THE STATE OF GUJARAT & ORS. versus MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT on 2 February 2023

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SUPREME COURT REPORTS

[2023] 3 S.C.R.

ATHE STATE OF GUJARAT & ORS.

v.

MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT

(Civil Appeal No. 13977 of 2015)

BFEBRUARY 02, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Tax/Taxation – Scheme to boost tourism sector, granted taxholiday for 5-10 years to entities (including multi-cinema theatrecomplexes or multiplexes) in respect of exemption from sales tax,Cturnover tax, electricity duty, luxury tax, and entertainment tax upto100% capital investment – No discerning method or mechanism ofcalculating exemption limits mentioned in scheme – Assesseecontended that it was based on notional exercise, revenue contendedthat element of tax had to be added to actual amount collected –DHeld: High Court had rightly considered the issue and developed areasonable workable method of notional calculation of quantifiedlimit – Since assessee was not collecting any amounts as tax, noquestion of addition of further amount – Notional determinationbased on actual ticket collection for relevant period to be used todetermine whether specified ceiling limit in scheme for exemptionEwas achieved.

Tax/Taxation – Tax exemption notification unambiguous w.r.tgrant of exemption, and the terms of such relief (in terms of time,and monetary limits), but clear gap in the manner how tax exemptionlimits can be discerned, which if not construed appropriately, wouldFdefeat the intention of the notification – Interpretation of –Discussed.

Doctrines/Principles – Doctrine of ‘substantial compliance’– Discussed.

GInterpretation of Statutes – Rules of procedure are meant tofacilitate and not supplant justice.

Dismissing the appeal, the Court

HELD: 1.1 Neither the package nor the scheme (asembodied in the exemption notification) indicated the mechanismH

for calculating how the exemption limits (100% capitalinvestment) was calculable. The rate of tax at the relevant timewas 50% of the entrance or ticket value. The assessee contendedthat calculation of total exemption was to be done based on anotional exercise, while the state’s contention was that since theassessee had the benefit of tax exemption, the element of taxhad to be added to the actual amount collected. [Para 6-7 and9][119-C; 120-G-H]

1.2 The High Court held that as multiplexes which availedof the exemption had in fact not collected amounts as tax, therewas no question of addition of any further amount but rather thatto reckon whether the ceiling limit in the scheme for exemption(100% capital investment) was achieved, was to be done bynotional determination based on actual ticket collection for therelevant period. [Para 10][122-B-C]

1.3 It is evident from the terms of the Scheme andexemption notification that the exemption is fixed to limits i.e.(1) a time limit and (2) quantification. The latter could be subjectto the first i.e., in the event, the amount reached the exemptionlimit were achieved, before the expiry of the period in question(5-10 years), no further exemption could be claimed. The state,however, omitted to provide any mechanism to determine howthe exemption limits could be worked out for the purpose ofnotional calculation of the quantified limit. This meant that areasonable workable method of calculation had to be applied. [Para14][125-B-D]

1.4 The state’s contention is founded on the assumptionthat the amount collected during the exemption period by themultiplex owners, also included in element of tax. Thisassumption is flawed because there could have been no collectionwhich amounted to tax. Furthermore, multiplex/theatre-ownerswere under an obligation to file monthly returns in terms of theenactment. This would have taken care of any allegation of abuse.The state’s additional argument was that since the element oftax was notionally included in the collections – by multiplexes, -during the exempted period, a further amount equivalent to thetax collectable had to be added. High Court rightly held that thiscontention was illogical and unreasonable. [Para 15-16][125-D-F]

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A1.5 There is concededly, a gap in the manner how taxexemption limits can be discerned. The law is now settled (bytwo constitution bench decisions) that exemption notificationshave to be interpreted strictly, and against assessees in case ofambiguity. [Para 16][125-F-G]

BCommissioner of Central Excise, New Delhi v. HariChand Shri Gopal [2010] 13 SCR 820: (2011) 1 SCC236; Commissioner of Customs (Import), Mumbai v. DilipKumar and Company & Ors. [2018] 7 SCR 1191:(2018) 9 SCC 1 – followed.

