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Petitioner: East Pakistan Chrome Tannery (Pvt.) Ltd VS Respondent: Federation Of Pakistanand
Court Name: Lahore High Court Judge(s): Syed Mansoor Ali Shah Title:East Pakistan Chrome Tannery (Pvt.) Ltd vs Federation Of Pakistanand
JUDGMENT
Reported As: PTCL 2012 CL. 565 Result: Petition allowed Judgment JUDGMENT JUSTICE SYED MANSOOR ALI SHAH.-(I). This judgment shall decide Writ Petitions Nos. 8763 of 2011, 8766 of 2011, 8767 of 2011, 8768 of 2011, 3643 of 2011, 4216 of 2011 and 4217 of 2011, as they raise same questions of law and facts. 2. Facts of the titled petition are that the petitioner is an "industrial establishment" and is liable to pay Workers' Welfare Fund ("Fund") under the Workers' Welfare Fund Ordinance, 1971 ("WWF Ordinance"). Grievance of the petitioner arises out of impugned Notice dated 10-4-2011 issued under section 221 of the Income Tax Ordinance, 2001 read with section 4 of the WWF Ordinance by respondent No. 4 (an officer of respondent No. 2 i.e., Federal Board of Revenue). The impugned Notice demands payment of enhanced Workers' Welfare Fund under the WWF Ordinance, which is an outcome of the impugned amendments introduced in the WWF Ordinance through Finance Acts, 2006 and 2008. Petitioner impugns the enhanced liability by laying challenge to the constitutionality of the impugned amendments introduced in the WWF Ordinance by the aforesaid Finance Acts (money bills). 3. Brief background is that sections 2 and 4 of the WWF Ordinance were amended vide sections 12 and 4 of the Finance Acts, 2006 and 2008, respectively. The said amendments enhanced the amount of contribution to be paid by the petitioner towards Workers' Welfare Fund. 4. Counsel for the petitioner argued that the amendments brought about in the WWF Ordinance through Finance Acts, 2006 and 2008 were unconstitutional, in as much as, they fell outside the purview of Articles 73(2)(a) to (g) of the Constitution. These amendments could not have been introduced through the money bills and could only be introduced through the regular legislative1
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procedure provided under Article 70 of the Constitution. Learned counsel for the petitioner placed reliance on Mir Muhammad Idris and others v. Federation of Pakistan through Secretary Ministry of Finance and others (PLD 2011 SC 213) and Sindh High Court Bar Association through Secretary and another v. Federation of Pakistan through Secretary, Ministry of Law and Justice, Islamabad and others (PLD 2009 SC 789) in support of his contention. He submitted that the Fund cannot be the subject matter of a money bill as it does not pass for a Tax and is in reality a Fee. 5. Learned counsel for the respondent F.B.R, submits that the Workers' Welfare Fund is a Tax. He relied on Article 73(2)(g) of the Constitution of Islamic Republic of Pakistan, 1973 which according to him enlarges the scope of a money bill and includes the impugned amendments made through Finance Acts, 2006 and 2008. He submitted that the Fund is a tax because it is a compulsory exaction of money and placed reliance on The Commissioner, Hindu Religious Endowments, Madras, v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mult (AIR 1954 SC 282) and Wazir Ali v. Government of Sindh and 2 others (PLD 1977 Karachi 742). He added that Fund is not a fee as there is no service being rendered to the petitioner in return. While admitting that the fund collected under the Ordinance is for the welfare of the workers as a class, in as much as, it provides for their housing, but qualified his submission by contending that there is no direct nexus of the Fund with the workers' of the petitioner. He concluded by submitting that the Fund under the Ordinance is a tax and the Ordinance has been promulgated under item 47 of the Federal Legislative List (Part-1). He placed reliance on Messrs Mutual Funds Association of Pakistan (MUFAP) v. Federation of Pakistan through Secretary, Ministry of Finance, Government of Pakistan and another, (2010 PLC 306) in support of his contentions. 6. Learned counsel for WWF raised preliminary objection that the petitioner has invoked the constitutional jurisdiction of this court without exhausting the alternate remedy under the WWF Ordinance, as well as, under the Income Tax Ordinance, 2001. As a preliminary objection he submitted that the instant petition is hit by laches as Finance Act, 2006 has been challenged in the year 2011 and placed reliance on Member (S&R)/Chief Settlement Commissioner, Board of Revenue, Punjab, Lahore and another v. Syed Ashfaque Ali and others (PLD 2003 SC 132) and Abdul Ghafoor and 5 others v. Administrator Union Council no. 86, Shalli Gharbi, Tehsil Chishtian, District Bahawalnagar (1997 CLC 592). On the merits of the case the learned counsel reiterated the submissions made by the counsel for the F.B.R. 7. Both the Deputy Attorney Generals representing respondent No. 1, and also present in response to the notice under Order XXVII-A, C.P.C, issued by this Court, adopted the arguments of the counsel for F.B.R., as well as, WWF and made no additional submissions. 8. Arguments heard. Record perused. 9. The first preliminary objection raised by the counsel for WWF is that the petitioner has not availed the alternate remedy under the WWF Ordinance and the Income Tax Ordinance, 2001. Section 4(10) of the WWF Ordinance provides for an appeal against the order of a Taxation Officer or the Commissioner before the Commissioner (Appeals). The scope of this petition is not limited to the mathematical calculation of the amount of contribution to be paid by the petitioner under the Ordinance but lays challenge to the new mode of calculation introduced in WWF Ordinance and challenges the constitutionality of the amendments introduced in WWF Ordinance through money bills i.e., Finance Acts, 2006 and 2008, hence the remedy provided under WWF Ordinance is not an adequate alternate remedy for seeking such a declaration. Second preliminary objection is regarding laches as Finance Act, 2006 has been challenged in the year, 2011. Firstly, the cause of action has arisen for the first time after the issuance of the impugned Notice in the year, 2011. Secondly, the matter complained of is in the nature of a recurring wrong, the amendments made through Finance Acts, 2006 and 2008 generate an annual liability against the petitioner and, therefore, the question of laches does not arise. For the above reasons, both the preliminary
