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Petitioner: PAKISTAN INTERNATIONAL FREIGHT OF FORWARDERS ASSOCIATION through General Secretary VS Respondent: PROVINCE OF SINDH through Secretary and another
Court Name: Sindh High Court Judge(s): Abdul Maalik Gaddi, Munib Akhtar Title:PAKISTAN INTERNATIONAL FREIGHT OF FORWARDERS ASSOCIATION through
General Secretary vs PROVINCE OF SINDH through Secretary and another Case No.: C.P. No, D-3184 of 2014 Date of Judgment:2016-06-02 Reported As: PTCL 2017 CL. 527, 2017 PTD 1 Result: Order accordingly Judgment ORDER MUNIB AKHTAR, J.---In this judgment we are required to consider an important constitutional issue, which has been exercising (and, no doubt, on occasion even exciting) the minds of the Bar and the Bench for some time, especially after the passage of the 18th Amendment to the Constitution. The issue is this: where lies the legislative competence to impose a fiscal levy (whether tax or duty) on the rendering or providing of services? Does it lie solely with the Federation, which presently levies a duty in terms of the relevant provisions of the Federal Excise Act, 2005 ("2005 Federal Act")? Or does it vest only in the Provinces, where a tax is levied in terms of their respective statutes, being here the Sindh Sales Tax 'on Services Act, 2011 ("2011 Provincial Act")? Or, as some have contended before us, does the taxing power vest simultaneously yet exclusively in both the Federation and the Provinces? Or (finally) is it that the taxing power is common and concurrent? It will be appreciated that an affirmative answer to any of these questions (and concomitant negative answer to the others) has widely differing consequences. Thus, an affirmative answer to either of the first two questions would mean that (as the case may be) either the 2005 Federal Act (in its relevant provisions) or the 2011 Provincial Act is ultra vires the Constitution. An affirmative answer to the third question would mean that both statutes are able to 'exist side by side, but could result in the doubling of the fiscal burden. Finally, an affirmative answer to the fourth question, which is concurrence in the constitutional sense, could result in Article 143 of the Constitution being engaged, with serious (and potentially fatal) consequences for the provincial statute.
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2. As will become clear as this judgment proceeds, in order to resolve the issues before us we will have to closely consider the seminal decision of the Supreme Court reported as Hirjina and Co. v. Islamic Republic of Pakistan and another 1993 SCM R 1342 (herein after "Hirjina"). By this judgment appeals from two decisions of this Court, including one reported as Mondi's Refreshment Room and Bar, Karachi v. Islamic Republic of Pakistan and another PLD 1982 Karachi 214, were disposed of The relevant passages from Hirjina were in fact read several times during the course of submissions, and the correct resolution of the constitutional question turns in important part on a proper understanding of this decision. 3. Some of the petitioners argued for the issue being decided in favor of the Federation, while others sought to have the Provincial statute sustained. Thus, learned counsel for the petitioners argued (as the case may be) for an affirmative answer to the first or the second question with, correspondingly, a negative answer to the others. On behalf of the respondents the arguments were (as was to be expected) the converse of what was said for the petitioners, but some learned counsel for the respondents submitted that the correct resolution lay in the third question being answered in the affirmative. The fourth possibility did not, as it were, find any takers. For convenience, and departing from strict adherence to the order in which learned counsel appeared, we will first set out those petitioners' submissions who favored the Federation and then those who supported the Province. Then, we will note the submissions by learned counsel appearing for the Federation and FBR (the Federal Board of Revenue) to be followed by those of learned counsel appearing for the Province and SRB (the Sindh Revenue Board). 4. Mr. Muhammad Yousuf who appeared for the petitioners in C.P. D-3184/2014 and other petitions argued for the Federal legislative power. Learned counsel submitted that the petitioners whom he represented were shipping agents or freight forwarders and/or their respective associations. Learned counsel referred to the 2011 Provincial Act and the predecessor legislation which it repealed and replaced, the Sindh Sales Tax Ordinance, 2000 ("2000 Provincial Ordinance"). Learned counsel submitted that the earlier provincial law had not applied to the petitioners whom he represented. Turning to the 2005 Federal Act, learned counsel referred to section 2(23), the definition of services and submitted that shipping agents and freight forwarders were registered under the federal law and paid excise duty on services in the normal course. Reference was made to entry