INTERPRETATION BY AUTHORITY FOR ADVANCE RULING UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Interpretation

• Interpretation means the art of finding out the true sense of an enactment by giving the words of the enactment their natural and ordinary meaning.
• SALMOND - ‘by interpretation or construction is meant, the process by which the courts seek to   ascertain the meaning of the legislature through the medium of authoritative forms in which it is expressed.’
• Interpretation is a familiar process of considerable significance. In relation to statute law, interpretation is of importance because of the inherent nature of legislation as a source of law.
• The process of statute making and the process of interpretation of statutes are two distinct activities.

Object of interpretation

• The object of interpretation of statutes is to determine the intention of the legislature conveyed expressly or impliedly in the language used.

Principles of interpretation

• The fundamental principle of statutory interpretation is that the words of a statute be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature.

Statutory interpretation                  

• Statutory interpretation is the process by which courts interpret and apply legislation.
• Some amount of interpretation is often necessary when a case involves a statute.
• Sometimes the words of a statute have a plain and straightforward meaning.
• But in many cases, there is some ambiguity or vagueness in the words of the statute that must be resolved by the Judges.
• To find the meanings of statutes, Judges use various tools and methods of statutory interpretation, including traditional canons of statutory interpretation, legislative history, and purpose.
• In common law jurisdictions, the judiciary may apply rules of statutory interpretation both to legislation enacted by the legislature and to delegated legislation such as administrative agency regulations.

Why interpretation requires?

• Justice G.P. Singh pointed out the importance of interpretation of statutes. 
• Legislation in 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.

Essentials of interpretation of a Statute

• To ascertain the correct meaning of the word in a statute.
• If more than one meaning could be derived from the same word or sentence or the provision giving different meaning which will defeat the objectives of the law –there is need to ascertain the real intention of the statute.
• Legislative intent-

• Concept of meaning – what the word ‘means’; and
• The concept of ‘purpose’, ‘object’, ‘reason’, ‘spirit’ pervading through the statute;
• Ongoing exercise as new facts and conditions continue to arise.

Some important points-

• The statute must be read as a whole in context.
• Statue must be construed as effective and workable.
• The process of construction – both literal and purposive construction which highlights that you should shift from literal construction while it leads to absurdity.

Statute

• Constitution;
• Central Acts;
• State Acts;
• Ordinance;
• Bye laws;
• Rules;
• Regulations;
• Notifications;
• Circulars;
• Instructions;
• Clarifications;
• Directions.

Statute – classification

Duration

• Perpetual statute – No duration for this statute unless repealed.
• Temporary statute – Only for a short period after this it will expire.

Nature of operation

• Prospective Effect – effect from the notified date;
• Retrospective effect – effect from the previous period;
• Directory - A directory statute is generally affirmative in its terms, recommends a certain act or omissions, but imposes no penalty on non-observance of its provisions;
• Mandatory - one which compels performance of certain acts and directs that a certain thing must be done in a certain manner or form.

Reference to objective

• Enabling statutes - it is a statute which makes it lawful to do something which would not otherwise be lawful;
• Disabling statutes - restrict or cut down rights existing at common law;
• Permissive statute - allows certain acts to be done without commanding that they be performed;
• Prohibitory statute - which forbids the doing of certain things;
• Codifying Statute - it presents and orderly and authoritative statement of the leading rules of law on a given subject, whether those rules are to be found in statute law or common law;
• Consolidating Statute - to present the whole body of statutory law on a subject in complete form repeating the former statute;
• Curative or validating Statute - to cure defects in the prior law and too validate legal proceedings, instruments or acts of public and private administrative powers which in the absence of such statute would be void for want of conformity with existing legal requirements but which would have been valid if the statute has so provided at the time of enacting;
• Repealing Statute – a statute which either expressly or by necessary implication revokes or terminates another statute is a repealing statute;
• Amending Statute - which makes and addition to or operates to change the original law so as to effect an improvement or more effectively carry out the purpose for which the original law was passed.

Different aids of interpretation

• In the process of interpretation, several aids are used. They may be statutory or non statutory.
• Statutory aids may be illustrated by the General Clauses Act, 1897 and by specific definitions contained in individuals Acts whereas non-statutory aids is illustrated by common law rules of interpretation (including certain presumptions relating to interpretation) and also by case-laws relating to the interpretation of statutes.

Internal aid – which are available in the statute itself-

• Title;
• Preamble;
• Headings;
• Marginal notes;
• Illustrations,
• Punctuations,
• Proviso;
• Schedule;
• Explanation;
• Definition;
• Transitional provisions.