C1.6 In the present case, the situation is peculiar, becausethe grant of exemption, and the terms of such relief (in terms oftime, and monetary limits) are unambiguous. However, theprocedure for calculation of the monetary limit is not prescribedat all. Therefore, the present case is not one of ambiguity, butinstead, one of a clear gap, which if not construed appropriately,Dwould defeat the intention of the notification. It has often beenheld – in the context of rules of procedures that they are meantto facilitate, not supplant justice and the court must lean towardssubstantial justice when faced with a complaint of procedural law.[Para 17-20][125-D-E; 127-D-E]

ESangram Singh v. Election Tribunal, Kotah & Anr.[1955] 2 SCR 1; Ghanshyam Dass v. Dominion of India[1984] 3 SCR 229: (1984) 3 SCC 64; Sugandhi v. P.Rajkumar (2020) 10 SCC 706 – relied on.

1.7 A reasonable method of calculating benefit of taxFexemption, for the purpose of considering whether the 100%limit equivalent to capital expenditure was reached or not is tonotionally determine the tax amounts payable during the relevantperiod, when the multiplexes enjoyed tax exemption. This ispossible, having regard to the returns filed by them during theGtime when they sought and were granted exemption. The outerlimit (100% investment) is a discernible amount, which the unitswould be able to furnish, with appropriate proof in their books ofaccounts, and valuations furnished by them. Clearly enunciatingthis principle and applying to the facts of this case, the High Courtfollowed a reasonable method which cannot be faulted. [ParaH22][128-C-E]

STHE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OFGUJARAT THROUGH ITS PRESIDENT

Devi Multiplex & Anr. v. State Of Gujarat & Ors. (2015)9 SCC 132 : [2015] 6 SCR 1 – referred to.

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CIVIL APPELLATE JURISDICTION : Civil Appeal No.13977of 2015.

From the Judgment and Order dated 26.06.2009 of the High Courtof Gujarat at Ahmedabad in SCA No.5391 of 2004.

S. K. Bagaria, Sr. Adv., Kumar Ajit Singh, Ms. Swati Ghildiyal,DMs. Devyani Bhatt, Advs. for the Appellants.

Maninder Singh, Sr. Adv., M/s Khaitan & Co., Shreeyas Lalit,Gunjan Sharma, Kumar Mihir, Arnav Kumar, Advs. for the Respondent.

The Judgment of the Court was delivered by E

S. RAVINDRA BHAT, J.

1. This appeal by State of Gujarat, complains of the grievancewith respect to a part of the impugned judgment[1].

2. This Court had occasion to deal with the substantial grievanceof the present writ petitioner(s)/respondents, in a judgment reported inDevi Multiplex & another v State of Gujarat and Others[2]. The issuewhich concerns this Court in the present proceedings, with respect tothe method of calculation or the method of determining the exemptionlimits under the scheme, extended by the State, to multiplexes, who hadput up capital infrastructure. These incentives were by way of taxexemptions for a specified period. On the previous occasion, this courthad adjudicated upon the grievance of the multiplex owners, regardingdenial of extension of the scheme. This court held that the denial of F

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1dated 26.06.2009 delivered by the Gujarat High Court in Special Civil ApplicationNo.5391 of 2004.2(2015) 9 SCC 132

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Aextension (two years, which was sought by the multiplex owners) wasin the circumstances, unjustified and had invoked the doctrine ofpromissory estoppel.

