2015 and substituted with new sub-clause (v) which reads as under:

7. Be that as it may, the history of the batch of cases takes us back to Writ Petition No. 7969 of 2014 etc., batch filed by the assessees before the learned Judge, before whom, it was contended inter alia that the amendment to Section 19 (2) (v) of the Act has nothing to do with the right or allowance of ITC vested in a dealer, who uses the local tax suffered goods as input in the manufacture or processing of goods in the State or as containers for packing of goods or as capital goods in the manufacture of the same. The proviso inserted vide Act 28/2013 seeks to allow a restricted quantum of ITC, when the goods purchased within the State from a registered dealer, are sold in the course of inter-state trade or commerce against Form "C" declarations. But, the said proviso does not seek to restrict the claim of ITC in the circumstances when the local tax suffered goods are used in the manufacture of goods and such manufactured goods are sold in the course of inter-state trade or commerce against “C” form declarations. Had this been the intention of the legislature, then, such an intention would have been explicitly stated in the proviso itself.

On the contrary, the proviso to Section 19 (2) (v) of the Act will not be applicable in cases of stock transfer of manufactured goods or inter-state sale https://www.mhc.tn.gov.in/judis 7/192 WA No. 1260 of 2017 etc., batch of manufactured goods not supported by "C" declaration forms as per Section 19(4) and 19 (5) (c) of the Act. However, based on the amendment, the department proposed to reverse ITC towards inter-state sale by invoking Section 19 (2) (v) and Section 19 (5) (c) of the Act. Therefore, the writ petitions were filed challenging the action initiated based on the amendment brought into Section 19 (2) (v) of the TNVAT Act.

8. The writ petitions were opposed by the Revenue by filing a detailed counter affidavit stating that as per the newly amended proviso, the assessment proceedings were initiated and it was found that the dealers have effected inter-state sales to the registered dealers against “C” forms and sales to the unregistered dealers and adjusted the Input Tax Credit for the tax dues payable. However, they have not filed “C” forms for the turnover nor have reversed the input tax credit as per the amended Section 19 (2) (v) and Section 19 (5) (c) . As per the newly amended Section 19 (2) (v) of the Act with effect from 11.11.2013, ITC shall be allowed in excess of 3% of tax for the sale in the course of inter-state falling under sub-section (1) of Section 8 of the Central Sales Tax and therefore, it was proposed to reverse the ITC under the proviso to section 19 (2) (v) . Before finalising the assessment proceedings, a notice inviting objection on the proposal was issued to the dealers. In response, it was stated that the reversal of ITC is not applicable to them as they https://www.mhc.tn.gov.in/judis 8/192 WA No. 1260 of 2017 etc., batch are manufacturers and their purchases are mostly inter-state. It was also admitted that they have deducted the value of purchases used for manufacturing purposes and inter-state purchase turnover while arriving at ITC due. In any event, as the dealers are not eligible for ITC on the turnover not covered by “C” forms and sales to unregistered dealers, it was proposed that the ITC be reversed in respect of the turnover not covered by “C” forms and sales turnover to the unregistered dealers. According to the Revenue, such a course adopted is in consonance with the amended proviso to Section 19 (2) (v) and therefore, they prayed for dismissal of the writ petitions.

9. The learned Judge, by common order dated 06.02.2017 passed in WP No. 7969 of 2014 (M/s. Everest Industries Limited, rep. by its Senior Manager, Finance vs. State of Tamil Nadu , rep. by its Secretary, Commercial Taxes Department and another) etc. batch of cases, allowed the writ petitions filed by the assessees. The relevant portion of the same reads as follows:-

(vi) agency transactions by the principal within the State in the manner as may be prescribed.

[Provided that input tax credit shall be allowed in excess of three percent tax for the purpose specified in clause (v);]”

20. A careful reading of Section 19 would show that a dealer is entitled to claim ITC in respect of tax suffered inputs, which are specified in the First Schedule, and are purchased within the State from a registered dealer, and thereafter, are used for the purpose set out in clauses (i) to (vi), as delineated in sub-section (2) of Section 19 of the 2006 Act.

20.1 The proviso to sub-section (2) of Section 19 limits the availment of ITC by providing that ITC shall be allowed in excess of 3% of the tax for the purposes specified in clause (v). Clause (v), if read with sub-section (2) of Section 19 would have me conclude that, if, an assessee were to purchase taxable goods specified in the First Schedule, which were sold in the course of Inter-State Trade or Commerce against declarations made in form 'C', an assessee would be allowed ITC only in excess of 3% of the tax paid on such purchases.

20.2 Therefore, there is, to my mind, nothing in the proviso, which will have me come to the conclusion that, it is attracted to any of the other clause referred to in sub-section (2) of Section 19 of the 2006 Act.

20.3 A plain reading of the provisions of sub-section (1) and sub- section (2) of Section 19 of the 2006 Act would show that, as long as specified goods, which suffer tax are used for any of the purposes set out in clauses (i) to (vi) of sub-section (2) of Section 19 , the assessee should be able to claim the ITC, with a caveat in so far as clause (v) is concerned. The caveat being, the limitation, which is encapsulated in the proviso to Section 19(2) of the 2006 Act. Therefore, the limitation provided in the proviso would apply only https://www.mhc.tn.gov.in/judis 10/192 WA No. 1260 of 2017 etc., batch vis-a-vis the purpose specified in clause (v) and not qua other purposes set out in clause (i) to (iv) and (vi) of Section 19(2) of the 2006 Act.

20.4 If, that be the conclusion, then, surely, none of the impugned orders can sustain. The fact that, the proviso, on account of erroneous interpretation by the Revenue, was causing difficulties for the manufacturers, is exemplified by the Statement of Objects and Reasons which was set forth, at the time of introduction of Act 5 of 2015.

21. A perusal of the relevant extract of the Statement of Objects and Reasons would show that insertion of the proviso to Section 19(2) of 2006 Act had led to the manufacturing industries located in the State of Tamil Nadu, becoming less competitive as compared to their counterparts in the neighbouring States. The relevant part of the Statement of Objects and Reasons, which sheds light on this aspect of the matter is extracted hereunder, for the sake of convenience:

22. Furthermore, since, I have come to the conclusion that the proviso to Section 19(2) would apply only qua that purpose which is engrafted in clause (v) of the very same Section, in my view, the alternate argument advanced on behalf of the petitioners need not detain me.

23. Apart from what is adverted to above, I must also indicate that reliance was placed by Mr.Annamalai on the judgement of the Orissa High Court in the matter of : Bajrang Steel and Alloys Ltd. and others V. State of Orissa and Others , (2011) 43 VST 235 (Ori). To my mind, the said judgement would not further the cause of the respondents for the following brief reasons:

Therefore, this argument of Mr.Annamalai cannot be accepted. Thus, for the foregoing reasons, I am inclined to set aside the impugned order dated 06.02.2014. Accordingly, W.P.No.7969 of 2014 is allowed.

27. As indicated right at the outset, counsels were agreed that the decision reached in W.P.No.7969 of 2014 could be applied to other writ petitions, as well, since, except for the dates and events and quantum of ITC involved, the issue, discussed above, was common to each one of them.

28. Resultantly, having regard to the conclusion reached in W.P.No.7969 of 2014, I am inclined to allow the other writ petitions as well. The impugned orders in each of the writ petitions are set aside. Accordingly, the writ petitions Nos. 7969 of 2014, 10585 and 10586 of 2014, 38233 of 2015, 43402 of 2016 and 44188 of 2016, 722 of 2017, 1230, 1268, 1388 and 1880 of 2017 are allowed. Consequently, the connected pending applications are also closed. There shall, however, be no order as to costs.” https://www.mhc.tn.gov.in/judis 12/192 WA No. 1260 of 2017 etc., batch

10. Referring to the aforesaid order, similar orders were passed in the other writ petitions. Therefore, the Revenue is before this court with these batches of writ appeals, except WA.Nos.1446 and 1447 of 2021, which are filed by the assessee against the order of dismissal passed by the learned Judge on the ground of limitation.

11. While so, some of the assessees preferred writ petitions challenging the orders passed by the assessing officers qua reversal of ITC under section 19(2)(v) of the TNVAT Act. Taking note of the commonality of the issue involved, a Co-ordinate Bench of this court, by order dated 20.10.2017, directed the Registry to tag all the writ appeals along with those writ petitions for joint hearing, in order to avoid repetition and multiplicity of proceedings.

Accordingly, these cases were listed and elaborate arguments were heard by us.

Contentions:

12. The Learned Additional Advocate General, Mr.Haja Naziruddeen, appearing for the appellants-revenue would contend that these appeals are filed challenging the order passed by the learned Judge holding that the limitation provided in the proviso to Section 19 (2) of the Act, 2006, which came into effect from 11.11.2013, would apply only for the purposes specified https://www.mhc.tn.gov.in/judis 13/192 WA No. 1260 of 2017 etc., batch in clause (v) and not for other purposes set out in clauses (i) to (iv) of Section 19 (2) . The learned Judge failed to consider that the proviso to Section 19 (2) restricts the usage of ITC only to the extent of excess of 3% for the purpose specified in clause (v) and it ought to have been read harmoniously in line with the purpose specified under Section 19 (2) as a whole. The learned Judge also did not consider that sub-clauses of Section 19 (2) , except 19 (2) (v), were enacted to give the benefit of ITC in respect of 'usage' and 're-sale' as such, but did not extend to the cases, where final products were sold in the course of inter-state sale. In such cases, if the goods are purchased within the State and sold inter-state after undergoing various processes as contemplated under Section 19(2)(i) to 19 (2) (iv) and Section 19 (2) (vi) , Section 19 (2) (v) can be applied. While so, the proviso ought to be read as applicable to the entire provisions of Section 19 (2) when the condition specified in Section 19 (2) (v) comes into play in addition to other sub-clauses of Section 19 (2) of the Act.

13. The learned Additional Advocate General provided an illustration that if ‘A’, a dealer, registered in the State purchases inputs from the State and uses the same for manufacturing purpose and sells the final product, after all processes within the State, he is eligible for ITC under Section 19 (2) (ii) of the Act to the extent of such purchases of inputs. However, if ‘A’ purchases inputs within the State and uses it in manufacturing process but sells the final https://www.mhc.tn.gov.in/judis 14/192 WA No. 1260 of 2017 etc., batch product outside the State under Section 19 (2) (v) read with proviso, ‘A’ can claim ITC only to the extent of three percent tax. Thus, where the process does not end with manufacturing, but also result in inter-state sale, ITC can be claimed to the extent of excess of three percent.

14. The Learned Additional Advocate General further contented that the value addition refers to any processing and profit in case of manufacturers and profit alone in case of traders. Apart from the local sale transactions governed by VAT, the dealer can effect inter-state transactions governed by Central Sales Tax (CST) Act covering the following categories such as (i) Sale to other state registered dealers against "C" forms. If the buyer at the other State obtains "C" forms from the Commercial Tax Department of other State and submits it to the Government of Tamil Nadu, a concessional rate of 2% alone is levied and collected; (ii) Sale to other State registered and unregistered dealers without "C" forms and in such case, tax is levied at the rate of 5%; (iii) Branch or stock transfer of goods to other state with Form "F" and this transaction is exempted; and (iv) Branch or stock transfer of goods to other State without form "F" is levied at the rate of 5%. It is also his contention that the dealer, on local purchase, claims ITC at 5% from the State of Tamil Nadu and pays at concessional rate of 2% thereby 3% ITC was accumulated by the dealer. Similarly, the dealer, on his local purchase, claims ITC at 5% from the https://www.mhc.tn.gov.in/judis 15/192 WA No. 1260 of 2017 etc., batch State of Tamil Nadu and transfers the goods to the branches in other State without paying any tax, as tax in such an event is exempted under Central Sales Tax Act and the ITC on his purchase to the extent of 3% was reversed and the balance 2% was accumulated by the dealer. It is further stated that at the time of introduction of VAT, the levy of tax under VAT as well as CST are 4%, later, the Central Government, while implementing Goods & Service Tax (GST) reduced the CST from 4% to 3% and thereafter to 2%. On the other hand, the State Government has increased the tax rate from 4% to 5% from 12.07.2011 and this difference in the tax rates paved way for accumulation of ITC by the dealer. After the amendment, there is no difference between the manufacturers and traders and both are not allowed to enrich ITC unduly at the cost of the exchequer. The words 'sale in the course of inter-state trade or commerce' connotes sale of any goods which may be traded or manufactured.

The meaning of the words 'sale in the course of inter-state trade or commerce' occurring in clause (v) of sub-section (5) of Section 19 of the Act has to be derived only from the CST Act, 1956 and not from any other law or interpretation. The words ‘sale in the course of inter-state trade or commerce’ is sufficiently defined in Section 3 of the CST Act, 1956 as a sale or purchase of goods which shall be deemed to have taken place in the course of inter-state trade or commerce, if the sale or purchase (a) occasions the movement of https://www.mhc.tn.gov.in/judis 16/192 WA No. 1260 of 2017 etc., batch goods from one State to another (b) effected by transfer of documents of title to the goods during their movement from one State to another. Thus, if movement of goods from one State to another happened because of pre agreed sale or as pre-condition of sale, then such movement of goods shall be deemed to be inter-state sale/purchase. Further, for a sale to be inter-state sale, it must satisfy that (i) there must be a contract of sale, incorporating a stipulation, express or implied regarding movement of goods inter-state (ii) the goods must actually move from one State to another pursuant to such contract of sale, the sale being proximate cause of movement and (iii) such movement of goods must be from one State to another State where the sale concludes. To buttress this submission, the learned Additional Advocate General relied on the decision of the Honourable Supreme Court in CST vs. Suresh Chand Jain reported in 1988 70 STC 45 (SC) and reiterated the said requirement for sale.

It is also contended that a taxing statute ought not to be read in isolation, rather it has to be read along with other associated provisions, as well, more particularly when the subject matter with different sections or parts of the same statute is identical. While so, Section 19 (2) has to be read as a whole to give the intending meaning behind the proviso to Section 19 (2) according to which the Legislature intended to restrict the claim of ITC when final product is sold outside the State. In this context, the learned Additional Advocate https://www.mhc.tn.gov.in/judis 17/192 WA No. 1260 of 2017 etc., batch General placed reliance on the decision of the Honourable Supreme court in the case of Kailash Chandra vs. Mukund Lal reported in 2002 (2) Supreme Court Cases 678 wherein it was held that “ITC is a concession and it is open to the legislature to impose restrictions while extending the concession”.

15. It is further contended that the intention of the legislature was always to include the manufacturers within the ambit of the proviso, which is evident from the Statements of objects and reasons of the Acts 28/2013 and 5/2015 and hence, the court ought not to have gone by the literal rule of interpretation and rather must have gone by the intent of the legislature or adopted the golden rule of interpretation. Relying upon the definition of the term “business” under the CST Act , it is contended that the same covers “manufacture” and therefore the amendment is also applicable to a manufacturer. Further, Section 19 (2) (v) of the Act explicitly does not distinguish between a trader and manufacturer and hence, the proviso introduced to it must be deemed to be covered both the categories. It is further contended that a dealer though is entitled to claim credit of the taxes paid or payable by him at the time of purchase of First Schedule goods, he has to satisfy that the goods have been dealt with for the purposes enumerated under Section 19 (2) and that credit can be adjusted against the tax payable by him by relying upon Sections 3(2) and 3(3) of the Act. Therefore, it is only after https://www.mhc.tn.gov.in/judis 18/192 WA No. 1260 of 2017 etc., batch the sale, the Input tax credit can be adjusted and that the State was well within its powers to restrict the availment of Input Tax Credit on inter-state sales. The Learned Additional Advocate General referred to various provisions in sections 19(4) and 19(5) of the TNVAT Act to support his contention that the State from inception had imposed restrictions in the availment of the ITC on inter-state transactions and also pointed out to other restrictions under the Act.

It is further contended by the learned Additional Advocate General that once the requirements of Section 3(a) of the CST Act are satisfied, the transaction becomes an inter-state sale irrespective of whether the goods are sold after manufacture or merely traded.

16. The learned Additional Advocate General also advanced the counter argument stating that Section 19 (2) (v) is an extended limb of section 19(2)(ii) and it should not be read in isolation as most of the manufacturers have both local and inter-state sales, including exports. If clause (v) is treated as only meant for traded goods, then all the manufacturers will be forced to pay tax on the inter-state sale of manufactured goods as there is no provision under sub-

section (2) of section 19 of the Act to the manufacturers to adjust the ITC available on the purchase of local taxable inputs, consumables, packing materials including capital goods for the inter-state sales of manufactured goods against Form “C”. It is further contended that in inter-state transactions https://www.mhc.tn.gov.in/judis 19/192 WA No. 1260 of 2017 etc., batch covered under “C” Forms, concessional tax at 2% is made and the dealer retains the purchase tax as ITC, which necessitated the introduction of the proviso, as there was huge accumulation and undue enrichment of ITC on increasing inter-state sales causing loss to the state exchequer, added further by the reduction of rates under CST Act and the increase in state tax. It is also contended that the withdrawal of the proviso in 2015 to plug the loopholes cannot be given retrospective effect and in any case, the Learned Judge ought not to have given retrospective effect to the order, which has cascaded in huge loss to the state exchequer and that unless it is shown that the refund of tax would reach the ultimate customer, the same cannot be permitted. It is further pointed out that the vires of Section 19 (5) (c) , which deals with denial of ITC on inter-state sale of goods falling under Section 8(2) of the CST Act was upheld by this court as affirmed by the Apex Court, superimposing the authority of the state to impose conditions on the adjustment of ITC. In support of his contention, he placed reliance on the judgment of the Division Bench of the Orissa High Court in Bajrang Steel and Alloys Ltd. and others vs. State of Orissa and others reported in (2011) 43 VST 235. With these averments, he sought to allow the appeals preferred by the state and dismiss the writ petitions filed by the assessees.

https://www.mhc.tn.gov.in/judis 20/192 WA No. 1260 of 2017 etc., batch Contention on behalf of the assessees.

17. Mr.R.L.Ramani, Learned Senior Counsel appearing for Mr.B.Raveendran, learned counsel for the assessee in WP.No.24535 of 2018, supporting the findings of the Learned Judge, contended that the proviso cannot be applied to the manufacturers. As per Section 19 of the TNVAT Act, as they existed prior to the amendment brought forth on 11.11.2013, ITC is allowed when tax suffered goods are used for the purpose of re-sale or used as input in manufacturing or processing of the goods in the State. A manufacturer is allowed ITC when they use tax suffered goods either as an input in the manufacture or processing of goods or use the same as containers etc., for packing of goods or use the same as capital goods. A manufacturer, in such an event, is vested with a right to claim ITC and such right is not dependant on the manner in which they sell/dispose the manufactured goods except when the manufactured goods are stock transferred to a place outside the State or sold on inter-state basis without being supported by 'C' declaration forms.

However, the Assessing Officers, ignoring the proviso to Section 19 (2) of the Act, erroneously concluded that it will apply only in cases falling under Section 19 (2) (v) of the Act. The Learned Senior Counsel further contented that the omission of the proviso with effect from 01.04.2015 is only curative.

The Learned Senior Counsel also referring to the provisions of the Orissa https://www.mhc.tn.gov.in/judis 21/192 WA No. 1260 of 2017 etc., batch Value Added Tax Act contended that the provisions therein are different and clear, whereas it is not the case under the TNVAT Act and therefore, the judgment in Bajrang Steel and Alloys Limited case is not applicable. The Learned Senior Counsel fairly submitted that the validity of Section 19(5)(c) has been upheld by the Apex Court in TVS Motor Company v. State of T.N. , reported in (2019) 13 SCC 403 and that has nothing to do with the other issues relating to applicability of the proviso to the manufacturers. Further, under Section 19(2)(ii) , the word 'use of manufacturer' has been added and under section 19(2)(v) the expression 'use' has not been employed at all and hence, Section 19(2)(v) cannot be said to be applicable only to the traders. Therefore, the learned Judge, on appreciation of the said factual as well as legal position, has rightly allowed the writ petitions filed by the assesses, which do not call for any interference by this court.

18. Mr.Prasad, learned counsel representing Mr.N.Inbarajan, learned counsel appearing for the respondents in WA.Nos.1260, 1682 and 1686 of 2017 as well as WA.No.422 of 2018 would, at the outset, contend that when the provisions of the taxing statute are clear and unambiguous, recourse to internal or external aids is not necessary, besides it is legally impermissible.

Further, endorsing the order passed by the Learned Judge, it is contended that the proviso cannot be applied to the manufacturers as they fall within the https://www.mhc.tn.gov.in/judis 22/192 WA No. 1260 of 2017 etc., batch ambit of Section 19 (2) (ii) of the Act and once the goods are used for the manufacturing activity, they are entitled to claim ITC.

