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Petitioner: PAK TELECOM MOBILE LIMITED VS Respondent: FEDERATION OF PAKISTAN & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title: PAK TELECOM MOBILE LIMITED vs FEDERATION OF PAKISTAN & others Case No.: W.P. No, 20727 of 2014 Date of Judgment:- Reported As: PLJ 2018 Lahore 235 Result: Petitions allowed.
JUDGMENT
JUDGMENT This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 ("the Constitution") has the following prayer: "In view of the above submissions, it is most respectfully prayed that this honourable Court may most graciously strike down:-- (i) Sub-section (3B) of Section 3 of the Sales Tax Act, 1990 as being unconstitutional; (ii) Ninth Schedule to the Sales Tax Act, 1990 as being unconstitutional; Any other relief deemed appropriate in the circumstances by this honourable Court may also most graciously be granted." 2. This judgment shall also decide connected constitutional petition W.P. No, 21010 of 2014 which raises a common question of law. 3. For facility, the facts in the instant petition are being reproduced and it would not be necessary for the decision of these petitions to narrate the facts in W.P. No, 21010 of 2014. 4. Pak Telecom Mobile Ltd: ("Pak Telecom") is engaged in the business of providing telecommunication services and is a Cellular Mobile Operator (CMO). Through Finance Act, 2014, the Sales Tax Act, 1990 ("the Act, 1990") was amended and sub-section (3B) was inserted after sub- section (3A) of Section 3. Simultaneously, 9th Schedule was incorporated to the Act. 1990 and which was merely intended to give effect to the provisions of Section (3B). For facility, sub-section (3B) of Section 3 and the 9th Schedule are reproduced as under: 5. "(3B) Notwithstanding anything contained in sub-sections (1) and (3), sales tax on the import and supply of the goods specified in the Ninth Schedule to this Act shall be charged, collected and paid at the rates, in the manner, at the time, and subject to the procedure and conditions as
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specified therein or as may be prescribed, and the liability to charge, collect and pay the tax shall be on the persons specified therein". NINTH SCHEDULE [See sub-section (3B) of. Section 31 Table 1. 2. 3 4 5 s. No,Description/Specification of GoodsSales tax on Import (payable) by importer at the time of import)Sales tax (chargeable) at the time of registration of IMEI number by CMOs)Sales tax on supply (payable at the time of supply by CMOs) 1. Subscriber Identification Module-Rs,250 2.A. Low Priced Cellular Mobile Phones Rs,150 or satellite phonesRs,150 i. All cameras; 2.0 mega-pixels or less ii. Screen size: 2.6 inches or less iii. Key pad B. Medium Priced Cellular Mobile Rs,250 Rs,250 Phones or SatellitePhones (i) One or two cameras: between 2.1 to 10 mega-pixels (ii) Screen sixe: between 2.6 inches and 5.0 inches i. Micro-processor; less than 2 GHZ C. Smart Cellular Mobile Phones or rs.500 Rs, 500 Phones Satellite i. One or two cameras: 10 mega- pixels and above
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ii. Touch Screen: size 5.0 inches and above iii. 4GB or higher Basic Memory iv. Op erating system of the type IOS , Android V2.3, Android Gingerbread or Higher, windows 8 or Blackberry RIM v. Micro-processor: 2GHZ or higher, Dual core or quad core." 5. In a nub, Pak Telecom has been made liable to pay sales tax on account of registration of IMEI (International Mobile Equipment Identity) number and supply of Subscriber Identification Module (SIM) to its customers. The learned counsel for the petitioners did not choose to address arguments on the challenge regarding the registration of IMEI as according to them the issue is not required to be dilated upon and determined in this petition and left the matter to be addressed as and when the need arose at a future time. The challenge with regard to the supply of SIM, however, remains to be decided in this petition. Issue: 6. Although Pak Telecom has raised a challenge to the constitutionality of sub-section (3B) of Section 3 but, in essence, the challenge merely relates to whether at all there is a supply of SIM and if so, the sales tax to be collected and charged at the time of its supply. Pak Telecom contends that in fact no supply of SIM takes place within the meaning of the term "supply" as defined in Act, 1990 and, therefore, no liability arises in respect of payment of sales tax against Pak Telecom and the company is not under obligation to charge and collect sales tax on the supply of SIM. The document at the heart of the petitioners' case is the Cellular Services Agreement (the Agreement) which is to be executed between Pak Telecom and a customer to whom the SIM is supplied and for porting into the PTML network. In particular clause 13(i) (Clause) has been referred to which so far as relevant reads as under:-- 13(i) All SIM Cards supplied to Customer shall remain the property of PTML." 7. On the basis of the clause in the Agreement, reproduced above, the learned counsel for Pak Telecom has asserted that since all SIMs supplied to the customers remain the property of Pak Telecom, no question of a supply in fact arises for which the liability of payment of sales tax could be set up against the company. The second plank of the petitioners' arguments is that at worst the taxable supply in question is that of services and not of goods and is within the provincial domain not liable to be taxed by the Parliament. On this basis too the learned counsel has invited this Court to hold that the provisions are ultra vices. 