3. For the sake of convenience, the court can do know better thanextract para 2 of the judgment in Devi Multiplex (supra) which broadlyBoutlines the incentive scheme, contained in the exemption notificationissued by the State on 20.12.1995. The relevant part of the judgment isextracted below:

“2. Since Civil Appeal No. 6478 of 2009 was taken as thelead matter, facts relating thereto are dealt with in detailChereafter. On 20-12-1995 the Government of Gujaratannounced a policy named New Package Scheme of Incentivesfor Tourism Projects, 1995-2000 (hereafter referred to as “theScheme”) with a view to make available all fiscal and non-fiscal incentives, reliefs and concessions enjoyed by industriesto “tourism” which was accorded the status of an industry, inDorder to give a boost to tourism sector by attracting higherinvestment in the areas with tourism potential and to generateemployment opportunities. Under Clause 2, the Scheme cameinto operation on 1-8-1995 and was to remain in force for aperiod of five years up to 31-7-2000. Under Clause 3, to beEeligible, a new tourism unit ought to be registered after 1-8-1995. Clause 4.7 dealt with effective steps which such unitwas expected to undertake. Under Clause 5, after takinginitial effective steps a tourism unit could apply to the Directorof Tourism for registration. All projects had to conform to thespecifications and requirements spelt out in Appendix B whichFappendix dealt with various categories of tourism units andItem 22 thereof pertained to “Entertainment Complexes”including multi-cinema theatre complexes or multiplexes.Clause 7 categorised tourism units in four categories, namely,Prestigious Tourism Units, Large-scale Tourism Units, Small-Gscale Tourism Units and Tiny Tourism Units with minimum fixedcapital investment of Rs 10 crores, 90 lakhs, 10 lakhs andless than 10 lakhs, respectively. Clause 8 dealt with incentivesand stated that a tax holiday of 5-10 years would be availablein respect of exemptions from (i) sales tax (ii) turnover tax(iii) electricity duty (iv) luxury tax, and (v) entertainment tax, H

up to 100% of capital investment. In Clause 8.1 it was statedthat the quantum of incentives would not exceed 100% ofeligible capital investment and it further stated the period ofeligibility in respect of prestigious tourism units, large-scaletourism units, small-scale tourism units and tiny tourism unitsto be 10 years, 8 years, 6 years and 5 years, respectively.Clause 9 dealt with composition of sanctioning authoritywhereunder State Level Committee was competent to issueeligibility certificate in respect of prestigious and large unitswhile District Level Committee was to issue eligibilitycertificate for all small-scale and tiny tourism units. Theprocedure for registration of tourism units for incentives wasdetailed in Clause 10.”

4. What is an issue in this case, is another part of the new PackageScheme i.e. proper manner of construing para 8 and 8.1 which, for thesake of convenience are produced below:

“INCENTIVE

A tax holiday of 5-10 years will be available to new units andexpansion of existing units ( as per condition set out earlier)in respect of the following taxes, and upto 100% of capitalinvestment. The tax Holiday will be available to unitsconforming to the list in Appendix B and falling within theeligible areas.

List of taxes

1. Exemption from Sales Tax.

2. Exemption from Turnover tax.

3. Exemption from Electricity Duty.

4. Exemption from Luxury Tax.

5. Exemption from Entertainment Tax.

Exemption from sales tax is available with the followingconditions:

(a) Exemption towards taxes on raw materials, processingmaterials, consumable stores, packing materials are notavailable.

(b) Only those goods which are sold at the first stage of saleby eligible unit will attract sales tax exemption.

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A(c) No exemption is available on purchases of any goods suchas building materials, equipments or any other goods to bepurchased for setting up of tourism project.

8.1 Period of Eligibility\

The quantum of incentives shall not exceed 100% of eligibleBcapital investment. If the limits of incentives expire before theeligible period, the unit cannot avail of any further benefit.The eligible units will be made available a tax holiday for theperiod mentioned against each category of tourism unit astabulated below:

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5. This Scheme was embodied in Exemption Notification dated 14.02.1997, the relevant portion of which reads as follows:E

“NOW, THEREFORE, in exercise of the powers conferredby Sub-Section (1) of Section-29 of the GujaratEntertainments Tax Act, 1977 (Guj.16 of 1977), (hereinafterreferred to as “the said Act”) and in supersession ofGovernment Notification, Information, 133 Broadcasting andFTourism Department No. (GHT.91.45) MNR-1391-285-E,dated 24th December, 1991 the Government of Gujarat herebyexempt wholly the tax on the entertainments which fulfils thecriteria laid down in Appendix-B of the said resolution(hereinafter referred to as the eligible entertainment) duringthe eligible period or upto the period of expiry of the limits ofGincentives, whichever is earlier, to the extent referred to inpara 8.1 of the said resolution, subject to the followingconditions:- ….

