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Petitioner: AMIN TEXTILE MILLS and others VS Respondent: FEDERATION OF PAKISTAN and others
Court Name: Sindh High Court Judge(s): S. A. Rabbani, Zahid Kurban Alavi Title: AMIN TEXTILE MILLS and others vs FEDERATION OF PAKISTAN and others Case No.: Constitutional Petition No,D-1405 of 1998 Date of Judgment:2000-12-22 Reported As: 2002 CLC 1714 Result: Petitions allowed
JUDGMENT
JUDGMENT ' This judgment will dispose of several petitions whereby the petitioners have challenged the imposition of central excise duty on bank loans, advances and facilities. As in all petitions the questions of law and fact are common, it shall not be necessary to deal with facts obtaining in each petition. 2. The legal factual position is that by Finance Act, 1991 amended Part II of the First Schedule to the Central Excises Act, 1944 (hereinafter referred to as "the 1944 Act") Item 14.14 was inserted thereto, which purported to introduce excise duty at the rate of 1% on 'services provided or rendered", in respect of advances" made by various financial institution in terms as under:--
14.14 Services provided or rendered by banking companies, financial institutions, insurance companies other lending banks or institutions and other persons dealing in advancing of loans, in respect of advances made to any person1/12th of 1% of the amount each advance outstanding on the last working day of each calendar month." 3. Thereafter, the Federal Government issued S.R.O. No,502(I)/91, dated 30-5-1991, S.R.O. No,558(I)/91, dated 13-6-1991 and S.R.O. No,1065(I)/91, dated 6-10-1991. The effect of these S.R.Os. Was to exempt 'investment loans" from the ambit of central excise duty. Subsequently, the Finance Act, 1992 enhanced the rate of excise duty in Item 14.14 from 1/12th of 1 per cent. To 1/12th of 2 per cent. Furthermore, the Federal Government issued S.R.O. No,356(1)/92, dated 14-5-1992 and S.R.O.
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No,519(I)/92, dated 25-5-1992. The effect of these S.R.Os. Was to curtail the absolute exemption earlier granted to "investment loans" by imposing a duty thereon at a rate of 1%. 4. In this backdrop, the Federal Government, through S.R.O. No,706(I)/91, dated 4-8-1991, added rule 96.ZZI to the Central Excise Rules of 1944 (hereinafter referred to as the "1944 Rules"), sub-rule (1) whereof which reads as follows:-- "96-ZZI. Special procedure for collection of central excise duty on advances made by banks, financial institutions or other persons:-- (I) All banking companies, financial institutions, insurance companies, cooperative financing societies, other lending banks or institutions and other persons dealing in advancing of loans, hereinafter called company, shall pay the central excise duty leviable on the advances made by the company to any person." 5. On record we find the written submissions/synopsis of Muhammad Farogh Naseem, (1) Mr. Siraj- ul-Haq Memon, (2) Mr. Muhammad Munib Akhtar, (3) Mr. Amir Hani Muslim, (4) Mr. Rizwan Ahmed Siddiqui, (5) Mr. Qazi Faiz Essa, (6) Mr. Khalid Javed and Mr. Naeem, the learned counsel for the respondent-banks. Counsel also submitted oral arguments. 6. Mr. Siraj-ul-Haq, the learned counsel, appearing for the petitioners, while challenging the levy, submitted the following arguments:-- (a) the impugned levy is to be paid by the banks and not the customers. This can be confirmed from a plain reading of rule 96-ZZI. In this context a comparison was drawn between other rules i,e, rules 96-ZZE and 96-ZZJ where under the person entrusted to pay the levy has been authorized to pass on the burden to ultimate consumers by use of the expression `collect and pay' whereas in rule 96-ZZI the word 'collect' is missing; (b) the banks are recovering central excise duty on bank loans from customers, on the strength of administrative Circular No,1(14)CEB/91, dated 26-9-1991. According to the learned counsel this circular conflicts the statutory rule i,e, rule 96-ZZI and is thus, ultra vires. To further support his arguments reliance was placed on Central Insurance v. C.B.R. 1993 SCM R 1232 wherein the Honourable Supreme Court has held that a circular of the Central Board of Revenue cannot influence judicial proceedings before the department. Furthermore, the learned counsel has cited C.I.T. v. Noor Hussain PLD 1964 SC 657 for the point that any departure made by the circular from the provisions of the statute shall render the circular invalid to that extent; (c) giving of loans and advances by the banks and financial institutions is 'services rendered' but 'business' of such institutions In this provisions of the Banking Companies Ordinance, 1962 may be looked into. In State of Madras v. Gammon AIR 1958 SC 560 it has been held that words used in a particular statute should be construed in the legal sense in which those words have acquired a definite and precise sense and the Legislature must be understood to have used those words in that sense. Using this judgment, it has been contended that the definition