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2.2 THE RULE OF LITERAL CONSTRUCTION

As pointed by Lord Esher MR:

If the Act is one passed with reference to a particular trade, business or transaction and words are used which everybody
conversant with that trade, business or transaction knows and understands to have a particular meaning in it, then the
words are to be construed as having that particular meaning.39.

The same rule applies in construing the words in a taxing statute which describes the goods that are liable to
taxation. The Supreme Court “has consistently taken the view that, in determining the meaning or connotation of
words and expressions describing an article in a tariff Schedule, one principle which is fairly well settled is that
those words and expressions should be construed in the sense in which they are understood in the trade by the
dealer and the consumer. The reason is that it is they who are concerned with it, and, it is the sense in which they
understand it which constitutes the definitive index of legislative intention”.40. In other words “the true test for
classification was the test of commercial identity and not the functional test. It needs to be ascertained as to how
the goods in question are referred to in the market by those who deal with them, be it for the purposes of selling,
purchasing or otherwise.”41. Similar test is applied for determining when manufacture takes place or in other words
whether an article after subjecting it to processing becomes a different article or remains the same.42. Same test is
applied for deciding whether an article has been consumed or used in a local area in the context of levy of octroi
tax.43. The question to be asked in such cases is: “How is the product identified by the class or section of people
dealing with or using the product?44. There is also a distinction between “production” and “manufacture.” Production
has a wider connotation than manufacture. Production may bring about new goods, which may or may not amount
to manufacture. For example ship-breaking results in production of articles but it does not amount to manufacture.45.
If a word has acquired a particular meaning in the trade or commercial circles that meaning becomes the popular
meaning in the context and should normally be accepted.46.

The power, therefore, given to a Surveyor under section 65 of the English Highways Act, 1835 to “lop” trees
growing near a highway was construed as conferring the power to cut off the branches but not to “top”, i.e., to cut
off the top of the tree.47. Illustrating the principle, said Lord Esher:

The “waist” or the “skin” are well-known terms applied to a ship and nobody would think of their meaning the waist
or skin of a person when they are used in an Act of Parliament dealing with ships”.48.

Similarly, construing the word “practice” in Supreme Court Advocates (Practice in High Court) Act, 1951, Patanjali
Shastri CJ said:

The practice of law in this country generally involves the exercise of both the functions of acting and pleading on behalf of a
litigant party; accordingly when the Legislature confers upon an advocate ‘the right to practice’ in a court, it is legitimate to
understand that expression as authorising him to appear and plead as well as to act on behalf of suitors in that Court.49.

In applying the rule, however, its limitations must be kept in view. The special meaning contended for a particular
word must have been understood as such by all those conversant with the trade, business or industry concerned,
that is, by the class as a whole and not by a portion only, viz., the management of the industry. Further, this general
understanding and acceptance of a special meaning must have been in vogue at the time of the passing of the Act
using the particular word for which that meaning is contended.50. Because of these limitations of the rule the House
of Lords did not accept the contention that the phrase “Permanent way” or “Permanent way man” has a special
meaning in the Railway Industry.51. Evidence to show that a word has acquired a special meaning in the business or
industry concerned is admissible.52. It has been suggested that in dealing with economic and technological laws the
court should have the benefit of expert advice in the shape of assessor evidence.53. Further the opinion expressed
by the relevant Government Department which is expected to have expert knowledge in the matter may be relied
upon. So a non-statutory notification of the Ministry of Finance declaring Dhania, Jeera, Postak and Methi to be oil-
seeds under section 14, item VI of the Central Sales Tax Act, 1956, was relied upon for holding that these articles
are included in the expression “oil-seeds”.54.