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15. The proprietor of a eligible entertainment shall be liableto pay tax as soon as the quantum of exemption availed oftowards sales tax, turnover tax, electricity duty, luxury taxand entertainment tax equals the amount specified in theeligibility certificate issued by the Appropriate Authority oron expiry of the time limit mentioned in the. said certificate,whichever is earlier.”

6. Neither the package nor the Scheme indicated the mechanismfor calculating how the exemption limits (100% capital investment) wascalculable. The rate of tax at the relevant time was 50% of the entranceor ticket value.

7. The appellants’ contention was that the calculation of totalexemption to be done based upon a notional exercise. Such determinationwas explained in the pleadings in the writ petition as follows:

“In case of the new units which has invested an amount ofRs. 10 crores towards eligible capital investment. This amountof eligible capital investment is required to be adjusted againstthe amount of Tax exemption available under the presentscheme/policy. If this unit is charging an amount of Rs. 100/-by way of admission fee to the multiplex theatre; and theamount of entertainment tax which it is liable to pay to theGovernment is Rs.50/-. This would mean that the owner ofthe unit is entitled to retain Rs. 50/- to enable him to defraythe expenditure incurred by him for providing the facilities inthe unit. The amount of Rs.50/- recovered by way ofentertainment tax is required to be notionally adjusted against theamount of eligible capital investment till the amount of Rs. 10crores gets exhausted or till the expiry of a period of ten yearswhichever is earlier.”

8. The same contention was urged before the High Court whichrecorded as under:

“57. Mr. Nanavati further contended that even on merits, theimpugned Circulars deserve to be quashed and set aside. Form17 which is the form of register of tickets not beingcomplementary tickets, issued when tax is payable under A

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SUPREME COURT REPORTS

ASection 3 of the Act, clearly stipulates mention of price ofticket including entertainment tax under Column 2, which alsogoes to show that the entertainment tax is payable on thegross receipt and there is no question of notionally calculatingthe tax. The returns submitted by few members of MultiplexAssociation would show that they have been showing theBprice of the ticket inclusive of tax and seeking exemption onthe basis of the rate applicable by calculating tax on thereceipt. Since beginning, the members of the Association havebeen filing monthly returns on the basis of tax calculated onthe receipt made and the respondent authorities have beenCaccepting the same without any objection. In the case of M/s.lnox Multiplex, the Mamlatdar, Vadodara has passed anassessment order by calculating tax on the total receipt i.e.for example for the period between 19.09.2003 and25.9.2003, the gross collection is Rs. 10,30,746/-. TheMamlatdar has assessed Rs.5,15,373/- as net tax payable atDthe rate of 50%. M/s. lnox Entertainment Limited, Vadodarawas issued an ad hoc eligibility certificate for an amount ofRs.554.45 Lacs. For the purposes of calculating the amountof tax till the limit of Rs.554.45 Lacs, the Mamlatdar hasconsidered 100% of the gross, collection i.e. on grossEcollection of Rs.4,32,268/-, the Mamlatdar has assessed atax on Rs.4,32,268/-.”