19. The learned counsel further taking the court to the provisions of the Act, illustrated that intention of the legislature from inception was to treat the manufacturers within the section 19 (2) (ii) alone and not within 19 (2) (v), if not specific words to include the manufacturers as found in section 19 (4) and that 19 (5) (c) would have been used by the legislature. Further, the expression "which are" clearly indicate that the subject matter of the sale in the course of inter-state trade is the very goods which are purchased inside the State. The expression 'which' is in reference to the antecedent expression namely the goods purchased inside the State. Similarly, the expression 'which' is used as a relative in a subordinate clause representing noun or noun press in the principal sentence. It is used as an introductory word and referring to an antecedent noun. Therefore, by virtue of usage of the word 'which' in the main provision, Section 19 (2) (v) cannot be applied to the manufacturers, since there is no identity between the goods purchased for the purpose of Section 19(2)(ii) and sale of the manufactured goods in the course of inter-state trade.

The learned counsel also relied on the definition of the word “which” from the extract of Websters and Oxford Dictionaries, to buttress his argument. It is further contended that the purpose of VAT legislation itself is to ensure that https://www.mhc.tn.gov.in/judis 23/192 WA No. 1260 of 2017 etc., batch the cascading effect is avoided. For this purpose, it becomes necessary that tax paid at the earlier stage which is at the stage of purchase is offered as credit. In addition to this, the scheme of VAT Act does not contemplate a one-to-one correlation. Once a credit is validly earned, it can be adjusted towards output tax payable on local sale or for payment of tax under the CST Act .

20. It is further contended that when a manufacturer purchases an input, he does not sell the input as such, but makes a substantial value addition.

According to the learned counsel, Section 19(2)(ii) deals with goods purchased for the purpose of use as input in manufacture of goods. Soon after manufacture, the purpose of purchase is consummated. In other words, the moment the goods are purchased for being used in manufacturing activity and commercially different goods than the one manufactured, the goods purchased cease to exist and they are not goods for satisfying the ingredients under Section 19 (2) (v) . Further, as per the definition provided under Section 2 (27) of the Act, the inputs purchased have lost their commercial identity. Thus, a plain reading of Section 19 (2) (v) and the earlier part of Section 19 (2) would show that it would apply where inputs are purchased, which are used for the purpose of sale in the course of inter-state trade or commerce falling under Section 8 (1) of the CST Act. Therefore, Section 19 (2) (v) will apply to a case of trading of inputs, which are purchased inside the State, which are for the https://www.mhc.tn.gov.in/judis 24/192 WA No. 1260 of 2017 etc., batch purpose of sale in the course of inter-state trade under Section 8 (1) of the CST Act. In the case of the respondent –assessee itself, while inputs are purchased inside the state of Tamil Nadu on Payment of TNVAT, the final product is Asbestos sheet and there is a value addition to it. Therefore, the rate of CST at 2% is not on the input sold as such, but on the manufactured commodity. It was further contended that the proviso inserted by Tamil Nadu Act 28 of 2013 effective from 11.11.2013 cannot be applied to the manufacturers as because the restriction of input credit to the manufacturer effecting an inter- state sale from the State of Tamil Nadu to another manufacturer located outside the state, would be an additional cost to the manufacturer effecting sale from the State of Tamil Nadu and would directly impact the price of the manufacturer effecting the sale from the State of Tamil Nadu rendering his product uncompetitive for the receiving manufacturer located outside the State. “Input credit” is not cost but only a receivable in accounting terms. Denial of input credit would result in increase in cost and resultant price, rendering the product supplied from Tamil Nadu uncompetitive in the receiving State.

Therefore, the extension of input credit in an unrestricted fashion promotes inter-state trade and a construction that promotes that objective has to be given.

https://www.mhc.tn.gov.in/judis 25/192 WA No. 1260 of 2017 etc., batch

21. It is further contended by the learned counsel that in exercise of power under section 80, the TNVAT Rules have been framed. Rule 7 provides for power to prescribe a monthly return. The monthly return furnished in Form I itself permits use of the credit for discharge of CST. It is also contended that the omission of the proviso by Tamil Nadu Act 05 of 2015 effective from 01.04.2015 becomes relevant. The effect of omission of the proviso is as if the proviso did not have any existence at all. It is a case of omission and not repeal. It is also contended that Section 2(1)(i) of the Tamil Nadu Act 05 of 2015 omitted the proviso inserted to section 19(2) by Tamil Nadu Act 28 of 2013 and Section 2(1)(i) substituted the words ‘sale in the course of inter-state trade or commerce' falling under sub – sections (1) and (2) of section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), for the words ‘sale in the course of inter- state trade or commerce' falling under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 ( Central Act 74 of 1956). The combined effect of the omission of the proviso and the substitution of sub – clause (v) is as if the restriction of the input credit contemplated by the proviso never existed as because a substitution relates back.

22. It is further contended that the expression 'use' is found under Section 19(2) (ii) , sub-clause (iii) and sub-clause (iv), but it is absent in sub-clause (v) of Section 19 (2) . Similarly, the expression 'manufacture' is found in sub- https://www.mhc.tn.gov.in/judis 26/192 WA No. 1260 of 2017 etc., batch clause (ii) and (iv) of Section 19 (ii) but it is absent in sub-clause (v). Again, the expression 'use in manufacture' is found in sub-clause (ii) of section 19(4) but it is inherently absent in sub-clause (i) of section 19 (4) . Therefore, according to the learned counsel, Section 19(2)(v) would not include a case of inputs used in manufacture, as if inputs were intended for sale in the course of inter-state trade or commerce, and it would amount to reading words into the provisions which are non-existent.

23. The learned counsel further contended that under the scheme of the Act, there is a distinction between credit being 'allowed' and the same being 'utilized'. Section 19 (2) contemplates that ITC is being 'allowed', which expression refers to the grant of credit. Once credit is granted or earned by a manufacturer, the use of credit can be made under Rule 5 (3- A) of the Central Sales Tax Act (Tamil Nadu) Rules, 1957 in respect of inter-state sale effected by a manufacturer. Further, under the provisions of CST Act , the State Government has framed Rules in exercise of power under Section 13 (3) of the Central Sales Tax Act where Rule 5 (3-A) permits use of the credit earned under Section 19 . Therefore, sub-clause (v) is not necessary to complete the entitlement for credit for a manufacturer, in whose case, the entitlement is complete the moment inputs are used in manufacture.

https://www.mhc.tn.gov.in/judis 27/192 WA No. 1260 of 2017 etc., batch

24. As a riposle to the assertion of the learned Additional Advocate General that the need for restriction of ITC is on account of accumulation of excess ITC, Mr.Prasad, learned counsel, submitted that the Central Sales Tax is always payable on the selling price of goods as contemplated under Section 2 (g) , 2 (h) , 2 (i) read with Section 6 of the Central Sales Tax Act, 1956. Under Section 8 (1) of the CST Act, tax is determined on the sale price at 2% at the relevant time. On the strength of the same, the respondents-assessees purchased industrial inputs incurring 5% on the price of purchase of raw materials or inputs. To this, Central Sales Tax is levied at 2% of price of manufactured product. Therefore, by no stretch of imagination, the purpose of amendment was to address the alleged excess credit. The selling price comprises cost of raw materials, inputs, other manufacturing costs incurred such as power, financial costs of investment, wages, selling expenses etc. Therefore, the amendment to Section 19 (2) (v) has nothing to do with the accumulation of ITC by the dealer, who manufactures the goods. Contending that both by the rule of literal and harmonious construction, the proviso will not be applicable to the manufacturers and by placing reliance upon the judgments in Commissioner of Agricultural Income Tax, Kerala vs. Plantation Corporation of Kerala Limited, Kottayam reported in (2001) 1 Supreme Court Cases 207, Hansraj Gordhandas vs. H.H. Dave, Assistant https://www.mhc.tn.gov.in/judis 28/192 WA No. 1260 of 2017 etc., batch Collector of Central Excise, Customs, Surat and others reported in (1969) 2 SCR 253 = AIR 1970 SC 755, Collector of Central Excise, Pune and others vs. Dalichi Karkaraia Limited and others reported in (1999) 7 Supreme Court Cases 448, Collector of Central Excise and others vs. Himalayan Cooperative Milk Product Union Limited and others reported in (2000) 8 Supreme Court Cases 642, Kerala State Cooperative Marketing Federation Limited and others vs. Commissioner of Income Tax reported in (1998) 5 Supreme Court Cases 48, Govind Saran Ganga Saran vs. Commissioner of Sales Tax and others reported in 1985 (Supp) Supreme Court Cases 205, Commissioner of Income Tax vs. Hindustan Bulk Carriers reported in (2003) 3 Supreme Court Cases 57, the learned counsel sought for dismissal of the appeals filed by the state and allowing the writ petitions filed by the assessees.

25. Mr. Joseph Prabhakar, learned counsel appearing for the respondents in W.A. Nos. 446 and 459 of 2019 would contend that the Value Added Tax (VAT) Act , was introduced on 01.01.2007 and the erstwhile Tamil Nadu General Sales Tax Act was in vogue until the year 2006 and it provided for a single point of taxation in the State. Upon introduction of VAT, multiple point of taxation came into force with an intention to levy tax at every stage of sale and ITC was allowed at every stage of purchase. Thus, the grant of ITC on https://www.mhc.tn.gov.in/judis 29/192 WA No. 1260 of 2017 etc., batch purchase, upon introduction of VAT, is not a benefit, but a necessity for the purpose of sustaining VAT, which is a scheme for multiple point of taxation.

Relying upon Section 19 (2) , the learned counsel further contended that each of the sub-clauses are independent of each other and lay down different stipulations to claim ITC. The learned counsel emphasized the use of the “; or” at the end of each sub-clause to buttress his case that the sub clauses must be read separately. According to the learned counsel, a semi colon is used between two closely related independent clauses and hence, the sub-clauses contained under Section 19 (2) are like water tight compartments and the eligibility to avail ITC for a given transaction would be determined under any one of the six sub-clauses.The learned counsel also contended that there was no error in Section 19 (2) and therefore, the amendment in 2013 cannot be called as corrective, that ITC is available on the purchase of raw material in case of manufacturer as per section 19 (2) (ii) and as it has got nothing to do with sale, section 19 (2) (v) will not affect the claim of ITC, that sections 19 (2) (1) and 19 (2) (v) will have to be read together, that the words used in 19 (5) (c) like “such goods” or “sale of manufactured goods” would imply that the legislature never intended to cover manufacturers under section 19 (2) (v) and that word “sale” in section 19 (2) (v) would have to be read as “resale”.

The learned counsel further referred to the term "re-sale" in sub-clause (i) and https://www.mhc.tn.gov.in/judis 30/192 WA No. 1260 of 2017 etc., batch contended that it has been used to define a pure and simple transaction of purchase of goods within the State and re-sale of the same goods within the State without any condition. Whereas, the term “sale” in the course of inter-state trade within the meaning of Section 8 (1) of the CST Act defines a re-sale outside the State as the one with Form 'C'. In other words, re-sale can be effected by complying with the conditions incorporated under Section 8 (1) of the CST Act. Therefore, the learned counsel submitted that sub-clause (v) refers to purchase of goods within the State and consequent re-sale of the same goods as such to other States and nothing more. For availing ITC the manufacturing or process of goods within the State is the sole criterion under sub-clause (ii) to determine the eligibility to avail ITC, which they have fulfilled. Relying upon the judgments which would be discussed later, the learned counsel sought for the dismissal of the appeals filed by the state.

26. Mr.V.Sundareswaran, learned counsel appearing for the respondents in Writ Appeal Nos.1651 and 1709 of 2017 as well as Writ Appeal Nos. 18 and 205 of 2018 would contend that the Tamil Nadu Value Added Tax Act, 2006 was introduced with effect from 01.01.2007 with an object of having uniform rate of sales tax throughout the Country. On 17.01.2005, the White Paper on VAT submitted was agreed by all the States. As per the White Paper, ITC shall be available to all "intra-state sales" as well as "inter-state sales" and it was https://www.mhc.tn.gov.in/judis 31/192 WA No. 1260 of 2017 etc., batch agreed to allow ITC on all sales including the inter-state sales irrespective of whether such sale is made to a registered or unregistered dealers. However, the State of Tamil Nadu restricted the availment of ITC on inter-state sales falling under Section 8 (2) of the Central Sales Tax Act under Section 19 (5) (c) read with Rule 10 (9) (a) of the TNVAT Rules unless form "C" is filed by the seller.

In fact, the Central Government, with a view to facilitate the introduction of Goods and Service Tax Act, wanted to phase out the CST levy so as to remove the cascading effect of tax. Accordingly, vide Taxation Laws (Amendment) Act, 2007 , the Central Government reduced the rate of CST in a phased manner viz., reduction of tax from 4% to 3% from 01.04.2007 and subsequently from 3% to 2% from 01.04.2008. However, during the assessment year 2011-2012, the Government of Tamil Nadu had increased the rate of sales tax under the TNVAT Act from 4% to 5% with effect from 12.07.2011 and from 12.5% to 14.5% with effect from 12.07.2011. Section 19(5)(c) denies the ITC not covered by form 'C' Declaration and therefore, the vires of the Act was challenged before this Court. This Court upheld the vires of the Act following the order dated 29.10.2014 passed by the Honourable Supreme Court in Sitalakshmi Mills case reported in (1974) 4 SCC 408.

Further, the Apex Court in the decision dated 12.10.2018 in the case of TVS Motor Company vs. State of Tamil Nadu dismissed the Special Leave Petition https://www.mhc.tn.gov.in/judis 32/192 WA No. 1260 of 2017 etc., batch filed by the Revenue against the order dated 29.10.2014 passed by the Division Bench of this Court upholding the vires of Section 19 (5) of the Act.

While holding so, it was held that Section 8 (2) of the CST Act is applicable only to inter-state sales made to the unregistered dealer and not to inter-state sales made to the registered dealers not covered by form "C" declarations.

However, during the pendency of the Civil Appeal before the Apex Court, the State of Tamil Nadu made amendment to the TNVAT Act by omitting Section 19 (5) (c) , Rule 10 (9) (a) and proviso to Section 19 (2) (v) on the one hand and substituted Section 19 (2) (v) on the other as agreed in VAT White paper.

The 'omission' and 'substitution' were done by way of the same Amendment Act 5 of 2015 and the effect was that ITC is available to inter-state sales covered and without ‘C’ Forms. It is further contended by the learned counsel that Act 5 of 2015 is a declaratory statute in the real sense that the said amendment had removed the doubts existing as to the application of the provision in the light of the binding undertaking given by all the States.

27. The learned counsel referring to the budget speech rendered in vernacular language, contended that the intention of the legislature in 2015 while omitting the proviso added in 2013, was to cure the anomaly caused in implementation by giving retrospective effect and therefore it can only be termed as clarificatory. The learned counsel also relying upon the Doctrine of https://www.mhc.tn.gov.in/judis 33/192 WA No. 1260 of 2017 etc., batch Fairness, contended that even if purposive construction of Act 05/2015 is made, the amendment can only have retrospective effect. The learned counsel further terming the amendment in 2015 as declaratory, contended that it removed the confusion by omission and substitution and hence, would have retrospective effect. Referring to the judgments in CIT vs. Gold Coin Health Foods reported in ( 11) SCALE 497, Commissioner of Income Tax -I, New Delhi vs. Vatika Township Private Limited reported in 2015 1 Supreme Court Cases 1, SEBI vs. Alliance Finstock Limited reported in (2015) 16 Supreme Court Cases 731, the learned counsel sought for the dismissal of the state appeals and allowing the writ petitions filed by the assessees.

28. Mr. Ramanathan, learned counsel appearing for the respondents in W.A. Nos. 1508, 1527, 1528 and 1692 of 2017 and W.A. No. 54 of 2020 and Mr. Pramodkumar Chopda, learned counsel for the respondent in W.A. No. 1771 of 2017 have adopted the arguments advanced by the other learned counsel appearing for the assessees.

29. Mr. Rajkumar, learned counsel for the respondent in W.A. No. 1770 of 2017 and Mr. K. Jayachandran, learned counsel for the respondents in W.A. Nos.2807 and 2809 of 2019 have adopted the arguments made by Mr.Prasad, learned counsel appearing for the respondent in W.A. No. 1260 of 2017.

https://www.mhc.tn.gov.in/judis 34/192 WA No. 1260 of 2017 etc., batch

30. Mr. N.Murali, learned counsel appearing for the appellants in W.A Nos.1446 and 1447 of 2021 / assessee contended that when the batch of writ petitions was pending and the earlier batch was allowed, it was appropriate for the learned judge to dismiss the writ petitions on the ground of technicality that they were filed beyond the time given for filing statutory appeal. The learned counsel also pressed into service the Division Bench Judgement of this Court in W.A No.493/2021 in support of his contention. It is further contended by the learned counsel that the order of the Learned Judge is the just interpretation and the same warrants no interference. Thus, the learned counsel prayed for the appeals filed by the assessees to be allowed by extending the benefit of the said order.

31. Similarly, Mr. Aditya Reddy, learned counsel for the respondent in W.A. Nos. 1626, 1633, 1677 and 1678 of 2017 and other cases, adopted the arguments of other counsels and sought the dismissal of the Writ Appeals preferred by the state and allowing the writ petitions of the assessees.

32. Heard all the Counsels and perused the materials available on record.

All the counsels have pressed into service many judgments on interpretation of statutes, which will be referred and discussed later along with other judgments relevant on the issues.

https://www.mhc.tn.gov.in/judis 35/192 WA No. 1260 of 2017 etc., batch

33. What was challenged in the writ appeals filed by the Revenue is to the order dated 06.02.2017 passed in WP No. 7969 of 2014 etc., and also similar orders passed in the other writ proceedings. The order of the learned Judge made in WP.Nos.28828 and 28829 of 2018 is questioned in WA.Nos.1446 and 1447 of 2021 filed by the assessee.

34. The prayer made in WP.No.26705 of 2016 etc, is to quash the assessment orders passed by the Assessing Officers and for a consequential direction not to apply Section 2 (1) of the amending Act 29/2013 inasmuch as the writ petitioners are manufacturers.

35. Some of the writ petitions have been filed by the assessees with a prayer to issue a Writ of Mandamus directing the assessing officers to adjudicate on the monthly returns filed by the petitioners under the provisions of the Act and to restore the ITC, on the basis of the common order dated 06.02.2017 passed in WP No. 7969 of 2014 etc., batch by the learned Judge, which is impugned in WA.No.1260 of 2017 etc. cases filed by the Revenue.

36. At the outset, it is to be pointed out that the learned counsel for the writ petitioners, in unison, contended that the relief sought for in these writ petitions has to be decided depending upon the outcome of the writ appeals filed by the Revenue. As per section 23 of the Act, if any identical question of law is pending before this Court or the Supreme Court, the Assessing Officer https://www.mhc.tn.gov.in/judis 36/192 WA No. 1260 of 2017 etc., batch has to keep all further proceedings in abeyance till such time the issue is settled by the Constitutional Courts once and for all. When this Court is seized of the issue relating to applicability of the amended proviso to Section 19 (2) (v) of the Act, to a manufacturer, the Assessing Officer cannot proceed further until the conclusion of the writ appeals. Thus, we shall first proceed to examine the writ appeals filed by the Revenue.

Issues at Large

37. The following questions arise in these writ appeals filed by the Revenue, viz., i. Whether the proviso to Section 19(2) (v) of the TNVAT Act, 2006 inserted by Tamil Nadu Act 28 of 2013 in vogue till 01.04.2015, which provides that input tax credit shall be allowed only in excess of 3%, would apply to the manufacturers also, in respect of inputs used in manufacturing or processing of goods in the State, when such manufactured/processed goods are sold in the course of intra-State trade or commerce under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956?

ii. Whether the omission of the proviso to Section 19 (2) (v) by Tamil Nadu Act 5 of 2015 is curative in nature and would have retrospective effect from the date of its insertion i.e., 11.11.2013?

https://www.mhc.tn.gov.in/judis 37/192 WA No. 1260 of 2017 etc., batch Deliberations and findings

38. Before adverting to the contentious issues, it is apropos to address another important point raised by the State qua Judicial Review. Sans the adjudication on the authority of this Court to review, it may not be judicially viable to proceed further.

Judicial Review

39. One of the contentions of the Revenue is that the courts must restrain themselves in reviewing the policy decision of the State, more particularly in a fiscal statute, in which the States are at liberty to make trial and error. Let us now look at some of the judgments, which provide perspicuous reasons and prepositions on this point.