of 'finance' as appearing in the Banking Companies Ordinance, 1962 should be adopted; (d) the fact that under rule 96-ZZI the incidence of central excise duty is upon banks can be established from a reading of S.R.O. No,1064(1)/91, dated 6-10-1991 where under Pak-Kuwait Investment Company (Pvt.) Ltd., has been granted an exemption from the levy of central excise duty on services rendered by it in respect of advances/loans provided by it. It is contended that this exemption confirms the intention of the Legislature to impose the charge on the banks/financial institutions. (e) the impugned levy cannot be imposed on those financial facilities which have been acquired by customers before the Finance Act, 1991 i,e, before the introduction of the impugned levy. In this regard reference is invited to section 3-C(1)(b) of the 1944 Act, according to which, the rate of duty in case of services shall be the one applicable on the date on which the service has been rendered
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or provided. In this regard, the judgment of Zaman Textile Mills Limited v. Central Board of Revenue PLD 1993 SC 305 has been cited; (t) in relation to loans which have been finalized before the impugned levy, the transaction has become past and close. Reliance in the respect is placed upon Malasses Trading v. Federation of Pakistan 1993 SCM R 1905 and C.I.T. v. Olympia '1987 PTD 739; (g) a strict interpretation has to be given by the Courts to fiscal legislation. Reliance was placed on Mehran Associates v. C.I.T. 1993 SCM R 274 = 1993 PTD 69. 7. Dr. Muhammad Farogh Naseem, the learned counsel appearing for some of the petitioners has submitted the following arguments:-- (a) section 3 of the 1944 Act is the charging section which prescribes the imposition of central excise duty, inter alia, on excisable services. The term 'excisable services' has been defined in section 2(dd) to mean services which have been specified in the First Schedule (now the definition clause has been renumbered as section 2(20); (b) the learned counsel has relied upon South Behar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922 wherein it has been held that since the Central Excise Act does not define the term 'goods', the ordinary dictionary meaning has to be seen so as to determine whether the subject-matter of the levy constitutes 'goods'. Applying the same analogy to 'services', the Court has to see whether in pith and substance the present levy is 'services' i,e, ' whether the very advancement of loans/financial facilities and their quantum constitute services per se; (c) reliance has been placed on Abdul Rahim v. United Bank Limited PLD 1997 Kar. 62 wherein it has been held that mere advancement of loans do not constitute services, especially after 1984 when the entire banking system has been based on the Islamic modes of financing including Modarba, Morabaha and Musharika. As such once words in a statute receive a particular judicial interpretation it has to be assumed that such term has been presumed to have the same meaning by the Legislature. For this point reference was invited to Shamroz Khan v. Muhammad Amin PLD 1978 SC 89; (d) Originally in Pakistan central excise duty was not levied on services. However, through the Finance Ordinance, 1969 services were brought to the tax net. This amendment was challenged, which failed and it was held in Hirjina v. Islamic Republic of Pakistan 1993 SCM R 1342 that the levy had been saved by Article 179 of the 1973 Constitution. It was accordingly submitted that the term 'services' are how to be read in Entry 44 of the 4th Schedule to the Constitution, which prescribes the levy of central excise duty. If this is so then once again the pith and substance of the term 'services' would have to be looked into as it is settled law that while interpreting. Constitutional entries the Courts are to see their pith and substances P.I.D.C. v. Federation of Pakistan 1992 SCM R 891; (e) in terms of the definition of 'excisable services' contained in section 2(dd), the latter term means 'services' which have been specified in the First Schedule. In other words, the levy of central excise duty would only arise if services have been specified in the Schedule. In the present case no such services have been specified in the Schedule whereas the burden was on the respondents to have specified and identified the services upon which the impugned levy could be imposed. Reliance in this regard was placed upon C.I.T. v. S.K. & F 1991 SCM R 2374 = 1991 PTD 999; (f) The impugned levy has not been imposed on the advancement of the loans/advances themselves. In fact the charge, as per item 14.14, is on 'services provided or rendered' in respect of advances made to any person'. The charge thus, is very clearly on those services which the banks or financial institutions may have provided in consequence of or relatable to or with regard to the advancement of the loans. Accordingly, the manner in which the levy has been imposed and implemented, whereby the respondents have been recovering the duty on the outstanding