External aid

• Parliamentary material;
• Speech;
• Historical background;
• Report of a committee or commission;
• Official statement;
• Judicial judgments;
• Dictionary meaning;
• Foreign decisions.

Rules of interpretation

• The Court is not expected to interpret arbitrarily and therefore there have been certain principles which have evolved out of the continuous exercise by the Courts.
• These principles are sometimes called ‘rules of interpretation’.

Rules of literal interpretation

• To construe the provisions literally and grammatically giving the words their ordinary and natural meaning;
• Also known as plain meaning rule;
• There should be no additions or substitution of words in the construction of statutes and its interpretation;
• Only one meaning should be derived from the statute.

Literal meaning is subject to the following conditions-

• Statute may itself provide for a special meaning for a term, which is usually to be found in the interpretation section.
• Technical words are given ordinary technical meaning if the statute has not specified any other.
• Words will not be inserted by implication.
• Words may undergo shifting in the course of time.
• It should be remembered that the words acquire significance from their context.

Golden Rule of interpretation

• It is a form of statutory interpretation that allows a judge to depart from a word’s normal meaning in order to avoid an absurd result.
• It is a compromise between the rule of interpretation and the rule of mischief.  To be used in two ways-

• It is applied most frequently in a narrow sense where there is some ambiguity or absurdity in the words themselves.
• It is used in a wider sense to avoid a result that is obnoxious to the principles of public policy.

Mischief Rules

• A rule of statutory interpretation that attempts to determine the legislator’s intention – to determine the mischief and defect – to give ruling to implement the effective remedy.
• In Heydon’s case – the following four points are taken into consideration while interpreting a statute-

• What was the common law before the making of the Act?
• What was the ‘mischief and defect’ for which the common law did not provide?
• What remedy the parliament hath resolved and appointed to cure the disease of the common wealth?
• What is true reason of the remedy?

Rule of reasonable construction

• This rule stresses upon the intention of the legislature to bring up the statute and sensible and not the prima facie meaning of the statute.
• This helps to clear the error caused due to the faulty draftsmanship.

Rule of Harmonious construction

• When there is a conflict between two or more statutes or two or more parts of a statute then this rule is to be adopted.
•  If it is not possible to harmonize the two statutes, then the court is to decide the same and it shall prevail.  There should be consistency.

Important aspects of this rule

• The court must construe the contradictory provisions so as to harmonize them.
• The provision of one section cannot be used to defeat the provisions in another unless the Court, despite all its efforts, is unable to find a way to reconcile their differences.
• When it is impossible to reconcile the differences in contradictory provisions completely, the court must interpret them in such a way so as that effect is given to both the provisions as much as possible.
• It is not a harmonious construction if the interpretation reduces one provision to be useless and not to destroy it or render it to lose.

Rule of beneficial construction

• Beneficial construction is a tendency and not a rule. 
• This principle is based on human tendency to be fair, accommodating and just.
• In one case the Tribunal awarded more number of paid leave to the workers than stated in section 79(1) of the Factories Act.  This has been challenged.  The Supreme Court held that the enactment being welfare legislation for the workers had to be beneficially constructed in favor of the workers.

Rule of exceptional construction

• It stands for the elimination of statutes and words in a statute which defeats the real objective of the statute or makes no sense -‘and’ ‘or’, ‘may’, ‘shall’, ‘must’.

Rule of ‘ejusdem generis’ -  of the same kind and nature

• This rule provides that where words of specific meaning are followed by general words, the general words will be construed as being limited to persons or things of the same general kind or class as those enumerated by specific words.
• This rule applies when-

• The statute contains an enumeration of specific words;
• The subject of enumeration constitute a class of category;
• That class or category is not exhausted by the enumeration;
• The general items follows the enumeration;
• There is no indication of a different legislative intent.

• The Kerala High Court said in construing the words ‘body of individuals’  occurring in section 2(31) of the Income Tax Act, 1961 alongside the words ‘association of persons’, the words ‘body of individuals’ have to be understood in the same back ground, context and meaning given to the words ‘association of persons’.

Noscitur a sociis – it is known from the associates

• The question meaning of a word or doubtful words can be derived from its association with the other words within the context of the phrase. 
• The words in a list within a statute have meanings that are related to each other. 
• In ‘Foster v. Diphways Casson’ – (1887) 18 QBD428, the case involved a state which stated that explosives taken into a mine must be in a ‘case or canister’.  The defendant used a cloth bag.    The Court had to consider whether the cloth bag was within the definition.  The Court held that the cloth bag would not come under the definition because the intention in using ‘case or canister’ was referring to something as same strength as a canister.

