Logics don’t work in tax matters, but interpretation does.

Logics don’t work in tax matters, but interpretation does.

That’s a powerful and nuanced phrase —

“Logics don’t work in tax matters, but interpretation does.”

It captures one of the most fundamental truths about tax jurisprudence: taxation is entirely statutory, not logical; it depends on the letter of the law, not on what seems fair, reasonable, or economically sound.

Let’s unpack this thoroughly in the context of GST and Customs laws, and examine its legal, philosophical, and judicial dimensions.

1. Meaning of the Phrase

The phrase reflects the judicial principle that:

Taxation is a matter of strict interpretation of statutes.
No tax can be imposed or assumed on the basis of logic, equity, or inference.

In tax law, logic, morality, or fairness cannot replace clear statutory authority. Courts repeatedly affirm that:

• The State cannot collect tax merely because it seems equitable or beneficial.
• A taxpayer cannot claim relief merely because it seems logical or just.

This principle arises from Article 265 of the Constitution of India:

“No tax shall be levied or collected except by authority of law.”

Thus, law — not logic — creates and governs tax liability. The interpretation of the law, not its perceived fairness, determines the outcome.

2. Philosophical Basis: Rule of Law vs. Logic of Revenue

Tax law embodies the rule of law — every imposition or relief must trace back to a clear legislative mandate.

In other branches of law (like torts or contracts), logic, equity, or common sense often fills gaps. But in taxation:

• The charge of tax, the person liable, the rate, and the time of levy — all must be explicitly defined.
• Courts cannot supply omissions, fill gaps, or extend meaning based on logical inference.

Hence, “logic” — meaning subjective fairness or economic reasoning — is irrelevant unless the statute allows such interpretation.

3. Judicial Endorsement of This Principle

A. Key Supreme Court Rulings

1. Cape Brandy Syndicate v. IRC (1921)

“In a taxing Act, one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax.”
(Often cited by Indian courts.)

1. A.V. Fernandez v. State of Kerala (1957 AIR 657)

The Supreme Court held that the liability to tax must be founded on a clear statutory provision, not on moral considerations.

1. Commissioner of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1

Constitution Bench held that ambiguity in tax exemption must be resolved in favour of the Revenue, not the assessee.
The judgment reiterated that strict interpretation is the rule — logic or equity has no place.

1. McDowell & Co. Ltd. v. CTO (1985) 3 SCC 230

While condemning tax evasion, the Court still maintained that tax planning within the law is permissible — because the law, not logic, defines liability.

1. Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667

“The intention of the legislature in a taxing statute is to be gathered from the language of the provisions...
There is no room for any presumption or intendment. Nothing is to be read in, nothing is to be implied.”

4. Application to GST Law

A. Statutory Nature of GST

GST, though modern and technology-driven, remains a codified fiscal law. Every element — supply, rate, place of supply, and input credit — depends on clear legislative language.

Example 1 – Concept of “Supply”

• Section 7 of the CGST Act defines “supply”.
• Many transactions (e.g., free samples, branch transfers) may “logically” appear non-taxable, but if they fall within the statutory definition, tax must apply — regardless of business logic.
• Conversely, if something is not included in “supply,” it cannot be taxed even if it seems to make fiscal sense.

Example 2 – Input Tax Credit (ITC)

• ITC is a concession, not an inherent right.
• Courts (e.g., Jayam & Co. v. State of Tamil Nadu, 2016) have held that it exists only to the extent allowed by law, not as a matter of equity or logic.
• “Logic” would suggest that all taxes paid should be credited — but jurisprudence holds that only those permitted by statute are claimable.

Example 3 – Composite vs. Mixed Supply

• Logically, one might think a package deal (e.g., hotel + breakfast + Wi-Fi) should be split proportionately.
• However, under Section 8 of the CGST Act, the entire supply is taxed based on its principal component, as interpreted by statute — not business logic.

Example 4 – Place of Supply Rules

• Even if the service is performed in India but consumed abroad, logic may suggest exemption; however, place of supply rules (Section 13) strictly govern taxation.

Hence, in GST, logical arguments yield to statutory language.

5. Application to Customs Law

A. Levy and Collection

Customs duty arises only when goods cross the customs frontier (Sections 12 & 14, Customs Act, 1962).
No matter how logical it seems to tax certain imports or exempt others, the legal event of import/export defines liability.

Example 1 – Valuation

• The “transaction value” under Section 14 is binding unless proven false.
• A logical argument that “market value is higher/lower” has no effect unless the Rules provide for such adjustment (Eicher Tractors Ltd. v. Commissioner of Customs, 2000).

Example 2 – Classification Disputes

• The common parlance test and HSN classification control, not commercial logic.
• Example: Dunlop India Ltd. v. Union of India (1976) — classification must follow statutory entry, not industrial perception.

Example 3 – Exemptions and Notifications

• Exemptions are privileges, not rights.
• Courts have consistently ruled that ambiguity in exemption notifications must favour the Revenue, not the importer (Dilip Kumar & Co., 2018).

Thus, customs jurisprudence prioritises textual clarity over commercial logic.

6. Why Logic Often Fails in Taxation

1. Taxation is a Creation of Statute
   • There is no tax in equity or fairness; it must be expressly enacted.
2. Fiscal Policy vs. Legal Interpretation
   • Policy decisions (rates, exemptions) may follow economic logic, but once enacted, courts cannot modify or reinterpret them for equity.
3. Uniform Application Required
   • Allowing “logical” reasoning in tax cases creates inconsistency; strict interpretation ensures predictability.
4. Judicial Discipline
   • Courts must apply the black-letter law, not substitute legislative will with judicial discretion.

7. Limited Role of Logic in Interpretation

While the general rule excludes logic, interpretation allows some contextual reasoning — not to rewrite the law, but to resolve ambiguity.

Illustration

• Where statutory language is ambiguous, logic of purpose (purposive interpretation) can clarify intent.
  Example: Rajasthan State Industrial Development Corp. v. CIT (1997) — purposive reading applied to grant deduction consistent with legislative intent.
• However, this logic operates within the statute, not outside it.

Thus:

Logic cannot create tax liability.
But logic may guide how a clear tax law is interpreted.

8. Contemporary Relevance under GST and Customs

9. Conclusion

“Logic may appeal to the mind, but in tax law, only interpretation appeals to justice.”

• Tax law is technical, statutory, and precise — logic and equity are subservient to the text of the law.
• The courts’ role is not to make the law logical, but to make its interpretation consistent and predictable.
• GST and Customs jurisprudence exemplify this — where the language of the statute, not its economic reasonableness, determines liability and relief.

In sum:

Logic stops where tax law begins;
interpretation starts where text ends.

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