Holding

The exemption limit must be determined by a notional calculation based on actual ticket collections, without adding a tax element, and the appeal is dismissed.

Summary

The State of Gujarat appealed against the High Court’s decision that the tax‑holiday scheme for multiplexes should be interpreted by a notional calculation of exemption limits based on actual ticket collections, without adding a tax element. The scheme granted up to 100% of eligible capital investment as exemption but did not prescribe a method to compute the monetary ceiling. The Supreme Court held that, in the absence of a prescribed mechanism, a reasonable method—using the actual ticket revenue to notionally determine the tax that would have been payable—must be applied, and that the exemption notification must be construed strictly against the assessee. It rejected the State’s argument that the tax component should be added to the collected amount, finding that multiplexes did not actually collect tax. The Court affirmed the High Court’s approach and dismissed the appeal.

Issues considered

How should the exemption limit (up to 100% of capital investment) under the tourism tax‑holiday scheme be calculated in the absence of a prescribed method?
Whether the tax element must be added to the actual ticket collection for determining the exemption limit.
Whether a notional calculation based on actual ticket revenue is a permissible method for assessing the exemption ceiling.
Interpretation of the exemption notification – whether it must be read strictly against the assessee in case of ambiguity.
Application of the doctrine of substantial compliance/substantial justice to fill procedural gaps in the scheme.

Legislation cited

Gujarat Entertainment Tax Act, 1977s. 29, s. 3

Subjects

tax exemptiontourism schememultiplexnotional calculationstrict constructionsubstantial complianceGujarat Entertainment Taxcapital investmenttax holiday

Judgment

112 [2023]
SUPREME COURT 3 S.C.R. 112
REPORTS [2023] 3 S.C.R.

A THE STATE OF GUJARAT & ORS.
v.
MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT
(Civil Appeal No. 13977 of 2015)
B FEBRUARY 02, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Tax/Taxation – Scheme to boost tourism sector, granted tax
holiday for 5-10 years to entities (including multi-cinema theatre
complexes or multiplexes) in respect of exemption from sales tax,
C
turnover tax, electricity duty, luxury tax, and entertainment 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 contended
that element of tax had to be added to actual amount collected –
D 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 amounts as tax, no
question of addition of further amount – Notional determination
based on actual ticket collection for relevant period to be used to
determine whether specified ceiling limit in scheme for exemption
E
was achieved.
Tax/Taxation – Tax exemption notification unambiguous w.r.t
grant of exemption, and the terms of such relief (in terms of time,
and monetary limits), but clear gap in the manner how tax exemption
limits can be discerned, which if not construed appropriately, would
F
defeat the intention of the notification – Interpretation of –
Discussed.
Doctrines/Principles – Doctrine of ‘substantial compliance’
– Discussed.
G 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
H
112
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 113
GUJARAT THROUGH ITS PRESIDENT

for calculating how the exemption limits (100% capital A
investment) was calculable. The rate of tax at the relevant time
was 50% of the entrance or ticket value. The assessee contended
that calculation of total exemption was to be done based on a
notional exercise, while the state’s contention was that since the
assessee had the benefit of tax exemption, the element of tax
had to be added to the actual amount collected. [Para 6-7 and B
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, there
was no question of addition of any further amount but rather that
to reckon whether the ceiling limit in the scheme for exemption C
(100% capital investment) was achieved, was to be done 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 limits i.e. D
(1) a time limit and (2) quantification. The latter could be subject
to the first i.e., in the event, the amount reached the exemption
limit were achieved, before the expiry of the period in question
(5-10 years), no further exemption could be claimed. The state,
however, omitted to provide any mechanism to determine how
the exemption limits could be worked out for the purpose of E
notional calculation of the quantified limit. This meant 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 assumption
that the amount collected during the exemption period by the F
multiplex owners, also included in element of tax. This
assumption 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.
G
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. High Court rightly held that this
contention was illogical and unreasonable. [Para 15-16][125-D-
F] H
114 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 1.5 There is concededly, a gap in the manner how tax
exemption limits can be discerned. The law is now settled (by
two constitution bench decisions) that exemption notifications
have to be interpreted strictly, and against assessees in case of
ambiguity. [Para 16][125-F-G]
B 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.
C 1.6 In the present case, the situation is peculiar, because
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 prescribed
at all. Therefore, the present case is not one of ambiguity, but
instead, one of a clear gap, which if not construed appropriately,
D would defeat the intention of the notification. It has often been
held – in the context of rules of procedures that they are meant
to facilitate, not supplant justice and the court must lean towards
substantial justice when faced with a complaint of procedural law.
[Para 17-20][125-D-E; 127-D-E]
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 tax
F exemption, for the purpose of considering whether the 100%
limit equivalent to capital expenditure was reached or not 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 during the
G time when they sought and were granted 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, the High Court
followed a reasonable method which cannot be faulted. [Para
H 22][128-C-E]
STHE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 115
GUJARAT THROUGH ITS PRESIDENT