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balances of the loan/advance each month is completely ultra vires, unconstitutional and void. At best the levy could only be in relation to the services which the banks may have provided in addition to the loans; (g) for the term 'in respect of reliance was placed on Tolaram v. State of Bombay AIR 1954 SC 496; State of Madras v. Chitturi AIR 1957 AP 675; Berger v. Indemnity (1900) 2 QB 348; Brett v. Rajers (1897) 1 QB 525 and Lord Glanely v. Whightman (1933) AC 618; (h) the language of the statute in question is very clear i,e, the levy is not on the loan/advance itself but the services that might be rendered thereon. The Courts cannot supply any construction to a fiscal statute on the assumption that if the Legislature had thought of the problem it would have used other terms. In this case reliance was placed on (1949) I All ER 865 (HL) at p.868; (i) the standard laid down by a statute for measuring the tax liability must have nexus with the nature and general character of the levy. In this case, the standard of measuring the central excise duty, in the third column to Item 14.14, is the outstanding balance of the loan, whereas the levy is upon services rendered by the bank in respect of the loan/advance. The outstanding balance of the loan has got nothing to do with the services which the banks may have rendered. Accordingly, the standard of measuring the levy has no rational basis or criterion with the nature of the levy itself. For this proposition reliance was placed' upon Abdul Rahim v. UBL PLD 1997 Kar. 62 wherein it has been held that advancement of loan has no nexus with the services that might be rendered in relation to the loan. On the point that the yardstick of measuring the tax must have nexus with the general character of the levy, reliance was placed on Excise and Taxation Officer v. Burma Shell 1993 SCM R 338; Buxa D.00ars v. State of West Bengal (1989) 3 SCC 211 and H.A. Rahim v. Province of Sindh (sic); (j) the very subject-matter of the levy is vague as no services have been specified in the Schedule. Accordingly, the entire levy has to be struck down. In one case from the Indian jurisdiction i,e, Gavin Saran v. C.S.T. (1985) 155 ITR 144 (SC), it has been held that if there is an ambiguity in any component of the levy, the entire levy has to be struck down; (k) the impugned amendment whereby central excise duty is being charged cannot be given retrospective effect so as to affect transactions past and closed. Accordingly, where contracts of finance have been concluded before introduction of the impugned levy no central excise duty would be payable on such contracts. There is nothing in the impugned amendment to suggest that the levy has been introduced retroactively. Even so, retrospective legislation cannot affect transactions past and closed. Reliance in this regard was placed on Ghnlam Hyder Shah v. Chief Land Commissioner 1983 CLC 1585, Muhammad Abdullah v. Government of Pakistan PLD 1992 Kar. 266 and Molasses Trading v. Federation of Pakistan 1993 SCM R 1905; (l) the contracts of finance have been based upon certain feasibilities and the same cannot be defeated or amended through intervention of the State. Any attempt to defeat such intervention would be against the precepts of Islam and violation of Article 2A of the Constitution. Accordingly, where contracts have been concluded before the impugned amendments, the imposition of any central excise duty would be un-Islamic and against Article 2A. Reliance was placed on C.I.T. v. Siemens PLD 1991 SC 368 and Province of Punjab v. Amin Jan PLD 1994 SC 141; (m) the impugned levy lacks classification and accordingly violates Article 25 of the Constitution. There is no reasonable classification between the different types of finances. Only a crude distinction has been made between investment and non-investment loans. There are many varieties of finance all of which cannot be lumped together. In this regard reliance is placed on Moopil Nayer (1961).3 SCR 77, I.A. Sherwani v. Government of Pakistan 1991 SCM R 1041 and Inam-ur- Rehman v. Federation of Pakistan 1992 SCM R 563. 8. Mr. Munib Akhtar, the learned counsel appearing for some of the petitioners has contended as follows:--
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(a) in terms of Item 14.14 the taxable event is not the loan or its advancement but services which may have been rendered in respect of such loans. According to the learned counsel `advancement of loans' or 'loans' can by no connotation be termed as 'services'. This would be more so in view of plain, ordinary and grammatical meaning of the term 'services'. Reliance was placed on Government of Pakistan v. Hashwani Hotel Ltd. PLD 1990 SC 68, wherein it has been held that the foremost principle of interpretation of statutes is that a literal and ordinary meaning is to be given to the words in a statute; (b) in terms of Item 14.14 the duty is only on services rendered. No services have been rendered, which fact