40. R.K. Garg v. Union of India , [1981 4 SCC 675 : 1982 SCC (Tax) 30]:

41. State of Kerala vs. Builders Association of India [(1997) 2 SCC 183]:

42. DDA v.UEE Electrical Engg.(P) Ltd [(2004) 11 SCC 213]:

https://www.mhc.tn.gov.in/judis 39/192 WA No. 1260 of 2017 etc., batch

43. State of T.N. v. K.Shyam Sunder [(2011) 8 SCC 737]:

( Vide Onkar Lal Bajaj v. Union of India [(2003) 2 SCC 673 : AIR 2003 SC 2562])

32. In State of Karnataka v. All India Manufacturers Organisation , [(2006) 4 SCC 683 : AIR 2006 SC 1846], this Court examined under what circumstances the government should revoke a decision taken by an earlier Government. The Court held that an instrumentality of the State cannot have a case to plead contrary from that of the State and the policy in respect of a particular project adopted by the State Government should not be changed with the change of the government. The Court further held as under: (SCC p. 706, para 59)

59. ... It is trite law that when one of the contracting parties is 'State' within the meaning of Article 12 of the Constitution, it does not cease to enjoy the character of "State" and, therefore, it is subjected to all the obligations that "State" has under the Constitution. When the State's acts of omission or commission are tainted with extreme arbitrariness and with mala fides, it is certainly subject to interference by the Constitutional Courts"

Section 2 (15) ‘‘dealer’’ means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes--

(i) a local authority, company, Hindu undivided family, firm or other association of persons which carries on such business;

(ii) a casual trader;

https://www.mhc.tn.gov.in/judis 51/192 WA No. 1260 of 2017 etc., batch

(iii) a factor, a broker, a commission agent or arhati, a del credere agent or an auctioneer, or any other mercantile agent by whatever name called, and whether of the same description as hereinbefore or not, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal, or through whom the goods are bought, sold, supplied or distributed;

(iv) every local branch of a firm or company situated outside the State;

(v) a person engaged in the business of transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;

(vi) a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(vii) a person engaged in the business of delivery of goods on hire-purchase or any system of payment by instalments;

(viii) a person engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(ix) a person engaged in the business of supplying by way of, or as part of, any service or in any other manner whatsoever of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration;

Explanation I.- A society including a co-operative society, club or firm or an association which, whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash, or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act:

Section 2 (20) ‘‘exempted goods’’ means the goods falling under the Fourth Schedule and goods exempted by the Government, by notification, from time to time.

Section 2 (21) ‘‘goods’’ means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes all materials, commodities and articles including the goods (as goods or in some other form) involved in the execution of works contract or those goods to be used in the fitting out, improvement or repair of movable property; and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale;

Section 2(23) ‘‘input’’ means any goods including capital goods purchased by a dealer in the course of his business;

Section 2 (24) ‘‘input tax’’ means the tax paid or payable under this Act by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of his business;

Section (27) ‘‘manufacture’’ with its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods and includes any process of goods which brings into existence a commercially different and distinct commodity but does not include any https://www.mhc.tn.gov.in/judis 53/192 WA No. 1260 of 2017 etc., batch activity as may be notified by the Government;

Section 2(28) ‘‘output tax’’ means tax paid or payable under this Act by any registered dealer in respect of sale of any goods; Section 2(30) ‘‘registered dealer’’ means a dealer registered under this Act; Section 2(33) ‘‘sale’’ with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes ,-

(i) a transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;

(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii) a delivery of goods on hire-purchase or any system of payment by instalments;

(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(v) a supply of goods by any un-incorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

(vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;

Explanation I.- The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association to its members, for cash, or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act.

Explanation II.- Every transfer of property in goods by the Central Government or any State Government for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act.

Explanation III.- Every transfer of property in goods including goods as unclaimed or confiscated or unserviceable or scrap surplus, old, obsolete or discarded materials or waste products, by the persons or bodies referred to https://www.mhc.tn.gov.in/judis 54/192 WA No. 1260 of 2017 etc., batch in Explanation III in clause (15) of section 2 for cash or for deferred payment or for any other valuable consideration whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation IV.- The transfer of property involved in the purchase, sale, supply or distribution of goods through a factor, broker, commission agent or arhati, del credere agent or an auctioneer or any other mercantile agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a purchase or sale, as the case may be, by such factor, broker, commission agent, arhati, del credere agent, auctioneer or any other mercantile agent, by whatever name called, for the purposes of this Act.

Explanation V.-(a) The sale or purchase of goods shall be deemed for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State —

(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and

(ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.

(b) Where there is a single contract of sale or purchase of goods, situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. Explanation VI.- Notwithstanding anything to the contrary contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place –

(a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or

(b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid-

(i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate, or

(ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate, or

(iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal.

Section 2(37) “taxable goods’’ means goods other than exempted goods specified in the Fourth Schedule to this Act or goods exempted by https://www.mhc.tn.gov.in/judis 55/192 WA No. 1260 of 2017 etc., batch notification by the Government;

Section 2 (38) ‘‘taxable turnover’’ means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed; Section 2(43) ‘‘works contract’’ includes any agreement for carrying out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning, of any movable or immovable property;

Section 3 which is the charging section reads as follows

3. Levy of Taxes on sales of goods.- (1) (a) Every dealer, other than a casual trader or agent of a non-resident dealer, whose total turnover for a year is not less than rupees five lakhs and every casual trader or agent of a non-resident dealer, whatever be his total turnover, for a year shall pay tax under this Act.

(b) Notwithstanding anything contained in clause (a), every dealer, other than a casual trader or agent of a non-resident dealer, whose total turnover in respect of purchase and sale within the State, for a year, is not less than rupees ten lakhs, shall pay tax under this Act.

(1-A) Notwithstanding anything contained in this Act, for the purpose of assessment of tax under this Act, for the period from the 1st day of January 2007 to the 31st day of March 2007 in respect of dealers referred to in clause (a) or (b) of sub-section (1), the total turnover for the period from the 1st day of April 2006 to the 31st day of December 2006 under the repealed Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959) and the total turnover for the period from the 1st day of January 2007 to the 31st day of March 2007 under this Act, shall be the total turnover for the year 2006-2007. in respect of such dealer whose total turnover for that year exceeds the total turnover referred to in the said clause (a) or (b) of sub- section 1 and if,-

(a) such dealer has not collected the tax under this Act, he is liable to pay tax under this Act,

(b) such dealer has collected the tax under this Act, he is liable to pay tax under this Act, and other provisions of this Act, shall apply to such dealer. (2) Subject to the provisions of sub-section (1), in the case of goods specified in Part - B or Part - C of the First Schedule, the tax under this Act shall be payable by a dealer on every sale made by him within the State at the rate specified therein.

Provided that all spare parts, components and accessories of such goods shall also be taxed at the same rate as that of the goods if such spare parts, components and accessories are not specifically enumerated in the First Schedule and made liable to tax under that Schedule.

https://www.mhc.tn.gov.in/judis 56/192 WA No. 1260 of 2017 etc., batch (3) The tax payable under sub-section (2) by a registered dealer shall be reduced, in the manner prescribed, to the extent of tax paid on his purchase of goods specified in Part - B or Part - C of the First Schedule, inside the State, to the registered dealer, who sold the goods to him. …..

Section 15 . Exempted sale.-- Sale of goods specified in the Fourth Schedule and the goods exempted by notification by the Government by any dealer shall be exempted from tax.

Section 19 is the provision which deals with entitlement and claim of ITC. It is this provision that requires interpretation before and after the amendment to resolve the issues at large.

19. Input tax credit .-- (1) There shall be input tax credit of the amount of tax paid or payable under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule :

Provided that on the purchase of capital goods which are used in the manufacture of exempted goods and taxable goods, in put tax credit shall be allowed to the extent of its usage in the manufacture of taxable goods in the manner prescribed.

(7) No registered dealer shall be entitled to input tax credit in respect of-

(a) goods purchased and accounted for in business but utilised for the purpose of providing facility to the proprietor or partner or director including employees and in any residential accommodation; or

(b) purchase of all automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts; or

(c) purchase of air-conditioning units unless the registered dealer is in the business of dealing in such units.

(8) No input tax credit shall be allowed to any registered dealer in respect of any goods purchased by him for sale but given away by him by way of free sample or gift or goods consumed for personal use.

(9) No input tax credit shall be available to a registered dealer for tax paid or payable at the time of purchase of goods, if such-

(i) goods are not sold because of any theft, loss or destruction, for any reason, including natural calamity. If a dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit; or https://www.mhc.tn.gov.in/judis 58/192 WA No. 1260 of 2017 etc., batch

(ii) inputs destroyed in fire accident or lost while in storage even before use in the manufacture of final products; or

(iii) inputs damaged in transit or destroyed at some intermediary stage of manufacture.

(10) (a) The registered dealer shall not claim input tax credit until the dealer receives an original tax invoice duly filled, signed and issued by a registered dealer from whom the goods are purchased, containing such particulars, as may be prescribed, of the sale evidencing the amount of input tax.

(b) If the original tax invoice is lost, input tax credit shall be allowed only on the basis of duplicate or carbon copy of such tax invoice obtained from the selling dealer subject to such conditions as may be prescribed. (11) In case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later.

(12) Where a dealer has availed credit on inputs and when the finished goods become exempt, credit availed on inputs used therein, shall be reversed.

(16) The input tax credit availed by any registered dealer shall be only provisional and the assessing authority is empowered to revoke the same if it appears to the assessing authority to be incorrect, incomplete or otherwise not in order.

(17) If the input tax credit determined by the assessing authority for a year exceeds tax liability for that year, the excess may be adjusted against any outstanding tax due from the dealer.

(18) The excess input tax credit, if any, after adjustment under sub-section (17), shall be carried forward to the next year or refunded, in the manner, as may be prescribed.

19) Where any registered dealer has availed input tax credit and has goods remaining unsold at the time of stoppage or closure of business, the amount of tax availed shall be reversed on the date of stoppage or closure of such business and recovered.

20) Not withstanding anything contained in this section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit over and above the output tax of those goods shall be reversed.

38. Registration of Dealers.-- (1) (a) Every dealer, 1who purchases goods within the State and effects the sale of those goods within the State and whose total turnover any year is not less than ten lakhs of rupees and every other dealer whose total turnover in a year is not less than five lakhs of https://www.mhc.tn.gov.in/judis 59/192 WA No. 1260 of 2017 etc., batch rupees shall, and

(b) any other dealer or person intending to commence business may, get himself registered under this Act.

……… (3) Notwithstanding anything contained in sub-section (1),-- ……..

(c) every dealer registered under sub-section (3) of section 7 of the Central Sales Tax Act, 1956 (Central Act 1956);

(d) every dealer residing outside the State, but carrying on business in the State; (e) every agent of a non-resident dealer;

(g) every dealer who in the course of his business obtains or brings goods from outside the State or effects export of goods out of the territory of India shall get himself registered under this Act, irrespective of the quantum of his turnover in such goods.

56. The Tamil Nadu Value Added Tax Act came into force on 1st January 2007. There was a shift from the concept of Second Sale Exemption to Input Tax Credit and payment of tax on the Value added to the goods purchased and sold as such or after manufacture. Input Tax Credit has been defined under Section 2(24) to be “the tax paid or payable under this Act by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of his business”. Section 3 of the Act which is the charging section, lays down that “every dealer other than a causal dealer or agent or non-resident reader, shall register himself upon reaching the threshold total turnover of Rupees Five Lakhs”. The said provisions under the TNVAT Act would lay down that any person engaged in the sale or purchase of goods, whose turnover exceeds Rupees Five Lakhs or a registered dealer under CST https://www.mhc.tn.gov.in/judis 60/192 WA No. 1260 of 2017 etc., batch Act is bound to register himself under the provisions of the Act and such registered dealer who deals with First Schedule goods shall be entitled to credit of tax paid or payable at the time of purchase of First Schedule goods within the state. Sections 19 (2) to 19 (9) deal with the different circumstances under which a registered dealer is entitled to Input Tax Credit and from section 19(10) onwards, the provisions deal with the conditions to be satisfied to claim ITC. No Input Tax Credit is available on exempted goods or goods falling under Schedule IV. It could also be discerned that the point of levy of tax is at every point of sale and that a dealer is entitled to adjust his output tax from and out of the credit to which he is entitled as per the provisions and after satisfying the requirements. It is needless to point out that the Output tax would include the value added on the goods purchased or manufactured from and out of the goods purchased within the state. Every dealer has to file its monthly return in Form I and claim ITC. In case, any dealer fails to claim ITC in its monthly returns, he can make a claim within 90 days from purchase or before the end of the financial year, whichever is later. To be specific, if not claimed in monthly returns, by late he can claim ITC for the period up to December of any assessment year within 31st March and for the months of January, February and March of the Assessment year in the months of April, May and June, respectively depending upon the date of purchase. Further, the https://www.mhc.tn.gov.in/judis 61/192 WA No. 1260 of 2017 etc., batch legislature in its wisdom has chosen to include the manufacturers in the sections 19 (2) (ii) , 19 (2) (iv) , 19 (3) (a) , 19 (4) (ii) , 19 (5) (c) , 19(6) (a) and its proviso and 19 (9) (ii) and (iii) of the Act.

57. Now, let us consider the relevant portion of the white paper on State Level Value Added Tax presented by The Empowered Committee of State Finance Ministers (Constituted By the Ministry of Finance, Government of India on the Basis of Resolution Adopted in the Conference of the Chief Ministers on November 16,1999):

If for example, input worth Rs.1,00,000/- is purchased and sales are worth Rs.2,00,000/- in a month, and input tax rate and output tax rate are 4% and 10% respectively, then input tax credit /set-off and calculation of VAT will be as shown below:

57.2. This input tax credit will be given for both manufacturers and traders for purchase of inputs/supplies meant for both sale within the state as well as to other States, irrespective of when these will be utilized/sold. This also reduces immediate tax liability.

Even for stock transfer/consignment sale of goods out of the state, input tax paid in excess of 4 % will be eligible for tax credit.

Carrying Over of Tax Credit 57.3. If the tax credit exceeds the tax payable on sales in a month, the excess credit will be carried over to the end of next financial year. If there is any excess unadjusted input tax credit at the end of second year, then the same will be eligible for refund.

Input tax credit on capital goods will also be available for traders and https://www.mhc.tn.gov.in/judis 63/192 WA No. 1260 of 2017 etc., batch manufacturers. Tax credit on capital goods may be adjusted over a maximum of 36 equal monthly instalments. The States may at their option reduce this number of instalments.

There will be a negative list for capital goods (on the basis of principles already decided by the Empowered Committee) not eligible for input tax credit.

58. Of course, when the Act came into force, small changes were made by many States. However, the concept regarding Input Tax Credit as stated above was implemented. There is no one to one corelation in either the goods or the tax, while adjustment or set-off, but the disposal of the goods is an essential condition to adjust ITC.

59. It appears that the State as found in the White Paper, decided to enable the manufacturers effecting inter-state sale to also avail ITC by including them in section 19(2)(ii) with a condition that the manufacturing activity must happen within the State. While introducing the Act, section 19 (2) (v) was incorporated by which ITC was allowed on inter-state sale falling under Section 8(1) of the CST Act and ITC on inter-state sale to an unregistered dealer falling under Section 8(2) of the CST Act was not allowed.

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60. The primary condition for a person to claim ITC is that he must be registered under the provisions of the Act. Upon registration, a dealer transforms into an assessee and is bound to satisfy the conditions to be entitled to and claim ITC. An unregistered dealer is not entitled to ITC. Though there are few sections that speak about the entitlement to ITC, Section 19 of the TNVAT Act referred to above exclusively deals with the entitlement and claim of ITC. Section 19 (4) alone was introduced with a condition, about which we will discuss later. Insofar as Section 19 (2) , the matter of concern now is, an assessee who purchases First Schedule goods within the State alone, is entitled to ITC. That apart, the sub-clauses (i) to (vi) lay down the various circumstances under which an assessee is entitled to ITC. Upon satisfaction of any of the conditions in section 19(2) , an assessee is entitled to ITC.

61. However, the entitlement is subject to the other conditions as found for instance in the Section 19 (10) or 19 (11) or 19 (20) as the case may be. The essential conditions to claim ITC is receipt of Original Tax Invoice by the purchaser and to claim the same within the time limits prescribed under law. If ITC is not claimed in the returns within the stipulated time as contemplated under Section 19 (11) , it shall lapse to the government despite the entitlement.

At this juncture, it is relevant to refer to the law laid down by the Apex Court, while considering the vires of the TNVAT Act .

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62. In ALD Automotive (P) Ltd. v. CTO, (2019) 13 SCC 225 : 2018 SCC OnLine SC 1945, the Apex Court, while confirming the vires of Section 19 (11) , held as follows:

The transactions covered under “Form F” of the CST Act fall under Section 19(4) .

69. Similarly, the State thought it wise and took a policy decision to disallow ITC on sales of goods as such or use in the manufacture of other goods in the course of inter-state trade or commerce in Section 19 (5) (c) when the sale is effected to an unregistered dealer as because no concession under the Section 8 (2) of the CST Act is available on sales to unregistered dealers and no ITC can be claimed on a transaction with unregistered dealer even within the state. The first limb deals with goods sold as such, implying resale of the goods and the second limb deals with inputs in the form of raw material. https://www.mhc.tn.gov.in/judis 69/192 WA No. 1260 of 2017 etc., batch

70. Section 19 (2) (v) as it stood before the amendment or rather for that matter, even after the proviso was introduced, omitted and substituted, the only word used is “sale”.

71. The learned Additional Advocate General in addition to the contention that the legislative intent must be looked into, has also relied upon the definition of the term “business” in the Central Sales Tax Act to contend that the proviso is applicable to the manufacturers also. The definition is as follows:

72. This court does not find any difference in the definition of “business” under the CST Act and the TNVAT Act. There cannot be any quarrel that a manufacturing activity is a business. It is the contention of the department that since the definition of business includes trade and commerce which would include the act of buying and selling, the sale contemplated in section 19(2)(v) would also include manufactured goods.

73. The analogy sought to be adopted is enthymeme, a rhetoric syllogism, a theory propounded by Aristotle. To attract the rule of syllogism, there must be https://www.mhc.tn.gov.in/judis 70/192 WA No. 1260 of 2017 etc., batch two sets of preposition that are asserted or assumed to be true. It is applicable when in a given set of true facts, logic stands to offer the reason. The classic example that is often quoted is follows:

74. The conclusion in syllogism must be true to be valid. In this context, reliance has also been placed upon the Judgment of the Odisha High Court in Banjrang Steels. The term “sale” as defined under TNVAT Act in Section 2(33) as extracted in the earlier paragraph is wide enough to include the transactions by a trader as well as the manufacturer as it covers any process by which there is transfer of property in goods either in the same or different form.

75. Another contention, noteworthy to be addressed is the reliance upon the provisions of CST Act , to augment that Section 3 of the CST Act is to be taken into account for understanding, what is sale in the course of inter-state trade or commerce. There can be no quarrel about the conditions to be satisfied for a transaction to qualify as an interstate transaction as upheld by the Apex Court in Suresh Chand Case. Section 3 does not point out a difference between an interstate sale falling under Sections 8 (1) and 8(2) of the Act. It is only under Section 8 , the levy of concessional tax is prescribed. The object of Section 8(1) is to enable a party to avail concessional rate of tax. There is no https://www.mhc.tn.gov.in/judis 71/192 WA No. 1260 of 2017 etc., batch compulsion under the statute that every dealer should effect interstate sale only under Section 8(1) . If the dealer wants to avail concessional rate, he has to produce the “C” Form within the stipulated time. If the “C” Form is not produced, the rate of tax under the local Act has to be paid. It is pertinent to note here that while dealing with ITC, the State had endeavoured to distinguish traders who effect resale and who effect sale after manufacturing the goods in section 19 (5) (c) disclosing their intention to treat them as distinct. However, no such distinction is prescribed in section 19 (2) (v) . The object of Section 8 of the CST Act is different from Section 19 of the TNVAT Act. If the intention of the legislature was to limit the applicability of the general meaning of the term “sale” or as defined in the Act, it would have said so specifically excluding the manufacturers. It also cannot be disputed that the manufacturers are also covered under the definition of the term “dealers” under the Act. Therefore, any registered dealer effecting interstate sale falling under Section 8 (1) of the CST Act would be covered under Section 19 (2) (v) .

It is also not out of place to mention here that the determining factor is the “sale” in the course of interstate trade or commerce, which occurs after local purchase or manufacture. The ITC covered under Section 19 (2) (ii) is at the manufacturing point and under section 19 (2) (v) is at the point of sale in the course of interstate trade or commerce.

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76. At this juncture, it is relevant to refer to the decision of the Supreme Court reported in the case of Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax (1978) 1 SCC 636, wherein, it was held as under :

It is a well-settled rule of interpretation that where there are two expressions which might have been used to convey a certain intention, but one of those expressions will convey that intention more clearly than the other, it is proper to conclude that, if the legislature used that one of the two expressions which would convey the intention less clearly, it does not intend to convey that intention at all. We may repeat what Pollack C.B. said in Attorney General v. Sillem [(1864) 2 H & C 431, 526] that:

The Revenue urged that it was for the purpose of taxing the goods at least at one point that the second proviso was enacted by the Legislature. We do not think this contention based on the presumed intention of the Legislature is- https://www.mhc.tn.gov.in/judis 75/192 WA No. 1260 of 2017 etc., batch well founded. It is now well-settled that when the court is construing a statutory enactment, the intention of the Legislature should be gathered from the language used by it and it is not permissible to the court to speculate about the legislative intent. Some eighty years ago, as far back as 1897, Lord Watson said in an oft quoted passage in Salomon v. Salomon & Co. Ltd. [1897 AC 22, 38] :

77. In the above case, the authorities wanted to read the provision as “resale within the Union Territory of Delhi”, when the provision specifically did not state so. The Apex Court declining such interpretation, made it clear that the subsequent amendment also did not impose such restriction. The ratio laid down in the above judgment is squarely applicable to the facts of the present case in two aspects. If the legislature wanted to exclude the sale by the manufacturers from the ambit of section 19 (2) (v) , it would have said so https://www.mhc.tn.gov.in/judis 79/192 WA No. 1260 of 2017 etc., batch directly in plain, clear and unambiguous terms. The definition of the term “sale” cannot be limited or restricted to exclude the manufacturers. The absence of specific words is not without significance. Words which were consciously and repeatedly omitted, cannot be read into a provision by a process of judicial construction, for to do so would amount to judicial interference and not review.

