Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs AL-IMDAD GENERAL TRADING CO. through Proprietor VS Respondent: PAKISTAN JUDGMENT
Court Name: Peshawar High Court Judge(s): Yahya Afridi, Ikramullah Khan Title:Messrs AL-IMDAD GENERAL TRADING CO. through Proprietor vs PAKISTAN
JUDGMENT
Reported As: PLJ 2015 Tax Cases (Pesh.) 19, 2015 PTD 734 Result: Order accordingly Judgment JUDGMENT YAHYA AFRIDI, J.---Through this single judgment, we propose to dispose of six writ petitions, as they all have common questions of law involved therein. The particulars of the writ petitions are:-- (1) Writ Petition No,3036/2011, (Messrs Al-Imdad General Trading do. Shah Shopping Centre, H- Floor, BlockA, Jamrud Road, Peshawar v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others). (2) Writ Petition No,3274/2011, (Messrs MPK Traders, 5C-Ist Floor, Cantonment Plaza, Saddar Road, Peshawar through its Managing Partner Mr. Mubashir Pervez Khan v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others). (3) Writ Petition No,3275-P/2011, (Messrs Keen Agencies, Suit No,4, 1st Floor, Block C, Cantt: Plaza, Peshawar through its Partner Mr. Mudassir Pervez Keen v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others). (4) Writ Petition No,3276/2011, (Messrs Style Fabrics v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others). (5) Writ Petition No,1173-P/2012, (Messrs Wadud Woollen Mills Ltd., Plot No,26, Industrial Estate, Jamrud Road, Peshawar v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others). (6) Writ Petition No,1174-P/2012, (Messrs Frontier Woollen Mills (Pvt.) Ltd., 98-98A Industrial Estate, Jmrud Road, Peshawar v. Pakistan, through Secretary, Ministry of Commerce, Constitutional Avenue, Islamabad and 5 others).
---
## Page 2
The petitioners in the aforementioned six petitions, have invoked the constitutional jurisdiction of this Court seeking a common prayer that:-- "The petitioner, being situated in most affected area of the Province of Khyber Pakhtunkhwa, therefore, entitled to the benefit of S.R.O. 180(I)/2011 dated 5-3-2011 and S.R.O. .283(1)/2011 dated 1-4-2011 and the Board letter C.No,1(155)101(RGST)/2011 dated 7-7-2011 being arbitrary, illegal, thus, of no legal effect and ineffective upon the rights of the petitioner accrued under S.R.O. 180(J)/2011 dated 5-3-2011." 2. In two of the aforementioned petitions (Writ Petitions Nos. 1173, 117 of 2012), the petitioners have also sought alternative relief in terms that:-- "To declare that very issuance of S.R.O. 180(1)/2011 dated 5-3-2011 is mala fide and colourable exercise of power of power thus, void and of no legal effect upon the rights of the petitioner accrued under S.R.O. 165(1)/2010 dated 10-3-2010". 3. The petitioners are business concerns, mainly engaged in import or manufacture of textile products, having their registered offices in Peshawar. 4. It all started, when the Federal Government, in pursuance of the Financial Package announced by worthy Prime Minister ("Package"), exercising its powers under subsection (2) of section 13 of the Sales Tax Act, 1990 ("Act"), issued S.R.O. 165(1)/2010 dated 10-3-2010 ("S.R.O. 165"), provided exemption of 50% of leviable rate of sale tax on taxable supplies made other than certain specified goods in "most affected areas in war on terrorism" twelve districts of Khyber Pukhtunkhwa, including District Peshawar ("Affected Areas"). S.R.O. 165 reads as under:-- "In exercise of the powers conferred by clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to exempt fifty percent of leviable rate of sales tax on supplies made of goods, other than cement, sugar, beverages and cigarettes, by the registered persons located in districts of Hangu, Bannu, Tank, Kohat, Chitral, Charsadda, Peshawar, Dera Ismail Khan, Batagram, Lakki Marwat, Swabi and Mardan." 5. Later, the Federal Government, while exercising its authority under subsection (2) of section 3 of the Act and in supersession of the exemption provided under S.R.O. 165, was pleased vide S.R.O. 180(I)/ 2011 dated 5-3-2011 ("S.R.O. 180") to specify that the sales tax was to be charged at a lower rate of 50% of the rate leviable under subsection (1) of Section 3 of the Act on taxable supplies made in the Affected Areas. S.R.O. 180 reads as follows:-- "In exercise of the powers conferred by clause (b) of subsection (2) of section 3 of the Sales Tax Act, 1990 and in supersession of its Notification No, S. R. O. 165(1)/2010, dated 10th March 2010, the Federal Government is pleased to specify that sales tax shall be charged at the lower rate of fifty per cent of the rate leviable under subsection (1) of the said section on the supplies made of goods, other than cement, sugar, beverages and cigarettes, by the registered persons located in districts of Hangu, Bannu, Tank, Kohat, Chitral, Charsadda, Peshawar, Dera Ismail Khan, Batagram, Lakki Marwat, Swabi, Nowshera and Mardan. The notification shall take effect on and from the 10th March, 2010." 