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objections raised by the counsel for respondent WWF are overruled. Legal Question 10. The legal question that needs deliberation by this Court is whether the amendments could have been introduced in the WWF Ordinance through Finance Acts (money bills) of 2006 and 2008, respectively? 11. The amendments introduced in WWF Ordinance through Finance Acts, 2006 and 2008 have been reproduced in Schedule A to this judgment for ready reference. The special procedure with respect to Money Bills is provided in Article 73 of the Constitution of Islamic Republic of Pakistan, 1973 which is reproduced hereunder:- "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 alternation 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; (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 paragraph. (3) A Bill shall not be deemed to be a Money Bill by reasons only that it provides:- (a) For the imposition or alteration 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, alteration 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." (emphasis supplied) 12. Admittedly, the relevant sub-article applied by the respondents to the case of the petitioner is Article 73(2)(a) of the Constitution of Islamic Republic of Pakistan, 1973 which deals with the imposition, abolition, remission, alteration or regulation of Tax, and is read with sub-article 73(2)(g) which provides for any matter incidental to matters specified in sub-articles (a) to (f). In terms of Articles 73(2)(a) and (g), a bill is deemed to be a money bill if it contains provisions dealing with imposition, abolition, remission, alteration or regulation of Tax- It is, therefore, necessary to first see
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whether the contribution to the Fund under the WWF Ordinance amounts to a Tax for the purposes of Article 73(2)(a) of the Constitution. Nature of Workers' Welfare Fund - Tax or Fee? 13. Preamble to the Workers' Welfare Fund Ordinance (Ordinance No. XXVI of 1971) provides: -- "Whereas it is expedient to provide for the establishment of a Workers Welfare Fund, for providing residential accommodation and other facilities for workers and for matter connected therewith or incidental thereto."(emphasis supplied) Section 6 of the WWF Ordinance lays down the purposes to which the moneys in the Fund may be applied and states:- "(6) Purposes to which moneys in the Fund may be applied.- Moneys in the Fund shall be applied to. (a) the financing of projects connected with the establishment of housing estates or construction of houses for the workers; (b) the financing of other welfare measures including education training, re-skilling, and apprenticeship for the welfare of the workers; (c) the meeting of expenditure in respect of the cost of management and administration of the Fund; (d) the repayment of loans raised by the Governing Body; and (e) investment in government, government guarantees, nongovernment securities and Real Estate." (emphasis supplied). Section 7 of the WWF Ordinance provides for a Governing Body entrusted with the management and administration of the Fund. Section 10 provides functions of the Governing Body which include the allocation of Fund for the purposes mentioned in clauses (a) and (b) of section 6. Section 10-A further provides that the money allocated for the Fund shall vest in the government, agency or body corporate to whom it is allocated but it shall not be applied to any purpose other than that for which it is allocated or permitted by the Governing Body. 14. Preamble and sections 6, 7, 10 and 10A of the WWF Ordinance show that the Fund created has a specific purpose and has to be utilized specifically for the welfare of the workers e.g., for providing residential accommodation and other facilities to the workers, financing of projects connected with establishment of housing estates or construction for houses for the workers, financing of other welfare measures includins education training, re-skilling and apprenticeship for the welfare of the workers. There is no provision in the WWF Ordinance that allows the Fund to be used for any general or undefined purpose other than for the welfare of the workers. WWF Ordinance is, therefore, a welfare legislation for the benefit of the labourers as a class and finds its legislative sanction under items Nos. 26 and 44 of the erstwhile Concurrent List which deal with welfare of labour: conditions of labour, etc. And fees in respect thereof. 15. The distinction between Tax and Fee has come up before our courts earlier. In Abdul Majid and another v. Province of West Pakistan and others (PLD 1960 Dacca 502) Akbar J. Quoted the judgment of the Supreme Court of India in The Commissioner, Hindu Religious Endowments, Madras, v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (AIR 1954 SC 282) in the following manner:-- "The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for special benefit or privilege. Fees confer a special capacity, although the special advantage, as for example in the case of registration fee for documents or marriage licences, is secondary to the primary motive of regulation in the public interest....... Public interest seems to be at the basis of all impositions, but in a fee it is some special benefit which the individual receives....It is the special benefit accruing to the individual which is the2