Expressio Unius Est Exclusio Alterius

• It means that ‘the expression mention of one thing excludes all others’.
•  It is called as the Negative Implication Rule.
• This rule assumes that the legislature intentionally specified on set of criteria as opposed to the other. 
• This rule is indicated as ‘includes’ or ‘such as’.  
• The Courts have held that this maxim should be disregarded where an expanded interpretation of a statute will lead to beneficial results.

Contemporanea Expositio est optima et fortissinia in lege

• It means contemporaneous exposition is the best and strongest in law. 
• The meaning publicly given contemporary or long professional usage is presumed to be true one, even where the language has etymologically or popularly a different meaning.

Presumptions

• A statute does not have retrospective effect to a date earlier than it becomes law unless otherwise stipulated.
• A statute does not alter the common law.  If it is capable of two interpretations – one involving alteration of the existing law and other is not, the later interpretation is to be preferred.
• If a person is deprived of his property for nationalization, he should be compensated.
• A person shall be given reasonable opportunity of being heard even if such provision is absent in law.
• A statute is not intended to deprive a person of his liberty.
• A statute cannot impose criminal liability without proof of guilty intention.  Now exemptions are there.  Strict liabilities are imposed – example dangerous driving.
• A statute does not repeal the other statute.

Interpretation by Authorities for Advance Ruling

• The proceedings before the Authority for Advance Ruling and Appellate Authority for Advance Rulings are quasi judicial nature.
• The procedure is also a summary procedure.
• However interpretation of statutes is required in some cases. 
• The Authority for Advance Ruling and Appellate Authority for Advance Ruling decided in these about the interpretation of statutes that may be helped the readers of this book.

Interpretation of the term ‘factory’

• IN RE: M/S. WESTERN CONCESSIONS PRIVATE LIMITED - 2019 (11) TMI 399 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA the applicant sought for an advance ruling whether Floating Storage Regasification Unit, where the regasification of the LNG is carried out for delivery to the national grid, will be construed as factory or otherwise.  The Authority for Advance Ruling interpretated the term ‘factory’ wherein they have adopted the definition provided under the Factories Act, 1948 in the absence of the definition of the impugned term ‘factory’ in the GST Act. 

The appellant filed appeal against the findings of the Advance Ruling before the Appellate Authority. 

The appellant relied on the Supreme Court judgment in MSCO PVT. LTD. VERSUS UNION OF INDIA AND OTHERS - 1984 (10) TMI 44 - SUPREME COURT .  In this case the Supreme Court held that while construing a word which occurs in a statute or statutory instrument in the absence of any definition in that very document it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with the subject matter of the statute or statutory instrument, understand it.  It is a hazardous to interpret a word in accordance with its definition in another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject. 

The Appellate Authority for Advance Ruling observed that the interpretation of the Authority for Advance ruling of the term ‘factory’ on the basis of definition provided under the Factories Act, 1948 is contrary to the aforesaid Supreme Court ruling and hence not tenable.

Guidelines on interpretation

• IN RE: M/S. SOUTHERN POWER DISTRIBUTION COMPANY OF AP LTD. - 2019 (11) TMI 1353 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH , the applicant, having a distribution licencee of electricity is of the view that various other activities or services rendered for which they charge separate recoveries from their customers as naturally bundled with distribution of electricity and accordingly those services are also exempted under Entry No. 25 of the notification No. 12/2017 - Central Tax (Rate), dated 28.06.2017.

The Entry No. 25 of the said Notification having heading 9969 deals with the transmission or distribution of electricity by an electricity transmission or distribution utility is exempted from the liability of tax.  The applicant’s view is that the transmission and distribution of electricity is to be considered as composite supply and other activities for which they charge separate consideration from the customers i.e., supply of services such as connection, re-connection, supervision of works, erection of poles, sub stations, transmission lines are to be treated as part of the said composite supply.  The Authority for Advance ruling relied on various judgments on how to interpret such notifications.  The following is the method of interpretation of an exemption notification with respect to various judgments of higher Courts-

• The exemption is a creation of statute and must be construed strictly.
• The operation of exemption notifications had 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.
• A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. 
• In case of doubt or ambiguity the benefit of it must go to the State.
• An exemption notification has to be strictly construed.
• The principles as regards construction of an exemption notification are no longer res integra; whereas the eligibility clause in relation to an exemption notification is given strict meaning whereof the notification has to be interpreted in terms of its language, once assessee satisfies the eligibility clause, the exemption clause therein may be construed liberally.  An eligibility criteria therefore deserves a strict construction, although construction of a condition thereof may be given a literal meaning.
• The notification has to be interpreted on its word.   No words not used in the Notification can be added.

