The Supreme Court of India stands as the ultimate arbiter of constitutional principles and legal interpretation in India’s judicial system. In the recent past, a notable shift has emerged in its approach in tax cases, particularly regarding procedural issues. A series of recent judgements of the Court signals a material departure from established principles of interpretation in tax matters, raising the important question of whether we are witnessing a fundamental shift in the construction of taxing statutes.

In this context, Mr. Rajesh Simhan (Partner, Anagram Partners) and Mr. Anand Unnikrishnan (Senior Associate) examine Court’s recent tax jurisprudence, noting a gradual shift from its traditional, non-interventionist approach. Through the course of this intriguing column, the Authors also explore the implications of this jurisprudential shift, scrutinizing how Court's increasing willingness to intervene in procedural tax matters impacts legal certainty, taxpayer trust, and the principles for interpreting tax statutes in India. Speculating that the shifting sands in the Court’s interpretative approach may have far reaching implications for tax jurisprudence, the Authors conclude while pondering over a fundamental question that emerges given the current scenario, i.e., “Are we witnessing the gradual transition from the well-established doctrine of strict interpretation toward a more expansive and subjective interpretation of taxing statutes?”.

“The Interpretive Compass: Mapping Apex Court’s Recent Direction in Tax Procedure Cases”

1. Introduction

The Supreme Court of India stands as the ultimate arbiter of constitutional principles and legal interpretation in India’s judicial system. In the recent past, a notable shift has emerged in its approach in tax cases, particularly regarding procedural issues. A series of recent judgements of the Court signals a material departure from established principles of interpretation in tax matters, raising the important question of whether we are witnessing a fundamental shift in the construction of taxing statutes. This article examines the Court's recent tax jurisprudence, noting a gradual shift from its traditional, non-interventionist approach. It also explores the implications of this jurisprudential shift, examining how the Court's increasing willingness to intervene in procedural tax matters impacts legal certainty, taxpayer trust, and the principles for interpreting tax statutes in India.

2. Intervention as an exception: The Court’s historical approach

The general rule of construction in tax law is to apply the provisions of a taxing statute as they stand. This means that unless they evince an intention to the contrary, the words in a statute should be given their ordinary grammatical or natural meaning, with no additions or subtractions, on the grounds of legislative intent or otherwise.[1]

Historically, the Supreme Court adopted a strict approach in tax matters. As early as 1957, a Constitution Bench of the Court stated that tax statutes must be interpreted strictly, without regard to the “spirit” or the “substance” of the law.[2] In other words, there was no room for any intendment or equity or presumption as to a tax – “one merely looked at what was clearly said”.[3] The Court considered its duty as simply to give effect to the words used without scanning the wisdom or policy of the legislature and without engrafting, adding or implying anything that was not congenial to or inconsistent with such words.[4]

This approach resulted in unwieldy or ambiguous provisions of taxing statutes being construed in favour of the taxpayer, with the Court stating notably in one instance that the fact that giving effect to the plain language of a section “may lead to some absurd result is not a factor to be taken into account” in interpreting it.[5] In a subsequent case, the Court emphasized this with greater force, stating that it could not “import  provisions in the statute so as to supply any deficiency” and that “there was nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly”.[6] A Constitution Bench of the Court discussed the basis for this approach in some detail in Vatika Township,[7] explaining that since tax laws were in derogation of personal rights and property interests, they were subject to strict construction, with any ambiguity to be resolved against the imposition of the tax.

Arguments on the need to depart from a literal reading are raised most often in cases involving “procedural” provisions i.e., those that deal with the machinery of assessment and collection of tax. It is argued that such provisions should not be subject to the same rigor that substantive (or charging) provisions are subject to but must be interpreted in a way that makes the charge of tax effective.[8] However, what counts as “reasonable” departure from a literal reading is often a bone of contention. The Court’s recent jurisprudence on several issues of tax procedure raises important questions about the correctness of an interventionist approach, and the balancing act between tax certainty and State interests in tax matters.

3. Intervention by design: the Court’s current jurisprudence

The Court’s decision in Ashish Agarwal v. Union of India,[9]  Union of India v. Rajeev Bansal,[10] and Commissioner of Customs v. Canon India Pvt Ltd[11] all highlight different facets of its new, interventionist approach on issues of tax procedure.

Rescuing defective notices

In Ashish Agarwal, a 2-judge bench of the Court exercised its extraordinary jurisdiction under art. 142 of the Constitution to revive approx. 90,000 reassessment notices that had been declared invalid by various High Courts for having been issued beyond the limitation period prescribed under s. 149 of the Income-tax Act, 1961 (“ITA”) as amended by the Finance Act, 2021.