In dealing with a question of Excise duty on “refined oil”, it was held that purification of raw oil in the process of
manufacture of Vanaspati where deodorization is done after hydrogenation does not at any stage transform the oil
into refined oil as known to the consumers and commercial community because in commercial world oil is always
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2.2 THE RULE OF LITERAL CONSTRUCTION

deodorised before it is marketed as refined oil.55. In reaching this conclusion the Supreme Court considered the
evidence of manufacturers of refined oil and the specification of refined oil by the Indian Standards Institution. In
similar context it was held that kiln gas produced by burning limestone and coke in a lime kiln and used in the
manufacture of sugar by carbonisation process and of soda ash by solvay ammonia soda process is not
“carbondioxide” as known to the trade.56. These cases were distinguished in a later case where it was held that
uncut circles manufactured by rolling bellets of copper alloys were liable to Excise duty as “circles of any form”. It
was pointed out that no evidence had been led to show that in commercial community uncut circles are not known
as circles.57. Similarly, commercial sense will not have much relevance in the context of goods which are not
marketable, and in such cases, what will have to be seen, in the context of a tariff schedule, is whether the broad
description of the article in question fits in with the expression used in the tariff.58. For this reason “properzi rods”
were held to fall within the description of “wire rods” in entry 27(a)(ii) of the first schedule to the Central Excises and
Salt Act, 1944.59. If the Legislature has itself adopted a technical term in a tariff schedule, then that entry has to be
understood in the technical sense and an article falling within the ambit of the technical term cannot be relegated to
the residuary entry.60. On this reasoning the entry of “Cellulose Ether” in the Central Excise Tariff Act, 1986 was
held to include an article manufactured under the name “Sodium Carboxymethye Cellulose” which was tested and
found to be Cellulose Ether.61.

In construing item 8 in the Schedule to the Minimum Wages Act, 1948, which reads “Employment in stone breaking
or stone crushing”, it has been pointed out that the activity of stone breaking or stone crushing in commercial world
means that activity by which common rock is reduced to fragments by mechanical means—such fragments being
marketed and used for profit.62. On this reasoning the incidental activity of breaking stones to get at manganese in a
manganese mine has not been held to be stone breaking or stone crushing.63. Similarly the removal of thick layers
of limestone by breaking for reaching the thin layers which are cut into flooring stones and are marketed as such
has also not been held to be stone breaking or stone crushing operation in commercial sense.64.

The context may show that a word having a special meaning in commercial world has not been used in that sense.
The word “hank” in commercial world is understood to mean a coil of yarn of 840 yards in length but in certain
notifications issued under the Central Excise Rules, 1944, it was construed in its ordinary sense to mean a coil of
yarn not of any particular length.65. The court interpreting tariff entries may have to consider both, trade meaning
and dictionary meaning and adopt that meaning which is suited in the context.66. Applying this method cigarette
packets were held to be “boxes” and not “other packing containers” while interpreting tariff item 17(4) of the Central
Excise and Salt Act 1944 which refers to “boxes, cartons, bags and other packing containers”.67.

(ii) Legal sense of words.—

On the same principle when words acquire a technical meaning because of their consistent use by the Legislature
in a particular sense or because of their authoritative construction by superior courts, they are understood in that
sense when used in a similar context in subsequent legislation.68. This is also sometimes referred to as the legal
sense of such words.69. When a word has acquired a special connotation in law, dictionaries cease to be helpful in
interpreting that word.70. The context may, however, show that the Legislature intended to use the word in its literal
sense and not in its legal sense.71.

In construing the words “beyond the seas” and in holding that the said words have acquired a technical meaning
and are synonymous in legal import with the words “out of the realm” or “out of territories”. Sir John Jervis speaking
for the Judicial Committee of Privy Council said:

These words ‘beyond the seas’ are of extensive application in the law, many ancient rights being saved by the common law
to persons ‘beyond the seas’. It is, therefore, of considerable importance to ascertain what has been deemed to be the legal
import and meaning of them, because, if it shall appear that they have long been used, in a sense which may not
improperly be called technical, and have been judicially construed to have a certain meaning, and have been adopted by
the Legislature in that sense long prior to the statute, the rule of construction of statutes will require that the words in the
Statute should be construed according to the sense in which they had been so previously used, although that sense may
vary from the strict literal meaning of them.72.

As stated by Lord Macnaghten:

In construing Acts of Parliament, it is a general rule, that words must be taken in their legal sense unless the contrary
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2.2 THE RULE OF LITERAL CONSTRUCTION

intention appears.73.

