The State of Gujarat & Ors. v. Multiplex Assn. of

THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT (Civil Appeal No. 13977 of 2015) FEBRUARY 02, 2023 [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.] Tax/Taxation – Scheme to boost tourism sector, grant ed tax holiday for 5-10 years to entities (including multi -cinema theatre complexes or multiplexes) in respect of exemption fr om sales tax, turnover tax, electricity duty, luxury tax, and entertain ment tax upto 100% capital investment – No discerning method or mechanism of calculating exemption limits mentioned in scheme – Assessee contended that it was based on notional exercise, revenue contend ed that element of tax had to be added to actual amount collected –

Held: High Court had rightly considered the issue and developed a reasonable workable method of notional calculation of quantified limit – Since assessee was not collecting any amount s as tax, no question of addition of further amount – Notional d etermination based on actual ticket collection for relevant period to be used to determine whether specified ceiling limit in scheme for exemption was achieved. Tax/Taxation – Tax exemption notification unambiguous w.r.t grant of exemption, and the terms of such relief (i n terms of time, and monetary limits), but clear gap in the manner how tax ex emption limits can be discerned, which if not construed appropriate ly, would defeat the intention of the notification – Interpre tation of – Discussed. Doctrines/Principles – Doctrine of ‘substantial comp liance’ – Discussed. Interpretation of Statutes – Rules of procedure are meant to facilitate and not supplant justice. Dismissing the appeal, the Court HELD: 1.1 Neither the package nor the scheme (as embodied in the exemption notification) indicated the mechanism for calculating how the exemption limits (100% capi tal investment) was calculable. The rate of tax at the relevant time was 50% of the entrance or ticket value. The assessee con tended that calculation of total exemption was to be done based on a notional exercise, while the state’s contention was that si nce the assessee had the benefit of tax exemption, the elem ent of tax had to be added to the actual amount collected. [Para 6-7 and 9][119-C; 120-G-H]

1.2 The High Court held that as multiplexes which availed of the exemption had in fact not collected amounts as tax, th ere was no question of addition of any further amount but rather that to reckon whether the ceiling limit in the scheme fo r exemption (100% capital investment) was achieved, was to be d one by notional determination based on actual ticket collection for the relevant period. [Para 10][122-B-C]

1.3 It is evident from the terms of the Scheme and exemption notification that the exemption is fixed to l imits i.e.

(1) a time limit and (2) quantification. The latter cou ld be subject to the first i.e., in the event, the amount reached the e xemption limit were achieved, before the expiry of the period in q uestion (5-10 years), no further exemption could be claimed. T he state, however, omitted to provide any mechanism to determi ne how the exemption limits could be worked out for the pu rpose of notional calculation of the quantified limit. This m eant that a reasonable workable method of calculation had to be applied. [Para 14][125-B-D]

1.4 The state’s contention is founded on the assump tion that the amount collected during the exemption peri od by the multiplex owners, also included in element of tax. This assumption is flawed because there could have been n o collection which amounted to tax. Furthermore, multiplex/theatr e-owners were under an obligation to file monthly returns in terms of the enactment. This would have taken care of any allegation of abuse. The state’s additional argument was that since the e lement of tax was notionally included in the collections – by mult iplexes, - during the exempted period, a further amount equivalent to the tax collectable had to be added. High Court rightly held t hat this contention was illogical and unreasonable. [Para 15-16] [125-D-F] GUJARAT THROUGH ITS PRESIDENT

1.5 There is concededly, a gap in the manner how ta x exemption limits can be discerned. The law is now s ettled (by two constitution bench decisions) that exemption no tifications have to be interpreted strictly, and against assess ees in case of ambiguity. [Para 16][125-F-G] Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal [2010] 13 SCR 820: (2011) 1 SCC 236; Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company & Ors. [2018] 7 SCR 1191:

(2018) 9 SCC 1 – followed.