Devi Multiplex & Anr. v. State Of Gujarat & Ors. (2015) A
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 B
[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 C
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. D

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. E
1. This appeal by State of Gujarat, complains of the grievance
with respect to a part of the impugned judgment1.
2. This Court had occasion to deal with the substantial grievance
of the present writ petitioner(s)/respondents, in a judgment reported in
F
Devi Multiplex & another v State of Gujarat and Others2. The issue
which concerns this Court in the present proceedings, with respect 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 G
had adjudicated upon the grievance of the multiplex owners, regarding
denial of extension of the scheme. This court held that the denial of
1
dated 26.06.2009 delivered by the Gujarat High Court in Special Civil Application
No.5391 of 2004.
2
(2015) 9 SCC 132 H
116 SUPREME COURT REPORTS [2023] 3 S.C.R.

A extension (two years, which was sought by the multiplex owners) was
in the circumstances, unjustified and had invoked the doctrine of
promissory estoppel.
3. For the sake of convenience, the court can do know better than
extract para 2 of the judgment in Devi Multiplex (supra) which broadly
B outlines the incentive scheme, contained in the exemption notification
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 as the
lead matter, facts relating thereto are dealt with in detail
C 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 industries
to “tourism” which was accorded the status of an industry, in
D order to give a boost to tourism sector by attracting higher
investment in the areas with tourism potential and to generate
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
E eligible, a new tourism unit ought to be registered after 1-8-
1995. Clause 4.7 dealt with effective steps which such unit
was expected to undertake. Under Clause 5, after taking
initial effective steps a tourism unit could apply to the Director
of Tourism for registration. All projects had to conform to the
specifications and requirements spelt out in Appendix B which
F appendix dealt with various categories of tourism units and
Item 22 thereof pertained to “Entertainment Complexes”
including multi-cinema theatre complexes or multiplexes.
Clause 7 categorised tourism units in four categories, namely,
Prestigious Tourism Units, Large-scale Tourism Units, Small-
G scale Tourism Units and Tiny Tourism Units with minimum fixed
capital investment of Rs 10 crores, 90 lakhs, 10 lakhs and
less than 10 lakhs, respectively. Clause 8 dealt with incentives
and stated that a tax holiday of 5-10 years would be available
in respect of exemptions from (i) sales tax (ii) turnover tax
(iii) electricity duty (iv) luxury tax, and (v) entertainment tax,
H
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 117
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

up to 100% of capital investment. In Clause 8.1 it was stated A
that the quantum of incentives would not exceed 100% of
eligible capital investment and it further stated the period 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, respectively.
B
Clause 9 dealt with composition of sanctioning authority
whereunder State Level Committee was competent to issue
eligibility certificate in respect of prestigious and large units
while District Level Committee was to issue eligibility
certificate for all small-scale and tiny tourism units. The
procedure for registration of tourism units for incentives was C
detailed in Clause 10.”
4. What 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 D
A tax holiday of 5-10 years will be available to new units and
expansion of existing units ( as per condition set out earlier)
in respect of the following taxes, and upto 100% of capital
investment. The tax Holiday will be available to units
conforming to the list in Appendix B and falling within the E
eligible areas.
List of taxes
1. Exemption from Sales Tax.
2. Exemption from Turnover tax.
3. Exemption from Electricity Duty. F
4. Exemption from Luxury Tax.
5. Exemption from Entertainment Tax.
Exemption from sales tax is available with the following
conditions:
(a) Exemption towards taxes on raw materials, processing G
materials, consumable stores, packing materials are not
available.
(b) Only those goods which are sold at the first stage of sale
by eligible unit will attract sales tax exemption.
H
118 SUPREME COURT REPORTS [2023] 3 S.C.R.