No, 5 of Part II of the First Schedule to the federal law. Learned counsel submitted that after the enactment of the 2011 Provincial Act, the SRB started issuing notices to the shipping agents directing them to get registered under the provincial law, as an obvious prelude to the payment of provincial sales tax on services. In this regard reference was made to section 2(80) of the provincial law, which defines "shipping agent". ("Freight forwarding agent" is defined in section 2(47). Learned counsel referred to the minutes of a meeting held between the representatives of the shipping agents' and freight forwarders' associations with the SRB dated 04.07.2011 (i,e, almost immediately after the enforcement of the 2011 Provincial Act). At that meeting the representatives of the associations had highlighted the problems for the industry by the simultaneous imposition of the federal excise duty and the provincial sales tax. The minutes recorded that the representative of the SRB stated that the Federal Government was in the process of granting suitable exemptions from the 2005 Federal Act, which would ensure that there would be no doubling of the tax burden. Learned counsel then referred to the constitutional provisions, and drew attention to Articles 142 and 143. Referring to the Fourth Schedule to the Constitution (which, post the 18th Amendment, now contains only the Federal Legislative List) learned counsel referred to entry Nos. 24, 27 and 44. It was submitted that the legislative power to impose an excise duty on services existed by reason of entry No, 44. Reliance was also placed on entry No, 53 as an alternate source of federal legislative power; the difference being that while entry No, 44 applied generally to all services, the latter entry applied only and specifically to (as presently relevant) shipping agents and freight forwarders.
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Learned counsel submitted that a provincial sales tax on services was recognized by the "exception" added to entry No 49 by the 18th Amendment. (We may note that after the 18th Amendment this entry read as follows: "Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed, except sales tax on services." The words emphasized were added by the Amendment.) However, he submitted that such a tax could not be levied on any matter that came within the scope of entry Nos. 44, 53, 24 and 27. Learned counsel also read out in extensor the relevant passages from Hirjina. It was submitted that while entry No, 49 was amended by the 18th Amendment, entry No, 53 had remained unaltered, and reliance was placed on this entry to deny any legislative power in the Province to impose a tax on services provided by shipping agents and freight forwarders. Learned counsel also referred to clauses (6) to (8) of Article 270AA, in particular relying on clause (7) to submit that the federal law had to remain in the field. 5. Mr. Arif Muhammad Khan, learned counsel appearing in C.P. D-3763/2014 (where also the petitioner was a shipping agent) relied on entry No, 47 (taxes on income) to submit that the provincial levy of sales tax on services could not apply. Learned counsel accepted that by reason of the "exception" added to entry No, 49 by the 18th Amendment the Provinces could levy a sales tax on services. However, learned counsel submitted that the main part of the entry (which was relatable to goods) limited the scope of the power so conferred on the Provinces. Thus, it was contended, it was only services of a limited nature that could be taxed by the Provinces, and this certainly did not include shipping agents. Learned counsel emphasized that since income tax (a federal levy) was imposed, the provincial levy of sales tax on services could not apply. 6. Mr. Shaiq Usmani, learned counsel in C.P. D-348/2015 (a petition by a clearing/shipping agent) also argued for the federal power. Referring to entry No, 5 of Part II of the First Schedule to the 2005 Federal Act, learned counsel submitted that the petitioner came within the scope of clause (ii) thereof. Learned counsel also relied on the rules framed under the federal law. It was submitted that the Province could not impose the sales tax on services on shipping agents by reason of entry Nos. 20, 24, 27 and 53 of the Fourth Schedule to the Constitution. Learned counsel also read out the relevant passages from Hirjina. Learned counsel emphasized that the 2005 Federal Act was admittedly in the field and hence the Province could not levy any sales tax. Referring to entry No, 53, learned counsel submitted that "terminal taxes" were levied at a terminal where goods were loaded and/or discharged. All taxes relatable to a terminal 'came within the scope of entry No, 53 and hence were the exclusive domain of the Federation. Referring to the 2011 Provincial Act, learned counsel drew attention to heading 9805.1000 in Part B of the Second Schedule, which applied to "shipping agents". Reference was made to Rule 32 of the Sindh Sales Tax on Services Rules, 2011 (framed under the provincial law), which relates to shipping agents. Learned counsel submitted that the term "commission" as used therein was not defined in the statute and submitted that its correct meaning was as given in the relevant entry in Black's Law Dictionary. It was neither a fee nor a share and hence no sales tax could be charged on the same. Mr. Nafees Ahmed Siddiqui, learned counsel in C.P. D-3777/2015 and another petition (where the petitioners were shipping agents and/or freight forwarders) adopted the submissions of Mr. Shaiq Usmani. 