1.6 In the present case, the situation is peculiar, be cause the grant of exemption, and the terms of such relief (in terms of time, and monetary limits) are unambiguous. However , the procedure for calculation of the monetary limit is not pre scribed at all. Therefore, the present case is not one of amb iguity, but instead, one of a clear gap, which if not construed approp riately, would defeat the intention of the notification. It has of ten been held – in the context of rules of procedures that they are meant to facilitate, not supplant justice and the court must l ean towards substantial justice when faced with a complaint of procedural law. [Para 17-20][125-D-E; 127-D-E] Sangram 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 t ax exemption, for the purpose of considering whether th e 100% limit equivalent to capital expenditure was reached or n ot is to notionally determine the tax amounts payable during the relevant period, when the multiplexes enjoyed tax exemption. This is possible, having regard to the returns filed by them du ring the time when they sought and were granted exemption. Th e outer limit (100% investment) is a discernible amount, which th e units would be able to furnish, with appropriate proof in their books of accounts, and valuations furnished by them. Clearly enunciatin g this principle and applying to the facts of this case, the High Court followed a reasonable method which cannot be faulted . [Para 22][128-C-E] Devi Multiplex & Anr. v. State Of Gujarat & Ors. (2015) 9 SCC 132 : [2015] 6 SCR 1 – referred to. Case Law Reference [2015] 6 SCR 1 referred to Para 2 [2010] 13 SCR 820 followed Para 16 [2018] 7 SCR 1191 followed Para 17 [1955] 2 SCR 1 relied on Para 18 [1984] 3 SCR 229 relied on Para 19 CIVIL APPELLATE JURISDICTION : Civil Appeal No.13977 of 2015. From the Judgment and Order dated 26.06.2009 of the High Court of Gujarat at Ahmedabad in SCA No.5391 of 2004. S. K. Bagaria, Sr. Adv., Kumar Ajit Singh, Ms. Swati Ghildiyal, Ms. 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

S. RAVINDRA BHAT, J.

¶1This appeal by State of Gujarat, complains of the gri evance with respect to a part of the impugned judgment1.

¶2This Court had occasion to deal with the substantial grievance of the present writ petitioner(s)/respondents, in a judgment reported in Devi Multiplex & another v State of Gujarat and Others 2. The issue which concerns this Court in the present proceedings, with re spect to the method of calculation or the method of determining the exemption limits under the scheme, extended by the State, to multiplexes, who had put up capital infrastructure. These incentives were by way of tax exemptions for a specified period. On the previous occasion, this court had adjudicated upon the grievance of the multiplex owners, regarding denial of extension of the scheme. This court held that the deni al of 1dated 26.06.2009 delivered by the Gujarat High Cour t in Special Civil Application No.5391 of 2004. 2(2015) 9 SCC 132 STHE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT extension (two years, which was sought by the multiplex owners) wa s in the circumstances, unjustified and had invoked the doctrine of promissory estoppel.

¶3For the sake of convenience, the court can do know better than extract para 2 of the judgment in Devi Multiplex (supra) which broadly outlines the incentive scheme, contained in the exemption notificati on issued by the State on 20.12.1995. The relevant part of the judgment is extracted below: “2. Since Civil Appeal No. 6478 of 2009 was taken a s the lead matter, facts relating thereto are dealt with in detail hereafter. On 20-12-1995 the Government of Gujarat announced a policy named New Package Scheme of Incentives for Tourism Projects, 1995-2000 (hereafter referred to as “ the Scheme”) with a view to make available all fiscal and non-fiscal incentives, reliefs and concessions enjoyed by industr ies to “tourism” which was accorded the status of an industry, in order to give a boost to tourism sector by attracting higher investment in the areas with tourism potential and to generat e employment opportunities. Under Clause 2, the Scheme came into operation on 1-8-1995 and was to remain in force for a period of five years up to 31-7-2000. Under Clause 3, to be eligible, a new tourism unit ought to be registered after 1-8-1995. Clause 4.7 dealt with effective steps which su ch unit was expected to undertake. Under Clause 5, after ta king initial effective steps a tourism unit could apply to the D irector of Tourism for registration. All projects had to conform to t he specifications and requirements spelt out in Appendix B which appendix dealt with various categories of tourism u nits and Item 22 thereof pertained to “Entertainment Complex es” including multi-cinema theatre complexes or multipl exes. Clause 7 categorised tourism units in four categories, name ly, Prestigious Tourism Units, Large-scale Tourism Units, Smal l-scale Tourism Units and Tiny Tourism Units with minimum fixed capital investment of Rs 10 crores, 90 lakhs, 10 la khs and less than 10 lakhs, respectively. Clause 8 dealt with incentiv es and stated that a tax holiday of 5-10 years would be available in respect of exemptions from (i) sales tax (ii) tu rnover tax