6. The only but crucial difference between the 'benefits' provided under S.R.O. 165 and S.R.O. 180, was that the later was restricted to 50% of the leviable rate of sales tax specified under subsection (1) of section 3 of the Act, while the former had no such restriction. However, the incidence of sales tax in both the SROs was the same. 7. The petitioners, who are mainly importers or manufacturers of textile products, were since 2005 governed by a 'zero rated sales tax regime' introduced under section 4 of the Act. However, there was a shift in policy, when the Federal Government introduced a 'composite sales tax regime' vide S.R.O. 283(1)/2011 dated 1-4-2011 (S.R.O. 283). Under the said regime, both at import and manufacture stages, the petitioners' goods were subjected to 'zero rate' of sales tax. However, at the retail stage, the petitioners were made liable to pay sales tax on the rates specified in the S.R.O.
---
## Page 3
Itself, which were much lower than the standard rate of sales tax provided under subsection (1) of section 3 of the Act. The essential and relevant provisions of S.R.O. 283 reads:- "In exercise of the powers conferred by clause (c) of section 4 read with clause (b) of subsection (2) and subsection (6) of section 3, clause (b) of subsection (1) of section 8, clause (a) of subsection (2) of section 13 and section 71 of the Sales Tax Act, 1990, and subsection (2) of section 16 read with section 3A of the Federal Excise Act, 2005 and in supersession of its Notification No, S. R.O.509(1)12007, dated the 9th June, 2007, the Federal Government is pleased to notify the goods specified in column (2) of the Table below under PCT heading numbers mentioned in column (3) of the said Table, to be the goods on which sales tax shall, subject to the conditions stated in this notification, be charged at the rate of zero percent on the supply and import thereof, or at reduced rate of sales tax of six percent or, as the case may be, at four percent as specified in the said conditions, namely:- S.No,Description of goods PCT heading No, (1) ...................... ................. 1. .................. ....................... 2. Textile and articles thereofChapter 50 to Chapter 63 and other respective headings. CONDITIONS (a) Textile Sector:- (i) The facility of zero-rating shall be available to every such person engaged in manufacturing of trading in textile sector (including Carpets and jute) who is registered for the purpose of sales tax other than retailer. No tax shall be payable at any stage of the supply chain if goods are sold by a registered person to a registered person till the stage of processing where sales tax shall be charged as specified hereunder; (ii) The benefit of this notification shall be available to registered importers, traders, manufactures and exporters. In case where a commercial importer sells any imported goods to unregistered person, he shall charge and pay sale tax a 6% of value of supply, if the goods are usable in textile sector up to the stage of spinning including the product of spinning such as yarn and its by-products, whereafter such importer shall charge and pay sales tax @ 4% of value of supply. (iii) No sales tax shall be payable at ginning of man-made and synthetic fiber manufacturing stage; (iv) In case of registered manufactures importing their inputs or acquiring their inputs from commercial importers or registered manufactures, such manufactures shall charge and pay sales tax @ 6% of value of supply only at the spinning stage, i,e, yarn and its by-products if these goods are supplied to any unregistered person provided that if such goods relate to the stages after spinning, sales tax shall be charged and paid @ 4% of the value of supply. (v) In case of yarn purchases on payment of sales tax @ 6% of value of supply from spinning mills by unregistered persons i,e, traders or persons engaged in activities like sizing, warping, weaving, intermediary and other ancillary processes etc. Before processing of finished fabric, no further amount of sales tax shall be charged or demanded; (vi) In case of registered persons engaged in providing processing services of any kind in respect of textile goods, such person shall charge from the person who owns the goods but is not a registered person, sales tax @ 4% of service charges; (vii)In case of stages after weaving, if the fabric is sold by a registered manufacturer to an unregistered person, sales tax shall be charged @ 4% of value of supply, if such manufacturer
---