78. “Formalism” is the theory in which the inherent features of the text is interpreted without considering any external aid. It was first used to interpret literary works and in due course gave way to the literary rule of interpretation.

In the literary rule of interpretation, the plain language by taking into consideration the literary and grammatical meaning of the words used in the statute alone is to be considered to derive the object. More often or not, it has been held that taxing statutes are to be interpreted by deploying the literal rule.

The interpretation of a taxing statute has always been treated differently in comparison with other laws. It is also settled law that once the language of the provision is clear and unambiguous from a careful reading of the provision, no internal or external aid can be called for. In a taxing statute, the intention of the legislature is to be gauged from the words used and not from what they had in their mind. It is only when the language is unclear and ambiguous and when the literary interpretation would result in absurdity, defeating the very purpose https://www.mhc.tn.gov.in/judis 80/192 WA No. 1260 of 2017 etc., batch of the enactment, there would be a necessity for interpretation much less to resort to other aids. Even if there is any ambiguity or conflict between two provisions, the first step would be to look into the other provisions of the Act and derive at a logical conclusion so as to ensure that both the provisions co-exist. This is the spirit of Harmonious Construction. Let us now consider some of the judgments on the subject of interpretation, which are as follows:

79. Hansraj Gordhandas v. H.H. Dave , AIR 1970 SC 755:

80. CIT v. Vadilal Lallubhai , (1973) 3 SCC 17 : 1973 SCC (Tax) 1:

14. To accept the contention of the Revenue, we have to adopt three- fold assumptions. Firstly the fictional dividend contemplated by Section 2 (6- A)(c) is an “income” within the meaning of Section 44-F. Secondly we must assume that that dividend is capable of being deemed to accrue day to day and lastly we must assume that the day to day distribution contemplated in Section 44-F commences from the commencement of the relevant accounting year and ends with the distribution of the assets as contended on behalf of the Department. To do so we have to read into the section many more words than it contains at present which is wholly impermissible in construing any provision much less a taxing provision. In the case of deemed dividend under Section 2 (6-A)(c), the assets distributed will be considered as income in the account year in which it is distributed but that conception would be inapplicable in cases coming under Section 44-F. A company may go into liquidation long after the accounting year ends. What period the Income Tax Officer should take into consideration for applying the fiction that “the income had deemed to accrue from day to day?” The scheme of Section 2 (6- A)(c) is incompatible with the scheme of Section 44-F. The two provisions are intended to meet totally different situations. The former provision cannot be dovetailed into the latter.

15. In order to find out the legislative intent, we have to find out what was https://www.mhc.tn.gov.in/judis 83/192 WA No. 1260 of 2017 etc., batch the mischief that the Legislature wanted to remedy. The Act was extensively amended in the year 1939. Section 44-F was not in the draft bill. That section was recommended by the Select Committee consisting of very eminent lawyers. It will not be inappropriate to find out the reasons which persuaded the Select Committee to recommend the inclusion of Section 44- F, if the section is considered as ambiguous see CIT v. Sodra Devi etc. [AIR 1957 SC 832 : 1958 SCR 1 : (1957) 32 ITR 615 at p. 627 :] In recommending the inclusion of Section 44-F, this is what the Select Committee observed:

10. On a fair reading of the proviso to Section 127-A(2)(b) it is clear that in respect https://www.mhc.tn.gov.in/judis of any building or land whose letting value is less than Rs 1800 which 86/192 WA No. 1260 of 2017 etc., batch is owned by a person who owns any other building or land in the same municipality, the annual letting value of such building or land shall be deemed to be the aggregate annual letting value of all buildings or lands owned by him in the municipality. The provision also makes it clear that this exception is meant for the purpose of this clause i.e. clause (b) of sub-section (2). It follows, therefore, that the exemption to the levy under sub-section (1) of Section 127-A will not be available in a situation to which the proviso applies.

12. Another question that arises for consideration in this connection is whether sub-section (1) of Section 127-A and the proviso to sub-section (2)(b) should be construed together and the annual letting values of all the buildings owned by a person to be taken together for determining the amount to be paid as tax in respect of each building. In our considered view this position cannot be accepted. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.

13. In the case of Bank of Chettinad Ltd. v. CIT [(1940) 8 ITR 522 (PC)] the Privy Council quoted with approval the following passage from the opinion of Lord Russell of Killowen in IRC v. Duke of Westminster [1936 AC 1 : 104 LJ KB 383 (HL)] :

14. In the case of Russell (Inspector of Taxes) v. Scott [(1948) 2 All ER 1, 5] https://www.mhc.tn.gov.in/judis 87/192 WA No. 1260 of 2017 etc., batch Lord Simonds in his opinion at p. 5 observed:

15. In Administrator, Municipal Corpn. v. Dattatraya Dahankar [(1992) 1 SCC 361] this Court while accepting the position that each building is a unit for the purpose of taxation and that there is no provision for taxation in respect of a building having annual letting value less than Rs 1800 and that the deeming proviso to clause (b) of sub-section (2) as expressly stated is “for the purpose of this clause”, held that since the aggregation of annual letting value of all buildings or lands is permitted, then, all such buildings or lands have to be taken as one unit for the purpose of taxation. The Court was of the view that any other construction would render the proviso nugatory and defeat the object of the Act.

16. This construction, in our considered view, amounts to supplementing the charging section by including something which the provision does not state. The construction placed on the said provision does not flow from the plain language of the provision. The proviso requires the exempted property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties is to be taken into consideration. But, if in doing so, the said property becomes taxable, the Act does not provide at what rate it would be taxable. One cannot determine the rateable value of the small property by aggregating and adding the value of other properties, and arrive at a figure which is more than possibly the value of the property itself. Moreover, what rate of tax is to be applied to such a property is also not indicated.

18. In view of the discussions in the foregoing paragraphs the proviso to clause (b) of sub-section (2) of Section 127-A of the Act being contrary to the charging section is struck down as ultra vires.”

85. CCE v. Himalayan Cooperative Milk Product Union Ltd. , (2000) 8 SCC 642 : 2000 SCC OnLine SC 1514:

86. Gurudevdatta VKSSS Maryadit v. State of Maharashtra , (2001) 4 SCC 534 : 2001 SCC OnLine SC 573:

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(e) any explanatory memorandum relating to the Bill containing the provision….’ ”

25. On a perusal of the aforesaid, be it noted that in the event the language is clear, categorical and unequivocal, no outside aid is required or is permissible for interpreting the proviso to the section by the amending Act of 2000. In the contextual facts and in the view we have taken above, we regret our inability to accede to or record our concurrence with the submissions of Mr Bobde.

26. Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute. Bearing in mind, the aforesaid principle of construction, if the expression “any new member society” occurring in the proviso to sub-section (3) of Section 27 is construed, it conveys the only meaning that it refers to the societies to be formed hereafter and not of those societies which have already become member societies of the federal society. Therefore, the requirement of the completion of the period of three years from the date of its investing any part of its fund in the shares of such federal society would apply only to those societies which became member society of the federal society after 23-8- 2000. In this view of the matter, the impugned judgment of the High Court does not suffer from any infirmity. Even if there remained any doubt in the matter of interpreting the proviso, in the Ordinance that has been promulgated on 27-2-2001, called Maharashtra Ordinance 10 of 2001, after the first proviso to sub-section (3), a second proviso had been inserted, which has removed any doubt or controversy inasmuch as it has been indicated therein that the first proviso will not apply to the member society which has invested any part of its fund in the share of the federal society before the commencement of the Maharashtra Cooperative Societies (Amendment) Act, 2000 dated 23-8-2000. The aforesaid Ordinance also has been given a retrospective effect, to be effective from 23-8-2000. The Ordinance having been held to be valid by us as stated above, the so-called https://www.mhc.tn.gov.in/judis 91/192 WA No. 1260 of 2017 etc., batch prohibition contained in the first proviso to sub-section (3) of Section 27 will not apply to all those societies which have already become members of the federal society prior to 23-8-2000.”

87. In P. Nirathilingam v. Annaya Nadar , (2001) 9 SCC 673 : 2001 SCC OnLine SC 1310, the Apex Court laid emphasis on intent of the legislature in the following words:

88. Bhaiji v. SDO, (2003) 1 SCC 692 : 2002 SCC OnLine SC 1207:

Where the words of a statute are plain and unambiguous, effect must be given to them. The legislature may be safely presumed to have intended what the words plainly say. The plain words can be departed from when reading them as they are leads to patent injustice, anomaly or absurdity or invalidation of a law. The Court permitted the Statement of Objects and Reasons, Parliamentary Debates, Reports of Committees and Commissions preceding the legislation and the legislative history being referred to for the purpose of gathering the legislative intent in such cases. The law so stated does not advance the contention of Shri Gambhir. The wide scope of transactions covered by the plain language of Section 170-B as enacted in 1980 cannot be scuttled or narrowed down by reading the Statement of Objects and Reasons.”

89. CIT v. Hindustan Bulk Carriers , (2003) 3 SCC 57 :

90. In the case of GEM Granites v. CIT (2004) 271 ITR 322 (SC) it was observed by the Apex Court as “an argument founded on what is claimed to be the intention of Parliament may have appeal but a Court of law has to gather the object of the Statute from the language used. What one may believe or think to be the intention of Parliament cannot prevail if the language of the Statute does not support that view”.

91. Parle Biscuits (P) Ltd. v. State of Bihar , (2005) 9 SCC 669:

92. Govt. of India v. Indian Tobacco Assn. , (2005) 7 SCC 396:

93. In Commr. of Customs v. Dilip Kumar & Co. , (2018) 9 SCC 1 : 2018 SCC OnLine SC 747, the Constitutional Bench, while dealing with a reference regarding the interpretation of an exemption notification, differentiating it with the interpretation of the provisions contained in the statute, after analysing various judgments on the issue, held that a taxing statute must be literally construed in a strict manner and in case of ambiguity in the statute, the view favourable to the assessee must be taken and in case of an exemption or exemption notification, the balance must be tilted in favour of the revenue. In the process, the Apex Court held as under:

Notwithstanding this, we should remember that when there is repugnancy or conflict as to the subject or context between the General Clauses Act and a statutory provision which falls for interpretation, the Court must necessarily refer to the provisions of the statute.

18. The purpose of interpretation is essentially to know the intention of the legislature. Whether the legislature intended to apply the law in a given case; whether the legislature intended to exclude operation of law in a given case; whether the legislature intended to give discretion to enforcing authority or to adjudicating agency to apply the law, are essentially questions to which answers can be sought only by knowing the intention of the legislation. Apart from the general principles of interpretation of statutes, there are certain internal aids and external aids which are tools for interpreting the statutes.

19. The long title, the preamble, the heading, the marginal note, punctuation, illustrations, definitions or dictionary clause, a proviso to a section, explanation, examples, a schedule to the Act, etc., are internal aids to construction. The external aids to construction are parliamentary debates, history leading to the legislation, other statutes which have a bearing, dictionaries, thesaurus.

20. It is well accepted that a statute must be construed according to the intention of the legislature and the courts should act upon the true intention of the legislation while applying law and while interpreting law. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the legislature. In this connection, the following observations made by this Court in District Mining Officer v. Tisco [District Mining Officer v. Tisco, (2001) 7 SCC 358] , may be noticed : (SCC pp. 382-83, para 18) “18. … A statute is an edict of the legislature and in construing a statute, it is necessary, to seek the intention of its maker. A statute has to be construed according to the intent of them that make it and the duty of the court is to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation the court has to choose that interpretation https://www.mhc.tn.gov.in/judis 95/192 WA No. 1260 of 2017 etc., batch which represents the true intention of the legislature. This task very often raises difficulties because of various reasons, inasmuch as the words used may not be scientific symbols having any precise or definite meaning and the language may be an imperfect medium to convey one's thought or that the assembly of legislatures consisting of persons of various shades of opinion purport to convey a meaning which may be obscure. It is impossible even for the most imaginative legislature to forestall exhaustively situations and circumstances that may emerge after enacting a statute where its application may be called for. Nonetheless, the function of the courts is only to expound and not to legislate. Legislation in a modern State is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the legislature based on information derived from past and present experience. It may also be designed by use of general words to cover similar problems arising in future. But, from the very nature of things, it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for, and, words chosen to communicate such indefinite referents are bound to be in many cases lacking in clarity and precision and thus giving rise to controversial questions of construction. The process of construction combines both literal and purposive approaches. In other words, the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed.”

21. The well-settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the legislature.

22. In Kanai Lal Sur v. Paramnidhi Sadhukhan [Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907] , it was held that if the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act.

23. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless, if the plain language results in absurdity, the court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose. [ Commr. v. Mathapathi Basavannewwa , (1995) 6 SCC 355] Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation. Having https://www.mhc.tn.gov.in/judis 96/192 WA No. 1260 of 2017 etc., batch observed general principles applicable to statutory interpretation, it is now time to consider rules of interpretation with respect to taxation.

24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ “265. Taxes not to be imposed save by authority of law.—No tax shall be levied or collected except by authority of law.”] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature.

25. At the outset, we must clarify the position of “plain meaning rule or clear and unambiguous rule” with respect to tax law. “The plain meaning rule” suggests that when the language in the statute is plain and unambiguous, the court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio”. Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule [Mangalore Chemicals and Fertilisers Ltd. v. CCT, 1992 Supp (1) SCC 21] , though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilise strict interpretation in the event of ambiguity is self-contradictory.

26. Next, we may consider the meaning and scope of “strict interpretation”, as evolved in Indian law and how the higher courts have made a distinction while interpreting a taxation statute on one hand and tax exemption notification on the other. In Black's Law Dictionary (10th Edn.) “strict interpretation” is described as under:

27. As contended by Ms Pinky Anand, learned Additional Solicitor General, the principle of literal interpretation and the principle of strict interpretation are sometimes used interchangeably. This principle, however, may not be sustainable in all contexts and situations. There is certainly scope to sustain an argument that all cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation.

28. The decision of this Court in Punjab Land Development and Reclamation Corpn. Ltd. v. Labour Court [ Punjab Land Development and Reclamation Corpn. Ltd. v. Labour Court, (1990) 3 SCC 682 : 1991 SCC (L&S) 71] , made the said distinction, and explained the literal rule : (SCC p. 715, para

67) “67. The literal rules of construction require the wording of the Act to be construed according to its literal and grammatical meaning, whatever the result may be. Unless otherwise provided, the same word must normally be construed throughout the Act in the same sense, and in the case of old statutes regard must be had to its contemporary meaning if there has been no change with the passage of time.” That strict interpretation does not encompass strict literalism into its fold. It may be relevant to note that simply juxtaposing “strict interpretation” with “literal rule” would result in ignoring an important aspect that is “apparent legislative intent”. We are alive to the fact that there may be overlapping in some cases between the aforesaid two rules. With certainty, we can observe that, “strict interpretation” does not encompass such literalism, which lead to absurdity and go against the legislative intent. As noted above, if literalism is at the far end of the spectrum, wherein it accepts no implications or inferences, then “strict interpretation” can be implied to accept some form of essential inferences which literal rule may not accept.

29. We are not suggesting that literal rule dehors the strict interpretation nor one should ignore to ascertain the interplay between “strict interpretation” and “literal interpretation”. We may reiterate at the cost of repetition that strict interpretation of a statute certainly involves literal or plain meaning https://www.mhc.tn.gov.in/judis 98/192 WA No. 1260 of 2017 etc., batch test. The other tools of interpretation, namely, contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute.

32. Yet again, it was observed:

34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi and Sons Ltd. [CIT v. Kasturi and Sons Ltd. , (1999) 3 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as “Kesoram Industries case”, for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute:

35. Now coming to the other aspect, as we presently discuss, even with regard to exemption clauses or exemption notifications issued under a taxing statute, this Court in some cases has taken the view that the ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the principle saying that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption notification can be condoned if there is sufficient compliance with the main requirements. This, however, did not in any manner tinker with the view that an ambiguous exemption clause should be interpreted favouring the Revenue. Here again this Court applied different tests when considering the ambiguity of the exemption notification which requires strict construction and after doing so at the stage of applying the notification, it came to the conclusion that one has to consider liberally.

36. With the above understanding the stage is now set to consider the core issue. In the event of ambiguity in an exemption notification, should the benefit of such ambiguity go to the subject/assessee or should such ambiguity be construed in favour of the Revenue, denying the benefit of exemption to the subject/assessee? There are a catena of case laws in this area of interpretation of an exemption notification, which we need to consider herein. IRC v. James Forrest [IRC v. James Forrest, (1890) LR 15 AC 334 (HL)] is a case which does not discuss the interpretative test to be applied to exemption clauses in a taxation statute—however, it was observed that : (AC p. 338) ‘… it would be unreasonable to suppose that an exemption was wide as practicable to make the tax inoperative, that it cannot be assumed to have been in the mind of the legislature’ and that exemption ‘from taxation to some extent increased the burden on other members of the community’. (AC p. 340) Though this is a dissenting view of Lord Halsbury, LC, in subsequent decisions this has been quoted vividly to support the conclusion that any vagueness in the exemption clauses must go to the benefit of the Revenue. Be that as it is, in our country, at least from 1955, there appears to be a consistent view that if the words in a taxing statute (not exemption clause) are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and it does not matter if the taxpayer escapes the tax net on account of the Legislature's failure to express itself clearly [see the passage extracted hereinabove from Kesoram Industries case [State of https://www.mhc.tn.gov.in/judis 100/192 WA No. 1260 of 2017 etc., batch W.B.v. Kesoram Industries Ltd., (2004) 10 SCC 201] ].

44. In Hansraj Gordhandas v. CCE [Hansraj Gordhandas v. CCE and Customs, AIR 1970 SC 755 : (1969) 2 SCR 253] [hereinafter referred to as “Hansraj Gordhandas case”, for brevity], wherein this Court was called upon to interpret an exemption notification issued under the Central Excise Act . It would be relevant to understand the factual context which gave rise to the aforesaid case before the Court. The appellant was the sole proprietor who used to procure cotton from a cooperative society during the relevant period. The society had agreed to carry out the weaving work for the appellant on payment of fixed weaving charges at Re. 0.19 np. per yard which included expenses the society would have to incur in transporting the aforesaid cotton fabric. In the years 1959 and 1960, the Government issued an exemption notification which exempted cotton fabrics produced by any cooperative society formed of owners of cotton power looms, registered on or before 31-3-1961. The question before the Court was whether the appellant who got the cotton fabric produced from one of the registered cooperative societies was also covered under the aforesaid notification. It may be of some significance that the Revenue tried to interpret the aforesaid exemption by relying on the purposive interpretation by contending that the object of granting the above exemption was to encourage the formation of cooperative societies which not only produced cotton fabrics but also consisted of members, not only owning but having actually operated not more than four power looms during the three years immediately preceding their having joined the society. The policy was that instead of each such member operating his looms on his own, he should combine with others by forming a society to produce clothes. It was argued that the goods produced for which exemption could be claimed must be goods produced on his own and on behalf of the society. The Court did not countenance such purposive interpretation. It was held that a taxing legislation should be interpreted wholly by the language of the notification.

45. The relevant observations are : ( Hansraj case [Hansraj Gordhandas v. CCE and Customs, AIR 1970 SC 755 : (1969) 2 SCR 253] , AIR p. 759, para 5) “5. … It is well established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the taxpayer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different, but that is not the case here. In this connection we may refer to the observations of Lord Watson in Salomon v. A. Salomon & Co. Ltd. [Salomon v. A. https://www.mhc.tn.gov.in/judis 101/192 WA No. 1260 of 2017 etc., batch Salomon & Co. Ltd., 1897 AC 22 (HL)] : (AC p. 38) ‘ “Intention of the legislature” is a common but very slippery phrase, which, popularly understood may signify anything from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it. In a Court of Law or Equity, what the legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication.’ It is an application of this principle that a statutory notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford v. Spooner [Crawford v. Spooner, 1846 SCC OnLine PC 7 : (1846-50) 4 Moo IA 179] .

‘… we cannot aid the Legislature's defective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencies which are left there.’ The learned counsel for the respondents is possibly right in his submission that the object behind the two notifications is to encourage the actual manufacturers of handloom cloth to switch over to power looms by constituting themselves in cooperative societies. But the operation of the notifications has to be judged not by the object which the rule-making authority had in mind but by the words which it has employed to effectuate the legislative intent.”