(iii) electricity duty (iv) luxury tax, and (v) entertainme nt tax, up to 100% of capital investment. In Clause 8.1 it was stated that the quantum of incentives would not exceed 100 % of eligible capital investment and it further stated the perio d of eligibility in respect of prestigious tourism units, large-scale tourism units, small-scale tourism units and tiny tourism units to be 10 years, 8 years, 6 years and 5 years, respe ctively. Clause 9 dealt with composition of sanctioning auth ority whereunder State Level Committee was competent to i ssue eligibility certificate in respect of prestigious and l arge units while District Level Committee was to issue eligibi lity certificate for all small-scale and tiny tourism un its. The procedure for registration of tourism units for incentives was detailed in Clause 10.”

¶4What is an issue in this case, is another part of the new Package Scheme i.e. proper manner of construing para 8 and 8.1 which, for the sake of convenience are produced below: “INCENTIVE A tax holiday of 5-10 years will be available to new units and expansion of existing units ( as per condition set out earli er) in respect of the following taxes, and upto 100% of ca pital investment. The tax Holiday will be available to un its conforming to the list in Appendix B and falling wit hin the eligible areas. List of taxes

¶1Exemption from Sales Tax.

¶2Exemption from Turnover tax.

¶3Exemption from Electricity Duty.

¶4Exemption from Luxury Tax.

¶5Exemption from Entertainment Tax. Exemption from sales tax is available with the foll owing conditions:

(a) Exemption towards taxes on raw materials, proce ssing materials, consumable stores, packing materials are not available.

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

(c) No exemption is available on purchases of any goods suc h as building materials, equipments or any other goods to be purchased for setting up of tourism project.

8.1 Period of Eligibility\ The quantum of incentives shall not exceed 100% of eligible capital investment. If the limits of incentives expire before the eligible period, the unit cannot avail of any further benefit. The eligible units will be made available a tax holiday for t he period mentioned against each category of tourism u nit as tabulated below:

¶5This Scheme was embodied in Exemption Notification dated

14.02.1997, the relevant portion of which reads as follows: “NOW, THEREFORE, in exercise of the powers conferred by Sub-Section (1) of Section-29 of the Gujarat Entertainments Tax Act, 1977 (Guj.16 of 1977), (herein after referred to as “the said Act”) and in supersession of Government Notification, Information, 133 Broadcasting and Tourism Department No. (GHT.91.45) MNR-1391-285-E, dated 24th December, 1991 the Government of Gujarat hereby exempt wholly the tax on the entertainments which fulfils t he criteria laid down in Appendix-B of the said resolu tion (hereinafter referred to as the eligible entertainm ent) during the eligible period or upto the period of expiry of the l imits of incentives, whichever is earlier, to the extent ref erred to in para 8.1 of the said resolution, subject to the fol lowing conditions:- …. …

¶15The proprietor of a eligible entertainment shall be liable to pay tax as soon as the quantum of exemption avai led of towards sales tax, turnover tax, electricity duty, luxury tax and entertainment tax equals the amount specified i n the eligibility certificate issued by the Appropriate A uthority or on expiry of the time limit mentioned in the. said certificate , whichever is earlier.”

