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Correct interpretation of a law is one of the keys to resolve the litigations, but it is easier said than done. The service providers as well as the department are constantly trying and interpreting the statute as it suits them. The main object must be to find the correct intention of the lawmakers. Legal remedies are sort out in such situations. Interestingly, as soon as the courts decide upon such intentions and draw some conclusion, the department is keen to come out with a clarification or a circular giving a twist to the law itself. In case, this is not enough to impose tax or to recover duties, the department has now adopted a new modus operandi of bringing in legislative change incorporating all such provisions which were left unattended or were unintended in the first place and undoing the whole judicial process and efforts.

This has been recently seen in the case of renting of immovable property services as well as construction services. As regards the applicability of the circulars is concerned, the circulars issued by the Central Board of Excise and Customs are binding on the department. In other words, the circulars are not a binding on the assesee or service providers.

However, if a circular lays down a concessional or a beneficial treatment, then one can follow such a concession even though the legal interpretation may be slightly vary. Contrary to this, if the Circular prescribes an adverse treatment or the circular goes against the assesee, one is free to challenge the applicability of the same.

Apart from these, there are certain more principles of interpretation which one has to bear in mind. One provision of an act can't be so construed as to defeat another provision of the act. It's important that several provisions in the act must be read together and as parts of one larger scheme. In order to understand the correct scheme or intention, the provisions in any enactment will have to be read as an integrated whole and should not be read in pieces.

Another aspect in the law of Interpretation is to examine and correctly determine the effective date of particular law, notification or circular. In other words, interpreting as to whether it will have a prospective effect or a retrospective effect.

This is vital for tax calculations and if the any law has retrospective effect, it may create a huge tax burden on the assesee.

Ethically, tax liability from retrospective effect or effective from back date is against the principles of natural justice as in the case of indirect taxes, the tax is to be collected from the customer or client. It is obvious that a client will refuse to pay tax which was not demanded at the time of provision of service or raising an invoice. In recent past, we have seen such retrospective amendments which led to difficulties for many service providers and assesee. It's usually construed that if an explanation is added to a notification, it will have a retrospective effect.Even the circulars with clarifications are to be treated with retrospective effect unless and until specifically mentioned. However, it's not as a rule of the thumb. Recently, an explanation was added in the definition of construction services explaining the meaning of deemed services.It was clarified that it will have prospective effect only, putting aside all speculation on its effective date.

The issues pertaining to interpretation; misinterpretation and dual interpretation will see a decline the day the law makers make a conscious effort to frame the law in a language which is simple, lucid and unambiguous. Till then, keep the fingers crossed.

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Category Service Tax, Other Articles by - MONISH BHALLA 



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