46. In the judgment of the two learned Judges in Union of India v. Wood Papers Ltd. [Union of India v. Wood Papers Ltd., (1990) 4 SCC 256 : 1990 SCC (Tax) 422] (hereinafter referred to as “Wood Papers Ltd. case”, for brevity), a distinction between stage of finding out the eligibility to seek exemption and stage of applying the nature of exemption was made. Relying on the decision in CCE v. Parle Exports (P) Ltd. [CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 : 1989 SCC (Tax) 84] , it was held : ( Wood Papers Ltd. case [ Union of India v. Wood Papers Ltd. , (1990) 4 SCC 256 : 1990 SCC (Tax) 422] , SCC p. 262, para 6) “6. … Do not extend or widen the ambit at the stage of applicability. But once that hurdle is crossed, construe it liberally.” The reasoning for arriving at such conclusion is found in para 4 of Wood Papers Ltd. case [ Union of India v. Wood Papers Ltd. , (1990) 4 SCC 256 :

https://www.mhc.tn.gov.in/judis 105/192 WA No. 1260 of 2017 etc., batch Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed (we are justified to say this) that the position is well settled in the interpretation of a taxing statute : It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of the Revenue—and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. Presumably for this reason the Bench which decided Surendra Cotton Oil Mills case [ Collector of Customs & Central Excise v. Surendra Cotton Oil Mills & Fertilizers Co. , (2001) 1 SCC 578] observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriously doubted the conclusion in Sun Export case[ Sun Export Corpn. v. Collector of Customs , (1997) 6 SCC 564] that the ambiguity in an exemption notification should be interpreted in favour of the assessee.

53. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State.

54. In Govind Saran Ganga Saran v. CST [Govind Saran Ganga Saran v. CST1985 Supp SCC 205 : 1985 SCC (Tax) 447] , this Court pointed out three components of a taxing statute, namely, subject of the tax; person liable to pay tax; and the rate at which the tax is to be levied. If there is any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature. [See Mathuram Agrawal v. State of M.P. [Mathuram Agrawal v. State of M.P., (1999) 8 SCC 667] ; Indian Banks' Assn. v. Devkala Consultancy Service [Indian Banks' Assn. v. Devkala Consultancy Service, (2004) 11 SCC 1 : AIR 2004 SC 2615] and Consumer Online Foundation v. Union of India [Consumer Online Foundation v. Union of India, (2011) 5 SCC 360] .]

55. There is abundant jurisprudential justification for this. In the governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute https://www.mhc.tn.gov.in/judis 106/192 WA No. 1260 of 2017 etc., batch should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualising different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the Revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the Revenue, the aforesaid conclusions are expounded only as a prelude to better understand jurisprudential basis for our conclusion. We may now consider the decisions which support our view.

56. In Hansraj Gordhandas case [Hansraj Gordhandas v. CCE and Customs, AIR 1970 SC 755 : (1969) 2 SCR 253] , the Constitutional Bench unanimously pointed out that an exemption from taxation is to be allowed based wholly by the language of the notification and exemption cannot be gathered by necessary implication or by construction of words; in other words, one has to look to the language alone and the object and purpose for granting exemption is irrelevant and immaterial.

58. In the above passage, no doubt this Court observed that : ( Parle Exports case [CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 : 1989 SCC (Tax) 84] , SCC p. 357, para 17) “17. when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment.” This observation may appear to support the view that ambiguity in a notification for exemption must be interpreted to benefit the subject/assessee. A careful reading of the entire para, as extracted hereinabove would, however, suggest that an exception to the general rule of tax has to be construed strictly against those who invoke for their benefit. This was explained in a subsequent decision in Wood Papers Ltd. case [ Union of India v. Wood Papers Ltd. , (1990) 4 SCC 256 : 1990 SCC (Tax) 422] . In https://www.mhc.tn.gov.in/judis 107/192 WA No. 1260 of 2017 etc., batch para 6, it was observed as follows : (SCC p. 262) “6. … In CCE v. Parle Exports (P) Ltd. [CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 : 1989 SCC (Tax) 84] , this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held ‘that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question’. Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit.”

59. The above decision, which is also a decision of a two-Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports case [CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 : 1989 SCC (Tax) 84] deduced as follows :

60. We do not find any strong and compelling reasons to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand case [ CCE v. Hari Chand Shri Gopal , (2011) 1 SCC 236] .

65. As already concluded in paras 53 to 55 and 63, above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee. Both the situations are different and while considering an exemption notification, the distinction cannot be ignored.”

94. State of A.P. v. Linde (India) Ltd. , (2020) 16 SCC 335 : 2020 SCC OnLine SC 362:

95. Franklin Templeton Trustee Services (P) Ltd. v. Amruta Garg , (2021) 6 SCC 736 : 2021 SCC OnLine SC 88 at page 752:

https://www.mhc.tn.gov.in/judis 110/192 WA No. 1260 of 2017 etc., batch

96. The ratio that could be derived from the above judgments can be summarized as follows:

97. Juxtaposing the facts to the ratio from the above derivation and the findings on Section 19 (2) (ii) and 19 (2) (v) , we find that the manufacturers are covered by section 19 (2) (ii) and also by section 19 (2) (v) which operate at different levels of a transaction. Section 19 (2) (ii) uses the words “manufacture or process of goods within the State”. The contention of the learned Additional Advocate General that after the goods go through various process in the sub-clauses and sold to a dealer in other state, sub-clause (v) would be attracted, is well founded as the natural meaning of the word ‘sale’ would not only include goods that or sold as such, but also manufactured goods. The language used is simple and clear. The event which brings into operation/ triggers Section 19 (2) (v) is the ultimate “sale” and not “manufacture”. Until the introduction of the proviso, there was no embargo for the dealers to claim full ITC. The sub-clauses are distinct and cannot be read https://www.mhc.tn.gov.in/judis 113/192 WA No. 1260 of 2017 etc., batch together as pre-conditions as they are intended to apply to different categories of dealers. In fact, a close reading of the sub-clauses would reveal that the ITC on goods purchased within the state is available upon satisfaction of any of the categories as they are distinct and capable of independently conveying the intention of the legislature to allow ITC. Further, the usage of “full stop” after sub-clause (iv) denotes the intention of the legislature to end the sentence there or in other words, any relationship with the preceding sub-clauses ends there.

While interpreting the sub-clauses, the main clause should be the basis upon which the sub-clauses are interpreted. When a provision contains various sub-

clauses which are capable of standing alone and meaningful and separated by the use of punctuations and disjunctive like “or” when exposed to the main clause, they have to be treated as independent clauses and would have no connection. The test would be to read the sub-clauses with the main clause and see whether it conveys the meaning as intended.

98. Let us now consider reading the provision like this:

99. Further, section 19 (2) is a positive provision which allows the dealers to claim ITC. Semi-colon followed by the disjunctive “or” used at the end of sub-clauses (i), (ii), (iii) and (iv). Semi-colons are generally used to distinguish or divide sentences more particularly when used in a series. It is also used in the sentences to denote a relation between two independent sentences.

Semi-colon in Webster's New World Dictionary (Third Edition) has been defined to mean, a mark of punctuation indicating a degree of separation greater than that marked by the comma and less than that marked by the period: used chiefly to separate units that contain elements separated by commas, and to separate closely related coordinate clauses. As per the definition, “Semi-colon is the punctuation mark (;) used to indicate a major division in a sentence where a more distinct separation is felt between clauses or items on a list than is indicated by a comma, as between the two clauses of a compound sentence”.

100. The use of semi-colon in the sub-clauses as referred above clearly indicates that the legislature intended to treat the sub-clauses as distinct and https://www.mhc.tn.gov.in/judis 116/192 WA No. 1260 of 2017 etc., batch capable of being treated independently. The deliberate omission of the legislature to make way for separate clause for manufacturers who sell their goods to a dealer outside the State postulates the fact that the legislature intended to go-by the simple and plain meaning of the word “Sale” without any distinction.

101. It is not out of sight to point out here that the word “or” is used to denote the alternatives. It is a conjunction that can be used as a conjunctive or disjunctive. When it is used in a positive condition, it acts as a disjunctive implying its true purpose of indicating an alternate and implies satisfaction of any one of the conditions. But when it is used in a negative condition, it is read as a conjunctive and treated as “and” or “nor”. The above conclusion can be drawn from the Constitutional Bench Judgment of the Apex Court rendered in the context of interpreting the word “or” after considering various judgments on the aspect and the relevant portions are extracted as under:

Ltd. v. CIT , (1971) 2 SCC 540; Brown & Co. Ltd. v. Harrison, 1927 All ER Rep 195, 203, 204 (CA)] .” The above rule of statutory interpretation is based upon the decision of this Court in Patel Chunibhai Dajibha v. Narayanrao Khanderao Jambekar [Patel Chunibhai Dajibha v. Narayanrao Khanderao Jambekar, AIR 1965 SC 1457] , in which this Court held : (AIR pp. 1464-65, para 19) “19. It may be recalled that amendments to Section 32 were made from time to time, and Bombay Act 38 of 1957 added to sub-section (1)(b), clause (iii) and the preceding “or”. It is to be noticed that the conditions mentioned in sub-sections (1)(a) and (1)(b) are mutually exclusive. In spite of the absence of the word “or” between sub-sections (1)(a) and (1)(b), the two sub- sections lay down alternative conditions. The tenant must be deemed to have purchased the land if he satisfies either of the two conditions. The appellant is not a permanent tenant, and does not satisfy the condition mentioned in sub-section (1)(a). Though not a permanent tenant, he cultivated the lands leased personally, and, therefore, satisfies the first part of the condition specified in sub-section (1)(b). The appellant's contention is that sub-sections (1)(b)(i), (1)(b)(ii) and (1)(b)(iii) lay down alternative conditions, and as he satisfies the condition mentioned in sub-section (1)(b)(iii), he must be deemed to have purchased the land on 1-4- 1957. Colour is lent to this argument by the word “or” appearing between sub-section (1)(b)(ii) and sub-section (1)(b)(iii). But, we think that the word “or” between sub-sections (1)(b)(ii) and (1)(b)(iii) in conjunction with the succeeding negatives is equivalent to and should be read as “nor”. In other words, a tenant (other than a permanent tenant) cultivating the lands personally would become the purchaser of the lands on 1-4-1957, if on that date neither an application under Section 29 read with Section 31 nor an application under Section 29 read with Section 14 was pending. If an application either under Section 29 read with Section 31 or under Section 29 read with Section 14 was pending 1-4-1957, the tenant would become the purchaser on “the postponed date”, that is to say, when the application would be finally rejected. But if the application be finally allowed, the tenant would not become the purchaser. The expression “an application” in the proviso means not only an application under Section 31 but also an application under Section 29 read with Section 14 . If an application of either type was pending on 1-4-1957, the tenant could not become the purchaser on that date. Now, on 1-4-1957, the application filed by Respondent 1 under Section 29 read with Section 31 was pending. Consequently, the appellant could not be deemed to have purchased the lands on 1-4-1957.” (emphasis supplied) The decision of this Court in Punjab Produce & Trading Co. Ltd. v. CIT [Punjab Produce & Trading Co. Ltd. v. CIT, (1971) 2 SCC 540], was relied upon in the discussion mentioned above, where provisions of https://www.mhc.tn.gov.in/judis 118/192 WA No. 1260 of 2017 etc., batch Section 23-A of the Income Tax Act, 1922 and Explanations (b)(ii) and (iii) came up for consideration. This Court ruled with respect to “or” and held that it had to be read as “and” construing negative conditions thus : (SCC pp. 543-44, paras 7-8) “7. On behalf of the assessee a good deal of reliance has been placed on decision of this Court in Star Co. Ltd. v. CIT [Star Co. Ltd. v. CIT, (1970) 3 SCC 864 : AIR 1970 SC 1559] . In that case, sub-clause (b)(ii) came up for consideration, and it was held that the two parts of the Explanation contained in that sub-clause were alternative. In other words, if one part was satisfied it was unnecessary to consider whether the second part was also satisfied. Thus, the word “or” was treated as having been used disjunctively and not conjunctively. The same reasoning is sought to be invoked with reference to sub-clause (b)(iii).

8. It is significant that the language of sub-clauses (ii) and (iii) of clause (b) is different. The former relates to a positive state of affairs whereas the latter lays down negative conditions. The word “or” is often used to express an alternative of terms defined or explanation of the same thing in different words. Therefore, if either of the two negative conditions which are to be found in sub-clause (b)(iii) remains unfulfilled, the conditions laid down in the entire clause cannot be said to have been satisfied. The clear import of the opening part of clause (b) with the word “and” appearing there read with the negative or disqualifying conditions in sub-clause (b)(iii) is that the assessee was bound to satisfy apart from the conditions contained in the other sub-clauses that its affairs were at no time during the previous year controlled by less than six persons and shares carrying more than 50% of the total voting power were during the same period not held by less than six persons. We are unable to find any infirmity in the reasoning or the conclusion of the Tribunal and the High Court so far as Question 1 is concerned.” It was observed that if either of the two negative conditions, which are to be found in sub-clause (b)(iii), remains unfulfilled, the conditions laid down in the entire clause cannot be said to have been satisfied.

102. In Ranchhoddas Atmaram v. Union of India , AIR 1961 SC 935 :

If, therefore, the sentence before us is an affirmative one, then we get two alternatives, any one of which may be chosen without the other being considered at all. In such a case it must be held that a penalty exceeding Rs 1000 can be imposed.

14. If, however, the sentence is a negative one, then the position becomes different. The word “or” between the two clauses would then spread the negative influence over the clause following it. This rule of grammar is not in dispute. In such a case, the conditions of both the clauses must be fulfilled and the result would be that the penalty that can be imposed can never exceed Rs 1000.

15. The question then really comes to this : Is the sentence before us a negative or an affirmative one? It seems to us that the sentence is an affirmative sentence. The substance of the sentence is that a certain person shall be liable to a penalty. That is a positive concept. The sentence is therefore not negative in its import.” (emphasis supplied) Thus, for lapse of acquisition proceedings initiated under the old law, under Section 24(2) if both steps have not been taken i.e. neither physical possession is taken, nor compensation is paid, the land acquisition proceedings lapse. Several decisions were cited at the Bar to say that “or” has been treated as “and” and vice versa. Much depends upon the context. In Yashpal v. State of Chhattisgarh [Yashpalv . State of Chhattisgarh, (2005) 5 SCC 420 : 2 SCEC 694] , the expression “established or incorporated” was read as “established and incorporated”. In RMDC [State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699] , to give effect to the clear intention of the legislature, the word “or” was read as “and”.

103. Reference has also been made to Pooran Singh v. State of M.P. , (1965) https://www.mhc.tn.gov.in/judis 120/192 WA No. 1260 of 2017 etc., batch 2 SCR 853 : AIR 1965 SC 1583: (1965) 2 Cri LJ 547], in which the Court considered the scheme of the Motor Vehicles Act . The Magistrate was bound to issue summons of the nature prescribed by sub-section (1) of Section 130.

The Court held that there was nothing in the sub-section which indicated that he must endorse the summons in terms of both clauses (a) and (b), that he is so commanded would be to convert the conjunction “or” into “and”. There is nothing in the language of the legislature which justifies such a conversion and there are adequate reasons which make such an interpretation wholly inconsistent with the scheme of the Act.

104. Reliance has been placed on Nasiruddin v. STAT , (1975) 2 SCC 671].

The word “or” was given grammatical meaning. The order states that the High Court shall sit as the new High Court and the Judges and Division Bench thereof shall sit at Allahabad or at such other places in the United Provinces as the Chief Justice may appoint. It was held that the word “or” cannot be read as “and”. They should be considered in an ordinary sense. If two different interpretations are possible, the court will adopt that which is just, reasonable and sensible. The Court observed thus : (SCC p. 680, para 27) “27. The conclusion as well as the reasoning of the High Court that the permanent seat of the High Court is at Allahabad is not quite sound. The order states that the High Court shall sit as the new High Court and the Judges and Division Bench thereof shall sit at Allahabad or at such other places in the United Provinces as the Chief Justice may, with the approval of the Governor of the United Provinces, appoint. The word “or” cannot be https://www.mhc.tn.gov.in/judis 121/192 WA No. 1260 of 2017 etc., batch read as “and”. If the precise words used are plain and unambiguous, they are bound to be construed in their ordinary sense. The mere fact that the results of a statute may be unjust does not entitle a court to refuse to give it effect. If there are two different interpretations of the words in an Act, the court will adopt that which is just, reasonable and sensible rather than that which is none of those things. If the inconvenience is an absurd inconvenience, by reading an enactment in its ordinary sense, whereas if it is read in a manner in which it is capable, though not in an ordinary sense, there would not be any inconvenience at all; there would be reason why one should not read it according to its ordinary grammatical meaning. Where the words are plain, the court would not make any alteration.”

105. In MCD v. Tek Chand Bhatia , (1980) 1 SCC 158 : 1980 SCC (Cri) 87], for interpretation of “and” and “or” in the context of the term “adulterated” as defined in Section 2 (i-a)(f) of the Prevention of Food Adulteration Act, 1954 , the Court observed : (SCC pp. 162-63, paras 7 & 11) “7. We are of the opinion that the High Court [ MCD v. Tek Chand Bhatia , 1972 SCC OnLine Del 338 : 1972 FAC 640] was clearly wrong in its interpretation of Section 2 (i-a)(f) of the Prevention of Food Adulteration Act, 1954 . On the plain language of the definition section, it is quite apparent that the words ‘or is otherwise unfit for human consumption’ are disjunctive of the rest of the words preceding them. It relates to a distinct and separate class altogether. It seems to us that the last clause ‘or is otherwise unfit for human consumption’ is residuary provision, which would apply to a case not covered by or falling squarely within the clauses preceding it. If the phrase is to be read disjunctively the mere proof of the article of food being “filthy, putrid, rotten, decomposed … or insect-infested” would be per se sufficient to bring the case within the purview of the word “adulterated” as defined in sub-clause (f), and it would not be necessary in such a case to prove further that the article of food was unfit for human consumption.

11. In the definition clause, the collection of words “filthy, putrid, rotten, decomposed and insect-infested” which are adjectives qualifying the term “an article of food”, show that it is not of the nature, substance, and quality fit for human consumption. It will be noticed that there is a comma after each of the first three words. It should also be noted that these qualifying adjectives cannot be read into the last portion of the definition i.e. the words “or is otherwise unfit for human consumption”, which is quite separate and distinct from others. The word “otherwise” signifies unfitness for human consumption due to other causes. If the last portion is meant to mean https://www.mhc.tn.gov.in/judis 122/192 WA No. 1260 of 2017 etc., batch something different, it becomes difficult to understand how the word “or” as used in the definition of “adulterated” in Section 2 (i-a)(f) between “filthy, putrid, rotten, etc.” and “otherwise unfit for human consumption” could have been intended to be used conjunctively. It would be more appropriate in the context to read it disjunctively. In Stroud's Judicial Dictionary, 3rd Edn., Vol. 1, it is stated at p. 135:

@ 5% in the first transaction. He sells goods worth Rs. 50/- for Rs. 55/-, the tax on it would be Rs 2.75/-. Adjusting the credit available with him, he would not pay any tax for the month out of his pocket and he would be left with a credit of Rs 2.25/-. In the next transaction, he again purchases goods for Rs.100/- and pays tax of Rs. 5/- towards purchase tax and later, sells entire goods lying with him valued at Rs.150/- for Rs.175/-, the output tax on the same would be Rs, 8.75/-. After adjusting the credit of Rs. 7.25/-, he would have to pay Rs.1.50/-. The same analogy is also equally applicable for the goods that are used in the manufacturing process and sold as other products. https://www.mhc.tn.gov.in/judis 124/192 WA No. 1260 of 2017 etc., batch The only difference would be further value addition in view of the cost involved in the manufacturing product. Therefore, the credit from the purchase is utilized for payment of output tax for the sales effected in subsequent month or in subsequent transactions would include the credit from the purchases already effected.

107. Ergo, from the language employed, it is very clear that there is no ambiguity qua the legislature never intended to give a separate meaning to “sale” deviating from its plain and natural meaning to exclude the manufactured goods from the ambit of Section 19 (2) (v) similar to section 19(4) and 19 (5) (c) . We are also, in the present appeals, interpreting a substantial provision in the statute and not an exemption notification. The surreal ambiguity, by harmonizing the provisions of the statute, would stand removed for the same reasons as indicated above. The issue is therefore, decided in favour of the revenue.

108. Let us now proceed to the applicability of the proviso to the manufacturers. For better appreciation, the proviso added in 2013 is again extracted as under:

109. A plain reading of the proviso would indicate that it is applicable only to section 19 (2) (v) and not to any other part of Section 19 . The main provision of section 19 (2) on a plain reading covers different categories of dealers or transactions mentioned in sub-clauses. Each head requires within it a compliance of different acts to be entitled to ITC. The dealer is entitled to ITC under any of the several heads depending upon their nature of transaction, albeit upon satisfaction of other requirements. Each operate at different points.

As held above, each sub-clause is distinct and alternate and cannot be read as a pre or post condition of another for the entitlement of ITC and the sale of goods to the registered dealer in other States in the course of trade or commerce falling under Section 8(1) would be covered by section 19 (2) (v) irrespective whether such sale is a resale or of manufactured goods. Therefore, the claim of ITC by the manufacturers will fall under section 19 (2) (ii) only as long as they effect local sales, the moment they sell the goods to a dealer in other State, section 19 (2) (v) or section 19(5) (c) would come into operation.