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reason for payment in the case of fees; in the case of tax, the particular advantage, if it exists at all, is an incidental result of State action." In Biafo Industries v. Federation of Pakistan, 2000 CLC 170 Ali Nawaz Chowhan, J (as he then was) speaking for this Court held:-- "(27) Taxation is that inherent power of Government to raise fund with which it promotes general welfare and looks after the protection of citizens. State v. Kromarek 52, N. W. 2d 713, 715, 78 N.D. 769. In fact tax is a charge to pay the cost of Government without regard to special benefits conferred (In re Shultz's will, 46 N. W. 2d 559, 562, 242 Iowa 448). (28) A fee on the other hand is distinguishable from a tax inasmuch as it is meant to defray the, cost of particular services rendered to particular individuals. In an Australian case-60 CLC 263 and which has been recurringly quoted Latham, CJ defines both tax and fee in the following words:-- A tax is a compulsory exaction of money by public authority for public purposes enforcible by law and is not payment for services rendered. A fee may be generally defined to be a charge for a special service rendered to individuals by some Government Agency. The amount of the fee levied is supposed to be based on the expenses incurred by the Government in rendering the service, though in many cases the costs are arbitrarily assessed. A fee may be compulsory levied as well as a tax and the distinction between them lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. The special advantage may assume a secondary importance as compared with the primary motive of regulation in the public interest, as, for example, in the case of registration fee for documents or marriage licences. 29. Therefore, the distinction between tax and fee lies primarily in the fact that tax is levied as a part of a common burden and constitutes general revenue, while fee is a payment for special benefit or privilege. This distinction between tax and fee was adopted in the case of Abdul Majid and others PLD 1960 Dacca 502 and in the case of Mahboob Yar Khan PLD 1975 Lah. 748. However, it should not be forgotten that there is no generic difference between a tax and fee. Both are compulsory exaction of money by public authorities. A tax is imposed for public purposes and is not supported by any consideration of service rendered in return. Whereas a fee is levied in view of services rendered. Consequently, there is an element of quid pro quo between the payer of the fee and the authority which , imposes it." (emphasis supplied) The above distinction has been reiterated in Collector of Customs and others v. Sheikh Spinning Mills, (PTCL 1999 CL. 752), Government of North West Frontier Province through Secretary Agriculture v. Rahim Ullah and others (1992 SCMK 750), Sheikh Muhammad Ismail"and Co. Ltd, Lahore v. The Chief Cotton Inspector, Multan Division, Multan and others (PLD 1966 SC 388), Azad Government of the State of Jammu and Kashmir through Chief Secretary, Azad Kashmir Government, Civil Secretariat, Muzaffarabad v. "Haji Mir Muhammad Naseer and others (1999 PLC (C.S.) 1173), Rahimullah Khan and 65 others v. Government of N.W.F.P, through Secretary Agricultural Forest and Co-operation Department, Peshawar and 5 others (1990 CLC 550), Messrs Sapphire Textile Mills Limited v. Pakistan through the Secretary, Ministry of Finance and 2 others, (2006 CLD 1523), Mahboob Yar Khan and another v. Municipal Committee, Mian Channu and 2 others, (PLD 1975 Lahore 748), Messrs Fatima Enterprises Ltd. v. The Federation of Pakistan through Secretary, Education, Ministry of Education, Islamabad and others, (1999 MLD 2889), Messrs Quetta Textile Mills Limited through Chief Executive v. Province of Sindh through Secretary Excise and Taxation, Karachi and another, (PLD 2005 Karachi 55), Mian Ejaz Shaft and others v. Federation of Pakistan and others, (PLD 1997 Karachi 604). 16. According to TAXMANN'S Interpretation of Taxing Statutes-. "2.2. The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decision. The distinction between tax and fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is for payment of a specific benefit or3
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privilege although the special advantage is secondary to the primary motive of regulation in public interest. If the element of revenue for general purpose of the State predominates, the levy becomes tax. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area or class, it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any Legislature to levy fee is conditioned by the fact that it must be 'by and large' a quid pro quo for the services rendered. However corelationship between the lew and the services rendered (sic) or expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a reasonable relationship between the levy of the fee and the services rendered....Another important case on the distinction between tax and fee is Municipal Corporation of Delhi v. Mohd. Hasin. In this case the M.C.D. Enhanced the rate for the slaughter of animals in its slaughterhouses. The increase was assailed as an arbitrary tax. The Court made certain observations which have direct bearing on the distinction between "tax" and "fee". The court observed: Tax and fee properly belong to the word of Public Finance but since the Constitution and laws are also concerned with public finance these words have often been adjudicated upon in an effort to discover their content. (2) Compulsion is not a sole criteria to determine difference between "tax" and "fee". (3) Tax is a common burden and fee is payment for special benefit or privilege. But it was noticed that special benefit is secondary to the primary motive of regulation in the public interest as for instance in case of registration fees for document or marriage licences. It was further observed that there is no generic difference between a tax and a fee, though broadly a tax is a compulsory exaction as part of a common burden, without promise of any special advantages to classes of taxpayers whereas a fee is a payment for services rendered, benefit provided or privilege conferred. Further though a fee must have relation to the services rendered or advantage conferred such relation need not be direct, a mere casual relation may be enough. Moreover, neither the incidence of fee nor the services rendered need be uniform. That others besides those paying the fees are also benefited does not detract from the character of fee. In fact the special benefit or advantage to the payer of fees may even be secondary as compared to primary motive of regulation in public interest. Lastly the Court is not to assume the role of Cost Accountant. It is neither a necessary nor expedient to weigh too meticulously the cost of the services rendered etc. Against the amount of fees collected so as to evenly balance the two. A Broad corelationship is all that is necessary." (emphasis supplied) 17. According to "Words and Phrases under the Constitution," Tax and Fee is distinguished as under:- "Fees and taxes are both revenues for the benefit of the State. The Constitution does not make it essential that a fee should be credited to a separate fund and not to a consolidated fund. It may be noticed that at the end of each of the three lists, I, II and III under the Seventh Schedule, there is an Entry relating to fees to the effect-"Fees in respect of any of the matters in List..." Accordingly, each Legislature has the power to levy a fee which is co-extensive with its taxing power and it can levy a fee with reference to the services that would be rendered by the State under such law. Thus 'fee' is an imposition in lieu of service to be tendered to the tax-payers. The imposition will be held to be a tax if quid pro quo is absent and the levy is excessive. Thus, while in the case of a tax, there is no quid pro quo between the tax-payer and the State, there is a necessary co-relation between the fee and the service intended to be rendered." 18. According to the Advanced law Lexicon,:-- "Tax and fee. Commissioner H.R.E. v. Lakashmindra Tirtha Swamiar AIR 1954 SC 282, 295 quoted-The distinction between a tax and a fee lies primarily in the fact that tax is levied as a part of a4 5 6
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common burden while a fee is payment for special benefits or privilege." Further, according to Advanced Law Lexicon:-- "Fees are distinguished from taxes in that the chief purpose of a tax is to raise fluids for the support of the Government or for a public purpose, while a fee may be charged for the privilege or benefit conferred, or service rendered or to meet the expenses connected therewith. Thus, fees are nothing but payment for some special privilege granted or service rendered. Taxes and taxation are, therefore, distinguishable from various other contributions, charges, or burdens paid or imposed for particular purposes and under particular powers or functions of the Government. It is now increasingly realized that merely because the collections for the services rendered or grant of a privilege or licence, are taken to the consolidated fund of the State and are not separately appropriated towards the expenditure for rendering the service is not by itself decisive." (emphases supplied) 19. Osmosis of case-law above helps identify the core differentiating features between Tax and Fee. In case of Fee, the allocation of the moneys collected (i.e., the Fee collected) is for a specific purpose and more importantly for a specific beneficial purpose, as the moneys collected flow back for the benefit and advantage of a particular class or sector or group of individuals who have paid or contributed towards the Fee. It is qualified that this benefit need not be returned with mathematical precision or exactitude against the contribution made. It would be sufficient for a levy to pass as a Fee if the identified class of persons or sector benefits as a whole. Tax on the other hand lacks this specificity of purpose. It is more generic and does not have a defined purpose attached to the allocation of revenues collected. It neither has a specified allocation target nor the mandate to extend any benefit or privilege to an identified class. The State, therefore, has discretion in allocating revenues collected through Tax but no such discretion is available in case of a Fee which is already predetermined by law. It is also underlined that payment of both the levies may be mandatory or compulsory therefore the distinction between the two levies does not lie on the basis of its policing or collection mechanism but actually lies in its purpose and…
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