8. Mr. Sarfraz Ahmad Cheema, Advocate has ably controverted the arguments raised by the learned counsel for the petitioner and which arguments shall be referred to during the course of the discussion which follows. In summation, they are as follow:-- (i) The learned counsel contends that the petition is not maintainable and the burden was an indirect tax which was passed on to the consumers. (ii) The Constitution by virtue of Article 77 empowers the Parliament to impose taxes and Entry 49 of the fourth schedule permits the Federation to levy tax on the sale and purchase of the goods and there was nothing in the Constitution that restricts the Parliament's powers to legislate as the tax was to be levied and the manner of its collection. (iii) Sub-section (3B) of Section 3 and Ninth Schedule of the Act, 1990 begin with a non obstante
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clause and, therefore, the provisions will prevail over all other provisions of the Act, 1990. He relied upon Mls. Elahi Cotton Mills v. Federation of Pakistan (1997 PTD 1555) for the expansion of the concept of non obstante clause. '(iv) According to the learned counsel, 'goods' has been defined in Section 2(12) of the Act, 1990 and includes every kind of movable property other than actionable claims, money, stocks, shares and securities. Section 3(3B) & Ninth Schedule: 9. The imposition under challenge has to be justified as a lawful burden and one which is woven into the fabric of the Act, 1990. As Chief Justice John Roberts (US Supreme Court) said: "The Act imposes current burdens and must be justified by current needs". 10. As a prefatory, however, the concept of supply of goods, which is a ore ingredient of the Act, 1990 must receive some attention, so as to square it with the burden enacted through the Ninth Schedule. Supply of goods specified in the Ninth Schedule has to be taken to mean the construction of the term in the context and setting of the law in which the term has been used. of special importance is an aspect of the Act, 1990 that is indisputably central-- its structure. The structural considerations which permeate the entire length and breadth of the Act are a source of authoritative insight into its implications in matters such as one in hand. There is a statutory plan to give effect to the intent underlying the various provisions of the Act. It is of essence to bear in mind the intrinsic nature of the tax imposed by the Act, 1990 and which is primarily. levied on the occasion of the sale of goods (and now services, too). Over time, decided cases establish a clear destination between the subject-matter of a tax and the standard by which the amount of tax is measured. The sales tax, like any other tax, has three elements: (1) the nature of the tax; (2) the measure of the tax and (3) the machinery of its collection. of these, the nature of sales tax (or value-added tax intrinsically) is of the first importance. The nature of sales tax has been contrasted with the duties of excise in a number of precedents and it would be useful to refer to a few cases simply to emphasis the need for analyzing the nature of a tax in any challenge to an impost. In AIR 1939 FC 1, Gwyer CJ observed: "...the power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connection with, manufacture or production, and that it extends no further." "This is to confuse two things, the nature of excise duties and the extent of the federal legislative power to impose them... But there can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home-produced goods will obviously be imposed at the stage which the authority finds to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise duty, that is a duty on home-produced or home-manufactured goods, no matter at what stage it is collected." 11. It was held in the Province of Madras v. Messrs Boddu Paindanna & Sons AIR 1942 FC 33, 35 that: "The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to 1939 FCR 18, duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or
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producer. It may well be that a manufacturer or producer is sometimes doubly hit; but so is the taxpayer in Canada who has to pay income-tax levied by the Province for Provincial purposes and also income-tax levied by the Dominion for Dominion purposes; see 1924 AC 999; 1937 AC 260. If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory. In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connection with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he choose to give away everything which came from his factory. In our opinion the power of the Provincial Legislature to levy a tax on the sale of goods extends to sales of every kind, whether first sales or not." 12. In Muhammad Younas v. Central Board of Revenue (PLD 1964 SC 113), Supreme Court of Pakistan had the occasion to consider the nature of the excise duty and while doing so, distinguished it from sales tax in the following words: "... It is obvious that the taxing authority will impose it at a stage at which it would be most convenient and most lucrative but that is a matter which does not, in our view, affect the essential nature of the tax. The excise duty which is an indirect tax must, in the ultimate resort, always fall on the consumer but as to the stage at which it is to be collected there can be no inflexible rule. If a legislature is competent to make laws with respect to duties of excise, the question as to whether