¶6Neither the package nor the Scheme indicated the mechanism for calculating how the exemption limits (100% capital investment) was calculable. The rate of tax at the relevant time was 50% of the entrance or ticket value.

¶7The appellants’ contention was that the calculation of tota l exemption to be done based upon a notional exercise. Such determination was explained in the pleadings in the writ petition as follows: “In case of the new units which has invested an amoun t of Rs. 10 crores towards eligible capital investment. This amount of eligible capital investment is required to be adjusted against the amount of Tax exemption available under the pre sent scheme/policy. If this unit is charging an amount of Rs. 100/- by way of admission fee to the multiplex theatre; a nd the amount of entertainment tax which it is liable to pa y to the Government is Rs.50/-. This would mean that the own er of the unit is entitled to retain Rs. 50/- to enable him to defra y the expenditure incurred by him for providing the facili ties in the unit. The amount of Rs.50/- recovered by way of entertainment tax is required to be notionally adjusted against the amount of eligible capital investment till the amount of R s. 10 crores gets exhausted or till the expiry of a period of ten years whichever is earlier.”

¶8The same contention was urged before the High Court which recorded as under: “57. Mr. Nanavati further contended that even on merits, the impugned Circulars deserve to be quashed and set aside. Form 17 which is the form of register of tickets not bei ng complementary tickets, issued when tax is payable u nder Section 3 of the Act, clearly stipulates mention of price of ticket including entertainment tax under Column 2, which also goes to show that the entertainment tax is payable on the gross receipt and there is no question of notionally calculat ing the tax. The returns submitted by few members of Multi plex Association would show that they have been showing the price of the ticket inclusive of tax and seeking ex emption on the basis of the rate applicable by calculating tax on the receipt. Since beginning, the members of the Association ha ve been filing monthly returns on the basis of tax calculat ed on the receipt made and the respondent authorities hav e been accepting the same without any objection. In the case of M/s . lnox Multiplex, the Mamlatdar, Vadodara has passed an assessment order by calculating tax on the total rec eipt i.e. for example for the period between 19.09.2003 and

25.9.2003, the gross collection is Rs. 10,30,746/-. The Mamlatdar has assessed Rs.5,15,373/- as net tax payabl e at the rate of 50%. M/s. lnox Entertainment Limited, Vadod ara was issued an ad hoc eligibility certificate for an amou nt of Rs.554.45 Lacs. For the purposes of calculating the am ount of tax till the limit of Rs.554.45 Lacs, the Mamlat dar has considered 100% of the gross, collection i.e. on gr oss collection of Rs.4,32,268/-, the Mamlatdar has asse ssed a tax 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 wr it of mandamus or any other appropriate writ, order or direc tion directing the Respondents to consider only the amou nt of entertainment tax payable notionally by the members of the Petitioner Association to the Respondent State as the ca pital value for the purpose of setting off the eligible c apital investment of the members of the Petitioner Associa tion as contemplated under the scheme contained in the Resol ution at Annexure-A hereto;”

¶9The state’s contention, on the other hand was that since the appellant had the benefit of tax exemption, the element of tax had to be added to the actual amount collected. This was sought to be urge d by the State in its counter affidavit in following terms: “5.5 In view of the aforesaid, it is respectfully submitted that section 3 envisages the rate of tax which is to be levied on the payment for admission to the entertainment. There is a 50% tax slab for the city having population of more than one lakh and 45% for the city having population less than one lakh. It is stated that all the entertainment units are char ging Rs.100/- towards the payment for admission to entertainment only. To illustrate: Payment of admission to entertainment = Rs.200/- less 50% of tax (as per S.3(i) = Rs.100/- Total chargeable amount = Rs.100/- Hence, If the payment for admission to entertainment is less 50% of tax is deducted, the net chargeable amount comes to Rs.100/- (which, in the present case, is not col lected by virtue of the provisions of the Act, tourism policy 1995- 2000, and notification).” ….. “5.10 It is respectfully stated that if any entertainment unit is desirous of availing any benefit of the policy and notificati ons then in that case, the entertainment units will have to fal l in line with the requirements provided in the said pol icy and notifications. The entertainment units will have to strictly adhere to the conditions mentioned in the notificat ion and once having accepted the terms and conditions of th e said notification for the purpose of availing of the tax exem ption, they cannot now back out under the guise that what the entertainment units are charging towards entertainment tax cannot be recovered by the State Government. It is respectfully stated that any breach of any condition or non-comp liance of any of the provisions of the statute, notificati ons and circulars would result in termination of exemption gr anted. At the cost of repetition, I say that to illustrate if Rs.100/- is charged for admission, then it has to be treated as a paym ent for admission to entertainment excluding tax. When the rate of tax is 50%, it has got to be notionally added to the b asic net 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 be adjusted in terms of the notifications and Governme nt resolutions.”

