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Petitioner: Messrs SHAHBAZ GARMENTS (PVT.) LTD. and others VS Respondent: PAKISTAN through JUDGMENT
Court Name: Sindh High Court Judge(s): Sajjad Ali Shah, Faisal Arab, Aqeel Ahmed Abbasi Title:Messrs SHAHBAZ GARMENTS (PVT.) LTD. and others vs PAKISTAN through
JUDGMENT
Reported As:2013 PTD 969, PLD 2013 Sindh 449, PLJ 2014 Tax Cases (Kar.) 1, 2022 PCTLR 675 Result: Order accordingly Judgment JUDGMENT ' AQEEL AHMED ABBASI, J.---A Larger Bench was initially constituted by the order of the Hon'ble Chief Justice of this Court dated 28-1-2011 on a reference made by a Division Bench vide order dated 21- 1-2011 in the following terms:-- "(13) Without discussing the merits of the case we are, therefore, of the considered view that this case be referred to the Honourable Chief Justice for constitution of a larger Bench to hear and decide the issue afresh. (14) We will, therefore, refer all these petitions to the Honourable Chief Justice for constitution of a larger Bench to hear and dispose of these petitions and since great urgency has been shown therefore we direct the office to send the reference to the Honourable Chief Justice as soon as possible within the shortest possible time and very humbly request the Honourable Chief Justice to constitute a larger bench at the first available opportunity. " ' The constitution of the larger bench was subsequently changed from time to time as no decision could be made by previous benches. However, this Larger Bench has been constituted by the
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Hon'ble Chief Justice vide his recent order with the mandate to decide the controversy involved in all the pending petitions in terms of the reference made by Division Bench of this Court as referred to hereinabove. 2. Before we proceed to resolve the controversy in the instant petitions, we may observe that the Division Bench of this Court while referring all these petitions to the Hon'ble Chief Justice for constitution of a Larger Bench to hear and dispose of all these petitions, did not formulate any specific question (s) on which decision of the larger bench was sought, nor reference to any conflicting judgments of Divisions Benches by this Court was made. However, on 5th March 2011 when an earlier Larger Bench of this Court was hearing the matter an objection was raised by Mr. Adnan Karim, learned A.A.-G. With regard to constitution of Full Bench, on the ground that since Division Bench of this Court had not disagreed with the earlier judgment of a Division Bench of this Court on the subject controversy, in the case of Mutual Fund Association of Pakistan v. Federation Pakistan reported in 2010 PLC 306, therefore, constitution of larger bench was not justified. Reference in this regard was made to the cases of Hon'ble Supreme Court of Pakistan i,e, (i) Multiline Associates v. Ardeshir Cowasjee and others 1995 SCMR 362 and (ii) Ardeshir Cowasjee and 10 others v. Karachi Building Control Authority (KMC), Karachi (1999 SCMR 2883). Such objection was however, repelled by the Full Bench in the following terms:-- "We have, however, indicated that a contrary view may be taken and therefore, we are of the opinion that this reference by the D.B. Is not contrary to the Multiline Associates case quoted supra and or the ARDESHIR COWASJEE and 10 others v. KARACHI BUILDING CONTROL AUTHORITY (KMC), Karachi (1999 SCMR 2883) case in which the Multiline case was followed. We, therefore, reject the objection raised by the learned Assistant A.G. And are adjourning this case to 12th March, 2011 at 10:30 morning." ' Since, above decision on the objection raised by the respondent has not been assailed by the petitioners, therefore, we will decide the subject controversy on merits. 3. In order to avoid repetition, the arguments advance by all the learned counsel for the petitioners can be summarized as under:-- It has been argued on behalf of the petitioners that Workers' Welfare Fund is not a tax as evident from the word used by legislature while enacting the same. It has been contended that the levy has been imposed to be utilized for the welfare of the workers, whereas the entire amount received in this regard goes to the fund constituted by law. Per learned counsel, since the subject levy cannot be utilized for any other purpose except as defined in the Ordinance itself, therefore, it cannot be termed as a tax. It is further submitted that a tax cannot be for some specific purpose, whereas the amount of tax goes to the Federal Consolidated. Fund where it can be utilized for any purpose