The claim in the writ petition inter alia was as follows:

“(B) The Hon’ble Court may be pleased to issue a writ ofmandamus or any other appropriate writ, order or directionFdirecting the Respondents to consider only the amount ofentertainment tax payable notionally by the members of thePetitioner Association to the Respondent State as the capitalvalue for the purpose of setting off the eligible capitalinvestment of the members of the Petitioner Association ascontemplated under the scheme contained in the ResolutionGat Annexure-A hereto;”

9. The state’s contention, on the other hand was that since theappellant had the benefit of tax exemption, the element of tax had to beadded to the actual amount collected. This was sought to be urged bythe State in its counter affidavit in following terms:

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“5.5 In view of the aforesaid, it is respectfully submitted thatsection 3 envisages the rate of tax which is to be levied on thepayment for admission to the entertainment. There is a 50%tax slab for the city having population of more than one lakhand 45% for the city having population less than one lakh. Itis stated that all the entertainment units are chargingRs.100/- towards the payment for admission to entertainmentonly.

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To illustrate:

Payment of admission to entertainment = Rs.200/- Hence, If the payment for admission to entertainment isless 50% of tax is deducted, the net chargeable amount comesto Rs.100/- (which, in the present case, is not collected byvirtue of the provisions of the Act, tourism policy 1995- 2000,and notification).”

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“5.10 It is respectfully stated that if any entertainment unit isdesirous of availing any benefit of the policy and notificationsthen in that case, the entertainment units will have to fall inline with the requirements provided in the said policy andnotifications. The entertainment units will have to strictlyadhere to the conditions mentioned in the notification andonce having accepted the terms and conditions of the saidnotification for the purpose of availing of the tax exemption,they cannot now back out under the guise that what theentertainment units are charging towards entertainment taxcannot be recovered by the State Government. It is respectfullystated that any breach of any condition or non-complianceof any of the provisions of the statute, notifications andcirculars would result in termination of exemption granted.At the cost of repetition, I say that to illustrate if Rs.100/- ischarged for admission, then it has to be treated as a paymentfor admission to entertainment excluding tax. When the rateof tax is 50%, it has got to be notionally added to the basic E

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Anet ticket rate of Rs.100/ and it is that net ticket rate of Rs.100/- which would be benefit availed of and would be liable to beadjusted in terms of the notifications and Governmentresolutions.”

10. The High Court agreed with the petitioners’ contention andBheld that as multiplexes which availed of the exemption, had in fact notcollected amounts as tax, there were no question of addition of anyfurther amount but rather that to reckon whether the 100% capitalinvestment (the ceiling limit in the Scheme for exemption) was achievedwas to be done by notional determination based upon the actual ticketcollection for the relevant period. The finding of the High Court in this Cregard pertinently are as follows:

“Clause 8 of the Scheme declares that “tax holiday of 5 to 1O years” will .be’ available in respect of various taxesincluding “exemption from entertainment upto 100% of capitalinvestment. The said clause provides that the assessee viz ..Dthe proprietor of an entertainment complex is exempted frompaying the tax, payable by him under the Act, till tax is 100%sef off against the 100% value of the eligible capitalinvestment made by the proprietor. The question which hasarisen in the present petition is how the amount of “tax” shouldbe determined for set off against the available tax incentivesEi.e. 100% of the eligible capital investments. The issue hasarisen in context of the legal provision of the GujaratEntertainment Tax Act. Section 3 of the Act is held to be acharging Section. It is held that liability for payment of dutyis imposed upon the proprietor and not upon the visitors ofFthe theater. The proprietor does not act as an agent of theGovernment’ for collection of duty. The entertainment duty isa payment which the proprietor is required to make as acondition for enabling visitors to attend or continue to attendthe entertainment.

Section 3 which levies fax provides for levy on “gross”Gpayment received from consumer as is clear from the wordsof Section·3 and also as Interpreted in 1971 (1) SCC 471.

The assessable value for determination of the tax liabilityis the payment received, irrespective of the break up of thisamount, charged for admission to entertainment and taxHpayable thereon.

The entertainment tax being a taxing measure, and Section3 being a charging section, it has to be strictly construedand, therefore, liability to pay tax cannot be enlarged beyondwhat is provided in the Act.