Therefore, the proviso introduced to cover section 19 (2) (v) is applicable to the manufacturers also, at the point of inter-state sale falling under Section 8(1) as the word “sale” includes sale of goods in the same or different form. In this regard, it is relevant to refer to the following judgments:

110. Kerala State Coop. Marketing Federation Ltd. v. CIT , (1998) 5 https://www.mhc.tn.gov.in/judis 126/192 WA No. 1260 of 2017 etc., batch SCC 48:

7. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a cooperative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption. The expression “marketing” is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financing, marketing intelligence etc. Such activities can be carried on by an apex society rather than a primary society.

9. A reading of the provisions of Section 80-P of the Act would indicate the manner in which the exemptions under the said provisions are sought to be extended. Whenever the legislature wanted to restrict the exemption to a primary cooperative society it was so made clear as is evident from clause

(f ) referred to above with reference to a milk cooperative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk cooperative society, but no such distinction is made with reference to a banking business which provides trade facilities to its members. It is clear, therefore, that the legislature did not intend to limit the scope of exemption only to those which are primary societies. If a small agricultural cooperative society does not have any marketing facilities it can certainly become a member of an apex society which may market the produce of its members. It was submitted on behalf of https://www.mhc.tn.gov.in/judis 127/192 WA No. 1260 of 2017 etc., batch the Department that the member societies themselves do not raise the agricultural produce. The societies only market the produce raised by their members and do not themselves raise agricultural produce. The language adopted in Section 80-P(2)(a)(iii) with which we are concerned will admit the interpretation that the society engaged in marketing of agricultural produce of its members as agricultural produce “belonging to” its members which is not necessarily raised by such member. Thus, when the provisions of Section 80-P of the Act admit of a wider exemption there is no reason to cut down the scope of the provision as indicated in Assam Coop. Apex Marketing Society case[1994 Supp (2) SCC 96 : (1993) 201 ITR 338] .”

111. CIT v. Plantation Corpn. of Kerala Ltd. , (2001) 1 SCC 207 : 2000 SCC OnLine SC 1662:

4. The High Court appears to have been carried away by the fact of some assumed similarity of the purpose of expenditure envisaged in Section 5(j) and those covered by Explanation 2 and from the further fact of retrospective effect having been given to the said explanation with effect from 1-4-1951, to presume that in doing so the legislative intention indicated was to avoid refunds being made on account of the Supreme Court judgment reported in Travancore Rubber & Tea Co. Ltd. case[ Travancore Rubber & Tea Co. Ltd. v. CIT (Ag ), (1961) 41 ITR 751 : AIR 1961 SC 604] which, in turn, concerned Section 5(j) of the Act. This in our view is fallacious and cannot be so presumed. The decision of the Supreme Court declaring the position of law on the scope of Section 5(j) might have been the occasion for the legislature to enact Explanation 2, and that too with retrospective effect but the said occasion would have equally enlightened and served as an eye- opener about the need for enacting the explanation in such a manner as to avoid similar claims being projected in respect of expenditure or deductions envisaged in the various other limbs of Section 5 as well, apart from clause

(j) alone. This Court has always been reiterating that if the intendment is not in the words used it is nowhere else and so long as there is no ambiguity in the statutory language resort to any interpretative process to unfold the legislative intent becomes impermissible and the need for interpretation arises only when the words in the statute are on their own terms ambivalent and do not manifest the intention of the legislature (vide Doypack Systems (P) Ltd. v. Union of India [( 1988) 2 SCC 299] and Keshavji Ravji & Co. v. CIT [(1990) 2 SCC 231 : 1990 SCC (Tax) 268] ). That apart, an explanation is intended to either explain the meaning of certain phrases and expressions contained in a statutory provision or depending upon its language it might supply or take away something from the contents of a provision and at times even to, by way of abundant caution, clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative process to make the position beyond controversy or doubt.

5. Consequently, we are unable to approve the reasoning of the High Court as to the need for having recourse to internal or external aids to interpret the Explanation 2 to Section 5 as well as its ultimate conclusion to whittle down the otherwise wide range and area of operation and application of Explanation 2 to the entirety of Section 5 of the Act. In our view, Explanation 2 to Section 5 of the Act, therefore explains generally as to what are not deductible as expenditure for the purpose of computing the agricultural income in the light of the various clauses of Section 5 of the Act, as a whole.”

112. Catholic Syrian Bank Ltd. v. CIT , (2012) 3 SCC 784 : 2012 SCC OnLine SC 170:

113. In Union of India Vs VKC Footsteps India Pvt Ltd , 2021 SCC OnLine SC 706, the Apex Court, while deciding on the vires of Rule 89 (5) of CGST Rules and interpreting Section 54 (3) and its proviso, held as under:

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65. The crux of the dispute in the present case pertains to how sub-Section (3) to Section 54 and Explanation 1 to sub-Section (1) of Section 54 are to be understood and interpreted. For convenience of analysis, the interpretation of sub-Section (3) of Section 54 can be distributed in its main tier and the three provisos. The main part of sub-Section (3) provides that a registered person may claim refund of any unutilized ITC at the end of any tax period. Tax period is defined in Section 2(106) as the period for which the return is required to be furnished. While enacting Section 54(3), Parliament has envisaged a claim for the refund of unutilized ITC by a registered person at the end of the tax period. The first tier is the main provision of Section 54(3) which lays down four conditions:

66. The second tier is the first proviso. The first proviso begins with the expression “no refund of unutilized ITC shall be allowed in cases other than” which is followed by clauses (i) and (ii). The opening line of the first proviso contains two expressions of significance, namely, “no refund shall be allowed” and “in cases other than”. The expression ‘allowed’ in the proviso must be contrasted with the expression ‘claim’ in the substantive part of sub-Section (3). A refund can be allowed only in the eventualities envisaged in clauses (i) and (ii). The expression ‘other than’ operates as a limitation or restriction.

67. The third tier of sub-Section 54(3) consist of the two clauses of the first proviso which deal with two distinct cases : Clause (i) deals with zero- rated supplies made without payment of tax, while Clause (ii) deals with credit which has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. Proviso (ii) embodies the concept of an inverted duty structure. Proviso (ii) states that the refund of unutilized ITC shall be allowed only when the credit has accumulated because the rate of tax of inputs is higher than the rate of tax on output supplies. Input, as we have already noted, is defined in Section 2(59) to mean goods other than the capital goods. ‘Output supplies’ is not defined in the statute. As seen above, Section 16 stipulates the eligibility and conditions for availing ITC. ITC accumulates when the credit cannot be utilized either partly or in whole and this may occur for a variety of reasons. The credit of ITC may accumulate for several reasons. Without spelling out an exhaustive list of circumstances, the accumulation may be due to : (a) an inverted duty structure when the GST on output supplies is less than the GST on inputs; (b) stock accumulation; (c) capital https://www.mhc.tn.gov.in/judis 132/192 WA No. 1260 of 2017 etc., batch goods; and (d) partial reverse mechanism for certain services. There could be other reasons as well, such as excessive discounts or predatory pricing.

F.4 Construing the proviso

79. Provisos in a statute have multi-faceted personalities. As interpretational principles governing statutes have evolved, certain basic ideas have been recognized, while heeding to the text and context. Justice GP Singh, in his seminal text, Principles of Statutory Interpretation formulates the governing principles of interpretation which have been adopted by courts while construing a statutory proviso. The first rule of interpretation is that:

80.But then these principles are subject to other principles of statutory interpretation which may supplement or even substitute the above formula. These other rules which have been categorized by Justice GP Singh are summarized as follows:

81. Perhaps the most comprehensive and oft-cited precedent governing the interpretation of a proviso is the decision of this Court in S. Sundaram Pillai v. V.R. Pattabiraman . Justice S Murtaza Fazal Ali speaking for a three judge Bench of this Court held:

82. While enunciating the above principles, S Sundaram Pillai (supra) took note of the decision in Hiralal Rattanlal v. State of UP where Justice KS Hegde, speaking for a four judge Bench of this Court observed that while ordinarily, a proviso is in the nature of an exception, the precedents indicate that sometimes a proviso is in the nature of a separate provision, with a life of its own. The Court held:

83. Besides the decision in CIT v. Bipinchandra Maganlal , the Court in Hiralal Rattanlal (supra) adverted to the earlier decisions in State of Rajasthan v. Leela Jain and Bihar Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar .

84. In their effort to persuade this Court to accept the submission that the first proviso to Section 54(3) is in the nature of an eligibility condition as distinct from a restriction on the substantive part (contained in the opening words) of the provision, Counsel appearing on behalf of the assessees have https://www.mhc.tn.gov.in/judis 135/192 WA No. 1260 of 2017 etc., batch sought to buttress their submissions with the following facets:

85. Para 4(b) of the Circular thereafter proceeds to give certain illustrations. The above circular, it is urged, would demonstrate that the phrase “on account of” in the proviso is interpreted by the State qua goods as a threshold condition. Hence even if one input in the basket of inputs of a manufacturer results in an inverted duty structure, the whole of the accumulated ITC can be availed of. On the other hand, for services the same phrase is interpreted so as to mean ‘to the extent of’. The expression “on account of” as understood for goods by the above circular must apply for services as well, meaning thereby that it is a threshold condition alone.

86. The above submissions demonstrate the scholarship which has been brought to bear upon the controversy by Counsel appearing on behalf of the assessees. The above aspects of the statutory provision - Section 54(3) - must be juxtaposed together with all the features of the statutory provision including Explanation-I which have been adverted to earlier. The analysis earlier indicates why on a reading of the provision as a whole, clauses (i) and (ii) of the first proviso are restrictions and not mere conditions of eligibility. It is not possible for the Court to restrict the ambit of clause (ii) of the proviso, based on a circular which has been https://www.mhc.tn.gov.in/judis 137/192 WA No. 1260 of 2017 etc., batch issued by the Ministry of Finance on 31 December 2018. In substance, the argument boils down to an effort to lead this Court to hold that in spite of the language which has been used in clause (ii) of the first proviso, (where the credit is accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies), input services must be read into the term “inputs”. The assessees argue that the Departmental understanding, as reflected in the circular, should be the basis of interpreting a statutory provision. Such an exercise would be impermissible, when its effect is to expand the area of refund contemplated by the first proviso to cover input services in addition to input goods despite statutory language to the contrary. Sub-Section (3) of Section 54 begins, in its main part, with the stipulation that a registered person may claim refund of any ‘unutilised ITC at the end of any tax period’. Whether we construe the first proviso as an exception or in the nature of a fresh enactment, the clear intent of Parliament was to confine the grant of refund to the two categories spelt out in clauses (i) and (ii) of the first proviso. That clauses (i) and (ii) are the only two situations in which a refund can be granted is evident from the opening words of the first proviso which stipulates that “no refund of unutilised input tax credit shall be allowed in cases other than”. What follows is clauses (i) and (ii). The intent of Parliament is evident by the use of a double - negative format by employing the expression “no refund” as well as the expression “in cases other than”. In other words, a refund is contemplated in the situations provided in clauses (i) and (ii) and no other. To put it differently, the first proviso can be recast, without altering its meaning to read that a refund of unutilised ITC shall be allowed only in the cases governed by clauses (i) and (ii). Clause (i) deals with zero rated supplies without payment of tax. Explanation-1 to Section 54 clarifies that the expression ‘refund’ includes refund of tax paid on zero rated supplies on goods or services or both, or on inputs or input services used in making such zero- rated supplies. On the other hand, in the case of deemed exports, Explanation-1 refers to a refund of tax on the supply of goods. Likewise in regard to domestic supplies, governed by clause (ii) of the first proviso, the expression ‘refund’ means refund of unutilised ITC as provided under sub- Section (3). With the clear language which has been adopted by Parliament while enacting the provisions of Section 54(3), the acceptance of the submission which has been urged on behalf of the assessee would involve a judicial re-writing of the provision which is impermissible in law. Clause

(ii) of the proviso, when it refers to “on account of” clearly intends the meaning which can ordinarily be said to imply ‘because of or due to’. When proviso (ii) refers to “rate of tax”, it indicates a clear intent that a refund would be allowed where and only if the inverted duty structure has arisen due to the rate of tax on input being higher than the rate of tax on output supplies. Reading the expression ‘input’ to cover input goods and https://www.mhc.tn.gov.in/judis 138/192 WA No. 1260 of 2017 etc., batch input services would lead to recognising an entitlement to refund, beyond what was contemplated by Parliament.

87. We must be cognizant of the fact that no constitutional right is being asserted to claim a refund, as there cannot be. Refund is a matter of a statutory prescription. Parliament was within its legislative authority in determining whether refunds should be allowed of unutilised ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone. By its clear stipulation that a refund would be admissible only where the unutilised ITC has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies, Parliament has confined the refund in the manner which we have described above. While recognising an entitlement to refund, it is open to the legislature to define the circumstances in which a refund can be claimed. The proviso to Section 54(3) is not a condition of eligibility (as the assessees' Counsel submitted) but a restriction which must govern the grant of refund under Section 54(3). We therefore, accept the submission which has been urged by Mr. N Venkataraman, learned ASG.”

114. The ratio laid down in the above judgments clearly lay down that when the proviso refers to a particular provision, it cannot be interpreted to include other provisions. It is also clear that the object of a proviso is to bring in clarity or to impose any restriction or condition to the provision in relation to which it is enacted. In other words, they carve out a portion which is otherwise covered by the previous provision with regard to which proviso is enacted. In the case of Kerala State Cooperative Marketing Federation Limited and others vs. Commissioner of Income Tax reported in (1998) 5 Supreme Court Cases 48, (cited supra), the appellant was an Apex Society registered under the Kerala Cooperative Societies Act , who purchased cashew from its member societies and earned profits on such purchases. Upon rejection of such profits to be deducted under Section 80-P(2) (a) (iii) of the Income Tax Act, the appellant https://www.mhc.tn.gov.in/judis 139/192 WA No. 1260 of 2017 etc., batch approached the Apex Court which held that each of the exemption clauses are distinct and would be available if any one of them is satisfied. In VKC Footsteps referred above , after analysing as to how the proviso is to be read, the Apex Court clearly held that when the proviso refers to two clauses or circumstances under which refund of ITC would be allowed, reading it otherwise or extending the meaning of inputs to mean input of goods and input of services would amount to re-writing the law. As evident in the present case, the proviso inserted in 2013 only refers to section 19 (2) (v) and hence it cannot be extended to other categories. When a proviso is introduced with respect to a particular distinct and independent clause dealing with a particular category of dealers or transaction, it cannot be extended to other clauses or provisions of the statute as it would amount to reading into or interpolating the provisions which is impermissible in taxing laws. In Section 2 of the Amendment Act 28/2013, the amendment to sub-section (4) by Section 2 (2) did not make a distinction between sub-clause (i) of sub-section (4) of section 19 and sub-clause (ii) of sub-section (4) of Section 19 . Sub-clause (i) of Section 19 (4) deals with purchase of inputs which are transferred outside the State, while sub-clause (ii) thereof deals with a case of purchase of inputs for use in manufacture and transfer of manufactured goods outside the State otherwise than by way of sale. By Section 2 (2) , through which Section 19 (4) https://www.mhc.tn.gov.in/judis 140/192 WA No. 1260 of 2017 etc., batch was amended, affected both those who purchase inputs and transferred the stock and those who purchase inputs and used it in the manufacturing process.

The intention of the legislature is to treat them alike. Section 2 (1) , through which proviso to Section 19 (2) was inserted, specified only sub-clause (v) which deals with sale of goods to a dealer in other state falling under section 8(1) of the CST Act. Further, this court has already held that the traders or manufacturers who effect interstate sale are covered by section 19 (2) (v) after they use the inputs for manufacturing or processing within the state and decide to sell the same to a registered dealer in an another state and hence the contention of the assessees that the manufacturers can claim ITC even if their transaction falls under Section 19 (2) (v) is rejected. Such an interpretation would result in dichotomy in law and render Section 19 (2) (v) otiose. It is also not out of place to point out here that the State was consciously aware that in inter-state sales, not only the goods purchased locally were sold, but also the goods manufactured in the state. As rightly contended by the learned Additional Advocate General by placing reliance upon the settled proposition of law that ITC is only a concession, it is open to the State to impose restrictions or conditions for availing the ITC. In the present case, prior to the introduction of the proviso, every dealer who effected interstate sale availed ITC under section 19 (2) (v) and the State imposed a restriction on such https://www.mhc.tn.gov.in/judis 141/192 WA No. 1260 of 2017 etc., batch availment by the proviso, which naturally is binding on the assessees.

115. Now, insofar as the nature, effect and applicability of the amendments brought in by way of Act 05/2015, it is to be noted that as we have already held that Section 19 (2) (v) is applicable to the manufacturers and so, the proviso, we would go into the effect of such amendments whereby section 19(2)(v) , the proviso and 19 (5) (c) were omitted and substituted with a new provision.

116. It is necessary to briefly look into the history of the changes from 2013 onwards. Though we need not venture into the statement of objects and reasons as we have already held that there is no ambiguity in the provision, to decide this issue, we advent into the same to remove all doubts as much emphasis has been laid on the same.

117. The State, six years after the Act came into force, felt that the interstate sales was affecting the revenue of the State. According to the Revenue, to curb the accumulation of ITC qua inter-state transaction, the legislature added a proviso to section 19 (2) (v) by allowing ITC in excess of three percent by Act 28/2013.

118. The statement of objects and reasons given in the Bill which was introduced on 30/10/2013, reads thus.

https://www.mhc.tn.gov.in/judis 142/192 WA No. 1260 of 2017 etc., batch “STATEMENT OF OBJECTS AND REASONS.

In a manufacturing State like Tamil Nadu, the size and the scale of inter- State transactions are consistently on the rise. Over the years, the increase in input tax credit accumulation on inter-State transactions under the provisions of the Tamil Nadu Value Added Tax Act, 2006 (Tamil Nadu Act 32 of 2006) has resulted in reduced tax collection to the State. The increase in the volume of inter-State transactions adversely and continuously affect revenue collections under the Value Added Tax consequent on the gradual reduction of rate of Central Sales Tax from 4% to 2% and also due to increase in the tax rates under the said Tamil Nadu Act 32 of 2006 from 4% to 5% and from 12.5% to 14.5%. In order to have certain degree of control over the accumulation of input tax credit, the Government have decided to increase the rate of input tax credit reversal from 3% to 5% on inter-State transfer otherwise than by way of sale and also to make a new provision for reversal of input tax credit at 3% on inter-State sale to a registered dealer.

2. Further, even after a lapse of six years from the date of implementation of the said Tamil Nadu Act 32 of 2006, revenue collections are below the expected level. The gradual reduction in rate of Central Sales Tax from 4% to 2% by the Government of India without adequate compensation has drained the revenue collections. The economic slowdown has further adversely affected the manufacturing State like Tamil Nadu on the revenue front. To manage the adverse fiscal trend, sources have to be identified where revenue flow will be more without any negative impact on the public. The Government have, therefore, decided to increase the rate of tax with retrospective effect from 1.4.2013 on certain alcoholic liquors for human consumption, at the second point of sale in the State on value addition.

3. It is also noticed that vegetable oils intended for inter-State sales are being unloaded and sold in this State itself resulting in evasion of tax and consequential loss of revenue to the Government. The commodity Iron and Steel, which is declared in section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) as goods of special importance in inter-State trade or commerce, is also susceptible to evasion of tax leading to loss of revenue. In order to prevent evasion of tax and to protect the revenue, the Government have decided to include “vegetable oils including refined vegetable oils” and “Iron and Steel as specified in clause (iv) of section 14 of the Central Sales Tax Act, 1956” in the Sixth Schedule to the said Tamil Nadu Act 32 of 2006.

4. The Government have, therefore, decided to amend the Tamil Nadu Value Added Tax Act, 2006 (Tamil Nadu Act 32 of 2006) for the aforesaid purposes.

5. The Bill seeks to achieve the above object.

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119. The said bill was passed and Act 28 of 2013 received the assent of the Governor on 08th November 2013 and the following amendments were made to the Act:

120. The amendment came into force with effect from 11.11.2013. it is evident that the State considered the accumulation of ITC by virtue of inter-

state sale as illegal and to cure the mischief, the amendment was introduced.

Let us consider the following illustration:

121. The budget speech covers two provisions viz., section 19 (2) (v) and https://www.mhc.tn.gov.in/judis 146/192 WA No. 1260 of 2017 etc., batch section 19 (5) (c) . It is pertinent to mention here that in the then chief minister's budget speech, while referring to Section 19(2) (v) , it was stated that the proviso introduced with effect from 11.11.2013 would be withdrawn. In a significant change, while an announcement was made to omit Section 19(5)(c) , the word “henceforth” was used. However, the English translation of the budget speech which was appended to the Bill reads as under:

State sale of goods as per proviso to section 19(2)(v) of Tamil Nadu Value Added Tax Act, 2006, which was introduced with effect from 11-11-2013 will be withdrawn henceforth to make the manufacturing industries in Tamil Nadu more competitive with their counterparts in the neighbouring States.