as the government may deem necessary. Whereas, per learned counsel, Workers' Welfare Fund does not go to the Federal Consolidated Fund and its use has also been restricted for the purposes of welfare of the workers/employees in the industrial establishment. It is argued that once a levy is imposed for some specific purpose it cannot be termed as tax., and as the Workers' Welfare Fund relates to providing certain services and benefits to the employees it can be treated as fee and not a tax. All the learned counsel for the petitioners have also assailed the finding recorded by a Division Bench of this Court in the case of Mutual Fund Association of Pakistan v. Federation Pakistan reported in 2010 PLC 306 and submitted that the learned Division Bench was not properly assisted, whereas several aspects, which can determine as to whether a levy is a tax or otherwise, have not been examined by the Division Bench in the above referred judgment. An objection has also been raised by the learned counsel for the petitioners that once a Division Bench of this Court was pleased to dismiss the petition on the ground of maintainability, therefore, no finding was required to be recorded on the merits of the case. Reference to various provisions as contained in Workers' Welfare Fund Ordinance, 1971, including section 2(c), sections 3, 4, 6, 10,
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(10a) etc. Was made, by the learned counsel to substantiate their contention that Workers' Welfare Fund is not a tax as it is a specific purpose levy and cannot be utilized for any other purpose except as defined in the Ordinance itself. While concluding their arguments it has been contended by the learned counsel for the petitioners that the amendments introduced in the Workers' Welfare Fund Ordinance, 1971 through Finance Act, 2006 and Finance Act, 2008 may be declared as illegal, without jurisdiction, void ab initio and of no legal effect. In support of their contentions, the learned counsels for the petitioners have placed reliance on the following reported case-laws:-- (1) C.I.T v. Kamran Model Factory 2002 PTD 14. (2) East Pakistan Chrome Tannery (P.) 'Ltd. v. Federation of Pakistan 2011 PTD 2643. (3) M. Ismail and Co. v. Chief Collector PLD 1966 SC 388 (4) Pakistan Agricultural Storage and Service Corporation Ltd. v. - Province of Punjab and another PLD 1989 Lahore 367 (5) Collector of Customs v. Sheikh Spinning Mills 1999 SCMR 1402 (6) Biafo Industries v. Federation of Pakistan 2000 CLC 170 (7) Messrs Lever Brothers (Pakistan) Ltd., Karachi v. Market Committee, Rahimyar Khan PLD 1980 Baghdadul Jadid 23 (8) Abdul Majid v. Province of East Pakistan PLD 1960 Dacca 502 (9) Dr. Abdul Jamil v. Malik Nazar Mohyuddin and others PLD 1988 Peshawar 15 (10) Sindh High Court Bar Association v. Federation of Pakistan PLD 2009 SC 789 (11) Mir Muhammad Idris v. Federation of Pakistan PLD 2011 SC 213 4. Conversely, counsel for' the respondents have seriously controverted the submissions made by the counsel for the petitioners. To avoid duplication, the arguments of learned counsel for the respondents, duly assisted by departmental representative, can be summarized as follows. ' It has been argued on behalf of the respondents that the Workers' Welfare Fund is a tax, therefore, amendments introduced through Finance Act,' 2006 and 2008 respectively in the Workers' Welfare Fund Ordinance, 1971 are not ultra wires of the Constitution or in violation of the Article 73 of the Constitution of Pakistan, 1973. It has been contended that the Workers' Welfare Fund has all the ingredients and characteristic of a tax as it is a compulsory exaction of money from industrial establishments having income of Rs,5,00,000 during a year. Workers' Welfare Fund Ordinance, 1971; is the basic legislation which creates a charge upon income of industrial establishment, whereas the Income Tax Ordinance is the complementary legislation which provides for assessment and collection of such levy on the basis of income of the industrial establishment for that year. It has been contended that the amount so collected goes to the Federal Consolidated Fund and the Public Accounts and is utilized for general purpose to meet the expenses of the Government. Learned Counsel have further stated that the term `tax' has not been defined exhaustively either in the Constitution or by any Statute, as it includes several levies and does not refer to any specific levy with specific nomenclature. The definition of tax is always inclusive in nature as it cannot be defined exhaustively, on the contrary, its scope continues to grow and