The multiplex cinemas in the ticket issued show that nothing’is received in the name of or on account of entertainment taxfrom the viewers. Therefore, in case of multiplex cinemas, theamount would be taxed under Section 3. In the tickets issued,payment of admission is shown as admission to entertainment,tax is shown as·”O”, service charges shown as “0” and totalamount recoverable by and payable to the proprietor is Rs.100/

·, Tax liability has to be, therefore, calculated on this amounti.e. Rs.100/- which would be at 50% payment for admissionreceived from the viewers.

Under the incentive, there is no special method ofcalculation of the tax liability prescribed as a condition ofexemption for the purpose of setting off such tax liabilityagainst the incentive limit. This method is prescribed for thefirst time by the impugned Circulars in November/December,2000.”

The final directions in this regard are as follows:

“111. In view of the above discussion, we are of the view thatthe respondent-State is not justified in considering the entireamount of the value of the ticket as the capital value for thepurpose of setting off the eligible capital investment of themembers of the petitioner Association. We are also of the viewthat the amount collected by the members of the petitionerAssociation while permitting. the viewers to the MultiplexTheaters also includes an element of tax and hence, theapplicable rate of tax so collected by the members of thepetitioner Association are only required to be set off againstthe eligible investment under the Scheme. The entire amountof the value of the ticket cannot be considered as the capitalvalue for the purpose of setting off the eligible capitalinvestment. We are also of the view that the members whohave not commenced their project within the stipulated timelimit i.e. on or before 30.11.2002 as envisaged under thesubsequent Resolution dated 28.06.2000 by virtue of whichthose cases have been considered as pipeline cases are not A

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Aentitled to the benefit under the Scheme and there is no infirmityin the order passed by the respondent authorities whilerejecting their representation for extension of time. We arealso of the view that the members who are entitled to the benefitof the Scheme are entitled to claim only the amount of capitalinvestment made by them within the stipulated time limit i.e.B30.11.2002. If any expenditure incurred by them subsequentto this time limit or investment made by them in such eligibleproject after 30.11.2002 cannot be considered as an eligibleinvestment. The respondent authorities are, therefore, directedto give effect to this judgment and order and decide eachCcase as per the directions issued here in this judgment andraise the demand against the petitioners. The demand so raisedwill have to be paid by the members of the Association withinsix weeks from thereof.”

11. Mr. S.K. Bagaria, learned Senior Advocate for the State ofDGujarat argued that a conjoint reading of Sections 3 and 29 of the GujaratEntertainment Tax Act, 1977 clarifies that eligible units were grantedexemption from payment of tax and that owners were required to chargeonly amounts towards payment for admission to entertainment whichmeant that no tax was actually collected. Therefore, if any unit ormultiplex collected tax which it did not pass on to the state, that wouldEnot only be contrary to the public interest but would amount to unjustenrichment.

12. It was submitted that the impugned judgment is in error in notappreciating that under Section 29 any entertainment or class ofentertainment can be fully and partially exempted from payment of tax Fand that tax exemptions are given for a particular period, and multiplexand theaters’ owners were not allowed to collect taxes. The inclusion ofelement of tax, meant that they were allowed to retain such amounts.Therefore, the state was justified in urging the method of calculationwhereby the tax element was added to the amount already collected, for the purpose of determining the exemption units.G

13. Mr. Maninder Singh, learned counsel for the respondent(s)/multiplex owners on the other hand urged that in the absence of anymechanism to determine the limit of exemption i.e. equivalent to 100%of the capital investment: which is an objective determinable fact, - havingregard to the books of accounts and the documents available with theHmultiplex owners, a feasible and reasonable method had to be taken into account. The only feasible method therefore was to notionally determine(only for the purpose of grant of exemption) by considering whether the100% exemption limit was achieved by a particular multiplex, the amountwhich could have been collected during the relevant period havingregard to the aggregate actual collection during the entire period.

Analysis and conclusions

14. It is evident from the terms of the Scheme and the exemptionnotification which gave effect to it, fixed to limits i.e. (1) a time limit and(2) quantification of the exemption. The latter could be subject to thefirst i.e., in the event, the amount reached the exemption limit wereachieved, before the expiry of the period in question (5-10 years), nofurther exemption could be claimed. The state, however, omitted toprovide any mechanism to determine how the exemption limits could beworked out for the purpose of notional calculation of the quantified limit.This meant that a reasonable workable method of calculation had to beapplied.

