Double taxation cannot be introduced by interpretation

In the context of impending GST there have been many discussions as to whether double taxation will be eliminated once the GST comes. In order to appreciate the issue it is necessary that we go into the fundamentals of double taxation in respect of both direct and indirect taxes.

So far as the legality is concerned, it has to be clearly understood that double taxation can be permitted by law only if the statute expressly provides for it. But it is not permissible by an interpretation of the wording in the statutes. There is nothing in the law which forbids double taxation but it is only that by an interpretation the same income or turnover of goods cannot be taxed twice.

The judicial decisions have been always in favour of an interpretation disallowing double taxation if two interpretations are possible.

In one of the old decisions in the income tax case of Jain Brothers vs. UOI — 1970(77)ITR107(S.C.), the Supreme Court said that the Constitution does not contain any prohibition against double taxation. It also held that it is not disputed that there can be double taxation if the legislature has distinctly enacted it and it is only when there are general words of taxation, they cannot be so interpreted as the tax the subject twice over to the same tax. In the case of Azam Jha Bahadur v. Expenditure Tax Officer - 1971(3)SCC621 in relation to expenditure tax the Supreme Court has further confirmed the same view.

In fact the Supreme Court has allowed double taxation if the legislative intent is clear. In the case of Premier Tyres Ltd. vs. CCE, Cochin - 1987(28)E.L.T.58(S.C.), relating to Central Excise input tax credit, the Supreme Court held that the language of the notification is so clear that it permits a situation where input credit is not allowed leading to double taxation. Therefore, there is nothing illegal about it. Also in the case of Hind Plastics v. C.C. Bombay, the Supreme Court held that taxing of packing material twice, (once at the rate applicable to the contents and then the rate applicable to the container) which would be the result if the levy on duty to the packing material were not to be exempted would mean double taxation and therefore harsh. But the Court held that even if it is harsh, it is legal. The Supreme Court held specifically in this connection that what should be taxed is a matter not to be decided by the Courts but by the instrumentality of the functionaries (referring to legislature and executives).

On the indirect tax side there is a typical controversy when the taxpayer claims that the goods at two different stages are same and therefore taxing them twice has been double taxation. The Supreme Court has held in all these cases that if they are actually the same, then there is a double taxation which is not permitted. In individual cases the Court has gone into the merits of the case examining whether they are same or not. In the case of State of Orissa vs. Titagurh Paper Mills - 1985 Supp. SCC 280, 322 the Supreme Court held that log and timber are not the same goods and therefore there is no double taxation. In the case of Collector vs. Lal Woollen and Silk Mills - 1997(96)ELTA225(SC) the Supreme Court held that grey yarn and dyed yarn are different goods and so there is no double taxation. In the case of CCE, Madras vs. ITC Ltd. – 2000(152)ELT241(SC) the Supreme Court held that cigarette packets and other packing containers are different goods and so charging duty on these two products will not be double taxation.

The conclusion is that discussions on double taxation must take into account the basic theoretical and legal proposition that merely charging duty twice on same goods or same income does not amount to double taxation. If the goods are different in the tariff or if the double taxation is authorised by clear words in the law, then there is no double taxation.

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