Interpretation of penal and taxing statutes

1. Why penal statutes are construed strictly

• A penal law takes away liberty, and a person should not be punished unless the conduct falls plainly within the words.
• Fair warning: the citizen must be able to know in advance what is forbidden. Article 20(1) gives this a constitutional base for ex post facto punishment.
• Separation of powers: creating offences is for the legislature, not for courts extending words by analogy.

2. What strict construction means

Strict construction does not mean that the narrowest possible meaning is given to every word, or that the purpose of the Act is ignored. It means that if, after the ordinary rules are applied, two reasonable constructions remain, the court adopts the one that favours the accused. The leading statement is in Tolaram Relumal v. State of Bombay, 1954 INSC 62, AIR 1954 SC 496. Section 18(1) of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 penalised a person who, in consideration of the grant of a lease, received a premium. The accused had taken money for a lease of premises still under construction, and no lease had been granted. The Court held that where two reasonable constructions of a penal provision are possible, the court must lean towards the one that exempts the subject from penalty; it would not stretch the words to cover an agreement for a future lease.

The limit is that the court will not adopt a strained reading to let an offender escape, nor defeat the plain object of the law. Strictness is a tie-breaker, not a licence to rewrite.

3. Mens rea in statutory offences

The starting point is the presumption that a guilty mind is an essential ingredient of every offence unless the statute excludes it, expressly or by necessary implication (Sherras v. De Rutzen, 1895; Sweet v. Parsley, House of Lords, 1969). The presumption is strongest for serious crimes carrying stigma and long imprisonment. It is weaker for regulatory or “public welfare” offences: food safety, weights and measures, pollution, foreign exchange, where the object of the law would be defeated if the prosecution had to prove knowledge in every case.

Factors the court weighs in deciding whether mens rea is excluded:

• the words used (“knowingly”, “wilfully”, “fraudulently” point one way; their absence, read with their presence elsewhere in the same Act, points the other);
• the object of the statute and the mischief it targets;
• the severity of the punishment and the stigma attached;
• whether insisting on proof of knowledge would make the law unworkable.

Two Supreme Court cases mark the strict-liability end.

• State of Maharashtra v. Mayer Hans George, 1964 INSC 176, AIR 1965 SC 722. A German passenger in transit through Bombay carried gold in his clothing, in breach of an RBI notification under the Foreign Exchange Regulation Act, 1947. He said he did not know of it. The majority held that the object of the Act and the notification excluded mens rea by necessary implication, and upheld the conviction.
• Sarjoo Prasad v. State of Uttar Pradesh, 1960 INSC 274, AIR 1961 SC 631. A servant who sold adulterated oil on his master's behalf was convicted under section 7 of the Prevention of Food Adulteration Act, 1954, although he did not know of the adulteration. The Court held that mens rea is not an ingredient of the offence; the Act prohibits the sale of adulterated food, and the servant who sells is liable equally with the master.

4. Taxing statutes: the classic statement

Rowlatt J.'s dictum in Cape Brandy Syndicate v. Inland Revenue Commissioners (King's Bench, 1921) is the one to quote: in a taxing Act one has to look merely at what is clearly said; there is no room for intendment; there is no equity about a tax; there is no presumption as to a tax; nothing is to be read in, nothing is to be implied; one can only look fairly at the language used.

The Supreme Court adopted the same approach in A.V. Fernandez v. State of Kerala, 1957 INSC 29, AIR 1957 SC 657: if the person sought to be taxed comes within the letter of the law, he must be taxed however great the hardship; if he does not, he is free, however apparently within the spirit of the law the case may seem to be.

5. The principles, in order

• The charge must be clear. The subject of the tax, the person liable, the rate and the measure must all be found in the statute. If any is missing or ambiguous, the levy fails: Mathuram Agrawal v. State of Madhya Pradesh, 1999 INSC 498, (1999) 8 SCC 667.
• Ambiguity in the charging provision goes to the assessee.
• Ambiguity in an exemption goes to the Revenue. The person claiming an exemption must bring himself strictly within it. A Constitution Bench so held in Commissioner of Customs (Import) v. Dilip Kumar & Co., 2018 INSC 646, (2018) 9 SCC 1, overruling the contrary view in Sun Export (1997).
• Machinery provisions are construed to make the charge work. Provisions on assessment and collection are read so as to make the levy effective, not to defeat it: CIT v. S. Teja Singh, 1958 INSC 95, AIR 1959 SC 352.
• No retrospective burden without clear words. A provision imposing a new liability is presumed prospective: CIT v. Vatika Township (P) Ltd., 2014 INSC 629, (2015) 1 SCC 1. See the note on retrospective operation.
• Words are given their ordinary or commercial meaning, the sense in which people dealing with the goods understand them; see the note on dictionaries and other external aids.

6. Problem

Rajesh, a shopkeeper, was convicted for contravening section 7 of the Prevention of Food Adulteration Act, 1954, although he did not know that the article he sold was adulterated. He challenges the conviction on the ground that he had no guilty mind.

Issue. Whether mens rea is an ingredient of the offence of selling adulterated food.

Law. Mens rea is presumed unless excluded expressly or by necessary implication. It is readily held excluded in public welfare legislation, where the object is to protect the public and proof of knowledge would defeat the law. Sarjoo Prasad held that section 7 creates an offence of strict liability; Mayer Hans George states the approach.

Application. The 1954 Act was enacted to protect public health. Section 7 is cast in absolute terms (“no person shall… sell”) and does not use “knowingly”. If a seller could escape by pleading ignorance, very few prosecutions would succeed. Strict construction does not help Rajesh: there is no second reasonable reading of section 7 that requires knowledge.

Conclusion. The conviction stands. One more sentence earns marks: the 1954 Act has since been repealed by the Food Safety and Standards Act, 2006 (section 97 and the Second Schedule). Under that Act the seller of unsafe food is punishable under section 59, but section 80(B) now allows a defence of due diligence: that the accused took all reasonable precautions and exercised all due diligence to prevent the offence. A seller in Rajesh's position today could raise that defence.

How this is examined

For the penal-statutes essay: reasons for strictness, the meaning of strict construction (Tolaram Relumal), its limits, then mens rea (Sherras, Mayer Hans George, Sarjoo Prasad). For taxing statutes: Cape Brandy, Fernandez, then the six principles with Mathuram Agrawal, Dilip Kumar, Teja Singh and Vatika. The comparison the examiner likes is that both kinds of statute are construed strictly for the same reason, and that strictness yields to clear words in both.