enlarge with the growth of economic activity itself. It has been contended by the learned counsel that the Workers' Welfare Fund, by any stretch of imagination, cannot be termed as 'fee' as it is neither charged against any specific service rendered by the government nor there is any element of quid pro quo, as the payer is not the beneficiary. Per learned counsel, there is clear distinction in both the terms, as the term 'tax' is inclusive in nature and includes several Federal, Provincial and Local Levies, which are imposed by the legislature on the income, property, sales, imports, expenditure etc. Of a person including individuals, association of person, firms, companies, corporation etc. Which constitutes part of a common burden and can be utilized for general purpose by the Government. Whereas, on the other hand, 'fee' is charged for a special service or privilege and to meet the expenses of the Government for providing services to the payer. Per learned counsel, the element of rendition of
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services by the Government to the individual from whom fee is charged, and the reciprocate benefit, though not in exact terms, is the prerequisite for a levy to be termed as `fee'. It has been contended that no such ingredients or characteristics are available in Workers' Welfare Fund, as neither is it charged for services rendered by the Government nor its payer gets any benefit out of such payments to the Government. Fund is meant to be used for providing residential accommodation and other facilities to the workers of the industrial establishments and not to its payer. Per learned counsel for the respondents, as per the budget document, it can be seen that the amount received towards Workers' Welfare Fund contribution goes to the Federal Consolidated Fund and the Public Accounts and the same is placed at the disposal of the Federal Government for further expenditure, therefore, it cannot be said that the Fund is used for some specific purpose or for the benefit of its payer. It has been stated that the case law referred and relied upon by the learned counsel for the petitioner is not relevant and does not apply to the facts of the instant controversy. On the contrary, the same support the case of the respondents. In supports of their contention, learned counsel have placed reliance on the following reported cases:-- (1) Messrs Elahi Cotton Mills Ltd. And others v. Federation of Pakistan PLD 1997 SC 582 (2) In the case of Collector of Customs and others v. Sheikh Spinning Mills 1999 SCMR 1402 (3) East Pakistan Chrome Tannery (P.) Ltd. v. Federation of Pakistan 2011 PTD 2643. (4) In the case of Messrs Mutual Funds Association of Pakistan (MUFAB) v. Federation of Pakistan 2010 PLC 306. (5) C.A. 1891 Unwin v. Hanson 115 (6) Kawther Grain (Pvt.) Ltd. v. DCIT Gujranwala 1999 PTD 4028 (7) Collector of Central Excise, Bombay-1 and another v. Messrs Parle Exports (P) Ltd. AIR 1989 SC 644 (8) Messrs Hindustan Aluminum Corporation Ltd. v. The State of U.P and another AIR 1981 SC 1649 (9) Messrs Indian Cable Company Ltd. Calcutta v. Collector of Central AIR 1995 SC 64. 5. After hearing the learned counsel for the parties, following legal question has been formulated to be answered by this Full Bench which will resolve the controversy involved in all these petitions:- "Whether Workers' Welfare Fund is a tax, and the amendments could have been introduced in the Workers' Welfare Fund Ordinance, 1971 through Finance Act (Money Bill) of 2006 and 2008 respectively, OR it's a fee and no amendments could have been made through Finance Act (Money Bill)"? 6. It will be advantageous to reproduce the following provisions of the Workers' Welfare Fund Ordinance, 1971 and the Articles of the Constitution of Pakistan, 1973, which are relevant for the purposes of resolution of the instant controversy. Section 2(c) "Fund" means the Workers' Welfare Fund constituted under Section 3. (ft) 'Ordinance' means the Income Tax Ordinance, [2001] ([XLIX of 2001])]; [(i) "total income" means: (i) where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and (ii) where return of Income is not required to be filed, the profit (before taxation or provision for taxation) as per accounts or four per cent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher.] Section 3. Constitution of Workers' Welfare Fund.---(1) There shall be constituted for the purposes of this Ordinance a Fund to be called the Workers' Welfare Fund. (2) The Fund shall consist of-- (a) an initial contribution of ten crores of rupees to be made by the Federal Government.