A (c) No exemption is available on purchases of any goods such
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
B 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 the
period mentioned against each category of tourism unit as
tabulated below:
C

D

5. This Scheme was embodied in Exemption Notification dated
14.02.1997, the relevant portion of which reads as follows:
E
“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), (hereinafter
referred to as “the said Act”) and in supersession of
Government Notification, Information, 133 Broadcasting and
F 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 the
criteria laid down in Appendix-B of the said resolution
(hereinafter referred to as the eligible entertainment) during
the eligible period or upto the period of expiry of the limits of
G
incentives, whichever is earlier, to the extent referred to in
para 8.1 of the said resolution, subject to the following
conditions:-
….

H
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 119
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

… A
15. The proprietor of a eligible entertainment shall be liable
to pay tax as soon as the quantum of exemption availed of
towards sales tax, turnover tax, electricity duty, luxury tax
and entertainment tax equals the amount specified in the
eligibility certificate issued by the Appropriate Authority or B
on expiry of the time limit mentioned in the. said certificate,
whichever is earlier.”
6. Neither 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 C
or ticket value.
7. The appellants’ contention was that the calculation of total
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 amount of D
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 present
scheme/policy. If this unit is charging an amount of Rs. 100/-
by way of admission fee to the multiplex theatre; and the E
amount of entertainment tax which it is liable to pay to the
Government is Rs.50/-. This would mean that the owner of
the unit is entitled to retain Rs. 50/- to enable him to defray
the expenditure incurred by him for providing the facilities in
the unit. The amount of Rs.50/- recovered by way of
entertainment tax is required to be notionally adjusted against the F
amount of eligible capital investment till the amount of Rs. 10
crores gets exhausted or till the expiry of a period of ten years
whichever is earlier.”
8. The same contention was urged before the High Court which
recorded as under: G
“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 being
complementary tickets, issued when tax is payable under
H
120 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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 calculating
the tax. The returns submitted by few members of Multiplex
Association would show that they have been showing the
B
price of the ticket inclusive of tax and seeking exemption on
the basis of the rate applicable by calculating tax on the
receipt. Since beginning, the members of the Association have
been filing monthly returns on the basis of tax calculated on
the receipt made and the respondent authorities have been
C 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 receipt 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 payable at
D
the rate of 50%. M/s. lnox Entertainment Limited, Vadodara
was issued an ad hoc eligibility certificate for an amount of
Rs.554.45 Lacs. For the purposes of calculating the amount
of tax till the limit of Rs.554.45 Lacs, the Mamlatdar has
considered 100% of the gross, collection i.e. on gross
E collection of Rs.4,32,268/-, the Mamlatdar has assessed 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 writ of
mandamus or any other appropriate writ, order or direction
F directing the Respondents to consider only the amount of
entertainment tax payable notionally by the members of the
Petitioner Association to the Respondent State as the capital
value for the purpose of setting off the eligible capital
investment of the members of the Petitioner Association as
contemplated under the scheme contained in the Resolution
G at Annexure-A hereto;”
9. The 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 urged by
the State in its counter affidavit in following terms:
H
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 121
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

“5.5 In view of the aforesaid, it is respectfully submitted that A
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 charging
B
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/- C

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 collected by D
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 notifications E
then in that case, the entertainment units will have to fall in
line with the requirements provided in the said policy and
notifications. The entertainment units will have to strictly
adhere to the conditions mentioned in the notification and
once having accepted the terms and conditions of the said
notification for the purpose of availing of the tax exemption, F
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-compliance
of any of the provisions of the statute, notifications and G
circulars would result in termination of exemption granted.
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 payment
for admission to entertainment excluding tax. When the rate
of tax is 50%, it has got to be notionally added to the basic
H
122 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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 Government
resolutions.”
10. The High Court agreed with the petitioners’ contention and
B 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 100% capital
investment (the ceiling limit in the Scheme for exemption) was achieved
was to be done by notional determination based upon the actual ticket
collection for the relevant period. The finding of the High Court in this
C 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 assessee viz ..
D the proprietor of an entertainment complex is exempted from
paying the tax, payable by him under the Act, till tax is 100%
sef off against the 100% value of the eligible capital
investment made by the proprietor. The question which has
arisen in the present petition is how the amount of “tax” should
be determined for set off against the available tax incentives
E i.e. 100% of the eligible capital investments. The issue has
arisen in context of the legal provision of the Gujarat
Entertainment Tax Act. Section 3 of the Act is held to be a
charging Section. It is held that liability for payment of duty
is imposed upon the proprietor and not upon the visitors of
F the theater. The proprietor does not act as an agent of the
Government’ for collection of duty. The entertainment duty is
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 “gross”
G
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
H payable thereon.
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 123
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