has not been controverted by the department or banks; (c) any tax necessitates three stages i,e, leviability, assessment and payability. The leviability is mentioned in the second column of Item 14.14, which is only in respect of services, whereas the assessm ent and payability is mentioned in the third column of Item 14.14, which is the outstanding amount of advances every month. In this respect the judgment of Whitney v. Commissioners of Inland Revenue (1924-26) 10 TC 88 at 110 was relied on; (d) laws are prospective unless they have been made retrospective expressly or by necessary implication. As such the impugned levy cannot hit those transactions or provisions of services which have already been provided before the imposition of levy itself. For this, reliance was placed on Rustam F. Cowasjee v. C.B,R. 1985 PTD 529, Government of Pakistan v. Mardan Industries 1988 SCM R 410, Chief Land Commissioner v. Ghulam Hyder Shah 1988 SCM R 715 and Mercantile Fire v. I.T.O. 1989 PTD 221; (e) before the imposition of the levy on both the investment and non-investment loans the petitioners were enjoying an exemption, which could not have been taken away as the petitioners have acquired vested rights to enjoy the said exemptions. For this reliance was placed on Collector of Central Excise v. Azizuddin PLD 1970 SC 439 and Rachna Chemical Industrial v. Government of Pakistan 1991 PTD 1; (f) in terms of the charging section the tax is chargeable on determined and definite events, whereas in terms of the Schedule i,e, Items 14.14 the tax is charged as a continuing event, upon a balance of outstanding loans every month. Thus the Schedule is inconsistent with the charging section and hence ultra vires the Act. Reliance in this regard was placed on Excise and Taxation Officer v. Burma Shell 1993 SCM R 338; (g) the levy is unreasonable since if there is no outstanding amount at the end of the particular month, no duty will be chargeable though services may have been provided; whereas duty may be payable when no services have been rendered, while there may be some outstanding balance of the loan. 9. Messrs Rizwan Ahmed Siddiqui, Khalid Jawed, Qazi Faiz Essa and Muhammad Naeem have caused appearance of the respondent-Banks i,e, M.C.B., N.D.F.C., A.B.N. Amro and Standard Chartered Bank, respectively. All the learned counsel for the banks have contended that the banks have entered into contractual stipulations with their customers i,e, petitioners, and in view whereof the burden of the central excise duty could be lawfully passed on to the said petitioners. It has further been contended that rule 96-ZZI of the 1944 Rules or any other provision of law or statute including section 23 of the Contract Act cannot come in the way of the lawful stipulation agreed between the parties to pass on the burden of the duty. A perusal of the written synopsis submitted by the learned counsel for the banks confirmed that Mr. Rizwan Ahmed Siddiqui on merits has opposed the imposition of impugned levy on grounds that it is unlawful, ultra vires and un- Constitutional. It appears that the reasoning is similar to the .One taken up by Dr. Farogh Naseem, Mr. Khalid Jawed in his written synopsis has adopted the arguments of Mr. Rizwan Ahmed Siddiqui, Mr. Qazi Faiz Essa, however, has opposed the petitions also on the ground that .The implied levy is lawful. Such reasons as appearing in his written synopsis are summarized as follows:--
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(a) the banks have been, required by C.B.R. Circular No,1(14)CEB/91, dated 26-9-1991, to realize the excise duty from petitioners. In terms of section 1 of the 1944 Act observative has to be made of C.B.R.'s orders, directions and instructions. In this regard the learned counsel has placed reliance on Province of West Pakistan v. Din Muhammad PLD 1964 SC 21 wherein it has been held that all officers and persons employed in the execution of statutes and rules made thereunder shall observe and follow the orders, directions and instructions of the C.B.R.; (b) the matter regarding the vires of imposition of central excise duty on services has been conclusively settled by the Supreme Court through Hirjina v. Islamic Republic of Pakistan 1993 SCM R 1342 wherein central excise duty on services has been found to be lawful and intra vires; (c) fiscal laws are to be interpreted strictly, no matter how in-equity or hardship may result. Also there is no room of any intendment or presumption about taxes as the letter of the law has to be looked into. For this reliance has been placed on Commissioner of Agricultural Income Tax v. BWM Abdul Rehman 1973 SCM R 445 and A&B Food Industries v. C.I.T. 1992 SCMR 662; (d) Courts should lean in favour of upholding the constitutionality of legislation and should be extremely slow to strike the same down. Reference for this is invited to Province of East Pakistan v. Sirajul Patwari PLD 1966 SC 854 and Multi Line Associates v. Ardeshir Cowasjee PLD 1995 SC 423; (e) despite section 64-A of the Sales of Goods Act, the burden of