INTERPRETATION OF STATUTES

PROJECT REPORT

MISCHIEF RULE .

SUBMITTED TO: SUBMITTED BY:

Ms.PARWEEN SHARMA ARSHVEER SINGH DHOOT
RAYAT COLLEGE LAW B.Com.L.L.B(Hons)
CHANDIGARH 19603
ACKNOWLEDGEMENT

Presentation, inspiration and motivation have always played a key role in the success of any
venture.The completion of this project requires a lot of guidance and assistance from many people.

I always like to express my special thanks and gratitude to Ms. Parween who gave me the
opportunity and fruitful guidance to do this project. Class lecture helped me a lot to understand the
topic and complete. The project on the topic: Internal Aids To Construction.

I feel to acknowledge my indebtedness and deep sense of gratitude to the entire faculty of UILS
from where I learnt basics of law. All the informal discussions and intellectual support helped me in
the entire duration of this work.

ARSHVEER SINGH DHOOT

INTRODUCTION

Interpretation in its most general sense can be understood as synonymous with explanation. That
being said one has to understand why interpretation is necessary in the legal realm and the legal
meaning attached to the word “interpretation”.

It is to note that irrespective of the fact that the law can be codified or un-codified, the intention
behind interpretation of such law remains the same that is to bring uniformity and the responsibility
of doing so falls to the judiciary. Application of judicial mind is of utmost importance in this regard
but then again question of to what extent such application of judicial mind is desirable or
permissible needs to be scrutinized carefully.

Answering the second question of what is the legal meaning attached to the word “interpretation”, it
is to assert that there isn’t a single exhaustive definition which will truly encompass the true essence
of interpretation in the legal realm.

Renowned Jurist Salmond aptly said that: “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.”2 This definition by Salmond essentially draws out two
of the most important characteristics of interpretation:

A. It is the tool to ascertain, clarify, and explain the legislative intent behind a particular law.

B. The nature of interpretation has a binding element to it which flows from the court’s authority in
this juncture.

There are a plethora of rules that the courts are entitled to follow while interpreting law and
mischief rule is one of the trickiest if not the trickiest among them all.
II. WHAT IS “MISCHIEF” RULE OF INTERPRETATION?

Before analyzing, understanding the “mischief” rule let us first deal with the question of under what
circumstances can mischief rule be applied by the courts as a means of interpreting the law or in
other words the applicability and extent of mischief rule. To answer such question one has to clearly
realize one of the very basic principles of “interpretation”. In this regard let us stress upon the
principle of separation of power which essentially compartmentalizes the three wings of
government, i.e., executive, legislation and judiciary. Thus, it is quite evident that legislation is
supposed to make the law and the judiciary is supposed to ensure the due process of law. This might
be confusing as judiciary is not supposed to make laws and therefore prima-facie the rationale of
entrusting them to interpret the law made by the legislation which the legislation is supposed to do
at the first place will seem dicey if not essentially vague.

The author will like to remind the readers that it is indeed not the work of the judiciary to make
laws and even interpret them but sometimes certain situations arise where it becomes unavoidable
to not interfere with the activities of legislation. This kind of situation arises when a particular law
is ambiguous, vague or has failed to keep up with time and therefore needs the judicial intervention
to remain contemporary and it is in this backdrop that the courts are bestowed with the sacrosanct
duty of interpreting laws and as a consequence of such make new laws as and when required.

The Hon’ble courts while discharging its primary objective of ensuring due process of law merely
reassert and confirm the legislative intent; this bare reading of laws is known as literal interpretation
and is considered to be the “grundnorm” or the default rule. Therefore it is conclusive that the
applicability of mischief rule of interpretation only arises in those cases where legislation has failed
to duly discharge their duties. Mischief rule of interpretation is a discretionary power that the courts
enjoy and use to intervene in the jurisdiction of legislation as a last resort to clarify and mold the
legislative intent to bring out the true essence of such legislation and thereby to meet the ends of
justice and thus must not be mistaken as a default rule of interpretation or a mandate on the court’s
part. In the case of Re Sussex Peerage it was held that the mischief rule should only be applied
where there is ambiguity in the statute.3

After having a basic understanding of the applicability of mischief rule of interpretation, now let us
understand the extent of application of such rule. In this regard the Hayden case (1584) acts as the
supreme authority. The Hayden’s case reported by Lord Coke and adjudicated by the Barons of the
Exchequer laid down the four following rules which the Hon’ble courts are needed to take into
consideration before applying the mischief rule of interpretation:

“That for the sure and true interpretation of all statutes in general, be they penal or beneficial,
restrictive or enlarging of the common law; four things are to be considered –

1) What was the common law before the passing of the Act?