(ii) Clause (c) under section 19(5) of Tamil Nadu Value Added Tax Act, 2006 will henceforth be withdrawn to enable the dealers to claim input tax credit on the Inter-State sale of goods without ‘C’ Form. This measure will eliminate additional burden on the dealers effecting Inter-State sale of goods without ’C’ Form.

(iii) Fishing accessories like fishing ropes, fishing floats, fishnet twine, fishing lamps and fishing swivels will be exempted from the present levy of VAT.

(iv) Mosquito nets of all kinds will be exempted from the present levy of VAT at 5%.

(v) VAT on LED lamps of all kinds will be reduced from the present levy of 14.5% to 5% to encourage the use of energy saving devices.

(vi) VAT on air compressors, pump sets upto 10 hp and their parts thereof will be reduced from the present levy of 14.5% to 5% to encourage Micro, Small and Medium Enterprises sector and to benefit the agriculturists in the State.

2. To give effect to the said announcements, the Government have decided to amend the Tamil Nadu Value Added Tax Act, 2006 (Tamil Nadu Act 32 of 2006).

https://www.mhc.tn.gov.in/judis 147/192 WA No. 1260 of 2017 etc., batch

3. The Bill seeks to give effect to the above decisions. Sd/-”

122. Thereafter, the bill was passed and after notification, the following changes were brought in by Act 05/2015.

In section 19 of the Tamil Nadu Value Added Tax Act, 2006 (hereinafter referred to as the principal Act),— (1) in sub-section (2),—

(i) for clause (v), the following clause shall be substituted, namely:-

123. It is not in dispute that the budgetary speech is delivered in the vernacular language in the assembly. It is also not in dispute that the budgetary speech is summed up as the object and reason for any enactment, which is also obviously evident from the opening lines of the statement to object and reasons in Legislative Assembly Bill No.2/2015. The actual budgetary speech did not contain the word “henceforth translated as “inimael” which is the tamil synonym for “henceforth” when 19 (2) (v) was addressed, but it is found only with regard to section 19 (5) (c) . The Tamil word “vagaiyil” would be taken to mean as “hence” or “to enable” or “therefore”. In fact, on an overall reading of the speech, it would imply that the implementation of the proviso had diminished the competitiveness of the manufacturing industry. While so, an https://www.mhc.tn.gov.in/judis 148/192 WA No. 1260 of 2017 etc., batch improper translation cannot confer any right to the department. It is apropos to quote the words of John Conington:

124. It is often said that much is lost in translation and nothing is better than the original version. It is for this reason that the father of our nation Mahatma Gandhi wanted to learn Tamil to read and understand Thirukkural, in its native language. It is necessary that a person who translates the speech, is well versed with both the languages. Nothing should be changed or deleted or added. The purpose of translation is to convey the message of the author/speaker. In the instant case, the English version of the speech culminating into the statement of objects and reasons does not convey the true intent of the legislature, which in the mind of this court is that the subsequent amendment brought in by Act 05/2015 was only to cure the defect.

125. Our decision is also fortified by the cause and effect of the first amendment brought in by Act 28/2013. The cause was to curb the accumulation of ITC, but the effect was that the manufacturers were put to loss, thereby increasing the burden on the manufacturers ultimately on the public. When a remedial measure undertaken by the State to curb or cure a mischief or defect in a provision creates unexpected or unsolicited mischief defeating the very object of the action, it is called as counter mischief. It is to https://www.mhc.tn.gov.in/judis 149/192 WA No. 1260 of 2017 etc., batch nullify this effect, the legislature in its wisdom, thought it necessary to withdraw the proviso and hence, it was “omitted” by Act 05/2015.

126. The Legislature did not stop there. Parallelly, it also substituted a new clause (v) and omitted section 19 (5) (c) thereby clearly expressing its intention of allowing ITC for inter-state sales to registered as well as unregistered dealers. It is settled law that whenever a provision is omitted and substituted with a new provision, it has the effect of repeal and is to be given retrospective effect. It is not out of place to mention here that generally, all the provisions have prospective effect, unless the retrospectivity is expressly or impliedly contemplated. To decipher whether a law is implied or not, warrants interpretation. Further, it has been held that generally, conferment of a benefit can be with retrospective effect and when a liability is imposed, it is scarcely given retrospective effect. In this connection, it is relevant to refer to the following judgments:

127. Allied Motors (P) Ltd. v. CIT , (1997) 3 SCC 472:

The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. at p. 291: “It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.” In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.”

128. Tata Motors Ltd. v. State of Maharashtra , (2004) 5 SCC 783:

129. Govt. of India v. Indian Tobacco Assn. , (2005) 7 SCC 396 “14. However, the question which arises for consideration in this case is as to what would be the effect of the subsequent notification.

15. The word “substitute” ordinarily would mean “to put (one) in place of another”; or “to replace”. In Black's Law Dictionary, 5th Edn., at p. 1281, the word “substitute” has been defined to mean “to put in the place of another person or thing”, or “to exchange”. In Collins English Dictionary, the word “substitute” has been defined to mean “to serve or cause to serve in place of another person or thing”; “to replace (an atom or group in a molecule) with (another atom or group)”; or “a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague”.

27. There is another aspect of the matter which may not be lost sight of. Where a statute is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute relates back to the time when the prior Act was passed. (See Attorney General v. Pougett [(1816) 2 Price 381 : 146 ER 130] .)

28. The doctrine of fairness also is now considered to be a relevant factor for construing a statute. In a case of this nature where the effect of a beneficent statute was sought to be extended keeping in view the fact that the benefit was already availed of by the agriculturalists of tobacco in Guntur, it would be highly unfair if the benefit granted to them is taken away, although the same was meant to be extended to them also. For such purposes the statute need not be given retrospective effect by express words but the intent and object of the legislature in relation thereto can be culled out from the background facts.”

130. CIT v. Gold Coin Health Food (P) Ltd. , (2008) 9 SCC 622 “8. It would be of some relevance to take note of what this Court said in Virtual case [(2007) 9 SCC 665] . Pointing out one of the important tests at para 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory https://www.mhc.tn.gov.in/judis 153/192 WA No. 1260 of 2017 etc., batch provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive.

18. As noted by this Court in CIT v. Podar Cement (P) Ltd. [(1997) 5 SCC 482] the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so.

20. In Zile Singh v. State of Haryana [(2004) 8 SCC 1] it was observed as follows : (SCC pp. 8-9, paras 13-15) “13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only—‘nova constitutio futuris formam imponere debet non praeteritis’—a new law ought to regulate what is to follow, not the past. (See Principles of Statutory Interpretation by Justice G.P. Singh, 9th Edn., 2004 at p. 438.) It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole (ibid., p. 440).

14. The presumption against retrospective operation is not applicable to declaratory statutes … In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is ‘to explain’ an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended … An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69).

15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an https://www.mhc.tn.gov.in/judis 154/192 WA No. 1260 of 2017 etc., batch operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant : (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the legislature contemplated. (p. 388) The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right. (p. 392)”

21. Above being the position, the inevitable conclusion is that Explanation 4 to Section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual case [(2007) 9 SCC 665] is not correct.”

131. CIT v. Alom Extrusions Ltd. , (2010) 1 SCC 489 : 2009 SCC OnLine SC 1842:

This is one more reason why we hold that the Finance Act, 2003 is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224 ITR 677] was delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003 will operate retrospectively with effect from 1-4-1988 (when the first proviso stood inserted).

24. In our view, therefore, the Finance Act, 2003 , to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1-4- 1988, when the first proviso was introduced. It is true that Parliament has explicitly stated that the Finance Act, 2003 , will operate with effect from 1-4- 2004. However, the matter before us involves the principle of construction to be placed on the provisions of the Finance Act, 2003 .

25. Before concluding, we extract hereinbelow the relevant observations of this Court in CIT v. J.H. Gotla [(1985) 4 SCC 343 : (1985) 156 ITR 323] which reads as under: (SCC p. 360, para 47) “47. … we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.”

132. CIT v. Vatika Township (P) Ltd. , (2015) 1 SCC 1:

Eidman v. Martinez [46 L Ed 697 : 184 US 578 (1902)] , L Ed p. 701 : US p. 583; United States v. Wigglesworth [2 Story 369 (1842)] , Story p. 374 and Mutual Benefit Life Insurance Co. v. Herold [198 Fed 199 (1912)] , Fed p. 201, affirmed in Herold v. Mutual Benefit Life Insurance Co. [201 Fed 918 (CCA 3d 1913)] ; Parkview Building & Loan Assn. v. Herold [203 Fed 876 (1913)] , Fed p. 880 and Mutual Trust Co. v. Miller [177 NY 51 : 69 NE 124 (1903)] , NY p. 57.” https://www.mhc.tn.gov.in/judis 158/192 WA No. 1260 of 2017 etc., batch

133. Indian Performing Rights Society Ltd. v. Sanjay Dalia , (2015) 10 SCC 161 : (2016) 1 SCC (Civ) 55 : 2015 SCC OnLine SC 616.

“24. If the interpretation suggested by the appellant is accepted, several mischiefs may result, intention is that the plaintiff should not go to far-flung places than that of residence or where he carries on business or works for gain in order to deprive the defendant a remedy and harass him by dragging to distant place. It is settled proposition of law that the interpretation of the provisions has to be such which prevents mischief. The said principle was explained in Heydon's case [Heydon's case, (1584) 3 Co Rep 7a : 76 ER 637]. According to the mischief rule, four points are required to be taken into consideration. While interpreting a statute, the problem or mischief that the statute was designed to remedy should first be identified and then a construction that suppresses the problem and advances the remedy should be adopted. Heydon's [Heydon 's case, (1584) 3 Co Rep 7a : 76 ER 637] mischief rule has been referred to in Interpretation of Statutes by Justice G.P. Singh, 12th Edn., at pp. 124-25 thus:

In the present case the legislative intention is to put an embargo on collection in future, in case the converted corporate entity is found entitled to the benefits of fee continuity. Such embargo is clearly to operate prospectively even if there existed some kind of liability in the past on account of fees leviable prior to insertion of Para 4 of Schedule III to the Regulations. In any case the rationale in not permitting retrospective operation of laws is only to ensure that subjects are not adversely affected by creation of legal liabilities and obligations for a period already bygone. In the present case the provisions do not create any obligation or liability. They only confer benefits by way of fee continuity on account of fees already paid by the earlier entity before its conversion into a new corporate entity.

20. Even if we were to apply the test of fairness, no exception can be taken to extension of the benefit of fee exemption as provided by the relevant provision in the Regulations. Since the policy behind grant of benefits is to encourage corporatisation of individual or partnership members of a stock exchange, the action of extending such benefits without any curb on the basis of date of conversions cannot be held as unfair.”

135. SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458 : 2018 SCC OnLine SC 963 at page 419:

136. Gottumukkala Venkata Krishamraju v. Union of India , (2019) 17 SCC 590 : (2020) 3 SCC (Civ) 519 : 2018 SCC OnLine SC 1386.

“15. We have given our due consideration to the arguments advanced by the counsel for the parties on both sides and have also perused the relevant material. We find force in the arguments of the petitioners that the amended provisions of Section 6 shall apply in their cases as well and, therefore, if they have not completed five years of tenure as Presiding Officers of the Debts Recovery Tribunal they are entitled to continue to work as Presiding Officers till they attain the age of 65 years or complete five years' term before attaining the age of 65 years.

16. In the first instance, we have to bear in mind the language/terminology which the legislature used while inserting new Section 6 with effect from 1- 9-2016. This section stands “substituted” with the old section. The word “substituted” has its own significance. In Union of India v. Indian Tobacco Assn. [Union of India v. Indian Tobacco Assn., (2005) 7 SCC 396], this Court noted dictionary meaning of the word “substitute” as can be seen from para 15 of the said judgment : (SCC p. 400) “15. The word “substitute” ordinarily would mean ‘to put (one) in place of another’; or ‘to replace’. In Black's Law Dictionary, 5th Edn., at p. 1281, the word “substitute” has been defined to mean ‘to put in the place of another person or thing’, or ‘to exchange’. In Collins English Dictionary, https://www.mhc.tn.gov.in/judis 163/192 WA No. 1260 of 2017 etc., batch the word “substitute” has been defined to mean ‘to serve or cause to serve in place of another person or thing’; ‘to replace (an atom or group in a molecule) with (another atom or group)’; or ‘a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague’.”

18. Ordinarily wherever the word “substitute” or “substitution” is used by the legislature, it has the effect of deleting the old provision and make the new provision operative. The process of substitution consists of two steps :

19. The effect, thus, would be to replace Section 6 as amended with the intention as if this is the only provision which exist from the date of introduction and the earlier provision was not there at all. The effect of this would be that all those incumbents who are holding the post of Presiding Officer on 1-9-2016 would be governed by this provision.”

137. Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. , (2021) 9 SCC 657 : (2021) 4 SCC (Civ) 638 “94. We have no hesitation to say that the words “other stakeholders” would squarely cover the Central Government, any State Government or any local authorities. The legislature noticing that on account of obvious omission certain tax authorities were not abiding by the mandate of the I&B Code and continuing with the proceedings, has brought out the 2019 Amendment so as to cure the said mischief. We therefore hold that the 2019 Amendment is declaratory and clarificatory in nature and therefore retrospective in operation.

88. This Court while observing, that the amendment was clarificatory in https://www.mhc.tn.gov.in/judis 164/192 WA No. 1260 of 2017 etc., batch nature, held thus : ( Zile Singh case [ Zile Singh v. State of Haryana , (2004) 8 SCC 1] , SCC pp. 9-12, paras 14-22) “14. The presumption against retrospective operation is not applicable to declaratory statutes…. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is “to explain” an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended…. An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69).

15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant : (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the legislature contemplated. (p. 388) The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right. (p. 392)

16. Where a statute is passed for the purpose of supplying an obvious omission in a former statute or to “explain” a former statute, the subsequent statute has relation back to the time when the prior Act was passed. The rule against retrospectivity is inapplicable to such legislations as are explanatory and declaratory in nature. A classic illustration is the case of Attorney General v. Pougett [Attorney General v. Pougett, (1816) 2 Price 381 : 146 ER 130] (Price at p. 392). By a Customs Act of 1873 (53 Geo. 3, c. 33) a duty was imposed upon hides of 9s 4d, but the Act omitted to state that it was to be 9s 4d per cwt., and to remedy this omission another Customs Act (53 Geo. 3, c. 105) was passed later in the same year. Between the passing of these two Acts some hides were exported, and it was contended that they were not liable to pay the duty of 9s 4d per cwt., but Thomson, C.B., in giving judgment for the Attorney General, said : (ER p.

134) ‘The duty in this instance was, in fact, imposed by the first Act; but the gross https://www.mhc.tn.gov.in/judis 165/192 WA No. 1260 of 2017 etc., batch mistake of the omission of the weight, for which the sum expressed was to have been payable, occasioned the amendment made by the subsequent Act :

17. Maxwell states in his work on Interpretation of Statutes (12th Edn.) that the rule against retrospective operation is a presumption only, and as such it ‘may be overcome, not only by express words in the Act but also by circumstances sufficiently strong to displace it’ (p. 225). If the dominant intention of the legislature can be clearly and doubtlessly spelt out, the inhibition contained in the rule against perpetuity becomes of doubtful applicability as the “inhibition of the rule” is a matter of degree which would “vary secundum materiam” (p. 226). Sometimes, where the sense of the statute demands it or where there has been an obvious mistake in drafting, a court will be prepared to substitute another word or phrase for that which actually appears in the text of the Act (p. 231).

18. In a recent decision of this Court in National Agricultural Coop. Mktg. Federation of India Ltd. v. Union of India [National Agricultural Coop. Mktg. Federation of India Ltd. v. Union of India , (2003) 5 SCC 23] it has been held that there is no fixed formula for the expression of legislative intent to give retrospectivity to an enactment. Every legislation whether prospective or retrospective has to be subjected to the question of legislative competence. The retrospectivity is liable to be decided on a few touchstones such as : (i) the words used must expressly provide or clearly imply retrospective operation; (ii) the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional; (iii) where the legislation is introduced to overcome a judicial decision, the power cannot be used to subvert the decision without removing the statutory basis of the decision. There is no fixed formula for the expression of legislative intent to give retrospectivity to an enactment. A validating clause coupled with a substantive statutory change is only one of the methods to leave actions unsustainable under the unamended statute, undisturbed. Consequently, the absence of a validating clause would not by itself affect the retrospective operation of the statutory provision, if such retrospectivity is otherwise apparent.

19. The Constitution Bench in Shyam Sunder v. Ram Kumar [Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24] has held : (SCC p. 49, para 39) ‘39. … Ordinarily when an enactment declares the previous law, it requires to be given retroactive effect. The function of a declaratory statute is to supply an omission or to explain a previous statute and when such an Act is passed, it comes into effect when the previous enactment was passed. The legislative power to enact law includes the power to declare what was the previous law and when such a declaratory Act is passed, invariably it has been held to be retrospective. Mere absence of use of the word https://www.mhc.tn.gov.in/judis 166/192 WA No. 1260 of 2017 etc., batch “declaration” in an Act explaining what was the law before may not appear to be a declaratory Act but if the court finds an Act as declaratory or explanatory, it has to be construed as retrospective.’ (p. 2487).

20. In Bengal Immunity Co. Ltd. v. State of Bihar [Bengal Immunity Co. Ltd. v. State of Bihar, (1955) 2 SCR 603 : AIR 1955 SC 661] , Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] was cited with approval. Their Lordships have said : ( Bengal Immunity case [ Bengal Immunity Co. Ltd. v. State of Bihar , (1955) 2 SCR 603 : AIR 1955 SC 661] , AIR p. 674, para 22) ‘22. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] was decided that— “… for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered— 1st. What was the common law before the making of the Act. 2nd. What was the mischief and defect for which the common law did not provide.

3rd. What remedy Parliament hath resolved and appointed to cure the disease of the Commonwealth, and 4th. The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.” ’

21. In Allied Motors (P) Ltd. v. CIT [Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472] certain unintended consequences flowed from a provision enacted by Parliament. There was an obvious omission. In order to cure the defect, a proviso was sought to be introduced through an amendment. The Court held that literal construction was liable to be avoided if it defeated the manifest object and purpose of the Act. The rule of reasonable interpretation should apply.

‘A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.’ [ Allied Motors (P) Ltd. case [ Allied Motors (P) Ltd. v. CIT , (1997) 3 SCC 472] , SCC pp. 479-80, para 13] 22. https://www.mhc.tn.gov.in/judis The State Legislature of Haryana intended to impose a disqualification 167/192 WA No. 1260 of 2017 etc., batch with effect from 5-4-1995 and that was done. Any person having more than two living children was disqualified on and from that day for being a member of a municipality. However, while enacting a proviso by way of an exception carving out a fact situation from the operation of the newly introduced disqualification the draftsman's folly caused the creation of trouble. A simplistic reading of the text of the proviso spelled out a consequence which the legislature had never intended and could not have intended. It is true that the Second Amendment does not expressly give the amendment a retrospective operation. The absence of a provision expressly giving a retrospective operation to the legislation is not determinative of its prospectivity or retrospectivity. Intrinsic evidence may be available to show that the amendment was necessarily intended to have retrospective effect and if the Court can unhesitatingly conclude in favour of retrospectivity, the Court would not hesitate in giving the Act that operation unless prevented from doing so by any mandate contained in law or an established principle of interpretation of statutes.” (emphasis supplied)

89. It could thus be seen that what is material is to ascertain the legislative intent. If legislature by an amendment supplies an obvious omission in a former statute or explains a former statute, the subsequent statute has a relation back to the time when the prior Act was passed.

90. The law laid down in Zile Singh [Zile Singh v. State of Haryana , (2004) 8 SCC 1] has been subsequently followed in various judgments of this Court, including in CITv. Gold Coin Health Food (P) Ltd. [CIT v. Gold Coin Health Food (P) Ltd., (2008) 9 SCC 622] (three-Judge Bench).

91. This Court recently in SBI v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] had an occasion to consider the question as to whether the amendment to sub-section (3) of Section 14 of the I&B Code by Amendment Act 26 of 2018 was clarificatory in nature or not. By the said amendment, sub-section (3) of Section 14 of the I&B Code was substituted to provide that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for corporate debtor. Considering the said issue, this Court observed thus : (SCC pp. 417- 19, paras 30-33) “30. We now come to the argument that the amendment of 2018, which makes it clear that Section 14(3) , is now substituted to read that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for corporate debtor. The amended section reads as follows:

‘14. Moratorium.—(1)-(2) * * * (3) The provisions of sub-section (1) shall not apply to—

(a) such transactions as may be notified by the Central Government in https://www.mhc.tn.gov.in/judis 168/192 WA No. 1260 of 2017 etc., batch consultation with any financial sector regulator;

(b) a surety in a contract of guarantee to a corporate debtor.’