¶10The High Court agreed with the petitioners’ contention and held that as multiplexes which availed of the exemption, had in fact not collected amounts as tax, there were no question of addition of any further amount but rather that to reckon whether the 1 00% capital investment (the ceiling limit in the Scheme for exemption) was achieved was to be done by notional determination based upon the actual t icket collection for the relevant period. The finding of the High Court in this regard pertinently are as follows: “Clause 8 of the Scheme declares that “tax holiday of 5 to 1 O years” will .be’ available in respect of various taxes including “exemption from entertainment upto 100% of capital investment. The said clause provides that the asses see viz .. the proprietor of an entertainment complex is exempted f rom paying the tax, payable by him under the Act, till tax is 100% sef off against the 100% value of the eligible capi tal investment made by the proprietor. The question whi ch has arisen in the present petition is how the amount of “tax” should be determined for set off against the available tax incenti ves i.e. 100% of the eligible capital investments. The i ssue has arisen in context of the legal provision of the Guj arat Entertainment Tax Act. Section 3 of the Act is held to be a charging Section. It is held that liability for payment of du ty is imposed upon the proprietor and not upon the visit ors of the theater. The proprietor does not act as an agent of the Government’ for collection of duty. The entertainment duty i s a payment which the proprietor is required to make as a condition for enabling visitors to attend or continue to attend the entertainment. Section 3 which levies fax provides for levy on “gr oss” payment received from consumer as is clear from the words of Section·3 and also as Interpreted in 1971 (1) SCC 471. The assessable value for determination of the tax liability is the payment received, irrespective of the break up of this amount, charged for admission to entertainment and tax payable thereon. The entertainment tax being a taxing measure, and Section 3 being a charging section, it has to be strictly c onstrued and, therefore, liability to pay tax cannot be enlarged beyond what 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 ta x from the viewers. Therefore, in case of multiplex cinema s, the amount 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 tot al amount recoverable by and payable to the proprietor is Rs.100/ ·, Tax liability has to be, therefore, calculated on this amount i.e. Rs.100/- which would be at 50% payment for adm ission received from the viewers. Under the incentive, there is no special method of calculation of the tax liability prescribed as a co ndition of exemption for the purpose of setting off such tax l iability against the incentive limit. This method is prescribed for the first time by the impugned Circulars in November/Decem ber, 2000.” The final directions in this regard are as follows: “111. In view of the above discussion, we are of the view that the respondent-State is not justified in considering t he entire amount of the value of the ticket as the capital value for the purpose of setting off the eligible capital investm ent of the members of the petitioner Association. We are also of the vi ew that the amount collected by the members of the peti tioner Association while permitting. the viewers to the Mu ltiplex Theaters also includes an element of tax and hence, the applicable rate of tax so collected by the members of the petitioner Association are only required to be set off aga inst the eligible investment under the Scheme. The entire amount of the value of the ticket cannot be considered as the ca pital value for the purpose of setting off the eligible c apital investment. We are also of the view that the member s who have not commenced their project within the stipulated time limit i.e. on or before 30.11.2002 as envisaged und er the subsequent Resolution dated 28.06.2000 by virtue of which those cases have been considered as pipeline cases a re not entitled to the benefit under the Scheme and there is no infirmity in the order passed by the respondent authorities w hile rejecting their representation for extension of tim e. We are also of the view that the members who are entitled to the benefit of the Scheme are entitled to claim only the amount of cap ital investment made by them within the stipulated time lim it i.e.