15. The state’s contention is founded on the assumption that theamount collected during the exemption period by the multiplex owners,also included in element of tax. This assumption, in the opinion of thiscourt is flawed because there could have been no collection whichamounted to tax. Furthermore, multiplex/theatre-owners were under anobligation to file monthly returns in terms of the enactment. This wouldhave taken care of any allegation of abuse. The state’s additional argumentwas that since the element of tax was notionally included in the collections– by multiplexes, -during the exempted period, a further amount equivalentto the tax collectable had to be added.

16. As the High Court concluded- and in the opinion of this Courtcorrectly so, this contention was bereft of any logic and was plainlyunreasonable. There is concededly, a gap in the manner how taxexemption limits can be discerned. Undoubtedly, the law is now settledthat exemption notifications have to be interpreted strictly, and againstassesses in case of ambiguity. This rule was stated in Commissioner ofCentral Excise, New Delhi v. Hari Chand Shri Gopal[3]. TheConstitution Bench, in that case, held that:

“The law is well settled that a person who claims exemptionor concession has to establish that he is entitled to that A

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Aexemption or concession. A provision providing for anexemption, concession or exception, as the case may be, hasto be construed strictly with certain exceptions dependingupon the settings on which the provision has been placed inthe statute and the object and purpose to be achieved. Ifexemption is available on complying with certain conditions,Bthe conditions have to be complied with. The mandatoryrequirements of those conditions must be obeyed or fulfilledexactly, thought at times, some latitude can be shown, if thereis failure to comply with some requirements which are directoryin nature, the non-compliance of which would not affect theCessence or substance of the notification granting exemption.”17. This was followed, later, in another five judge bench decision(Commissioner of Customs (Import), Mumbai vs. Dilip Kumar andCompany & Ors[4]). In the present case, the situation is peculiar, becausethe grant of exemption, and the terms of such relief (in terms of time,Dand monetary limits) are unambiguous. However, the procedure forcalculation of the monetary limit is not prescribed at all. Therefore, thepresent case is not one of ambiguity, but instead, one of a clear gap,which if not construed appropriately, would defeat the intention of thenotification.

E18. It has often been held – in the context of rules of proceduresthat they are meant to facilitate, not supplant justice. In Sangram Singhv. Election Tribunal, Kotah & Anr[5]this court stated:

“16. ...It is procedure, something designed to facilitate justiceand further its ends: not a penal enactment for punishmentFand penalties; not a thing designed to trip people up. Tootechnical a construction of Sections that leaves no room forreasonable elasticity of interpretation should therefore beguarded against (provided always that justice is done to bothsides) lest the very means designed for the furtherance ofjustice be used to frustrate it.”G19. Again, in Ghanshyam Dass v. Dominion of India[6]the courtelaborated upon the idea and intent of “adjective law” in dealing withSection 80 of the Civil Procedure Code:

4 2018 (9) SCC 15 (1955) 2 SCR 1H6 (1984) 3 SCC 46

“12. In the ultimate analysis, the question as to whether anotice Under Section 80 of the Code is valid or not is aquestion of judicial construction. The Privy Council and thisCourt have applied the Rule of strict compliance in dealingwith the question of identity of the person who issues the noticewith the person who brings the suit. This Court has howeveradopted the Rule of substantial compliance in dealing withthe requirement that there must be identity between the causeof action and the reliefs claimed in the notice as well as in theplaint. As already stated, the Court has held that notice underthis Section should be held to be sufficient if it substantiallyfulfils its object of informing the parties concerned of thenature of the suit to be filed. On this principle, it has beenheld that though the terms of the Section have to be strictlycomplied with, that does not mean that the notice should bescrutinized in a pedantic manner divorced from common sense.The point to be considered is whether the notice gives sufficientinformation as to the nature of the claim such as would therecipient to avert the litigation.”

