Getting definitions right for fiscal economics

There are three definitions for the purpose of fiscal statutes: a statutory definition, the definition in market parlance and a scientific definition

The reason why I have chosen this subject is that I have been noticing that many senior economists and analysts have criticised some statutes or notifications on the ground that they do not contain any definition of certain concepts. Recently, a senior retired economist of the Government of India made a point in his essay that the anti-corruption law was vague since there was no definition of public interest in the statue. Not so long back, another economist wrote that in the Terms of Reference of the Fifteenth Finance Commission, there is no definition for the expression populist expenditure used there.

What therefore I want to propound here in this treatise is that it is neither possible nor necessary to define all terms used in a statute or notification or general writings since there are some principles of interpretation of terms for general use which are also the same for fiscal economics. In the case of fiscal economics, such questions arise very often because there are exemptions which taxpayers claim taking only the most favourable interpretation.

Is biscuit food? Is coconut vegetable? These are all vexed issues in a fiscal statute since food and vegetables are exempted. There are various definitions, which have clouded the conception about what exactly it means when a tax officer calls something synthetic rubber or aromatic chemical. They are not the same thing as what a student of science or an academician would understand them to be. The intensity of the controversy can be understood when a concept like vegetables such as betel leaves, chilly, lemon, green ginger and coconut can be widely debated in tribunals and courts, and finally gets settled in a Supreme Court decision, but only after two judges disagreed with the third.

There are three definitions for the purpose of fiscal statutes: statutory definition, the definition in market parlance and a scientific definition. The judicial pronouncements have very clearly propounded the rule of interpretation that for articles of daily use and commonly traded or ideas commonly used in public parlance which are mentioned in taxing statutes or in general writings, we have to follow the definition as given in the statute, even when it is artificial. If there is no such definition in the statute, then we have to follow the understanding in the market parlance or common man's understanding. In the absence of a clear understanding in market parlance, we can fall back on the scientific or dictionary meaning.

Maxwell has elaborated this principle of common man's understanding by saying that in dealing with matters relating to the general public, statutes are presumed to use words in their popular, rather than their narrowly legal or technical sense (Maxwell on Interpretation of Statutes, 12th ed, by P.St.J.Lagan p81). The first time the judiciary in India accepted this principle and enunciated it in detail in any important judgment was in the case of Ramavatar Budhiprasad vs Assistant Sales Tax Officer, reported in AIR 1962 SC 1325. In this landmark judgment, a five-judge bench decided the matter about betel leaves, which were claimed as a vegetable since the latter was exempt from sales tax. The assessee claimed that betel leaf was a product of the vegetable kingdom and therefore a vegetable. To advance this argument, reliance was placed on the dictionary meaning of 'vegetable' as given in the Shorter Oxford Dictionary. The SC did not accept the dictionary meaning and observed that the word 'vegetable' must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. In this view, betel leaf was not a vegetable as people consume it as a condiment. So it could not enjoy the exemption.

The main proposition, which applies to c and general laws, therefore comes to this: In case there is no definition in the statute, we go by the understanding in the market parlance or popular meaning. However, if there is neither statutory definition nor a clear understanding in the market parlance, then the scientific definition as in the dictionary or technical book will prevail. If it is a technical term such as isotope, then only science book has to be consulted.

The writer is member, Central Board of Excise & Customs (retired)

Email: smukher2000@yahoo.com