The words “charitable institution” have thus a technical meaning and it has been held that “Lost Dogs Home” is
such an institution.74.

Similarly, the words, “Judgment” and “Final Order” have acquired a technical meaning. “Judgment” means “the
declaration or final determination of the rights of the parties in the matter brought before the court” and “Final Order”
means “an order which finally determines the rights of the parties and brings the case to end”.75. These words were
given the same meaning by the Privy Council in construing section 109 of the Code of Civil Procedure, 1908;76. by
the Federal Court in construing section 205 of the Government of India Act of 1935;77. and by the Supreme Court in
construing Articles 133 and 134 of the Constitution.78. A decision arrived at in the consultative jurisdiction of the
High Court was therefore held not to be a judgment or final order within the meaning of clause 39 of the Letters
Patent (Bombay), or clause 31 of the Letters Patent (Patna).79.

In construing the expression “taxes on sale of goods” as they occur in entry 48, List II, Government of India Act,
1935, the Supreme Court rejected the argument that supply of materials under a building contract amounts to sale
and held that the words “sale of goods” have been used in the entry in the legal sense which comprises of two
essentials (i) agreement to sell movable for a price and (ii) property passing therein pursuant to that agreement.
Venkatarama Aiyer J, explaining the principle of construction observed:

The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal
sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislative must be
taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense,
therefore, we have only to ascertain the precise connotation which it possesses in law.80.

The rule stated above was applied in construing the expression “undischarged insolvent” in Article 191(1)(c) of the
Constitution.81. It was held that the said expression has acquired a legal sense in the law of insolvency meaning a
person adjudged insolvent by the Insolvency court and not discharged by the court under the Insolvency Act, and it
is this meaning which is to be applied to that expression in Article 191(1)(c) and not the general sense of a person
who is in impecunious circumstances unable to repay his debts.82.

Similarly in dealing with section 73 of the Bombay Municipal Boroughs Act, 1925 which authorises a municipality to
impose “a rate on buildings or lands”, the Supreme Court held that the word “rate” should be construed in a
technical sense because it had acquired a special meaning to connote a tax imposed by local authorities on the
annual value which is arrived at by one of three modes namely: (i) actual rent fetched, (ii) where it is not let, rent
based on hypothetical tenancy and (iii) where either of these two modes is not available by valuation based on
capital value.83. It was further held that the rate could not be imposed at a percentage of capital value though it
could be imposed on a percentage of annual value derived from capital value.84. For the same reason a rate on land
and buildings cannot be levied on a flat rate method according to floor area85. or on machinery situated on the
building.86.

And in construing Item 2 of Schedule III to the Payment of Bonus Act, 1965, it was observed that the words
“working funds” when used in the context of a banking company must be understood in the technical sense which
they have acquired in that context. Reference in this connection was made to Sen Award of 1949 and Sastri Award
of 1953. The words “working funds” were therefore, construed to mean “paid-up capital, reserves and average of
the deposits for 52 weeks of each year for which weekly returns of deposits are submitted to the Reserve Bank of
India”.87.

But the intention of the Legislature may not be to use a word or expression having a legal meaning in that sense
and to use it in its natural or literal sense. Section 32 of the Race Relations Act, 1976 (UK) provides that acts of
racial discrimination done by a person “in the course of his employment” shall be treated as done by his employer
as well as by him, whether or not it was done with the employer’s knowledge or approval. The words “in the course
of employment” have a technical or legal meaning in the tort law relating to vicarious responsibility. But that
meaning of the words in section 32 would have severely restricted its operation and largely frustrated the object of
the Act to prevent racial discrimination. Therefore in interpreting section 32 the words in question were given their
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2.2 THE RULE OF LITERAL CONSTRUCTION

natural everyday meaning.88. Similarly the word “consideration” which has a technical meaning in contract law was
construed to be used not in that sense but in a broad sense in section 25(a) of the Greater London Council
(General Powers) Act, 1978.89. The section defines “use as temporary sleeping accommodation” to mean also “use
for a consideration and arising by reason of the employment of the occupant”. The purpose of the legislation was
plainly to enable the planning authority to control short term transitory occupation by employees and their families
visiting London. This purpose would have been frustrated if planning authority was required to consider in each
case whether the occupation was linked to some contractual obligation of the person using the flat so as to be
“consideration” for it in the contractual sense. It was, therefore, held that the word “consideration” was not used in
that sense but in a broad sense and it was sufficient that the flat was used “by the reason of” or “on account of” the
existence of employment relationship.90.