2) What was the mischief and defect for which the common law did not provide?

3) What remedy the Parliament hath resolved and appointed to cure the “disease of the
Commonwealth”.

4) The true reasons for the remedy.”4

Facts of the case

• The appellant is a company engaged in manufacturing and selling of biological products and
medicines. The company is having its registered head office at Calcutta and its laboratory and
factory situated in West Bengal. It is registered as a dealer under the Bengal Finance (Sales
Tax) Act, 1941.

• The products of the company are sold throughout the Union of India and abroad as well. The
goods are dispatched from Calcutta by rail, steamer or air against orders accepted by the
appellant company in Calcutta.

• The appellant company does not have any office, godown, laboratory or any agent or
manager in Bihar. However, on the 24th October 1951, the appellant company received a
letter from the Assistant Superintendent of Commercial Taxes, Bihar wherein the company
 was called upon to take necessary steps to get itself registered under the Bihar Sales Tax Act,
1947 and to deposit Bihar Sales Tax dues as well.

• Then, on 18th December 1951, a notice was issued to the appellant company by the
Superintendent, Commercial Taxes, Central Circle Bihar, Patna issued a notice under Section
13(5) of the Bihar Sales Tax Act, 1947 read with Rule 28. It was mentioned in the notice that
the appellant company is to register itself under the Bihar Sales Tax Act and submit returns
showing its turnover for a certain period as mentioned therein. It was the view of the
authorities that the appellant company was liable to pay tax but was willfully avoiding its
obligation to register itself under the Act.

• The appellant company denied its liability to pay tax on the following grounds-
1. That it was not resident in Bihar

2. That is carried on no business in Bihar and none of its sales took place in Bihar and

3. That it did not collect any sales tax from any person of that State.
• It was contended by the Bihar Sales Tax authorities that under Section 33 of the aforesaid
Act, which was substantially based on Article 286 of the Constitution, provided for all sales
in West Bengal or any other State under which the goods had been delivered in the State of
Bihar as a direct result of the sale for consumption in that State were liable to Bihar Sales
Tax.

• On 29 May 1952, the appellant company was called upon to comply with the notice by 14
June 1952, and it was mentioned that in default of compliance, the Assistant Superintendent
of Sales Tax, Bihar would proceed to assess the best of his judgment.

• By a letter dated 7th June 1952, the appellant company characterized the notice under Section
13 (5) as ultra vires, illegal and called upon the Superintendent to cancel the same.

• On 10th June 1952, the appellant company presented a petition under Article 226 before the
Patna High Court praying for an order quashing the proceedings issued by the opposite
parties with the object of levying and realizing a tax which is not lawfully leviable on the
petitioners and for other ancillary reliefs.

• The respondents did not file any affidavits controverting any facts mentioned in the petition
of the appellant company.
 • A preliminary objection was raised by the respondents before the High Court regarding the
maintainability of the petition.
Decision of the High Court

The High Court disposed of the preliminary objection in favour of the respondents and held that-

• In the circumstances of the case no facts have been investigated, no liability has been
determined and no order of assessment has been made. The case does not involve any
question of exercise of jurisdiction not vested by law or malafide exercise of jurisdiction or
acting more than jurisdiction on the part of the Sales Tax Officer. Under the Act, the Sales
Tax Officer has the jurisdiction to investigate the question of liability of a dealer to sales tax
and hence the officer was well within his jurisdiction in issuing the notice.

• The court pointed out that if an order of liability to pay tax is erroneously made against the
company, then the company has the remedy to file an appeal under Sections 24 and 25 of the
Act. The High Court adopted the view that such a decision, however erroneous, is well within
the ambit of jurisdiction of such officer and the High Court cannot interfere in the same by a
writ of prohibition or certiorari.

• It was also held that-

1. The phrase “sale or purchase in the course of inter-State trade or commerce” in Article 286(2)
does not include the particular class of sales or purchases provided in the explanation to
Article 286(1). Therefore, the Bihar Sales Tax Act is not violative of Article 286.