The entertainment tax being a taxing measure, and Section A
3 being a charging section, it has to be strictly construed
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 tax B
from the viewers. Therefore, in case of multiplex cinemas, 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 total
amount recoverable by and payable to the proprietor is Rs.100/
·, Tax liability has to be, therefore, calculated on this amount C
i.e. Rs.100/- which would be at 50% payment for admission
received from the viewers.
Under the incentive, there is no special method of
calculation of the tax liability prescribed as a condition of
exemption for the purpose of setting off such tax liability D
against the incentive limit. This method is prescribed for the
first time by the impugned Circulars in November/December,
2000.”
The final directions in this regard are as follows:
“111. In view of the above discussion, we are of the view that E
the respondent-State is not justified in considering the entire
amount of the value of the ticket as the capital value for the
purpose of setting off the eligible capital investment of the
members of the petitioner Association. We are also of the view
that the amount collected by the members of the petitioner
Association while permitting. the viewers to the Multiplex F
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 against
the eligible investment under the Scheme. The entire amount
of the value of the ticket cannot be considered as the capital G
value for the purpose of setting off the eligible capital
investment. We are also of the view that the members who
have not commenced their project within the stipulated time
limit i.e. on or before 30.11.2002 as envisaged under the
subsequent Resolution dated 28.06.2000 by virtue of which
those cases have been considered as pipeline cases are not H
124 SUPREME COURT REPORTS [2023] 3 S.C.R.

A entitled to the benefit under the Scheme and there is no infirmity
in the order passed by the respondent authorities while
rejecting their representation for extension of time. 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 capital
investment made by them within the stipulated time limit i.e.
B
30.11.2002. If any expenditure incurred by them subsequent
to this time limit or investment made by them in such eligible
project after 30.11.2002 cannot be considered as an eligible
investment. The respondent authorities are, therefore, directed
to give effect to this judgment and order and decide each
C case as per the directions issued here in this judgment and
raise the demand against the petitioners. The demand so raised
will have to be paid by the members of the Association within
six weeks from thereof.”
11. Mr. S.K. Bagaria, learned Senior Advocate for the State of
D Gujarat argued that a conjoint reading of Sections 3 and 29 of the Gujarat
Entertainment Tax Act, 1977 clarifies that eligible units were granted
exemption from payment of tax and that owners were required to charge
only amounts towards payment for admission to entertainment which
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
E not only be contrary to the public interest but would amount to unjust
enrichment.
12. It 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
F 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 such amounts.
Therefore, the state was justified in urging the method of calculation
whereby the tax element was added to the amount already collected, for
the purpose of determining the exemption units.
G
13. Mr. 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 with the
H multiplex owners, a feasible and reasonable method had to be taken into
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 125
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

account. The only feasible method therefore was to notionally determine A
(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 B
14. It 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 subject to the
first i.e., in the event, the amount reached the exemption limit were
achieved, before the expiry of the period in question (5-10 years), no
further exemption could be claimed. The state, however, omitted to C
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.
15. The state’s contention is founded on the assumption that the D
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 E
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.
16. As the High Court concluded- and in the opinion of this Court
correctly so, this contention was bereft of any logic and was plainly F
unreasonable. There is concededly, a gap in the manner 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 G
Constitution Bench, in that case, held that:
“The law is well settled that a person who claims exemption
or concession has to establish that he is entitled to that
3
2011 (1) SCC 236
H
126 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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 depending
upon the settings on which the provision has been placed in
the statute and the object and purpose to be achieved. If
exemption is available on complying with certain conditions,
B
the conditions have to be complied with. The mandatory
requirements of those conditions must be obeyed or fulfilled
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 affect the
C essence or substance of the notification granting exemption.”
17. This was followed, later, in another five judge bench decision
(Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and
Company & Ors4). In the present case, the situation is peculiar, because
the grant of exemption, and the terms of such relief (in terms of time,
D 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 clear gap,
which if not construed appropriately, would defeat the intention of the
notification.

