The Interpretation Maze in Indian Tax Laws: Unproductive and A Barrier to Economic Growth!

A Veteran’s Perspective

Having practised, initially as a Chartered Accountant and then as an Advocate, for more than four decades, I recently looked back and made a sobering calculation on how my professional time has been spent. The result was startling: one-fifth of my professional career has been consumed in trying to decipher what the tax statutes are saying. Much of that time has gone into solitary study or debates with fellow professionals.

I’m certainly not alone in this pursuit. Across India, from modest study circles to large-scale conferences hosted by institutions such as the ICAI and its Chapters,CII, PHD, FICCI, and Bar Councils, I’ve witnessed thousands of professionals grappling with the same tax provisions—week after week. If I have spent such an enormous amount of time, I can safely assume a similar quantum of hours must have been spent by countless other professionals as well.

You might wonder whether I am exaggerating the numbers. Friends, certainly, the actual time spent may vary, depending on the nature of activities handled by a professional. A litigation-focused tax practitioner, for instance, would naturally devote more time to interpretational work than someone engaged primarily in compliance.

Let us illustrate this with a real example. In the Safari Retreats case [2019 (5) TMI 1278 - ORISSA HIGH COURT], the Orissa High Court, in April 2019, held that a taxpayer was eligible for input tax credit (ITC) on inputs and input services used in the construction of immovable property, provided the final use was for letting out the premises. The Court reasoned that if the assessee is liable to pay GST on rental income, then, in principle, the benefit of ITC should be available, since the very purpose of credit is to avoid cascading taxes. However, more than five years later, in October 2024, the Hon’ble Supreme Court, while interpreting the term “plant and machinery,” arrived at a nearly identical outcome, though based on a different line of reasoning, and held that such ITC was not blocked under Section 17(5)(d) of the CGST Act. Then came March 2025: the Government introduced a retrospective amendment to Section 17(5)(g), effective from 1 July 2017, effectively nullifying the Supreme Courts interpretation. The question we must ask ourselves is:how much time was consumed by professionals, businesses, and even the judiciary in interpreting, debating, and complying with a provision—only to arrive at a result that was legislatively overruled after six years, yielding no lasting clarity?

Similarly, the limitation disputes under income tax law have become a major source of litigation. The tax statutes in India, particularly the Income Tax Act and now GST laws, are not merely complex—they are layered with ambiguity, contradictions, and overlapping interpretations. The effort to stay updated and compliant is so enormous that it leaves little time for innovation or business planning.

With this BRIEF NOTE—presented mostly in bullet form—certainly some professional colleagues may criticize me for questioning what essentially provides us with endless professional opportunities, but the intention is not to undermine the profession. Rather, it is to highlight the need to direct our collective expertise toward ease of doing business, productive and nation-building efforts.

The Core Questions/Issues

In exploring this interpretation maze, certain fundamental questions naturally arise. Let’s examine them critically:

1.  Is the situation prevalent across the globe?

In my view - No; at least to this extent. While tax systems everywhere involve a degree of complexity, the sheer volume, vagueness, and frequency of change in India set it apart. Developed jurisdictions often ensure a more cohesive and predictable framework, where ambiguity is addressed with prompt clarifications and legislative consistency. In India, however, the flood of notifications, circulars, and judicial precedents only adds to the confusion.

2.  Is resolving this issue a difficult task?

Let’s draw a contrast. When we read the Shri Bhagavad Gita, authored by Maharishi Vyas, its profound spiritual meanings naturally invite multiple interpretations, especially in his absence today: of course, we have no choice.

But the tax laws — their legislative intent is contemporary and well-documented—often recorded in GST Council Agendas, explanatory notes, and Parliamentary reports. If these documents are maintained transparently and consistently, interpretation should not be an endless puzzle. The onus is on lawmakers to ensure accessibility and clarity of legislative history.

3.  Do we really have this much time to spend?

One of my friends—also a practicing CA— said if laws become simple, professionals might be out of work --- and in a country with such a large population and professionals, perhaps that isn’t desirable. While his comment is tongue-in-cheek, it touches on a deeper truth: our energies are diverted toward survival through interpretation, not value creation. Instead of becoming enablers of growth and innovation, professionals often become full-time interpreters of flawed law.

4.  Is there a growing lack of trust in the Written Law?

An equally troubling trend is the erosion of trust in the written law itself. Over the years, professionals and taxpayers have increasingly turned to the judiciary—not just for interpretation, but to challenge the validity of provisions outright. This growing reliance on judicial forums stems from a belief that the law, as enacted, is either unclear, unfair, or unconstitutional in part. When faith in the letter of the law weakens, and the courtroom becomes the default forum for resolution, it reflects a systemic credibility gap.

5.  Does endless interpretation add any real value?

Sadly, No. Eventually, a court clarifies the issue by delivering a verdict or the Government amends the law—often retrospectively—rendering years of debate redundant. The opportunity cost is massive, and the legal system’s bandwidth remains overburdened.