2. The Bihar Sales Tax Act is not invalid under Article 254 and does not contravene Article 304.
Hence, the petition was dismissed as being not maintainable. However, the High Court issued a
certificate, under Article 132(1) of the Constitution certifying that the case involved a substantial
question of law as to the interpretation of the Constitution The company came in appeal before the
Hon’ble Supreme Court.

Due to the importance of issues involved in the case, the States of Madras, Uttar Pradesh, Madhya
Pradesh, West Bengal, Punjab, Orissa, Pepsu, Mysore, Travancore-Cochin and Rajasthan applied
for leave to intervene and were granted the same. Tata Iron and Steel Co. Ltd. and one Mr.
Kuriakose also applied for similar leave which was granted as well. State of West Bengal, Tata Iron
and Steel Co. Ltd. and Mr Kuriakose supported the appellant company, while the rest of the
intervenors opposed the appeal.

Issues raised

Some of the important legal issues raised in the case are as follows:

• Whether the tax threatened to be levied on the sales made by the appellant company and
implemented by delivery in the circumstances and manner mentioned in its petition is
leviable by the State of Bihar?

• Whether the application for a writ of prohibition is maintainable?

• Whether the explanation to Article 286(1)(a) confers authority on the State Legislatures to
impose a tax on sales falling within its purview?

• Whether the Supreme Court can review/re-examine its earlier decision?

• Whether the Bihar Sales Tax Act, 1947 is ultra-vires and void in its entirety or it is only bad
in so far as it seeks to impose a sales tax on out-of-State sellers in respect of inter-state sales
or purchases?
Contentions of the parties

Submissions made by the appellants

• It was submitted on the behalf of the appellants that the Bihar Sales Tax Act is ultra-vires,
wholly illegal and in contravention of Article 286 of the Constitution to the extent that it
proposes to tax a non-resident dealer with regard to an inter-State sale or purchase of goods.

• It was urged that Article 286 puts a restriction on the State legislature and the explanation
appended to the said section only explains clause 1(a) and did not confer any power on the
state legislature to impose the tax. (It is pertinent to note that the explanation has been
omitted by the Constitution(Sixth) Amendment Act, 1956).

• Article 286(2) establishes the supremacy of Parliament with regard to inter-state trade and
commerce by restricting the state legislature to tax such inter-state trade. It is only when such
 an embargo is lifted by appropriate legislation made by the Parliament that the State
Legislature could levy any tax on inter-state trade.
Submissions made by the respondent

• It was argued on the behalf of respondents that the application praying for a writ filed by the
appellant company was premature and was liable to be dismissed as no order of assessment
has in fact been made. The appellant should not have rushed to the court at this stage and
moreover, it was not entitled to come to court under Article 226 as it has the alternative and
adequate remedy of appeal and revision under the Act.

• Respondents relied on the case of The State of Bombay v. The United Motors (India) Ltd
(1953) to support the contention that all the States are realizing sales tax in respect of sales or
purchases of goods where the goods are delivered for consumption within their respective
boundaries. It was also submitted that a reversal of the said decision by this court will upset
the economy and render them liable to refund monies already collected by them as taxes.

• Following reasons were given by the Government of Bihar in support of their contention that
Article 286(2) is not applicable to the transactions of sale or purchase covered by Article
286(1)(a) and the explanation thereto-
1. Sales falling under Article 286(1)(a) form a special class of inter-State sales which are not
affected by the general provisions of Article 286(2);

2. If Article 286(2) is made applicable to the sales covered by Article 286(1)(a) and the
Explanation thereto, it would amount to discriminating against the local trade in favour of
inter-State trade;

3. The object of Article 286 is merely to eliminate multiple taxations and when such an object is
already achieved by Article 286(1)(a) in respect of the sales falling within it, then it need not
apply to Article 286(2) as well.

4. The Constitution has divided inter-State sales into two categories. In the case of one class, it
lays down as to which State will tax and under what conditions and in the case of the other
class, the Constitution has banned the imposition of tax in general terms.

5. By legal fiction, the inter-State sale is converted into an intrastate sale.

Decision of the Hon’ble Supreme Court
The Supreme Court allowed the appeal. It was held that until Parliament by law provides otherwise,
the State of Bihar shall abstain from imposing sales tax on out of state dealers in respect of sales or
purchases that have taken place in the course of inter-State trade or commerce even though the
goods have been delivered as a direct result of such sales or purchases for consumption in Bihar.