Common parlance

• IN RE: M/S. BAJAJ FINANCE LIMITED - 2019 (8) TMI 31 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA, the appellant contended that any consideration received in lieu of or for the use or retention of a sum of money or other property belonging to another is nothing but interest only.  And interest when considered in relation to money denotes the return or consideration or compensation, and any amount repaid over and above the principal sum of money is interest only. 

The Appellate Authority for Advance Ruling is of the view that the term ‘interest’ is defined in the notification and the settled position of law is that it is open to the Legislature to define words and, if the Legislature has defined it, one cannot go by the meaning in common parlance or what may be called as its ‘natural meaning’.   In case the term has not been defined in the Act, then it can be construed in its common parlance as it is understood.  The different statutes may use the same term for different purpose.  A term or a word may be interpreted in the statute itself for fulfilling the purport and object mentioned therein whereas in another statute it may be defined differently.  Interpretation of a term in one statute, however, cannot be done with reference to its definition contained in another.

• IN RE : CEAT LIMITED - 2018 (5) TMI 699 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA , the Authority for Advance Ruling ruled that it is well settled principle that in interpreting the entries of tax statute, preference should be given to the common parlance meaning and the one defined in local dictionary.  In common as well as in commercial parlance, principle of classification provides that goods should be classified according to their popular meaning or as they understood in their commercial sense and not as per scientific or technical meaning.  How the product is identified by the class or section or people dealing with or using the product is also a test when the statute itself does not contain any definition and commercial parlance would assume importance when the goods are marketable.

Agreeing to obligation

• IN RE: M/S. BAJAJ FINANCE LIMITED - 2019 (8) TMI 116 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA, the appellant contended that pre-fix ‘agreeing to the obligation’ mentioned in clause 5 (e) of Schedule II of CGST Act is to be read with all the three situations mentioned therein and hence there should be specific obligation for toleration of act to invoke this provision.  The Appellate Authority for Advance Ruling did not accept this contention of the appellant. 

The Appellate Authority for Advance Ruling ruled that all the three situations mentioned in the said clause are separated by semi colon followed by word ‘or’.  Thus the three exceptions mentioned therein are not inextricably connected.  Therefore the interpretation of the appellant is not correct legal interpretation.

Trade parlance

• IN RE : EMMBI INDUSTRIES LTD.- 2019 (10) TMI 314 - AUTHORITY FOR ADVANCE RULING - DAMAN DIU & DNH , the Authority for Advance Ruling noted that the section notes and chapter notes sometimes expand and sometimes restrict the scope of certain headings.  In other words, the scheme of the tariff is to determine the coverage of the respective headings in the light of the section notes and chapter notes.  The section notes and the Chapter notes have an overriding force on the respective headings and also have precedence over functional test and commercial parlance for the purpose of classification.  The classification should be done as per the rules of interpretation contained in the Tariff and not as per trade parlance and commercial understanding.  The trade parlance is to be examined only if the tariff entry is ambiguous.

Interpretation of the term ‘includes’

• Section 7(1) of the Act defines the scope of supply.  Section 7(1) provides that for the purposes of this Act, the expression ‘supply’ includes–

1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
2. import of services for a consideration whether or not in the course or furtherance of business; and
3. the activities specified in Schedule I, made or agreed to be made without a consideration.

• The term ‘includes’ is interpreted IN RE : M/S COLUMBIA ASIA HOSPITALS PRIVATE LIMITED - 2018 (8) TMI 876 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA .    It was ruled that the word ‘includes’ in section 7(1) of the Act, gives a wider meaning to the words or phrases in the Statute.  The word ‘includes’ is usually used in the interpretation clause in order to enlarge the meaning of the words in the statute.  When the word ‘includes’ is used in the main statute, it must be construed  as comprehending not only such things as they signify according to their nature and impact but also those things which the interpretation clause declares they shall include.

Rules of interpretation

• IN RE: M/S MAHESHWARI STONE SUPPLYING CO., TANDUR, VIKARABAD - 2018 (6) TMI 458 - AUTHORITY FOR ADVANCE RULING HYDERABAD TELANGANA , the Authority for Advance Ruling ruled that before deciding the classification of goods for which advance ruling was sought it is fair to go through the Rules of Interpretation of Customs Tariff which was made applicable to GST Tariff and General Rules for interpretation of the schedule.  As per these general rules for interpretation, the heading which provides the most specific description shall be preferred to headings providing a more general description.