E 18. It 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 & Anr5 this court stated:
“16. ...It is procedure, something designed to facilitate justice
and further its ends: not a penal enactment for punishment
F and penalties; not a thing designed to trip people up. Too
technical a construction of Sections that leaves no room for
reasonable elasticity of interpretation should therefore be
guarded against (provided always that justice is done to both
sides) lest the very means designed for the furtherance of
justice be used to frustrate it.”
G
19. Again, in Ghanshyam Dass v. Dominion of India6 the court
elaborated upon the idea and intent of “adjective law” in dealing with
Section 80 of the Civil Procedure Code:
4
2018 (9) SCC 1
5
(1955) 2 SCR 1
6
H (1984) 3 SCC 46
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 127
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

“12. In the ultimate analysis, the question as to whether a 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 dealing
with the question of identity of the person who issues the notice
with the person who brings the suit. This Court has however
B
adopted the Rule of substantial compliance in dealing 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 substantially
fulfils its object of informing the parties concerned of the C
nature of the suit to be filed. On this principle, it has been
held that though the terms of the Section have to be strictly
complied with, that does not mean that the notice should be
scrutinized in a pedantic manner divorced from common sense.
The point to be considered is whether the notice gives sufficient
D
information as to the nature of the claim such as would the
recipient to avert the litigation.”
20. Sugandhi v. P. Rajkumar7 also leaned in favour of substantial
justice when it had to deal with complaint of breach of procedural law.
21. Harichand Srigopal (supra) also propounded thetheory of
substantial compliance, with provisions, while interpreting an exemption E
notification:
“31. Of course, some of the provisions of an exemption
notification may be directory in nature and some are
mandatory in nature. A distinction between the provisions of
a statute which are of substantive character and were built in F
with certain specific objectives of policy, on the one hand,
and those which are merely procedural and technical in there
nature, on the other, must be kept clearly distinguished...
Doctrine of substantial compliance and “intended use”
32. The doctrine of substantial compliance is a judicial G
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 inconsequent
aspects which cannot be described as the “essence” or the
7
(2020) 10 SCC 706 H
128 SUPREME COURT REPORTS [2023] 3 S.C.R.

A “substance” of the requirements. Like the concept of
“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
B
Regulation. Such a defence cannot be pleased if a clear
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
C the statute was enacted and not a mirror image type of strict
compliance. Substantial compliance means “actual compliance
in respect to the substance essential to every reasonable
objective of the statute” and the Court should determine
whether the statute has been followed sufficiently so as to
carry out the intent of the statute and accomplish the
D
reasonable objectives for which it was passed.
33. A fiscal statute generally seeks to preserve the need to
comply strictly with regulatory requirements that are important,
especially when a party seeks the benefits of an exemption
Clause that are important. Substantial compliance with an
E enactment is insisted, where mandatory and directory
requirements are lumped together, for in such a case, if
mandatory requirements are complied with, it will be proper
to say that the enactment has been substantially complied with
notwithstanding the non-compliance of directory
F requirements. In cases where substantial compliance has been
found, there has been actual compliance with the statute, albeit
procedurally faulty. The doctrine of substantial compliance
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
G unimportant and tangential requirements or requirements that
are so confusingly or incorrectly written that an earnest effort
at compliance should be accepted.
34. The test for determining the applicability of the substantial
compliance doctrine has been the subject of a myriad of cases
H and quite often, the critical question to be examined is whether
THE STATE OF GUJARAT & ORS. v. MULTIPLEX ASSN. OF 129
GUJARAT THROUGH ITS PRESIDENT [S. RAVINDRA BHAT, J.]

the requirements relate to the “substance” or “essence” of A
the statute, if so, strict adherence to those requirements 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 given
with a view to the orderly conduct of business, they may be
B
fulfilled by substantial, if not strict compliance. In other words,
a mere attempted compliance may not be sufficient, but actual
compliance with those factors which are considered as
essential.”
22. A reasonable method of calculating benefit of tax exemption,
for the purpose of considering (whether the 100% limit equivalent to C
capital expenditure) was reached or not 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 during the time when they sought and were granted
exemption. The outer limit (100% investment) is a discernible amount, D
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.
23. For the above reasons, this court holds that there is no merit in
this appeal. It is accordingly dismissed. No costs. E

Divya Pandey Appeal dismissed.

F

G

H