7. Mr. Anwar Kashif, learned counsel appearing in C.P. D-1482/ 2016 (where the petitioner was not a shipping agent or freight forwarder) argued for the provincial power and against the federal levy. Learned counsel submitted that prior to the 18th Amendment, excise duty was levied on services in terms of the 2005 Federal Act, and referred to clause (d) of section 3 thereof (the charging provision). However, learned counsel submitted, the situation had changed in the post-18th Amendment scenario. The "exception" added to entry No, 49 made clear that the legislative power now vested in the Provinces alone. It was submitted that the "exception" was intended to override Hirjina and shift the legislative power from the (exclusive) federal domain to the (exclusive)
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provincial domain. The necessary amendment had been made as an "exception" to entry No, 49 rather than by way of a change in entry No, 44 because the matter related to a tax on sales, although of course the "sale" involved here was by way of the providing or rendering of services and not in relation to goods. Learned counsel also referred to clause (7) of Article 270AA. 8. Mr. Hyder Ali Khan, learned counsel appearing in C.P. D-1272/ 2016 and other petitions (where also the petitioners were not shipping agents or freight forwarders) argued for the exclusive provincial power to levy a tax on the rendering and providing of services. Learned counsel submitted that prior to the 18th Amendment, the 2000 Provincial Ordinance had been in the field as had equivalent Ordinances in the other Provinces. These laws were challenged in this Court and the Lahore High Court. Reference was made to Defense Authority Club, Karachi and others v. Federation of Pakistan and others 2007 PTD 398, a Division Bench judgment of this Court, and certain decisions of the Lahore High Court, being Nafees Dry Cleaners v. Government of Punjab and another 2001 PTD. 2018, Hafeezullah Malik and Co. v. Province of Punjab and others 2003 PTD 1852 and Gurgson Dry Cleaners v. Sales Tax Officer Rawalpindi 2004 PTD 1987 (which was, in fact, in respect of a sales tax on services imposed in the Islamabad Capital Territory by means oT a federal law). It was submitted that in each case, the challenge to the provincial legislation (and the federal levy 'of a sales tax on services in the last mentioned case) was repelled. Referring to the "exception" added to entry No, 49 of the Fourth Schedule, which recognized the provincial power to levy a tax on services, learned counsel submitted that even if it could be argued that it had been put in the wrong place (i,e,, ought really to have been added to entry No, 44), it had to be given due effect and meaning. Learned counsel submitted that the taxing event in respect of the federal excise duty on the one hand and the provincial sales tax on the other was exactly the same, i,e,, the rendering or providing of services. It was submitted that the "exception" had the effect of divesting the Federation of legislative power to impose a levy (whether called a duty or a tax being immaterial) on the providing or rendering of services. That power vested exclusively in the provinces post-18th Amendment. 9. Learned counsel also read out in detail the relevant passages from Hirjina. It was submitted that the constitutional context in which Hirjina was decided was the late 1962 Constitution. Learned counsel submitted that the judgment could be regarded as falling into two parts. The first part, which dealt with the federal power to levy duties of excise, had to be understood and applied in the given constitutional context, i,e,, the 1962 Constitution. However, the present power was under entry No, 44 of the 1973 Constitution. The constitutional dispensation was not the same. As regards the second part of Hirjina, learned counsel submitted that that part started from para 8 onwards of the judgment. It was submitted that the two parts were interlinked. It was submitted that the constitutional dispensation to which the second part of the judgment related (i,e,, the 1962 Constitution) was clearly different from that now prevailing under the present Constitution. In particular, the present Constitution did not have any provisions equivalent to those of the 1962 Constitution which were referred to by the Supreme Court in the second part of the judgment. The "exception" added to entry No, 49 was on the constitutional plane and had to be given due effect. Its effect was clear: the legislative power now vested exclusively in the Provinces. 