6.  Whether Time is not an essence?

Imagine a scenario where a legal issue arises on day one. The adjudicating authority takes two years to raise a demand. The matter then goes through multiple layers of appeal—first to the Appellate Authority, then to the High Court, and finally to the Supreme Court—each stage consuming another couple of years. By the time a conclusive verdict is reached, several years may have passed. In the meantime, how are businesses expected to treat similar transactions? Should they follow the initial interpretation, the evolving judicial views, or hold off altogether? This prolonged uncertainty stalls decision-making, exposes taxpayers to retrospective risk, and undermines the core objective of legal clarity in a tax regime.

Suggestions for a Growth-Oriented Tax Regime and New Fiscal Horizon

1.  Draft Laws with Simplicity and Clarity

Tax statutes should be written in plain, accessible language. Complex provisions should be supported by practical examples to guide interpretation. Most importantly, the legislative intent behind each section should be explicitly stated and preserved in the statute itself.

2.  Respect institutional boundaries

Policy formulation is the domain of the Legislature, while the Judiciary should only step in under well-defined circumstances. Judicial review should focus mainly on three questions:

      (a)     Are our fundamental rights violated?

      (b)    Is the provision ultra vires the Constitution (or the Act itself)?

     (c)   Does genuine interpretational ambiguity exist—and if so, rather than prolonged judicial interpretation, the matter should ideally be sent back to the Legislature for clarification, because the Court’s verdict might not be acceptable to the government.

3.  Time should be the essence

Legal and administrative clarity should be provided swiftly when issues arise. Prolonged litigation or delayed clarifications serve no one. A statutory or administrative mechanism should be introduced to ensure that disputes or interpretational issues are resolved within a fixed timeframe—say, 12 months—so businesses are not left in limbo.

4.   Avoid retrospective amendments

Any amendment that alters taxpayer rights or liabilities should be prospective in nature. Retrospective amendments should be used only in cases where there is a clear drafting error or technical oversight. Businesses need stability in tax policy to plan effectively, and retrospective changes create uncertainty, unfairness, and distrust.

5.   Harmonise Effective Dates after Conflicting Judgments

In cases where conflicting judicial decisions create interpretational confusion, the date of the final authoritative ruling—such as a Supreme Court judgment—should be treated as the effective date for compliance. This protects taxpayers from being penalised for actions that were in line with the prevailing interpretation at the time.

6.    Respect the honest and compliant taxpayers

Frequent amnesty or waiver schemes, while intended to provide relief, often have the unintended consequence of undermining trust in the system. They create uncertainty in the minds of honest taxpayers, who begin to question whether their timely compliance truly matters. A stable and credible tax regime must uphold discipline, not dilute it. True reform lies in making compliance seamless—not in periodically forgiving non-compliance.

7.    Ensure accountability of erring officials

Officers who violate basic legal safeguards repeatedly—such as breaching natural justice, ignoring procedural timelines, or acting beyond their authority—must face personal accountability. Penalties or career consequences should be introduced to deter continuous misuse of power. A system of checks and balances within the administration will ensure fair treatment of taxpayers and promote a culture of responsible governance.

8.    Role of bureaucracy

I am reminded of the recent remarks of Hon’ble Supreme Court Justice, who is ex-chief justice of Hon’ble Delhi High Court (source: The Times of India). He stated, “Look at the govt of India. It litigates in each and every forum and is the biggest litigant today”. He further stated that, “no govt officer is spending money on litigation and every matter goes up to the Supreme Court. The officer fears he will be censored by the CVC, will have a CBI enquiry. So the matter must be taken to the last court even if it is of Rs. 500/-…. Even if the expenditure of it is of Rs. 50,000/-”. He also added that there is no trust within the bureaucracy, which is unfortunate.

These remarks themselves speak to the situation within the system, which we are also aware.

9.   Prioritize taxpayer convenience

Every reform initiative should begin with a focus on minimising taxpayers’ compliance burden and confusing state. The guiding principle must be to simplify processes, reduce unnecessary interactions with tax authorities, accelerate refunds, and make compliance smooth and predictable. Taxpayer convenience should be a primary design goal—not an afterthought.

Conclusion

India’s tax framework, like any living system of law, always carries a degree of complexity. But complexity should never deteriorate into confusion. The objective is not to eliminate nuance, but to prevent ambiguity from paralyzing compliance and governance. A well-drafted, transparent, and predictable tax regime is far more than a convenience for the business entities and the tax practitioners—it is a foundational requirement for attracting investment, encouraging voluntary compliance, and instilling economic confidence across all sectors. Only when clarity becomes a conscious legislative priority can we hope to redirect our collective professional energies from endless interpretation to purposeful nation-building.

Before concluding, please allow me to share a light-hearted joke about interpretation: -

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