24. Crawford v Spooner, (1846) 4 Moo Ind App 179, p 181 : 6 MOO PC 1 (PC); Grey v Pearson, (1857) 6 HLC 61, p 106 :
10 ER 1216, p 1234 (HL); River Wear Commissioners v Adamson, (1877) 2 AC 743 : (1874-80) All ER Rep. 1, p 12
(HL); Attorney-General v Milne, (1914) AC 765 : (1914-15) All ER Rep 1061, p 1053 (HL); Corp of the City of Victoria v
Bishop of Vancouver Island, AIR 1921 PC 240, p 242; Nagendra Nath Dey v Suresh Chandra Dey, AIR 1932 PC 165, p
167; Pakala Narayana Swami v Emperor, AIR 1939 PC 47 [LNIND 1939 PC 1], pp 51, 52; Nokes v Doncaster
Amalgamated Collieries Ltd, (1940) AC 1014 : (1940) 3 All ER 549, p 553 (HL); Jugalkishore Saraf v Raw Cotton Co
Ltd, AIR 1955 SC 376 [LNIND 1955 SC 21], p 381 : (1955) 1 SCR 1369 [LNIND 1955 SC 21]; SA Venkataraman v
State, AIR 1958 SC 107 [LNIND 1957 SC 134], p 109 : 1958 SCR 1040 [LNIND 1957 SC 134]; Siraj-ul-Haq v Sunni
Central Board of Waqf, AIR 1959 SC 198 [LNIND 1958 SC 102], p 205 : 1959 SCR 1287 [LNIND 1958 SC 102]; Shri
Ram Daya Ram v State of Maharashtra, AIR 1961 SC 674 [LNIND 1960 SC 308], p 678 : (1961) 2 SCR 890 [LNIND
1960 SC 308]; Madanlal Fakir Chand Dudhediya v Shri Changdeo Sugar Mills Ltd, AIR 1962 SC 1543 [LNIND 1962 SC
125], p 1551 : 1962 Supp (3) SCR 973; State of UP v Vijay Anand Maharaj, AIR 1963 SC 946 [LNIND 1962 SC 127], p
950 : (1963) 1 SCR 1 [LNIND 1962 SC 127]; Manmohan Das Shah v Bishun Das, AIR 1967 SC 643 [LNIND 1966 SC
252]: (1967) 1 SCR 836 [LNIND 1966 SC 252]; Electrical Manufacturing Co Ltd v DD Bhargava, AIR 1968 SC 247
[LNIND 1967 SC 248], pp 249, 250 : (1968) 1 SCR 394 [LNIND 1967 SC 248]; Management, Shahdara (Delhi)
Saharanpur Light Railway Co Ltd v Workers Union, AIR 1969 SC 513 [LNIND 1968 SC 281], p. 518 : (1969) 2 SCR 131
[LNIND 1968 SC 281]; Glaxo Laboratories (I) Ltd v Presiding Officer, Labour Court, Meerut, (1984) 1 SCC 1 [LNIND
1983 SC 289], p 9 : AIR 1984 SC 505 [LNIND 1983 SC 289]; Oega Tellis v Bombay Municipal Corp, (1985) 3 SCC 545
[LNIND 1985 SC 215], p 581 : AIR 1986 SC 180 [LNIND 1985 SC 215]; Doypack Systems Pvt Ltd v UOI, AIR 1988 SC
782 [LNIND 1988 SC 589], p 801 : (1988) 2 SCC 299 [LNIND 1988 SC 589]; Oswal Agro Mills Ltd v Collector of Central
Excise, AIR 1993 SC 2288 [LNIND 1993 SC 393], p 2292 : 1993 (3) JT 260; Mohammad Ali Khan v Commissioner of
Wealth Tax, JT 1997 (3) SC 250 [LNIND 1997 SC 1969], p 253: AIR 1997 SC 1165 [LNIND 1997 SC 1969], p 1167;
Gurudeva-datta VKSSS Maryadit v State of Maharashtra, AIR 2001 SC 1980 [LNIND 2001 SC 761], p 1991; Colgate
