Krishna: Parth! The nature of legislation is indeed fascinating. At times, it favors the taxpayer, and at other times, it does not. However, when the legislature corrects its own errors, its true intent becomes clear. Let me explain this with some examples.
Arjuna: Keshava! What are these examples that illustrate this truth?
Krishna: Consider the first example—earlier, Rule 14 of the CENVAT Credit Rules, 2004 stated that if CENVAT credit was wrongly taken, wrongly utilized, or erroneously refunded, it could be recovered along with interest. In the case of Union of India vs. Ind-Swift Laboratories Limited (2011 (265) ELT (SC)), the Hon’ble Supreme Court ruled that “Rule 14 specifically provides that where CENVAT credit has been taken OR utilized wrongly OR has been erroneously refunded, the same along with interest would be recovered.”
However, this was not the legislative intent. Hence, from 01.04.2012, the word “OR” was replaced with “AND”, making it clear that only CENVAT credit that was wrongly taken and utilized would be recovered along with interest. If the credit was merely taken but not utilized, no interest was payable.
Arjuna: Achyuta! Does this mean that the legislative intent was not initially clear?
Krishna: Yes, Parth! Consider another example—the case of Cadila Healthcare Ltd. (2013 (30) S.T.R. 3 (Guj.)), where the Gujarat High Court ruled that service tax paid on commission given to agents does not qualify as an input service, and thus, credit of such tax could not be availed.
However, the legislative intent was different. To nullify this judgment, an Explanation was inserted in Rule 2 of the CENVAT Credit Rules, 2004, clarifying that sales promotion, including services provided by way of selling dutiable goods on a commission basis, would be eligible for CENVAT credit.
Arjuna: Govinda! Has something similar happened in the CGST Act, 2017 as well?
Krishna: Indeed, Parth! A similar situation arose with Section 50 of the CGST Act, 2017. Initially, it was unclear whether interest should be paid on the entire tax liability or only on the portion paid through the electronic cash ledger. Later, the legislature amended Section 50 and made it effective from 01.07.2017, clarifying that interest is payable only on the portion of tax paid by debiting the electronic cash ledger.
Arjuna: Madhusudana! This seems to be a recurring theme where the legislature corrects its intent. Are there any other instances?
Krishna: Yes, Parth! Consider the Safari Retreat Pvt. Ltd. judgment dated 03.10.2024. The Hon’ble Supreme Court, in Para 44 of its judgment, stated that “If the legislature intended to give the expression ‘plant or machinery’ the same meaning as ‘plant and machinery’ as defined in the Explanation, it would not have specifically used the term ‘plant or machinery’ in Section 17(5)(d). The legislature has consciously made this distinction.”
Now, the legislature has corrected its intent by amending Clause (d) of Section 17(5) to replace ‘plant or machinery’ with ‘plant and machinery’, effective from 1st July 2017.
Arjuna: Janardana! This means that the legislature often revises its words to clarify its real intention?
Krishna: Indeed, Parth! Sometimes, these legislative amendments benefit the taxpayers, and at other times, they do not. However, when interpreting tax laws, courts must not merely rely on the wording but must also consider the intent behind them. The true essence of law lies in its purpose, not just in its literal expression.
Arjuna: Vasudeva! Your wisdom is enlightening and profound. I shall remember this knowledge forever.
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CA Himanshu Singh, Kanpur | mr.himanshu@icai.org
Author Bio
Courts should know telepathy to find legislative intent behind poor drafting !