Interpretation of Tariff Act

• IN RE : SHIVA WRITING COMPANY PVT. LTD. - 2019 (3) TMI 705 - AUTHORITY FOR ADVANCE RULING - WEST BENGAL , the Authority for Advance Ruling observed that the Rules for interpretation of the Tariff Act clearly states in General Explanatory Notes 1 that ‘Where in Column (2) of the Schedule, the description of an article or group of articles under a heading is preceded by ‘- ‘, the said article or group of articles shall be taken to be a sub classification of the article or group of articles covered by the said heading.  Where, however, the description of an article or group of articles is preceded by “- -“, the said article or group of articles shall be taken to be a sub classification of the immediately preceding description of the article or group of articles which has “-“.  Where the description of an article or group of articles is preceded by “- - -“or “- - - -“. The said article or group of articles shall be taken to be a sub classification of the immediately preceding description of the article or group of articles which has “-“ or “- -“.

In other words, descriptions under “-“(single dash) are first to be considered for sub classification under a Heading first, before proceeding to further classify under “- -“ (double dash).  Article whose description are preceded by a “- - -“ (triple dash) or “- - - -“ (quadruple dash) are sub classifications of the immediately preceding single dash or double dash as the case may be.

Silicon Wafers

• IN RE: JUPITER SOLAR POWER LTD. - 2018 (11) TMI 401 - AUTHORITY FOR ADVANCE RULING HIMACHAL PRADESH, the applicant is engaged in manufacturing of solar photovoltaic cells.  For the manufacture of photovoltaic cells, the applicant procures (imported as well as indigenous) various parts/items/materials that are essential components of photovoltaic cells.  Out of the items Silicon Wafers is the most important item.   All the said parts are procured for their independent use, which attract different rates of GST. 

In regard to interpretation, the Authority for Advance Ruling observed that Rule 3(a) of the general rules of interpretation of Customs Tariff Act, 1975 states that the heading which provides the most specific description shall be preferred to a heading providing a more general description.  The Silicon Wafers fall ‘specifically’ in Chapter Heading 3818, which is most specific entry whereas solar photovoltaic cells fall in Chapter 8541; moreover machines and apparatus for the manufacture of wafers falls under Chapter Heading 8486.  In this case the Silicon Wafer falls specifically in Chapter Heading 3818.

Meaning of ‘per unit’

• IN RE: M/S. ISPRAVA HOSPITALITY PRIVATE LIMITED - 2020 (7) TMI 255 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, the applicant is engaged in the activity of giving Luxurious Villa on rent to its clients in Goa and Tamil Nadu and intending to initiate the said business in Maharashtra. Each Villa consists of two to six rooms and is offered to clients on per day basis for entire Villa.   The ‘per day rent’ of an entire villa will be more than seven thousand five hundred at any given point of time in a year. However, if one may calculate the cost per room per villa then at any given point of time, it would be less than seven thousand five hundred.  Two different clients will not be able to book the same Villa for the same day and time and there will be no option of booking particular rooms of the Vila, interested clients need to book entire villa.   As per Notification No. 11/2017 – Central Tax (Rate), dated 28.06.2017, as amended from time to time, service provided by applicant falls within the ambit of HSN Code 9963 which appears under Entry No. 7 of the said notification.  In the aforesaid notification, supply value of Per Unit of accommodation decides the rate for levy of GST.

The applicant sought for advance ruling on what is the meaning of ‘Per Unit’ as specified under Chapter Section or Heading - 9963 under entry no. 7 of the Notification No. 11/2017 - Central Tax (Rate), dated 28 June 2017.

The  Authority for Advance Ruling observed that the applicant has no intention to rent out the rooms inside the Villa, individually and therefore there is no question of the individual rooms being treated as ‘per unit’ as per the above said Notification.   The ‘pattern of renting’ in relation to usage of the property provides the ‘context’ or ‘perspective’ in determination of unit of accommodation. In a hotel, a room constitutes ‘a unit’ whereas in a hostel, a bed may constitute ‘a unit’, as tariff is also declared accordingly. In the present case the applicant, themselves have mentioned that, rent is proposed to be offered to clients on per day basis for entire villa. The two different clients will not be able to book the same villa and there will be no option of booking particular room of the villa. Interested clients need to book the entire villa.

The Authority for Advance Ruling ruled that villa per say is ‘indivisible unit’ in applicant’s business parlance, and the declared tariff is only for the villa as a whole.