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(b) such moneys as may, from time to time, be paid by the industrial establishments under Section 4 [and Section 4-A]; (bb) the amount transferred to the Fund from time to time, under clause (d) of paragraph 4 of the scheme set out in the Schedule to the Companies Profits (Workers Participation) Act, 1968, (XII of 1968); (c) voluntary contributions in the shape of money or building, land or other property made to it from time to time by any Government or by any person; (d) income from the investments made and properties and assets acquired from out of the fund, [and] (e) proceeds of loans raised by the Government Body. ' Section 4. Mode of payment by, and recovery from, industrial establishments: (1) Every industrial establishment, the total income of which in any year of account commencing on or after the date specified by the Federal Government in the official Gazette in this behalf is not less than [five] lakh of rupees shall pay to the Fund in respect of that year a sum equal to two per cent [xxxx] of its total income as [xxxxx] [xxxx]. (2) Every industrial establishment which is liable under subsection (1) shall pay the amount due from it to the [Taxation Officer] having jurisdiction over the industrial establishment for purposes of the [Ordinance]. (3) . (4) The payment made by an industrial establishment to the Fund under subsection (1) shall be treated as expenditure for purposes of assessment of income-tax. (5) .................................................................................. (6) The provisions of [the Ordinance] relating to the mode and time of recovery of the income-tax leviable under the Act shall, so far as may, apply to the recovery of the amount due under subsection (1). ' Section. 5 Liability to be discharged by certain persons.---Any liability imposed on an industrial establishment by this Ordinance shall be deemed to be the liability of the person who is liable to pay income-tax in respect of the income relatable to such industrial establishment. ' Article 73. Procedure with respect to Money Bills.--- (1) Notwithstanding anything contained in Article 70, a Money Bill shall originate in the National Assembly: ' Provided that simultaneously when a Money Bill, including the Finance Bill containing the Annual Budget Statement, is presented in the National Assembly, a copy thereof shall be transmitted to the Senate which may, within fourteen days', make recommendations thereon to the National Assembly. (1A) The National Assembly shall, consider the recommendations of the Senate and after the Bill has been passed by the Assembly with or without incorporating the recommendations of the Senate, it shall be presented to the President for assent. (2) For the purpose of this Chapter, a Bill or amendment shall be deemed to be a Money Bill if it contains provisions dealing with all or any of the following matters, namely: (a) the imposition, abolition, remission, alteration or regulation of any tax; (b) the borrowing of money, or the giving of any guarantee, by the Federal Government, or the amendment of the law relating to the financial obligations of that Government; (c) the custody of the Federal Consolidated Fund, the payment of moneys into, or the issue of moneys from, that Fund; (d) the imposition of a charge upon the Federal Consolidated Fund, or the abolition or alteration of any such charge; (e) the receipt of moneys on account of the Public Account of the Federation, the custody or issue of such moneys;
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(f) the audit of the accounts of the Federal Government or a Provincial Government; and (g) any matter incidental to any of the matters specified in the preceding paragraphs. (3) A Bill shall not be deemed to be a Money Bill by reason only that it provides- (a) for the imposition or alternation of any fine or other pecuniary penalty, or for the demand or payment of a licence fee or a fee or charge for any service rendered; or. (b) for the imposition, abolition, remission, alternation or regulation of any tax by any local authority or body for local purposes. (4) If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the National Assembly thereon shall be final.' (5) Every Money Bill presented to the President for assent shall bear a certificate under the hand of the Speaker of the National Assembly that it is a Money Bill, and such certificate shall be conclusive for all purposes and shall not be called in question. 7. In order to comprehend definition and the scope of term "fee" it will be advantageous to refer to various dictionaries wherein fee has been defined as follows:-- (i) Chambers 21st Century Dictionary (Revised Edition) ' Fee:- A charge made for professional services, e.g. By a doctor or lawyer etc. A charge for e.g. Membership of a society, sitting an examination, entrance to a museum etc. a payment for school or college education, or for a course of instruction. (ii) Black's Law Dictionary (Sixth Edition) ' Fee:- A charge fixed by law for services of public officers or for use of a privilege under control of government fixed charge or perquisite charged as recompense for labor, B reward, compensation, or wage given to a person for performance of services or something done or to be done. (iii) Wharton's Law Lexicon Dictionary (Fifteenth Edition) ' Fee:--A 'fee' is generally defined to