## Page 4
has availed zero-rate facility at previous stages of the production chain; (viii) At the stage of processing or finishing of any kind of fabric or stitching of such fabric, if any registered person supplies the goods including finished products like finished, dyed/ processed/printed fabric, textile apparel, home textile and clothing including garments and all non-woven products etc. To an unregistered buyer, he shall charge and pay sales tax @ 4% of the value of supply; and (ix) The registered persons who have acquired goods at zero-rate under this notification shall pay sales tax @ 4% of value of supply on their supplies of all kinds of finished products to retailers, regardless of the registration of such retailers." 8. The petitioners, claiming to be entitled to 'benefits' provided under S.R.O. 180 and S.R.O. 283, sought clarification in this regard from the Federal Board of Revenue ("FBR"). The said request of the petitioners was not positively responded to by the FBR vide its letter dated 7-7-2011, which stated that:-- "GOVERNMENT OF PAKISAN REVENUE DIVISION FEDERAL BOARD OF REVENUE C.No,1 (155)/C(RGST)/2011 Islamabad the 7th July, 2011 Mr. Irshad Ahmad Advocate, A-105, Town Towers, University Road, Peshawar. Subject: Ambiguities/Anomolies in Notification No, S. R. O. 283(1)/2011 viz-a-viz Notification No,S.R.O. 165(1)/2010. I am directed to refer to your letter dated 30-6-2011 on the above subject and to state that S.R.O. 165(1)/2010 dated 10th March 2010 superseded by S.R.O. 180(1)/2011 dated 5th March 2011 (copy enclosed) issued under clause (b) of subsection (2) of section 3 of the Sales Tax Act, 1990 had in fact reduced the standard rate of sales tax by 50% on goods supplied by the registered persons within the territorial jurisdiction of 13 Districts of Khyber Pakhtunkhwa. The scope of the aforesaid notification is thus limited to the standard rate of tax charged and levied under subsection (1) of section 3 of the Sales Tax Act, 1990 and therefore cannot be extended to reduce rate of sales tax notified under clause (b) of subsection (2) of the section 3 of the Sales Tax Act, 1990 through S.R.O. 283(1)/2011 dated 1-4-2011. Sd/- (Muhammad Zarif) Second Secretary (RGST) Copy to Chief Commissioner, RTO, Peshawar." 9. Feeling aggrieved, the petitioners have filed the instant writ petitions. 10. The valuable arguments of the learned counsel of the parties were heard on 26-11-2014, but at the time of writing judgment, certain factual and legal issues required further clarification, as such, the case was fixed for re-hearing on 23-12-2014. 11. Learned counsel for the petitioners contended that S.R.O. 180 is against the letter and spirit of the benefits announced by Prime Minister for the "Affected areas" and thus without lawful authority; that the classification made through the impugned superseding S.R.O. 180 is unreasonable; that delegated legislative authority as the delegatee has no jurisdiction or authority to pass an order or regulation to prohibit a lawful business; that the impugned executive act to exclude the petitioners from the benefit of S.R.O. 180 is violative of the petitioners business rights guaranteed under Article 18 of Islamic Republic of Pakistan, 1973 ("Constitution"); the same being violative of the right of the freedom of trade and business and hence, merits to be judicially reviewed; that impugned letter of
---
## Page 5
FBR and the impugned S.R.O. Being discriminatory in nature is violative of the petitioners rights guaranteed under Articles 3, 18, 35 and 37 of the Constitution, hence, merits to be judicially reviewed; that continuous denial of the demanded benefit is detrimental to the business of the petitioners; and that the actions impugned and all proceeding connected therewith have done away with the constitutional protection available to the petitioner and are, therefore, hit by provisions of Articles 4 and 25 of the Constitution. 12. The learned counsel for the Revenue vehemently refuted the contentions raised by the learned counsel for the petitioners and defended the legality of S.R.O. 180 and the impugned letter dated 7- 7-2011 being 'intra vires' and based on policy of the Federal Government, which according to the worthy counsel was non- justiciable. 13. Valuable arguments of the learned counsel for the parties heard and the record perused with their able assistance. JURISDICTIONAL CHALLENGE. 