In Tax Matters, Strict Letter Of Law Must Be Followed; No Tax Can Be Imposed By Inference Or Analogy : Supreme Court

The Supreme Court observed that no tax can be imposed by inference or analogy when the taxing statutes do not authorize the imposition of tax. It added that tax authorities cannot bypass statutory limitation periods by administrative sanction.

“In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.”, the court observed.

A bench of Justices JB Pardiwala and Sandeep Mehta heard a matter related to the assessment under the Assam General Sales Tax Act 1993 (“Act”) where the Sales Tax department had ordered the re-assessments of the Appellant-entity for three years between 2003-2006 under Section 21 of the Act soon after the assessment of these years was declared time barred under Section 19 of the Act.

As per Section 21 of the Act, reassessment can be directed within four months only when no assessment was carried out within the time frame prescribed under Section 19 of the Act.

To reopen the assessment, the department took the Commissioner's accord/sanction to justify their claim for assessment. Aggrieved by the Gauhati High Court's decision upholding the reassessment, the appellant-entity approached the Supreme Court.

Setting aside the High Court's decision, the Court noted that the High Court erred in misinterpreting both the provisions of Sections 19 and 21 of the Act, as the benefit of Section 21 could have been undertaken by the department only when the assessment was not carried out under Section 19. Since the assessment was carried out under Section 19, but happened to be time-barred, the Court said that no assessment can be carried out under Section 21 of the Act.

The Court clarified that Section 21 applies only where no assessment has been made within the period under Section 19. It cannot be invoked to salvage assessments already held to be barred by the limitation.

“Here is a case wherein the assessments undertaken for the three years were already held to be invalid because of being time barred, in view of Section 19 of the Act, referred to above. Later, by virtue of obtaining sanction from the Commissioner, the revenue could not have taken recourse to Section 21 of the Act to say that the reassessment within four years is permissible with prior sanction from the Commissioner. Section 21 would apply only in cases where no assessment has been made under any of the provisions of the Act within the time limits specified in Section 19. The interpretation of the two provisions of the Act at the end of the High Court is completely incorrect.”, the court observed.

Accordingly, the appeal was allowed.

Cause Title: M/S. SHIV STEELS VERSUS THE STATE OF ASSAM & ORS.

Citation : 2025 LiveLaw (SC) 921

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Appearance:

Mr. Manish Goswami, senior counsel for the appellant

Mr. Chinmoy Pradip Sharma, senior counsel for the State of Assam