10. Mr. Ali Almani, learned counsel in C.P. D-4182/2014 and another petition (in both of which the petitioner was the same though not a shipping agent or freight forwarder) also argued in support of the exclusive provincial power. Referring to Hirjina, learned counsel submitted that the Supreme Court had considered two questions. Firstly, was the (amending) Ordinance of 1969, whereby a duty on the providing or rendering of services was for the first time introduced into the Central Excises Act, 1944 (the legislation repealed and replaced by the 2005 Federal Act) constitutionally valid in terms of the 1962 Act, and secondly, the impact thereof in terms of the present Constitution. Learned counsel submitted that the "exception" added to entry No, 49 by the 18th Amendment had
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brought about a material change on the constitutional plane and this meant that Hirjina was no longer binding. Learned counsel also submitted that the taxing power in relation to the providing or rendering of services could not be concurrent since that was contrary to the scheme of the division of such powers under the Constitution, both before and after the 18th Amendment. Learned counsel also relied on Godfrey Phillips India Ltd. And another v. State of Uttar Pradesh and others AIR 2005 SC 1103, (2005) 2 SCC 515. 11. Mr. Khalid Jawed Khan, who appeared in C.P. D-5387/2014 (where the petitioner was not a shipping agent or freight forwarder) also argued for the provincial power, although his submissions were more nuanced in that he did not altogether rule out the possibility of the simultaneous legislative competence of the Federation. Learned counsel submitted that the judgment in Hirjina could for present purposes be regarded as falling into three "parts", the first being up to the para 7 thereof, the second being para 8 and the last being up to para 11. Learned counsel also referred to Governor-General in Council v. Province of Madras AIR 1945 PC 98. Learned counsel submitted that the taxing event in both the federal and provincial statutes was the same. The "exception" added to entry No, 49 overrode the ratio decided of the first "part" of the judgment in Hirjina. Learned counsel submitted on this basis that in the post-18th Amendment scenario, the legislative power clearly vested in the Provinces, and this also explained the subsequent (and consequent) provincial legislation, of which the 2011 Provincial Act was the outcome in this Province. Mr. Umair Qazi, learned counsel in C.P D-385/2016 (where also the petitioner was not a shipping agent or freight forwarder) adopted the submissions made by Mr. Khalid Jawed Khan. 12. Mr. Emad ul Hasan, appearing for the same petitioner in C.P. D-1877/2016 and another petition (which was also not a shipping agent or freight forwarder) argued for the provincial power and submitted that it was a case of an excluded legislative field. Learned counsel submitted that by reason of the "exclusion" added to entry No, 49 by the 18th Amendment the power to tax services had been excluded from the Federal power and in this regard referred to Article 142 and entry Nos. 44 and 49. Learned counsel contended that the power was exclusive to the Provinces. It was emphasized that the taxing event, i,e,, the providing or rendering of services, was the same in both cases. 13. Mr. Salman Pasha, learned counsel in C.P. D-1998/2016 (where also the petitioner not a shipping agent or freight forwarder) also argued for the exclusive provincial power. Mr. Ameen Bandukda, learned counsel in C.P. D-2153/2016 and another petition, where the petitioner was a financial services company, also contended for the exclusive provincial power. Learned counsel submitted that it was well settled that the nomenclature used to describe a fiscal measure was irrelevant. In both cases, the taxing event was the same and after the 18th Amendment, the legislative power lay exclusively with the Provinces. There could not be two separate taxing activities. With the coming into force of the 2011 Provincial Act especially, the Federation could not levy the duty. Mr. Pervez Kasi, learned counsel in C.P. D-2150/2016 and Ms. Sarwat Israr, learned counsel in C.P. D-2497/2016, also argued for the provincial power and adopted the submissions by other learned counsel in this regard. 14. Turning now the respondents' side, and case for the Federation was opened by Mr. Salman Talibuddin, learned Additional Attorney General. Referring to the predecessor provincial legislation, the 2000 Provincial Ordinance, learned counsel referred to Defense Authority Club, Karachi and others v. Federation of Pakistan and others 2007 PTD 398 (SHC; DB) and submitted that that judgment held that the provincial power to levy a tax on services was not an enumerated matter (sometimes also referred to as a "residuary" power). Learned counsel submitted that the mechanism envisaged in the 2000 Provincial Ordinance was that the tax would be collected by the FBR (previously the Central Board of Revenue or CBR) and in the same manner and at the same time as the (federal) sales tax under the Sales Tax Act, 1990, a levy on goods. It was submitted that