Despite agreeing that the notices were invalid, the Court stated that the Revenue could not be left “remediless” due to a “bona fide mistake” as to whether the Finance Act, 2021 had been enforced – an astonishing decision, given the Court’s consistent historical emphasis on construing taxing statutes strictly and granting the benefit of any ambiguity to the taxpayer.

As the Court has itself previously noted, “the income-tax law seeks to put in the net certain class of income, and can only successfully do so, if it frames a provision appropriate to that end. If the law fails and the taxpayer cannot be brought within its letter, no question of unjustness, as such, arises.”[12] From the record of the case, it was impossible for the Revenue to have been unaware that Finance Act, 2021 was indeed in force when the notices were issued,[13] and there was little reason for the Court to intervene, especially when larger bench decisions of the Court held the field. Whether the Court ought to have even invoked art. 142 of the Constitution in such circumstances is also debatable.[14]

Extending limitation periods

Two years later, the Court adopted a similar approach in Union of India v. Rajeev Bansal,[15] which addressed the interplay between the Finance Act, 2021, and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“TOLA”), a COVID-era legislation that had temporarily extended the limitation period to complete reassessments under the ITA.

The Court held that this (earlier) temporary extension would override the (subsequent) definitive reduction in the limitation period by Finance Act, 2021, and that the period between the date of issue of the reassessment notice and the date on which the information on escaped income was provided to the taxpayer would be excluded from computing the limitation period, since the Revenue was “deemed to have been prohibited from proceeding with reassessment” in that period by virtue of the Court’s decision in Ashish Agarwal.

In support of this reasoning, the Court cited precedent[16] construing machinery provisions in a way that made the charge of tax effective but failed to appreciate that the provisions at issue were not simply machinery provisions, but were limitation provisions that ought to have been interpreted strictly.[17]

As a result of these two decisions, the Revenue got a second bite of the cherry in tens of thousands of assessments that should rightfully have remained closed, forcing taxpayers to engage with unfair, costly, and time-consuming reassessment proceedings.

Discovering errors where none existed   

The Court’s recent decision in Canon reviewing its own earlier judgement is another example of the interventionist approach.

In its earlier judgement (“Canon I”),[18] a 3-judge bench of the Court had held that officers of the Directorate of Revenue Intelligence (“DRI”) were not competent to reassess bills of entry that were initially assessed by officers of customs. Nearly 3 years after this judgement, another 3-judge bench of the Court issued a lengthy review judgement (“Canon II”) overturning Canon I.[19]

Canon II cited two main reasons justifying the review: first, that Canon I had not considered Notification No. 44/2011-Cus (NT) which designated DRI officers as “proper officers” for the purposes of assessment and reassessment; and second, that Canon I had failed to consider the effect of an amendment made in 2011 to the Customs Act, 1962 (“Customs Act”) validating prior proceedings initiated by DRI officers.   

As to the first of these reasons, the Canon II Court did not address the Respondents’ argument that Notification No. 44/2011-Cus (NT) had actually been brought to the Canon I Court’s attention yet was deemed irrelevant. This may have been because the Government had heavily relied on another notification,[20] which the Canon I Court dismissed as ill-founded. That notification had been issued under s. 2(34) of the Customs Act – a mere definition section – and not under s. 6, which properly empowered the Government to entrust customs functions to various officers.[21] Since Notification No. 44/2011-Cus (NT) was issued under the same problematic provision, it appears unlikely that the Canon I Court would have reached a different conclusion even if it had explicitly addressed this notification in its decision. The Canon II Court also disagreed with Canon I’s interpretation of s. 2(34) of the Customs Act. In the Court’s opinion, s. 2(34) had to be read with ss. 3, 4, and 5 of the Customs Act and not independently. It criticized the Canon I Court’s reference to s. 6 of Customs Act as a “glaring misapplication” which was “in ignorance of the applicable law”. But this criticism may have been unfounded. As stated above, Notification No. 44/2011-Cus (NT) was issued only under s. 2(34) of the Customs Act. It made no reference to the powers under ss. 3, 4, or 5 of the Customs Act, and therefore had been rightly declared invalid in Canon I. Moreover, Notification No. 44/2011-Cus (NT) had been considered by the Delhi High Court in Mangali Impex,[22] and the Government’s appeal against the High Court’s decision in that case was part of the batch of cases before the Canon II Court. Thus, the first reason stated by the Canon II court for reviewing its own judgement in Canon I was not entirely on the mark.