31. The Insolvency Law Committee, appointed by the Ministry of Corporate Affairs, by its Report dated 26-3-2018, made certain key recommendations, one of which was:

32. The Committee insofar as the moratorium under Section 14 is concerned, went on to find:

https://www.mhc.tn.gov.in/judis 169/192 WA No. 1260 of 2017 etc., batch 5.9. A contract of guarantee is between the creditor, the principal debtor and the surety, whereunder the creditor has a remedy in relation to his debt against both the principal debtor and the surety ( National Project Construction Corpn. Ltd. v. Sadhu and Co. [National Project Construction Corpn. Ltd. v. Sadhu and Co. , 1989 SCC OnLine P&H 1069 : AIR 1990 P&H 300] ). The surety here may be a corporate or a natural person and the liability of such person goes as far as the liability of the principal debtor. As per Section 128 of the Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor and the creditor may go against either the principal debtor, or the surety, or both, in no particular sequence ( Chokalinga Chettiar v. Dandayuthapani Chettiar [Chokalinga Chettiar v. Dandayuthapani Chettiar, 1928 SCC OnLine Mad 236 : AIR 1928 Mad 1262] ). Though this may be limited by the terms of the contract of guarantee, the general principle of such contracts is that the liability of the principal debtor and the surety is co- extensive and is joint and several ( Bank of Bihar Ltd. v. Damodar Prasad [Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297] ). The Committee noted that this characteristic of such contracts i.e. of having remedy against both the surety and the corporate debtor, without the obligation to exhaust the remedy against one of the parties before proceeding against the other, is of utmost importance for the creditor and is the hallmark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended. 5.10. The Committee further noted that a literal interpretation of Section 14 is prudent, and a broader interpretation may not be necessary in the above context. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties. Additionally, enforcement of guarantee may not have a significant impact on the debt of the corporate debtor as the right of the creditor against the principal debtor is merely shifted to the surety, to the extent of payment by the surety. Thus, contractual principles of guarantee require being respected even during a moratorium and an alternate interpretation may not have been the intention of the Code, as is clear from a plain reading of Section 14. 5.11. Further, since many guarantees for loans of corporates are given by its promoters in the form of personal guarantees, if there is a stay on actions against their assets during a CIRP, such promoters (who are also corporate applicants) may file frivolous applications to merely take advantage of the stay and guard their assets. In the judgments analysed in this relation, many have been filed by the corporate applicant under Section 10 of the Code and this may corroborate the above apprehension of abuse of the moratorium provision. The Committee concluded that Section 14 does not intend to bar actions against assets of guarantors to the debts of the corporate debtor and recommended that an explanation to clarify this may be inserted in Section 14 of the Code. The scope of the moratorium may be restricted to the assets https://www.mhc.tn.gov.in/judis 170/192 WA No. 1260 of 2017 etc., batch of the corporate debtor only.’

33. The Report of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14 . That such clarificatory amendment is retrospective in nature, would be clear from the following judgments:” (emphasis in original)

92. In B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates , (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] this Court considered the question as to whether the 2018 Amendment which inserted Section 238-A to the I&B Code was clarificatory in nature or not. After considering various earlier judgments of this Court, this Court observed thus : (SCC p. 654, paras 26-27) “26. In the present case also, it is clear that the amendment of Section 238- A would not serve its object unless it is construed as being retrospective, as otherwise, applications seeking to resurrect time-barred claims would have to be allowed, not being governed by the law of limitation.

27. We may also refer to a recent decision of this Court in SBI v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , where this Court, after referring to the selfsame Insolvency Law Committee Report, held that the amendment made to Section 14 of the Code, in which the moratorium prescribed by Section 14 was held not to apply to guarantors, was held to be clarificatory, and therefore, retrospective in nature, the object being that an overbroad interpretation of Section 14 ought to be set at rest by clarifying that this was never the intention of Section 14 from the very inception.”

93. As discussed hereinabove, one of the principal objects of the I&B Code is providing for revival of the corporate debtor and to make it a going concern. The I&B Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are https://www.mhc.tn.gov.in/judis 171/192 WA No. 1260 of 2017 etc., batch provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable.”

138. In a recent judgment in Chandra Sekhar Jha Vs Union of India and others reported in 2022 SCC Online SC 269, the Apex Court held as follows:

(ii) against the decision or order referred to in clause (a) of sub-section (1) of Section 129-A, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section (1) of Section 129-A, unless the appellant has deposited ten per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against:

The first proviso provides that the amount required to be deposited should not exceed Rs. 10 Crores. In this regard, the law giver has purported to grant relief to an appellant. The second proviso contemplates that Section 129(e) as substituted would not apply to stay applications and appeals which are pending before the Appellate Authority prior to the commencement of the Finance Act (2) of 2014. The amended provision, as we have already noticed has come into force from 06.08.2014. Therefore, in regard to stay applications and appeals which were pending before any Appellate Authority prior to commencement of The Finance (No. 2) Act 2014, Section 129E as substituted would not apply. Substitution of a provision results in repeal of the earlier provision and its replacement by the new provision.

11. As far as the argument of the appellant that for the reason that the incident which triggered the appeal filed by the appellant took place in the year 2013, the appellant must be given the benefit of the power available under the substituted provision, it does not appeal to us. The substitution has effected a repeal and it has re-enacted the provision as it is contained in Section 129E. In fact, the acceptance of the argument would involve a dichotomy in law. On the one hand, what the appellant is called upon to pay is not the full amount as is contemplated in Section 129(E) before the substitution. The order passed by the Commissioner is dated 23.11.2015 which is after the substitution of Section 129E. The appellant filed the appeal in 2017. What the appellant is called upon to pay is the amount in terms of Section 129E after the substitution, namely, the far lesser amount in terms of the fixed percentage as provided in section 129E. The appellant, however, would wish to have the benefit of the proviso which, in fact, appropriately would apply only to a case where the appellant is maintaining the appeal and he is called upon to pay the full amount under Section 129E under the earlier https://www.mhc.tn.gov.in/judis 174/192 WA No. 1260 of 2017 etc., batch avtar.

12. We would think that the legislative intention would clearly be to not to allow the appellant to avail the benefit of the discretionary power available under the proviso to the substituted provision under Section 129E.... ”

139. In the present case, the mischief is two in numbers. Firstly, the one identified by the State and the other, the counter mischief occasioned by their curative action and implementation of the proviso by the department. The end result is that the legislature decided to restore the original position with respect to section 19 (2) (v) by omitting and substituting with a new provision to remove the mischief caused by wrongful implementation. The actual intention of the legislature is to be derived only by interpretation of the provision to find out its actual applicability and decide whether it is curative or substantive. As already seen, the original provision along with the proviso was omitted and a new provision was substituted. The word “retrospective” would mean “to look back” or “to go back in time”. A curative provision is held to be effective from a date prior to which it was enacted and so, will have a retrospective effect. As evident from the correct statement of objects and reasons and also from the contention of the department that the amendment was brought in only to cure the defect and when it caused adverse effects, the same was withdrawn and substituted with a new provision, the time in that case is reversed. The amendments restore the benefit to all the dealers effecting interstate sale. As https://www.mhc.tn.gov.in/judis 175/192 WA No. 1260 of 2017 etc., batch rightly pointed out by the counsel for the respondents, the subsequent amendment is in the form of “Declaration” reiterating that the provision is to be read as it stood before the 2013 amendment. Upon consideration of the materials placed before us and for the reasons stated above, the amendment to Section 19 (2) brought about in the year 2015 is held to be curative in nature.

Though we disagree with the reasoning of the learned Judge as to the interpretation placed on the scope of Amendment to Section 19(2) vide Act 28 of 2013, in the light of the finding that Amendment Act 5 of 2015 is curative / declaratory in nature and would thus relate back to 11.11.2013, resultantly, the position insofar as the right of the manufacturers to avail ITC is, it becomes an absolute right, once the inputs are used in the manufacture or processing of the goods within the State, the subsequent event of the manufactured goods being sold by way of inter-state/ intra-state sale would have no bearing nor does it result in imposing any limitation/restriction or whittle down the right to ITC earned in terms of Section 19(2)(ii) or 19(2)(v) of the TNVAT Act in the interregnum period.

140. In the light of the view expressed by us on the scope of the curative/ declaratory nature of Amendment to Section 19 (2) vide Act 5 of 2015, there is a possibility that the State may have to deal with the claims of refund on account of excess ITC to the credit of the assessees, consequent to the above https://www.mhc.tn.gov.in/judis 176/192 WA No. 1260 of 2017 etc., batch view. It is thus, necessary to clarify the impact of the view expressed by us, on the claim of refund.

141. The first question which arises for consideration is as to whether the doctrine of "unjust enrichment" would apply in the absence of an express provision incorporating the same. Stated simply, "unjust enrichment" means retention of a benefit by a person that is unjust or inequitable. It occurs when a person retains money or benefits, which in justice, equity and good conscience, belong to someone else. The doctrine of "unjust enrichment", therefore, is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery under the said doctrine arises, where retention of a benefit is considered contrary to justice or against equity. The juristic basis of the obligation is not founded upon any contract or tort, but upon a third category of law, namely, quasi-contract or the doctrine of restitution. The doctrine of "unjust enrichment" is based on equity and has been accepted and applied in several cases. The said doctrine would apply even in the absence of statutory provision incorporating the same. The relevant portions of the judgment of the Hon'ble Supreme Court in Sahakari Khand Udyog Mandal Ltd. vs. CCE & Customs reported in (2005) 3 SCC 738 are usefully extracted below:

142. The above position was reiterated in the case of State of Maharastra and others vs. Swanstone Multiplex Cinema Private Limited reported in (2009) 8 SCC 235 wherein it was held as under:

(emphasis supplied)

143. The second question which may possibly arise is, whether “unjust enrichment” would apply to taxes paid on raw material and captively consumed in the manufacture of finished goods within the State. The said question stands resolved by the decision of the Hon'ble Supreme Court in the case of Union of India and others vs. Solar Pesticides Private Limited and another reported in (2000) 2 SCC 705 in which, while holding that the doctrine of "unjust enrichment" would apply to duty paid on raw materials and captively consumed, it was held that “passing of incidence of duty to any other person may be direct such as when the goods imported are themselves sold and the burden of tax thereon is passed on to the buyer or it may be indirect when the goods imported are captively consumed by importer himself and the duty paid thereon is added to the price of the finished goods which are sold to others”. The following passage of the said judgment would make the said https://www.mhc.tn.gov.in/judis 179/192 WA No. 1260 of 2017 etc., batch position clear:

(emphasis supplied)

144. Following the above judgment of the Hon'ble Supreme Court in Solar Pesticides Private Limited, the doctrine of "unjust enrichment" was applied to capital goods used captively in the case of Commissioner of Central Excise, Chennai vs. Grasim Industries reported in (2015) 14 SCC 1, the relevant paragraph of which is profitably reproduced below:

(emphasis supplied)

145. It is also useful to refer to the Judgment of the Apex Court in A. Venkata https://www.mhc.tn.gov.in/judis 180/192 WA No. 1260 of 2017 etc., batch Subbarao v. State of A.P. , (1965) 2 SCR 577 : AIR 1965 SC 1773 while dealing with the claims relating to tax that was illegally retained.

“49. Besides, if there is no legal basis for these demands by the Government we consider that it is not possible to characterise them as anything else than as taxes. They were imposed compulsorily by the executive and are sought to be collected by the State by the exercise inter alia of coercive statutory powers, though these latter are vested in Government for very different purposes. We are clearly of opinion that the fact that agreements were taken from some of these merchants affords no defence to their claim for refund.

53. It was submitted by the learned Counsel for the appellants that it was not Article 62 that applied to a suit making a claim of this nature but the residuary Article 120 which runs:

is provided elsewhere in this schedule.

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As Article 120 can apply only if no other specific article were applicable, we have to examine the question whether there is any other specific article applicable and in particular whether the language of the first column of Article 62 covers a suit making a claim of the nature made in the plaints before us. The contention urged on behalf of the appellant in Civil Appeals 306 and 644 of 1962 was that the Article refers to “money payable by the defendant to the plaintiff” only in those cases where “the money was received by the defendant for the plaintiff's use”. The latter condition that the money which is sought to be recovered must have been received by the defendant for the plaintiff's use should, it was urged, be literally satisfied before that Article could be applied. In other words, the contention was that that Article could not apply unless at the moment when a defendant received the money, he received it specifically for the use of the plaintiff. On the other hand, the rival construction suggested by the respondent was that the language of the Article had reference to the action “for money had and received” as known to the English Law, and that the reference to the https://www.mhc.tn.gov.in/judis 181/192 WA No. 1260 of 2017 etc., batch receipt being for the plaintiff's use was a technical term of English pleading and law which imposed upon a defendant who received money in circumstances which in justice and equity belonged to the plaintiff rendered its receipt a “receipt by the defendant to the use of the plaintiff”. Here, it was pointed out, the money was received by the defendant from the plaintiff which the plaintiff was not bound in law to pay but which he was compelled or forced to pay because of the threats or apprehension of legal process. The circumstances, therefore, in which the money was received were, it was said, such that notwithstanding that the receipt by the defendant purported to be for his own benefit still it was money which at the very moment of the receipt in justice and equity belonged to the plaintiff, and that was the whole basis of the plaintiff's claim on the merits.

54. The questions for consideration, therefore, are: (1) Does Article 62 embody the essential elements of the action known in English Law and pleading as the “action for money had and received to the plaintiffs use?” (2) Does the fact that at the moment of receipt the defendant intended to receive the money for his own benefit and not for the use of the plaintiff render the Article inapplicable? Stated in other terms is a literal compliance with the words that the money must have been received by the defendant for the plaintiff's use necessarily before the Article applies, or is it sufficient that the circumstances of the case are such that the plaintiff being entitled in equity to the money, the law would impute to the defendant the intention to hold it for the plaintiffs use and compel a refund of it to the plaintiff.

56. The doctrine on which the action for “money had and received” was based was propounded by Lord Mansfield in Moses v. Macferlan [(1760) 2 Burr 1005] where it was explained that it lay “for money which ex aquo et bono the defendant ought to refund” and in a later case [Sadler n Evans, (1760) 4 Burr 1984] as “a liberal action, founded on large principles of equity, where the defendant cannot conscientiously hold the money”. In later decisions it was said to be based not merely on an equitable doctrine but was a Common Law right [ See for instance Royal Bank of Canada v. Reh, 1913 AC 283] . The jural basis on which the action was originally supported, was a promise to pay by the defendant implied or imputed by law. Lord Mansfield explained:

Conclusion.

147. Therefore, the position as regards section19(2)(ii) and the proviso inserted vide Act 28 of 2013 and its subsequent omission vide Amendment Act 5 of 2015 and the claim of refund, shall be examined in the light of the principles as set out above. To that extent, the appeals filed by the State are partly allowed.

148. Insofar as W.A Nos.1446 and 1447/2021 are concerned, the same have been preferred against the orders of the learned Judge dismissing the writ petitions as barred by limitation, based on the decision of the Apex Court in https://www.mhc.tn.gov.in/judis 185/192 WA No. 1260 of 2017 etc., batch Glaxo Smith Kline Consumer Health Care Pvt lTd.

149. It is brought to the knowledge of this court, a subsequent judgment of a Co-ordinate Bench of this court in W.A No.493/2021, wherein after considering the observations of the Hon’ble Apex Court, it was held that "no bar has been imposed by the Apex Court in entertaining a writ petition under Article 226 of the Constitution of India” and the same is quoted below for ready reference:

https://www.mhc.tn.gov.in/judis 186/192 WA No. 1260 of 2017 etc., batch

15. ........ The High Court may accede to such a challenge and can also non suit the petitioner on the ground that alternative efficacious remedy is available and that be invoked by the writ petitioner. However, if the writ petitioner chooses to approach the High Court after expiry of the maximum limitation period of 60 days prescribed under Section 31 of the 2005 Act, the High Court cannot disregard the statutory period for redressal of the grievance and entertain the writ petition of such a party as a matter of course. Doing so would be in the teeth of the principle underlying the dictum of a three Judge Bench of this Court in Oil and Natural Gas Corporation Limited (supra). In other words, the fact that the High Court has wide powers, does not mean that it would issue a writ which may be inconsistent with the legislative intent regarding the dispensation explicitly prescribed under Section 31 of the 2005 Act. That would render the legislative scheme and intention behind the stated provision otiose. ......

19........ Pertinently, no finding has been recorded by the High Court that it was a case of violation of principles of natural justice or non compliance of statutory requirements in any manner. Be that as it may, since the statutory period specified for filing of appeal had expired long back in August, 2017 itself and the appeal came to be filed by the respondent only on 24.9.2018, without substantiating the plea about inability to file appeal within the prescribed time, no indulgence could be shown to the respondent at all.”

6. On a reading of the above extracted paragraphs, it is seen that the Hon'ble Supreme Court, after referring to the decision of the Constitution Bench in the case of Thansingh Nathmal, held that although the power of the High Court under Article 226 of the Constitution is very wide, the Court must exercise self imposed restraint and not entertain the writ petition. Further, in paragraph 15, the Hon'ble Supreme Court observed that the High Court may accede to such a challenge and can also non suit the petitioner on the ground that alternative efficacious remedy is available and that be invoked by the writ petitioner. In addition, in paragraph 19, the Hon'ble Supreme Court took note of the fact that when the High Court refuses to exercise the jurisdiction under Article 226 of The Constitution of India, it would be necessary for the Court to record that there was no case of violation of the principles of natural justice or non-compliance of statutory requirements in any manner.

7. Therefore, there are certain broad parameters, within which, the Court has to exercise its jurisdiction under Article 226 of The Constitution of India, which read as hereunder :

https://www.mhc.tn.gov.in/judis 187/192 WA No. 1260 of 2017 etc., batch

(ii) if there is unreasonableness in the action of the Statutory Authority;

(iii) if perversity writs large in the action taken by the Authority;

(iv) if the Authority lacks jurisdiction to decide the issue and

(v) if there has been violation of the principles of natural justice, the Court will step in and exercise its jurisdiction under Article 226 of The Constitution of India.

8. Further, it would be highly beneficial to refer to the celebrated decision of the Constitution Bench of the Hon'ble Supreme Court in the case of Mafatlal Industries Ltd. Vs. Union of India [reported in 1997 (5) SCC 536] wherein it was held that the jurisdiction of the High Courts under Article 226 and that of the Hon'ble Supreme Court under Article 32 of The Constitution of India could not be circumscribed by the provisions of the Enactment (Central Excise Act) and they would certainly have due regard to the legislative intent evidenced by the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the Act. Further, the Court directed that the writ petition would be considered and disposed of in the light of and in accordance with the provisions of Section 11B of the Central Excise Tax Act and for such a reason, the power under Article 226 of The Constitution of India has to be exercised to effectuate rule of law and not for abrogating it.

9. In the light of the above, we have no hesitation to hold that the observation of the learned Single Judge to the effect that there is absolute bar for entertaining a writ petition does not reflect the correct legal position. Hence, we are inclined to interfere with the observation made in the impugned order.”

150. With utmost respect, the Hon’ble Supreme Court has held that such writs should not be entertained as a matter of course, even though, the court has wide powers under Article 226 of the Constitution. The writ court ought to have seen that the High Court under Article 226 of Constitution is rather circumscribed by the theory of laches and not by limitation, because the Constitution is above a statute as held by the Apex Court in the Judgment in the matter of Samjuben Gordhanbhai Koli Vs State of Gujarat , reported in MANU/SC/0826/2010. The effect of “laches” depends upon the facts of each case and is left to the discretion of the court to either reject or entertain a writ https://www.mhc.tn.gov.in/judis 188/192 WA No. 1260 of 2017 etc., batch petition. In taxing matters, whenever a levy or demand is made without authority of law, the court would be within its power to set aside the same, because any illegality cannot be perpetuated on technicalities. Further, as per the provisions of the TNVAT Act , Section 84 empowers rectification of orders within five years from the date of any order passed by the assessing officer. It is settled law that the error contemplated therein is not just factual, but also legal error. When the power to the statutory authority is granted upto five years to modify the order, it cannot be said that the constitutional authorities would not have power to review the action. Therefore, concurring with the Division Bench, we do not concur with the decision of the Learned Judge to dismiss the writ petitions on the technicality of limitation, that too, when the batch was pending. We set aside the said order of the learned Judge and dispose of the writ appeals in WA.Nos.1446 and 1447/2021 accordingly.

151. In view of the fact that the batch of cases has been partially decided in favour of the assessees and partially in favour of the revenue, the writ petitioners are disposed of, in terms of the ratio laid down by this court.

152. With respect to W.P No 24535 of 2018, the same is disposed of, granting liberty to the petitioner to file an appeal before the appellate authority https://www.mhc.tn.gov.in/judis 189/192 WA No. 1260 of 2017 etc., batch within a period of 30 days from the date of receipt of a copy of this order as the only ground raised therein is that the challenge to the vires of the Act was pending before the Apex Court, which subsequently was held in favour of the Revenue.

153. In the upshot, the appeals filed by the Revenue and the appeals and writ petitions filed by the assessees are partially allowed. There will be no order as to costs. Consequently, connected miscellaneous petitions are closed.