that power extends to imposing duties on home-produced or home-manufactured goods at any stage up to consumption must always be determined upon the true construction of the enactment itself. All that can be said is that subject to the provisions of the statute, a duty of excise is a tax on goods produced or manufactured in the taxing country, and it ought normally not to be confused with a tax which is a .turnover or sales tax." 13. A subject which has received little attention in considering a taxing statute is the constitutional aspect and its source from the supreme law of the land. This was alluded to in Pakistan v. Kohat Cement Company (PLD 1995 SC 659, 674) in the following manner: "...The concept of the excise duty is a Constitutional concept. While under the Government of India Act, 1935, excise duty. was a central subject, and sales tax was a provincial subject, under our Constitution, as also under the Indian Constitution, both are now central subjects. (see Items 44 and 49 of Federal Legislative list in the Fourth Schedule to the 1973 Constitution). But that fact cannot alter the fundamental nature of the excise duty. Even under the Government of India Act, the Provincial, and not the Federal, legislature had power, in certain cases, to impose a duty of excise as also the sales tax. In those excepted cases, so observed their Lordships of the Privy Council in G.G. in Council v. Province of Madras AIR 1945 PC 98, 101, "there appears to be no reason
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why the Provincial Legislature should not impose a duty of excise in respect of the commodity manufactured and then a tax on first or other sales of the same commodity. 16. The decided cases referred to above have long settled that the duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. Unlike the sales tax, where the liability to tax arises on the occasion of a sale, it is the fact of manufacture or production which attracts the duty of excise, even though it may be collected at a later stage. This is recognized by Section 3 of the Act of 1944 itself--that section authorizes the levy and collection "in such manner" as may be prescribed of "duties of excise on all excisable goods, produced or manufactured ... in Pakistan." 14. Thus the liability of sales tax arises 'on the occasion of a sale'. The Act of 1990 refers to it as 'supply' or 'taxable supply' and defines those terms but whatever the words used, the sense remains the same. Legal texts cannot alter the fundamental nature of the tax. And this has to chime with the Entry No, 49 in the Federal Legislative List which is the provenance of the power to impose sales tax (as it is called in the Act, 1990). The statutory enterprise of the Act, 1990 must conform to the legislative field delineated by Entry No, 49 and cannot travel beyond that field. Entry No, 49 reads as under: "49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed [, except sales tax on services.)" 15. A question could legitimately be asked whether the provisions of the Act, 1990 are within the periphery of powers conferred on the Federal Legislature. However, that question was neither raised nor forms the subject matter of challenge in these petitions. I shall therefore restrain myself from entering the thicket. Chief Justice John Roberts (of US Supreme Court) said: "If it is not 'necessary to decide more, it is necessary not to decide more." 16. But in putting a construction on sub-section (3B) of Section 3 and the Ninth Schedule of the Act, 1990, I shall be guided by the well-worn principle that such provisions are to be strictly construed with a leaning in favour of the taxpayer in case of ambiguity. Again quoting from the dissent in Kohat Cement: "...The rule of law, and it is a Constitutional rule, "that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate, or toll, except under clear and distinct legal authority, established by those who seek to .impose the burden, has so often been the subject of legal decisions that it may be deemed a legal axiom ... " (Wilde C.J. in Goshing v. Velry (1850) 12 QB 328, 407. The rule is "that a charge cannot be made unless the power to charge is given by express words or by necessary implication. These last words impose a rigorous test going far beyond the proposition that it would be reasonable or even conducive or incidental to charge for the provision of a service " Reg v. Richmond (1992) 2 AC 48,'67." 17. The term 'sale' has not been defined in the Act, 1990 and by Section 3, sales tax is charged on taxable supplies made by a registered person in the course or furtherance of a taxable activity or goods imported into Pakistan (which too are purchased from a foreign seller). These activities are, however, included in the broad concept of V `sale and purchase of goods imported, produced, manufactured or consumed", and it is presumed that they are valid and within the constitutional limitation. The definitions of 'supply' and 'taxable supply' are the fulcrum around which, in large measure, the concept of taxation under the Act, 1990, revolves. 'Supply' has been defined as: "Supply" means a sale or other transfer of the right to dispose of goods as owner, including such sale or transfer under a hire purchase agreement, and also includes - (a) putting to private, business or non-business use of goods produced or manufactured in the course of taxable activity for purposes other than those of making a taxable supply; (b) auction or disposal of goods to satisfy a debt owed by a person;