be a charge for a special service rendered to individuals by some governmental agency. ' A fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. ' Payments primarily in the public interest but for some special service rendered or some special work done for the benefit of those from whom payments are demanded; the fees charged must be commensurate with the services rendered. (iv) Judicial Dictionary 13th Edition K J Aiyar ' Fee: Before any levy can be upheld as a fee, it must be shown that the levy has reasonable co- relationship with the services rendered by the government. In other words, the levy must be proved to be a quid pro quo for the services rendered. (v) Legal Terms & Phrases 2006 Edition by M. Ilyas Khan ' Fee:(i) there must be co-relation between the amount realized as fee and the services rendered or benefits granted to those who are made to pay the same; (ii) the general purpose for raising revenue alone for the Province or the Federation shall militate against 'quid pro quo', which is an essential component of the levy of fee. Such 'quid pro quo' may not be determined with exactitude but there has to be significant relations between the fee charged and the services rendered; (vi) Supreme Court on Words and Phrases by Justice M. L. Signal Fee: Conceptually fee and tax stand on different footings; whereas the element of tax is based on the principle of compulsory exaction, the concept of fee relates to the principle of quid pro quo. 8. Similarly, in order to understand definition and the scope of term 'tax', we may refer to various dictionaries wherein tax has been defined as follows:-- (i) Chambers 21st Century Dictionary (Revised Edition)
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`Tax' A compulsory contribution towards a country's expenses raised by the government from people's salaries, property and from the sale of goods and services. (ii) Black's Law Dictionary (Sixth Edition) `Tax' A charge by the government on the income of an individual, corporation, or trust, as well as the value of an estate or gift. The objective in assessing the tax is to generate revenue to be used for the needs of the public. ' A pecuniary burden laid upon individual or property to support the government, and is a payment exacted by legislative authority. Whether under the name of toll, tribute, tal-age, gable, impost, duty, custom, excise, subsidy, aid, supply, or other name. (iii) Wharton's Law Lexicon Dictionary (Fifteenth Edition). 'Tax' A monetary charge imposed by government on persons entities or property to yield public revenue. ' A "tax" is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. "Tax" includes fee in the wider sense of the term. ' Tax, includes any toll, crate, case fee or other impost leviable or levied under the Act. (iv) Judicial Dictionary 13th Edition K J Aiyar `Tax' A tax', according to the learned Chief Justice, 'is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment 'for services rendered'. This definition brings out, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the tax-payer's consent and the payment is enforced by law. (v) Legal Terms & Phrases 2006 Edition by M. Ilyas Khan ' Tax - A pecuniary obligation imposed by the State on its subject. It is a charge levied upon a person or a property by the Government for public purposes. ' The word 'tax' has been used and it is to be taken as a tax whether of central or provincial Government. For revenue realization the terms used and in vogue are tax, charge, fee and duty. ' A tax is a compulsory extraction or a contribution imposed by a sovereign authority or required by the general body of the subjects or citizens. (vi) Supreme Court on Words & Phrases by Justice M. L. Singhal "Tax" A charge or fee, if levied for the purpose of raising revenue under the taxing power is a "tax". Similarly, imposition of fees for the primary purpose or "regulation and control" may be classified as fees as it is in the exercise of "police power", but if revenue is the primary purpose and regulation is merely incidental, then the imposition is a "tax". A tax is an enforced contribution expected pursuant to a legislative authority for purpose of raising revenue to be used for public or governmental purpose and not as payment for a special privilege or service rendered by a public officer, in which case it is a "fee". Generally speaking "taxes" are burdens of a pecuniary nature imposed' for defraying the cost of governmental functions, whereas charges are "fees" where they are imposed upon a person to defray the cost of particular services rendered to his account. 9. After having examined the definitions of term 'tax' and lee' separately, as defined in various dictionaries as referred to hereinabove, it will be equally beneficial to examine the distinction between two terms as defined in the following dictionaries:-- (i) Legal Terms & Phrases 2006 Edition by M. Ilyas Khan ' Tax and Fee.---Tax is compulsory exaction of money by public authority for public purposes enforceable by law. (PLD 1977 Kar. 742, 1986 CLC 533, 1990 CLC 550, PLD 1994 Lah.
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347. In contrast, a fee is a sort of consideration for the services rendered, which necessitate that there should be an element of quid pro quo. Therefore co-relationship must exist between the fee charged and services…
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