As to the second of the above reasons, the Canon II court placed great emphasis on the statement of object and reasons that prefaced the 2011 amendment, stating that it sufficiently demonstrated Parliament’s legislative intent to validate past proceedings. But it paid short shrift to the express wording of the amendment itself, which made it clear that it was to only apply prospectively. The Delhi High Court had noticed this conflict in Mangali Impex and had rightfully preferred the express words of the statute over some perceived legislative intent. The Canon II court took the opposite approach without explaining why the express words of the statute would not simply prevail.

The Canon II Court stated that the review was necessitated by the need to do “complete justice” in the case. But the Court is vested with extraordinary power to achieve this only under art. 142 of the Constitution, and not under art. 137, which governs review proceedings. It is well established that a court can review its own judgements only where there is an “error apparent on the face of the record” i.e., an ex-facie error. Indeed, it is worthwhile to ask if an error is truly “apparent” if it takes 162 pages to explain it. If the Canon II Court doubted the correctness of Canon I’s interpretation of s. 2(34), the better approach would have been to place the matter before the Chief Justice for constituting a larger bench to decide the issue.

4. Charting the future of judicial intervention in tax cases

The Court’s recent, interventionist approach highlights the need for clarity, stability, and predictability in tax matters. Legal certainty is a bedrock of good tax governance. Excessive and unjustified judicial interference diverging from well-established legal principles, validating bad law, rescuing illegal assessments, and deferring to the Executive’s interpretation undermines the rule of law and affects investor confidence.

The Court’s words carry great weight, and history has shown that even case-specific interventions run the risk of being interpreted and reapplied widely. For instance, 3 years after Ashish Agarwal, litigation continues on the limitation period for undertaking reassessment under s. 148 of the ITA.[23] Similarly, the Court’s liberal exercise of its review jurisdiction in Canon II will likely embolden the Revenue to continue the modus operandi of seeking review of other rulings unfavourable to it – a trend that is accelerating across High Courts[24] and the Supreme Court.[25]

A more prudent approach in such cases would have been for the Court to adhere strictly to established law and refrain from intervention. This measured stance would have recognized and preserved Parliament's constitutional authority in making tax legislation without creating precedents for “judicial revision” of statutes. The Court could have articulated clearly that addressing legislative gaps falls within Parliament's purview, and that it was not the judiciary's responsibility to save the Executive from mistakes of its own making.

Unfortunately, the Court’s judgements in Ashish Agarwal, Rajeev Bansal, and Canon II may have created a template for judicial intervention in high stakes cases on tax procedure that could have serious long-term implications for taxpayers.

For instance, the Court has admitted and is hearing the Revenue’s SLP against the Bombay High Court’s judgement in Hexaware Technologies[26] on the jurisdictional assessing officer’s power to issue reassessment notices under the ITA despite the enactment of the “faceless” assessment scheme. Similarly, the Court has also admitted and is hearing the Revenue’s SLP against the Madras High Court’s judgement in Roca Bathroom Products[27] on the limitation period for completing transfer pricing assessments involving objections before the Dispute Resolution Panel. The Court’s decisions in both cases will affect tens of thousands of concluded and pending assessments. On both issues, multiple other High Courts have followed and reaffirmed the original rulings. Yet one wonders, with the Court’s recent, interventionist approach, whether this will once again result in the Court filling in deficiencies in legislation rather than limiting itself to strictly interpreting legal provisions.

The shifting sands in the Court’s interpretative approach may have far reaching implications for tax jurisprudence. A fundamental question emerges: Are we witnessing the gradual transition from the well-established doctrine of strict interpretation toward a more expansive and subjective interpretation of taxing statutes? While this jurisprudential evolution continues to unfold, the Court's forthcoming decisions, particularly its handling of the Revenue’s SLPs in Hexaware Technologies and Roca Bathroom Products, will have to be closely watched. These decisions may provide valuable indicators of whether recent developments represent isolated instances or signal a more enduring transformation in how Indian courts interpret and apply tax legislation.

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[1] VVS Sugars v. Government of Andhra Pradesh, (1999) 4 SCC 192.

[2] A.V. Fernandez v. State of Kerala, AIR 1957 SC 657.

[3] Tarulata Shyam v. CIT, [TS-14-SC-1977], quoting Rowlatt, J. in Cape Brady Syndicate v. IRC, [1921] 1 KB 64.

[4] CST v. Parson Tools & Plants, AIR 1975 SC 1039.

[5] CIT v. Vegetable Products Ltd, [TS-6-SC-1973].