Palmolive (India) Ltd v MRTP Commission, AIR 2003 SC 317 [LNIND 2002 SC 713], p 320 : (2003) 1 SCC 129 [LNIND
2002 SC 713]; MP Khan v Govt of AP, (2004) 2 SCC 267 [LNIND 2004 SC 16], p 272 : AIR 2004 SC 2934 [LNIND
2004 SC 16]; State of HP v Pawan Kumar, AIR 2005 SC 2265 [LNIND 2005 SC 355], p 2269 : (2005) 4 SCC 350
[LNIND 2005 SC 355] (9th Edn, p 78 of this book is referred); State of Rajasthan v Babu Ram, (2007) 6 SCC 55
[LNIND 2007 SC 777], p 57 : AIR 2007 SC 2018 [LNIND 2007 SC 777]; State of Haryana v Suresh, AIR 2007 SC 2245
[LNIND 2007 SC 779], para 12 (9th Edn, p 78 of this book is referred).
25. Crawford v Spooner, (1846) 4 Moo Ind App 179, p 181 : 6 Moo PC 1 (PC).
26. Attorney General v Milne, (1914-15) All ER Rep 1061, p 1063 : 1914 AC 765 (HL).
27. Grey v Pearson, (1857) 6 HLC 61, p 106 : 10 ER 1216, p 1234 (HL); referred to in Walton, Ex parte, Re, Levy, (1881)
50 LJ Ch 657, p 659 (Jessel MR); Caledonia Rly v North British Rly, (1881) 6 AC 114 , p 131 (HL) (Lord Blackburn);
Vacher & Sons v London Society of Compositors, (1913) AC 107 : (1911-13) All ER Rep 241, p 246 (HL) (Lord
Macnaghten); Corp of the City of Victoria v Bishop of Vancouver Island, AiR 1921 PC 240, p 242 (Lord Atkinson);
Pakala Narayana Swami v Emperor, AIR 1939 PC 47 [LNIND 1939 PC 1], p 51 (Lord Atkinson); Keshavananda Bharati
v State of Kerala, AIR 1973 SC 1461 [LNIND 1973 SC 154], p 1538 : (1973) 4 SCC 225 [LNIND 1973 SC 154]; Nandini
Satpathy v PL Dani, AIR 1978 SC 1025, p 1039 : (1978) 2 SCC 424 [LNIND 1978 SC 607]; Chandavarkar Sita Ratna
Rao v Ashalata S Guram, (1986) 4 SCC 447, p 476 : AIR 1987 SC 117; UOI v Rajivkumar, (2003) 6 SCC 516 [LNIND
2003 SC 563], p 526 : AIR 2003 SC 2917 [LNIND 2003 SC 563]. Lord Wensleydale himself in Abbot v Middleton
[(1858) 28 LJ Ch 110, p 114 (HL)], pointed out that the rule was in substance laid down by Burton J in Warburton v
Loveland [(1828) 1 Hud & Brooke 623], was described as “a rule of common sense as strong as can be” by Lord
Ellenborough in Doe v Jessep [(1810) 12 East 288, p 292], was stated to be “a cardinal rule” by Lord Cranworth in
Grundy v Pinnigar, (1852) 1 De GM & G 502 : (1852) 21 LJ Ch 404, p 406 and “the golden rule”, by Jervis Cj in
Mattison v Hart, (1854) 14 CB 357 : (1854) 23 LJCP 108, p 114. In Becke v Smith, (1836) 150 ER 724, p 726, also
Parke, B (before he became Lord Wensleydale) referred to the rule laid down by Burton J, in Warburton v Loveland,
supra, and called it a “very useful rule in the construction of a statute”.
28. Corp of the City of Victoria v Bishop of Vancouver Island, AIR 1921 PC 240, p 242.