the central excise duty on services could be lawfully passed on to the ultimate consumer through private contracts between parties. Reference is made to Haffaz Seamless Pipe v. Sui Northern Gas 1998 CLC 1890; (f) reliance by Dr. Farogh Naseem upon C.I.T. v. Siemens PLD 1991 SC 368 supports the case of respondent-Banks on grounds that the contracts between the banks and the petitioners cannot be disturbed; (g) as the banks are to pay the excise duty, the petitioners have no locus standi to question any ambiguity in the legislation; at best this issue can only be taken up by the banks with the central excise department; (h) since the agreements between the petitioners and the banks to reimburse the central excise duty pre-date the imposition of tax, it does not constitute a retroactive implementation of law. 10. Mr. Amir Hani Muslim alongwith Mr. Faisal Kamal, the learned counsel appearing for the central excise department, opposed the petitions through oral arguments as also by submitting a detailed write up. In sum and substance Mr. Amir Hani Muslim has submitted as follows:-- (a) Elahi Cotton v. Federation of Pakistan PLD 1997 SC 582 has conclusively enlarged the power of the Legislature to impose tax, which cannot be struck down by Courts on any technical or scientific grounds, Mr. Hani's interpretation of the Supreme Court judgment of Elahi Cotton is that once a tax is imposed, it cannot be invalidated on any legal or Constitutional infirmity. Allied with this argument is his plea that public interest requires collection of taxes and the Courts have to sustain every tax/levy on such ground. This according to him is the mandate of Elahi Cotton; (b) the impugned levy is not ultra vires Entry 44 of the 4th Schedule to the Constitution since in terms of Elahi Cotton, following Assistant Commissioner v. Buckingham (1970) 75 I.T.R. 6Q3 and Elel Hotels v. Union of India AIR 1990 SC 1664, legislative entries are to be given a very large and liberal interpretation which cannot be narrowed down or restricted; each general word should be held to extend to all ancillary or subsidiary items which can fairly and reasonably come within the scope of legislative entries, which are not powers of legislation but only fields of legislative heads; (c) under section 3 of the 1944 Act excise duty is payable on excisable services at rates mentioned in the First Schedule. In terms of the definition clause i,e, section 2(dd) (renumbered as section 2(20) of the 1944 Act, 'excisable services' have been defined to mean services specified in the First Schedule. So, whatever services that are mentioned in the First Schedule specify the levy of tax and there is no scope to look into the ordinary and grammatical meaning of the term 'services' since by very definition or fiction whatever is mentioned in the Schedule constitutes 'services. Since Item
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14.14 of the First Schedule specifies advancement of loans/financial facilities, there can be no doubt about their taxability; (d) the argument of Dr. Farogh Naseem that the yardstick to measure the tax has no nexus with the nature and character of the levy is a technical and frivolous argument which cannot be raised in view of Elahi Cotton's case PLD 1997 SC 582 and Hirjina 1993 SCM R 1342; (e) it is wrong to submit that the tax has been levied not on loans but services rendered in respect of loans. The term 'in respect of' cannot be given any narrow or pedantic connotation. In fact the latter term has to be given the widest amplitude so as to fit within it the taxability on advancement of loans per se; (f) the judgment of the Division Bench of this Court in Abdul Raheem v. U.B.L. PLD 1997 Kar. 62 cannot be relied upon since that was a judgment regarding the Banking Tribunals Act, 1984 and the same cannot be extended to the Central Excises Act. Even in Abdul Rahim v. U.B.L. The Court had found unsafe to apply by way of analogy definition of terms used in two different statutes. For this reason also reliance cannot be placed on the definition of the term 'banking' as appearing in the Banking Companies Ordinance, 1962; (g) there is no equity or presumption in taxation. Words in a taxing statute are to be given ordinary/grammatical meaning. Reliance in this respect is placed on Nawabzada Muhammad Amir Khan v. Controller of Estate Duty PLD 1961 SC 190; Don Basco v. Assistant Director PLD 1989 SC 128 and Government of Pakistan v. Hashwani Hotel PLD 1990 SC 68; (h) despite rule 96-ZZI the burden can be lawfully passed on by the bank to the borrower since admittedly central excise duty is an indirect tax which necessarily entails passing of the burden to the ultimate customer/consumer. Also there is no bar under section 64-A of Sales of Goods Act to pass on the burden of tax. For this reliance is placed on Hirjina 1993 SCM R 1342, Darya Khan v. C.B.R. 1995 M LD 1737 and Elahi Cotton PLD 1997 SC 582; (i) imposition of excise duty. Under Item 14.14 falls within the domain of…
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