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the revenues so collected were then made part of the National Finance Commission (NFC) award issued in terms of Article 160 of the Constitution and referred in particular to the Award of 2006. Learned counsel drew attention to para 3 of this award. Learned counsel submitted that from the revenues generated by the provincial Sales Tax Ordinances (of 2000) the Federation also deducted certain collection/recovery charges. It was submitted that the Provinces were aggrieved by this mechanism. Their case was that the revenues collected on the provincial sales tax on services should remain with the Province in and from which the same were collected. Learned counsel emphasized that appreciation of this provincial grievance, and the manner in which it was resolved, was crucial to a proper understanding of the "exception" that was ultimately added to entry No, 49 by the 18th Amendment. In this regard, learned counsel placed reliance on the proceedings and debates in the National Assembly that led to the passing of the 18th Amendment, and reference was made to certain passages from the official reports of the National Assembly debates (21st Session, 6th, 7th and 8th April, 2010). Learned counsel submitted that the Provinces were concerned that their power to tax services was not enumerated, and sought to have some constitutional cover for, or recognition of, this power. They suggested that entry Nos. 44 and 49 be omitted altogether from the Fourth Schedule, since that would give the taxing power in relation to excise and sales wholly over to the Provinces. This was however unacceptable to the Federation. In sum, learned counsel submitted that the Provinces wanted to have control over the proceeds of the provincial sales tax on services rather than the same being collected by (in effect handed over to) the Federation and only then "returning" to the Provinces in terms of the NFC Awards. At the same time, the Federation also wished to retain its power to levy a duty on services. It was to reconcile these positions that a compromise was crafted in terms of which the "exception" was added to entry No, 49 by the 18th Amendment. With this addition to entry No, 49, learned counsel submitted, the position that emerged was as follows.. The Federation continued to, retain its power to impose a duty on the rendering or providing of services, in terms of entry No, 44. At the same time, the Provinces now also had an expressly recognized constitutional power to levy sales tax on the rendering or providing of services. 15. The learned Additional Attorney General emphasized that in the post-18th Amendment scenario, the two powers were simultaneous but exclusive. Learned counsel accepted that the taxing event was the same in both cases. However, he submitted, the legislative powers were not concurrent in the constitutional sense. Learned counsel submitted that the term "concurrent" could be used in different senses. One was where it meant simply, covering the same matters, e.g., where there were concurrent interests. Another was, having authority over the same matter(s), and it was this sense that went to the legislative power or competence. Learned counsel submitted that to the extent that the taxing event was the same, there was concurrence in the first sense. But, and this was crucial, that did not mean that there was concurrence in the second, or constitutional, sense. Learned counsel submitted that the federal power to levy a duty on services arose out of entry No, 44 and it remained vested there, both before and after the 18th Amendment. However, the position of the provincial power to levy a sales tax was altered. Prior to the 18th Amendment, it was not an enumerated matter (i,e,, was a "residuary" power). After the 18th Amendment, it was given, express constitutional recognition. But, it was only as a sales tax and not in any other manner. This recognition also did not (and could not) affect the federal power to levy the excise duty. This was the true import, purpose and effect of the "exception" added to entry No, 49. There was no concurrence in the constitutional sense even though the taxing event was the same. Referring to the well-known use of the "field" metaphor in relation to legislative entries, the learned Additional Attorney General submitted that all legislative fields had "boundaries" no matter how broadly they were construed. Learned counsel submitted that the situation created by the 18th Amendment was that both the Federation and the Provinces could legislate in their relevant "field", i,e,, had the
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power to tax the rendering or providing of services. However, the "well heads" of the constitutional power were different, one vesting in the Federation by virtue of entry No,…
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