[6] State of West Bengal v. Kesoram Industries Ltd, (2004) 10 SCC 201. A more expressive version of this sentiment can be found in Srikrishna J.’s dissent in Standard Chartered Bank v. Directorate of Enforcement, [TS-5010-SC-2005-O], where he states that “the Court cannot act as a sympathetic caddie who nudges the ball into the hole because the putt missed the hole (…) If the legislation falls short of the mark, the Court could do nothing more than to declare it to be thus, giving its reasons, so that the Legislature may take notice and promptly remedy the situation.” Also see Padma Sundara Rao v. State of Tamil Nadu, [TS-5009-SC-2002-O]; and Union of India v. Dharmendra Textile Processors and Ors, [TS-1-SC-2008-O].

[7] CIT v. Vatika Township Pvt Ltd, [TS-573-SC-2014].

[8] See e.g., CIT v. Eli Lilly & Co (India) Pvt Ltd, [TS-124-SC-2009-O].

[9] [TS-339-SC-2022].

[10] [TS-725-SC-2024].

[11] 2024 (390) ELT 545 (SC).

[12] Per Hidayatullah J., CIT v. Jalgaon Electricity Supply Co Ltd, [TS-5022-SC-1960-O].

[13] The Revenue argued that the notices were valid since the limitation period for reassessment under the unamended s. 148 of the Act had been preserved by two notifications issued by the Central Board of Direct Taxes under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Finance Act, 2021 was passed 6 months after that Act, and both notifications were issued after Finance Act, 2021 was passed. In fact, both notifications expressly refer to Finance Act, 2021. It is unclear how delegated legislation issued under an earlier temporal law can expand the limitation period stipulated under a later law.  

[14] See K. Ravi, and P. Harish, Revisiting Articles 141 and 142: Untying the Gordian Knot in Ashish Agarwal

and Rajeev Bansal (Jan. 27, 2025), https://www.taxsutra.com/dt/experts-corner/revisiting-articles-141-and-142-untying-gordian-knot-ashish-agarwal-and-rajeev.

[15] [TS-725-SC-2024].

[16] JK Synthetics Ltd v. CTO, (1994) 4 SCC 276; Gurusahai Saigal v. CIT, [TS-5032-SC-1962-O]; CIT v. Sun Engineering Works Pvt Ltd, (1992) 4 SCC 363.

[17] See KM Sharma v. ITO, [TS-5013-SC-2002-O], at para 13: “Fiscal statutes, more particularly a provision such as the present one regulating period of limitation must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality.” Also see SS Gadgil v. Lal & Co, [TS-5030-SC-1964-O].

[18] Canon India Pvt Ltd v. Commissioner of Customs, 2021 (376) ELT 3 (SC).

[19] Commissioner of Customs v. Canon India Pvt Ltd, 2024 (390) ELT 117 (SC).

[20] Notification No. 40/2012-Cus (NT) dated 02.05.2012.

[21] Canon I, at para 21: “If it was intended that officers of the Directorate of Revenue Intelligence who are officers of Central Government should be entrusted with functions of the Customs officers, it was imperative that the Central Government should have done so in exercise of its power under section 6 of the Act (…) The Notification which purports to entrust functions as proper officer under the Customs Act has been issued by the Central Board of Excise and Customs in exercise of non-existing power under section 2 (34) of the Customs Act. The Notification is obviously invalid having been issued by an authority had no power to do so in purported exercise of powers under a section which does not confer any such power.” [Emphasis supplied].

[22] Mangali Impex Ltd v. Union of India, [2016] 39 GSTR 338 (Delhi).

[23] See Taxsutra, Re-assessment Round 3 at SC as taxpayer, Revenue spar over Rajeev Bansal interpretation (Feb. 5, 2025), https://www.taxsutra.com/news/re-assessment-round-3-sc-taxpayer-revenue-spar-over-rajeev-bansal-interpretation.

[24] See CBDT v. Barkataki Print and Media Services and Ors, RP No. 206 of 2024 (Gauhati); Ramkaran Karwa v. Union of India, RP (ST) No. 30291 of 2024 (Bombay).

[25] See CIT v. Net App BV, SLP (C) Diary No. 25670/2024; Business Standard, FinMin files review petition in Supreme Court's Safari Retreats case ruling (Jan. 9, 2025), https://www.business-standard.com/finance/news/finmin-files-review-petition-in-supreme-court-s-safari-retreats-case-ruling-125010800964_1.html; The Hindu, SC dismisses pleas to review verdict upholding States’ right to tax mineral lands, quarries (October 4, 2024), https://www.thehindu.com/news/national/sc-dismisses-pleas-to-review-verdict-upholding-states-right-to-tax-mineral-lands-quarries/article68717742.ece.

[26] Hexaware Technologies Ltd v. ACIT, [TS-5260-HC-2024(Bombay)-O].

[27] CIT v. Roca Bathroom Products Pvt Ltd, [TS-473-HC-2022(MAD)].