20. Sugandhi v. P. Rajkumar[7]also leaned in favour of substantialjustice when it had to deal with complaint of breach of procedural law.

21. Harichand Srigopal (supra) also propounded thetheory ofsubstantial compliance, with provisions, while interpreting an exemptionnotification:

“31. Of course, some of the provisions of an exemptionnotification may be directory in nature and some aremandatory in nature. A distinction between the provisions ofa statute which are of substantive character and were built inwith certain specific objectives of policy, on the one hand,and those which are merely procedural and technical in therenature, on the other, must be kept clearly distinguished...

Doctrine of substantial compliance and “intended use”

32. The doctrine of substantial compliance is a judicialinvention, equitable in nature, designed to avoid hardship incases where a party does all that can reasonably be expectedof it, but failed or faulted in some minor or inconsequentaspects which cannot be described as the “essence” or the 7 (2020) 10 SCC 706

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A“substance” of the requirements. Like the concept of“reasonableness”, the acceptance or otherwise of a plea of“substantial compliance” depends upon the facts andcircumstances of each case and the purpose and object to beachieved and the context of the prerequisites which areessential to achieve the object and purpose of the Rule or theBRegulation. Such a defence cannot be pleased if a clearstatutory prerequisite which effectuates the object and thepurpose of the statute has not been met. Certainly, it meansthat the Court should determine whether the statute has beenfollowed sufficiently so as to carry out the intent for whichCthe statute was enacted and not a mirror image type of strictcompliance. Substantial compliance means “actual compliancein respect to the substance essential to every reasonableobjective of the statute” and the Court should determinewhether the statute has been followed sufficiently so as tocarry out the intent of the statute and accomplish theDreasonable objectives for which it was passed.

33. A fiscal statute generally seeks to preserve the need tocomply strictly with regulatory requirements that are important,especially when a party seeks the benefits of an exemptionClause that are important. Substantial compliance with anEenactment is insisted, where mandatory and directoryrequirements are lumped together, for in such a case, ifmandatory requirements are complied with, it will be properto say that the enactment has been substantially complied withnotwithstanding the non-compliance of directoryFrequirements. In cases where substantial compliance has beenfound, there has been actual compliance with the statute, albeitprocedurally faulty. The doctrine of substantial complianceseeks to preserve the need to comply strictly with the conditionsor requirements that are important to invoke a tax or dutyexemption and to forgive non-compliance for eitherGunimportant and tangential requirements or requirements thatare so confusingly or incorrectly written that an earnest effortat compliance should be accepted.

34. The test for determining the applicability of the substantialcompliance doctrine has been the subject of a myriad of casesHand quite often, the critical question to be examined is whether the requirements relate to the “substance” or “essence” ofthe statute, if so, strict adherence to those requirements is aprecondition to give effect to that doctrine. On the other hand,if the requirements are procedural or directory in that theyare not of the “essence” of the thing to be done but are givenwith a view to the orderly conduct of business, they may befulfilled by substantial, if not strict compliance. In other words,a mere attempted compliance may not be sufficient, but actualcompliance with those factors which are considered asessential.”

22. A reasonable method of calculating benefit of tax exemption,for the purpose of considering (whether the 100% limit equivalent tocapital expenditure) was reached or not is to notionally determine thetax amounts payable during the relevant period, when the multiplexesenjoyed tax exemption. This is possible, having regard to the returnsfiled by them during the time when they sought and were grantedexemption. The outer limit (100% investment) is a discernible amount,which the units would be able to furnish, with appropriate proof in theirbooks of accounts, and valuations furnished by them. Clearly enunciatingthis principle and applying to the facts of this case, High Court has followeda reasonable method which cannot, in this court’s opinion, be faulted.

23. For the above reasons, this court holds that there is no merit inthis appeal. It is accordingly dismissed. No costs.

Divya Pandey

Appeal dismissed.

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