30.11.2002. If any expenditure incurred by them subs equent to this time limit or investment made by them in such el igible project after 30.11.2002 cannot be considered as an el igible investment. The respondent authorities are, therefore, dire cted to give effect to this judgment and order and decid e each case as per the directions issued here in this judg ment and raise the demand against the petitioners. The demand so raised will have to be paid by the members of the Association wit hin six weeks from thereof.”

¶11Mr. S.K. Bagaria, learned Senior Advocate for the State of Gujarat argued that a conjoint reading of Sections 3 and 29 of the Gujarat Entertainment Tax Act, 1977 clarifies that eligible units w ere granted exemption from payment of tax and that owners were required to charge only amounts towards payment for admission to entertainment w hich meant that no tax was actually collected. Therefore, if any unit or multiplex collected tax which it did not pass on to the state, that would not only be contrary to the public interest but would amount to unjust enrichment.

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

¶13Mr. Maninder Singh, learned counsel for the respondent(s)/ multiplex owners on the other hand urged that in the absence of any mechanism to determine the limit of exemption i.e. equivalent to 100% of the capital investment: which is an objective determinable fact, - having regard to the books of accounts and the documents available wit h the multiplex 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 the 100% exemption limit was achieved by a particular multiplex, the amount which could have been collected during the relevant period having regard to the aggregate actual collection during the entire period. Analysis and conclusions

¶14It is evident from the terms of the Scheme and the exemption notification which gave effect to it, fixed to limits i.e. (1) a time limit and

(2) quantification of the exemption. The latter could be s ubject to the first i.e., in the event, the amount reached the exemption limit w ere achieved, before the expiry of the period in question (5-10 year s), no further exemption could be claimed. The state, however, omi tted to provide any mechanism to determine how the exemption limits could be worked out for the purpose of notional calculation of the quantified limit. This meant that a reasonable workable method of calculation had to be applied.

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

¶16As the High Court concluded-and in the opinion of this Court correctly so, this contention was bereft of any logic and was plainly unreasonable. There is concededly, a gap in the man ner how tax exemption limits can be discerned. Undoubtedly, the law is now settled that exemption notifications have to be interpreted strictly, and against assesses in case of ambiguity. This rule was stated in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal 3. The Constitution Bench, in that case, held that: “The law is well settled that a person who claims exempt ion or concession has to establish that he is entitled to that 3 2011 (1) SCC 236 exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions de pending upon the settings on which the provision has been plac ed in the statute and the object and purpose to be achiev ed. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandat ory requirements of those conditions must be obeyed or ful filled exactly, thought at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affec t the essence or substance of the notification granting exemption.”

¶17This was followed, later, in another five judge bench decision (Commissioner of Customs (Import), Mumbai vs. Dilip Kum ar and Company & Ors4). In the present case, the situation is peculiar, because the grant of exemption, and the terms of such relief (in term s of time, and monetary limits) are unambiguous. However, the procedure for calculation of the monetary limit is not prescribed at all. Therefore, the present case is not one of ambiguity, but instead, one of a c lear gap, which if not construed appropriately, would defeat the intention of the notification.

¶18It has often been held – in the context of rules of procedures that they are meant to facilitate, not supplant justice. In Sangram Singh v. Election Tribunal, Kotah & Anr 5 this court stated: “16. ...It is procedure, something designed to facilitate ju stice and further its ends: not a penal enactment for puni shment and penalties; not a thing designed to trip people up. Too technical a construction of Sections that leaves no ro om for reasonable elasticity of interpretation should ther efore be guarded against (provided always that justice is done to both sides) lest the very means designed for the further ance of justice be used to frustrate it.”

