Uttar Pradesh Vs Kores India Ltd (Air 1977 Sc 132 )
Facts:
The respondent which is a company incorporated under the Indian Companies Act dealing with carbon paper, typewriter, ribbon, stapler machines and stapler pins, despatches the said goods from its head office at Bombay to its branch office at Kanpur wherefrom sales thereof are effected in the State of Uttar Pradesh.

During the assessment proceedings for that period, the respondent claimed that carbon paper was not paper but a specialised article used for copying purposes, and hence was dutiable at 2%, not at 6%, while typewriter ribbons, being accessories and not parts of a typewriter, were not liable to 10% sales tax leviable on typewriters and parts thereof.

The Sales Tax Officer, Kanpur, did not agree to the contentions of the respondent and holding that carbon paper remained paper even after going through certain chemical processes and that ribbon was a part of the typewriter, taxed the turnover of carbon paper for the period commencing from July 1, 1966, to the end of March, 1967 at 6% and that of ribbon at 10%.
He, however, taxed the turnover of carbon paper for the period April 1, 1966 to June 30, 1966 at 2%.

The validity and correctness of this order in so far as it related to the levy of tax on carbon paper at 6% and ribbon at 10% was challenged by the respondent by means of writ petition before the High Court at Allahabad which by its judgment and order allowed the same and quashed the levy, hence this case was appealed by the State of U.P

Issues:

• Whether carbon paper is paper falling within the purview of the word 'paper' as used in Serial No. 2 of Notification No. ST-3124/X-1012(4)-1964 dated July 1, 1966, issued by the Governor of Uttar Pradesh in exercise of the power vested in him under Section 3-A of the U.P. Sales Tax Act, 1948 so as to be liable to sales tax at the point and at the rate specified in the Schedule to the Notification.
• Whether ribbon is an accessory or a part of the typewriter.
   

Judgement: The court held that 'paper' not being defined in the enactment has to be understood in its popular and commercial sense as a substance for writing, printing, etc., with reference to the context in which it occurs. The word 'paper' admittedly not having been defined either in the U.P. Sales Tax Act, 1948 or the rules made thereunder, it has to be understood according to the aforesaid well-established canon of construction in the sense in which persons dealing in and using the article understand it.

It held that in common parlance, the word 'paper' is one which is used for writing, packaging, and printing, whereas carbon paper is used entirely for a different purpose. Moreover, the manufacturing process of carbon paper is entirely different and more complicated than that of normal paper. So, the court held carbon paper will not be included in normal paper so as to make it subject to taxation. It was held that the meaning of paper is quite clear and there is no need to interpret it so as to extend its meaning to include carbon paper.

Thus, courts are not required to extend the meaning to cover the subjects which on the face cannot be included in common parlance. It is only when specifically provided by statute that it becomes subject to tax. The words used in the taxation law should be given the meaning which is understood by the general public in daily routine and one which is popular. Such meaning should be given to words which people to whom the law is applicable are familiar with.

The court referred to the case of Kilburn & Co. Ltd. v. Commissioner of Sales Tax U.P., Lucknow where a Bench of Allahabad High Court, while examining the very same entry in the notification with which we are concerned in the instant case, held that:

"Ammonia paper and ferro paper used for obtaining prints and sketches of site plans are not paper as understood generally and, therefore, will not come within the expression 'paper other than hand-made paper' as used in Notification No. ST-3124/X-1012(4) dated 1st July, 1966, issued under Section 3-A of the U.P. Sales Tax Act, 1948."

It observed: "The word 'paper' has not been defined in the Act or the Rules, and, as such, it has to be given the meaning which it has in ordinary parlance. Paper, as understood in common parlance, is the paper which is used for printing, writing, and packing purposes."

Interpretation of Tax Laws: Strict rule of interpretation is one of the principles used to interpret fiscal and penal statutes. According to this rule, plain, clear, and direct meaning is given to words which are used in common parlance by the general public to which such law is applicable.

There can be no presumption by court with respect to particular meaning. The court cannot give a particular meaning to a word which is not clear by making a presumption that particular meaning is the intention of the legislature. The court cannot, under the guise of possible or likely intention of the legislature, give meaning to the words which are not clear and where contextual meaning cannot be made out.

The words used in the taxation law should be given the meaning which is understood by the general public in daily routine and one which is popular. Such meaning should be given to words which people to whom the law is applicable are familiar with.

WHY?
Tax is a forceful extraction of money from the assessee (taxpayer) by the sovereign authority in which the taxpayer is not entitled to any assured benefit. So, taxes place a monetary burden on the taxpayer and thus to some extent it is considered as penalty on the taxpayer which is imposed under the authority of law. Thus, unless the imposition of tax is clearly backed by law, no tax can be imposed.

Taxation statute is a fiscal statute which is enacted on the basis of trial and error method or on experimentation basis. It is not practicable for legislature to anticipate all the possible situations or conditions which may arose after the law is enacted. It is possible that the assessee might use some shortcomings in the law as a loophole and take advantage of it. As tax results in pecuniary burden so the benefit of doubt is given to assessee in case of any contradictions.

In case of contradiction whereby two meaning are coming out then one which is reasonable, which will assist in fulfilling the intention of the legislature and solving the purpose for which law was enacted is preferred. They are to be interpreted in such a way so as to enforce and apply charging provisions smoothly.

In case of exemptions, strict rule does not apply rather liberal rule is applied. All the conditions under which exemptions are given must be clearly specified. Once the assessee has shown that all the conditions precedent required to claim exemptions are fulfilled then he is entitled to claim exemptions. Once the assessee falls within the category of exemptions, then such exemption should be allowed.

It cannot be denied on the basis of assumed or likely intention of the authority making the law.

The doctrine of Substantial Compliance is based on the principle of equity which is also applicable to taxation laws. According to this doctrine, if the conditions for claiming exemptions are met substantially or only a few minor procedural requirements are not fulfilled which does not hamper the purpose for which such law was made then in that case substantial compliance can also entitles one to claim exemptions.

Applicability of such doctrine is based on case to case basis as it results are different depending on facts of each case, extent of compliance, whether partial compliance fulfils the essence, object and purpose of the law.

Conclusion
Bearing in mind the ratio of the above mentioned decision, it is quite clear that the mere fact that the word 'paper' forms part of the denomination of a specialised article is not decisive of the question whether the article is paper as generally understood. 'the word 'paper' in the common parlance or in the commercial sense means paper which is used for printing, writing or packing purposes. We are, therefore, clear of opinion that Carbon paper is not paper as envisaged by entry 2 of the aforesaid Notification. For the foregoing reasons, the appeal was is dismissed.

Also, the role of Courts is not to apply the tax laws blindly and strictly but it should check whether the transactions of assessee amounts to evasion of tax, avoidance of tax or its just tax planning. If assessee deliberately makes the complex transactions so as to avoid taxes and thereby intends to game the system, then the Courts should adopt for reasonable and equitable construction in favour of revenue and to set examples for future jurisprudence of interpretation of taxation laws.