The Court disagreed with the decision of the High Court

The Supreme Court said that if the contention of the appellant that the Bihar Sales Tax Act which
authorizes levy and collection of sales tax is ultra-vires the Constitution is well-founded, then the
remedy by way of the writ shall be available to the aggrieved party. The Court rejected the
contention of respondents that the appellants should not have come to Court at the stage of issuing
of notice and held that the issuing of notice and calling upon the appellant company to register itself
as a dealer, submit returns etc. constitutes hardship and harassment to the appellant which, if the Act
is void and ultra-vires constitutes an infringement of right entitling the company to immediately
come to the court for redress.

Court also rejected the contention of respondents regarding the non-maintainability of the
appellant’s application on grounds of the availability of an alternative remedy under the Act. The
court held that if the Act itself is found to be void or ultra-vires, then the remedy cannot be said to
be adequate and is in fact useless.

Thus, while rejecting the order of the High Court that the application under Article 226 was
misconceived or not maintainable, the Supreme Court court proceeded to consider the said question
on merits.
Bihar Sales Tax Act wholly void or not

After declaring that the State cannot impose sales tax on inter-state sale and purchase as aforesaid,
the Court proceeded to analyse the question as to whether the Bihar Sales Tax Act 1947 is wholly
void or is void only to the extent that it provides for taxing of inter-state sales or purchases.

The court observed that the answer to this question shall depend on whether the objectionable parts
of the Act are severable from the rest of its provisions. For doing so, the Court referred to some of
the provisions of the Act including-

1. Long Title of the Act: An act to provide for the levy of tax in sales of goods in Bihar.

2. Preamble: It is necessary to make an addition to the revenues of Bihar and for that purpose to
impose a tax on the sale of goods in Bihar.

3. Definition of ‘dealer’ under Section 2(c): Any person who sells or supplies any goods in
Bihar whether for commission, remuneration, or otherwise and includes any firm or a Hindu
joint family and any society, club or association which sells or supplies goods to its members.
Apart from the above provisions, the Court analysed Section 4(the charging section) and Section
2(g) of the Act defining ‘sale’, the latter of which is reproduced below.

“sale” means,, with all its grammatical variations and cognate expressions, any transfer of
property in goods for cash or deferred payment or other valuable consideration, including a
transfer of property in goods involved in the execution of contract but does not include a mortgage,
hypothecation, charge or pledge:

Provided that a transfer of goods on hire purchase or other instalment system of payment shall,
notwithstanding the fact that the seller retains a title to any goods as security for payment of the
price, be deemed to be a sale: Provided further that the sale of goods in respect of a forward
contract, whether goods under such contract are actually delivered or not, shall be deemed to have
taken place on the date originally agreed upon for delivery- Explanation.-The sale of any goods
actually delivered in Bihar as a direct result of such sale for the purpose of consumption in Bihar
shall be deemed for the purpose of this Act to have taken place in Bihar., notwithstanding the fact
that under the general law relating to sale of goods, the property in the goods has, by reason of
such sale, passed in another State”.

The Court noted that the explanation to the above provision was substantially a reproduction of the
explanation to Article 286(1)(a).

In the definition of sale, the words ‘in Bihar’ were deleted by amendment and a new Section was
inserted by the Adaptation of Laws (Third Amendment) Order, 1951 which substantially reproduced
the provisions of Article 286(1) and (2). The court observed that even though the charging section
read with the definition of “dealer” and “sale” may be wide enough to cover inter-State sales, the
new Section 33 makes all those provisions subject to its provisions which are nothing but a
reproduction of the corresponding provisions of Article 286.

Thus, in view of the interpretation as put upon Article 286 by the Court(as stated in above points),
the Court held that the Act insofar as it purports to tax inter-state sales and purchases is ultra-vires.
However, the court concluded that the Act is not wholly ultra-vires as it is feasible to separate taxes
levied on authorised subjects from those levied on exempted subjects and to exclude the latter in the
assessment of tax.

Conclusion

The Bengal Immunity Co. case is a landmark judgment wherein the rule of mischief or purposive
construction was applied by the Hon’ble Supreme Court. The case also highlights the importance of
marginal notes and explanation appended to a statutory provision in construing the true meaning
and import of that provision. However, it must be noted only those marginal notes should be relied
upon as an aid to construction that is inserted by the Legislature/Constituent Assembly and is thus a
part of the enactment.