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(c) possession of taxable goods held immediately before a person ceases to be a registered person; and (d) in case of manufacture of goods belonging to another person, the transfer or delivery of such goods to the owner or to a person nominated by him: Provided that the Federal Government may, by notification in the official Gazette, specify such other transactions which shall or shall not constitute supply. 18. And 'taxable supply' as follows: "taxable supply" means a supply of taxable goods made by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which is exempt under Section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under Section 4." 19. It can be seen that sales tax has been imposed on 'taxable supplies' and a taxable supply, in turn, means a 'supply' of taxable goods made by an importer, manufacturer, wholesaler (including dealer) distributor or retailer. Thus the crucial concept is that of `supply' to which legislature continues to revert. 20. We are here not concerned with the entire definition of the term 'supply' and so I shall confine myself to the words "a sale or other transfer of the right to dispose of goods as owner'. These words assume significance in the factual matrix of the instant petitions. The term `sale' does not present much of a problem as to the core meaning of the term. The words 'transfer of the right to dispose of goods as owner' need to be interpreted as their true explication has presented problems over the years. Interestingly, in our jurisprudence much of the emphasis has gone into seeking the true meaning of the term 'dispose of or 'disposition' in a bid to capture the spirit of the term 'sale' and to align the two. With due deference to that approach, however, the real emphasis should be to analyse the two terms viz. 'sale' and 'transfer of the right to dispose of goods as owner'. There is no doubt in my mind that the term 'sale' and the words 'other transfer of the right to dispose of goods as owner' are similar and have to be read ejusdem generis with each other. Given the context, the words have to be given a meaning which appear to determine its aptest, most likely sense. As stated above, since the words 'sale' and 'transfer' have not been defined in the Act, we will have to fall back on the meaning of these words for their semantic nuances in the judicial dictionaries: STROUD'S Judicial Dictionary of Words and Phrases: Sale; Sell; Sold. " 'Sale' undoubtedly, in general, implies an exchange for money; and is so defined in Benjamin on Sale". "A "sale" means the exchanging of property for money and applies to a sale of land and to a sale of chattels equally. An agreement to extinguish an existing debt if land is transferred is not a contract for the sale of land (Simpson v. Connolly [1953] 1 W.L.R. 911." Transfer: The operative verb "transfer" "is one of the widest terms that can be used" (per James L.J., Gathercole v. Smith, 17 Ch. D. 1; see further per Erle J., R. u. General Cemetery Co, 6 E. & B. 419; see TRANSFERABLE). Learned counsel for the petitioner. SUBROGATION. "Transfer of assets" (finance Act 1936 (c.34) s.21) in the definition of settlement included an absolute and unconditional gift (Thomas v. Marshall [1953] A.C. 543." Merriam - Webster's Dictionary of Law: Sale: n 1 a: the transfer of title to property from one party to another for a price; also: the contract of such a transaction Transfer: n 1: a conveyance of a right, title, or interest in real or personal property from one person or entity to another 2: a passing of something from one to another." Black's Law Dictionary, Ninth edition: Sale: n (bef. 12c) 1. The transfer of property or title for a price. See UCC 2-106(1). [Cases: Sales 1;
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Vendor and Purchaser 1.] 2. The agreement by which such a transfer takes place. The four elements are (1) parties competent to contract, (2) mutual assent (3) a thing capable of being transferred, and (4) a price in money paid or promised." Transfer:, n (14c) 1. Any mode of disposing of or parting with an asset or an interest in an asset, including a gift, the payment of money, release, lease, or creation of a lien or other encumbrance. The term embraces every method - direct or indirect, absolute or conditional, voluntary or involuntary - of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption. 2. Negotiation of an instrument according to the forms of law. The four methods of transfer are by indorsement, by delivery, by assignment, and by operation of law. [Cases: Bills and Notes, 176-222.] 3. A conveyance of property or title from one person to another. [Cases: Bills and Notes, 176-222.]" 21. An elaboration of the words 'sale' and 'transfer' would bring forth at once the clear demarcation of the two concepts and the restrictive nature of the word 'sale' as against a wider meaning assigned to the word 'transfer' which generally means a conveyance of a right, title, or interest in real or personal property from the person or entity to another. It includes any mode of disposing of or parting with an asset or an interest in an asset, including a gift, the payment of money, release, lease, or creation of a lien or other encumbrance. The much broader sweep of the term 'transfer' is at once noticeable and what is required to be done as a judicial task is to discern its true meaning in the context and setting of the law in which the word is) found. 22. With this background in mind, we can…
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