¶19Again, in Ghanshyam Dass v. Dominion of India 6 the court elaborated upon the idea and intent of “adjective law” in de aling with Section 80 of the Civil Procedure Code: 4 2018 (9) SCC 1 5 (1955) 2 SCR 1 6 (1984) 3 SCC 46 “12. In the ultimate analysis, the question as to wh ether a notice Under Section 80 of the Code is valid or not is a question of judicial construction. The Privy Council and this Court have applied the Rule of strict compliance in de aling with the question of identity of the person who issues the notice with the person who brings the suit. This Court has however adopted the Rule of substantial compliance in deali ng with the requirement that there must be identity between the cause of action and the reliefs claimed in the notice as well as in the plaint. As already stated, the Court has held that notice under this Section should be held to be sufficient if it substant ially fulfils its object of informing the parties concern ed of the nature of the suit to be filed. On this principle, it has been held that though the terms of the Section have to be st rictly complied with, that does not mean that the notice sh ould be scrutinized in a pedantic manner divorced from common sense. The point to be considered is whether the notice gives sufficient information as to the nature of the claim such as woul d the recipient to avert the litigation.”

¶20Sugandhi v. P. Rajkumar7 also leaned in favour of substantial justice when it had to deal with complaint of breach of procedural law.

¶21Harichand Srigopal (supra) also propounded thetheory of substantial compliance, with provisions, while interpreting an exemption notification: “31. Of course, some of the provisions of an exempt ion notification may be directory in nature and some ar e mandatory in nature. A distinction between the provi sions of a statute which are of substantive character and were built in with certain specific objectives of policy, on the o ne hand, and those which are merely procedural and technical in ther e nature, on the other, must be kept clearly distinguish ed... Doctrine of substantial compliance and “intended use”

¶32The doctrine of substantial compliance is a jud icial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor or incon sequent aspects which cannot be described as the “essence” or the 7 (2020) 10 SCC 706 “substance” of the requirements. Like the concept o f “reasonableness”, the acceptance or otherwise of a plea of “substantial compliance” depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the Rule or the Regulation. Such a defence cannot be pleased if a c lear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of stri ct compliance. Substantial compliance means “actual compliance in respect to the substance essential to every reas onable objective of the statute” and the Court should dete rmine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed.

¶33A fiscal statute generally seeks to preserve th e need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an ex emption Clause that are important. Substantial compliance w ith an enactment is insisted, where mandatory and director y requirements are lumped together, for in such a cas e, if mandatory requirements are complied with, it will be pr oper to say that the enactment has been substantially complied wi th notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial co mpliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest ef fort at compliance should be accepted.

¶34The test for determining the applicability of the su bstantial compliance doctrine has been the subject of a myriad of ca ses and quite often, the critical question to be examined is whe ther the requirements relate to the “substance” or “essen ce” of the statute, if so, strict adherence to those requir ements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the “essence” of the thing to be done but are gi ven with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other wor ds, a mere attempted compliance may not be sufficient, but actu al compliance with those factors which are considered as essential.”

¶22A reasonable method of calculating benefit of tax exemption, for the purpose of considering (whether the 100% limit equiv alent to capital expenditure) was reached or not is to notionally dete rmine the tax amounts payable during the relevant period, when the multiple xes enjoyed tax exemption. This is possible, having regard to the returns filed by them during the time when they sought and were g ranted exemption. The outer limit (100% investment) is a discernible amount, which the units would be able to furnish, with appropriate proof in their books of accounts, and valuations furnished by them. Clearly enunciating this principle and applying to the facts of this case, High Court has followed a reasonable method which cannot, in this court’s opinion, be faulted.

¶23For the above reasons, this court holds that there is no merit in this appeal. It is accordingly dismissed. No costs. Divya Pandey Appeal dismissed.