14. At, the outset, this Court shall consider the jurisdictional challenge made by the petitioners to the impugned actions of the Federal Government. The powers of the Federal Government to exempt sales tax on taxable supply made by a person is clearly provided under section 13 of the Act, while its authority to vary the rate, manner of charging and collecting the same is also vested under subsection (2) of section 3 ("Supra"). Let us review these power vesting provisions of the Act, they read as follows:-- Authority to Vary rate of Sales Tax "Section 3(2)(b), Notwithstanding the provisions of subsection (1),-- (a) taxable supplies specified in the Third Schedule shall be charged to tax at the rate of [seventeen] per cent of the retail price which along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer on each article, packet, container, package, cover or label, as the case may be: Provided that the Federal Government, may, by notification in the official Gazette, exclude any taxable supply from the said Schedule or include any taxable supply therein, (aa) goods specified in the Eight Schedule shall be charged to tax at such rates and subject to such conditions and limitations as specified therein; and (b) The Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that in respect of any goods or class of goods imported into or produced; and or any taxable supplies made by a registered person or a class of registered persons, the tax shall be charged, collected and paid in such manner and at such higher or lower rate or rates as may be specified in the said notification. Power to grant Exemption "Section 13.-Notwithstanding the provisions of subsection (1)---(a) the Federal Government may, by notification in the official Gazette, exempt any taxable supplies made or [import or supply of] any goods or class of goods, from the whole or any part of the tax chargeable under this Act, subject to the conditions and limitations specified therein; and (b) the Board may, by special order in each case stating the reasons, exempt any [import or supply of goods of such description or class, as may be specified] from the payment of the whole or any part of the tax chargeable under this Act)" 15. It is apparent from the bare reading of the aforementioned provisions of the Act, that a clear authority is vested in the Federal Government to exempt payment of sales tax under Section 13 and to change the rate, manner and mode of collection and payment thereof, under section 3 of the Act. 16. In view of the clear mandate of the Act, this Court is in consonance with the submissions made by the learned counsel for the Revenue that SRO 180 was 'intra vires', and thus with lawful authority,
---
## Page 6
as the Federal Government had express jurisdiction to issue the same. 17. As far as the contention of the learned counsel for the petitioners, that S.R.O. 165 being an exemption, could only be withdrawn under section 13 of the Act, and the same could not be withdrawn in any other manner, is not the correct appreciation of the law. The authority to grant an exemption from the payment of sales tax is vested in the Federal Government and thus could also be recalled by the said authority, as it did vide S.R.O.180. In this regard, section 21 of The West Pakistan General Clauses Act, 1897, is clear and relevant to the issue in hand, which reads:- "Power to make to include, power to add to amend, vary, or rescind orders, rules or bye-laws,- Where by any [Central Act], or Regulation, a power to [issue notifications], order, rules, or bye- laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions (if any), to add to, amend, vary or rescind, any [notifications], orders, rules, scheme, form, bye-laws so [issued]." 18. This Court is also alive to the fact, that while withdrawing the exemption granted under S.R.O. 165, section 13 of the Act was not mentioned in S.R.O. 180. When admittedly, the authority granting the exemption had withdrawn the same, then 'substantial compliance' had been made. Not mentioning the provision of law at the time of withdrawing any exemption would not make the action of a competent authority passing the said order illegal or without lawful authority. In similar circumstances, the superior Courts have upheld such actions in Abdul Ghani's case (PLD 2007 SC 308), Osman Khan's case (2010 CLC 475), Muhammad Naseem Khan's case (2013 PTD 2005), Muhammad Ajmal's case (2009 CLC 647), and Hasnat Ahmad Khan's case (2010 SCMR 354). CONTESTED CLAIMS ON MERITS 19. In essence, the petitioners contend that the rate of sales tax leviable under S.R.O. 180, should be construed from the rate specified under S.R.O. 283. While, the Revenue insist that the rate of sales tax stated in S.R.O. 180, relate to the standard rate of tax charged under subsection (1) of Section 3 of the Act and not that stated in S.R.O.283. 20. It is pertinent to state that S.R.O. 180 extended a 'territory specific benefit', to person engaged in business in the "Affected Areas". Whereas, S.R.O. 283 provided a 'sector specific benefit' to textile sector, throughout the country. Admittedly, the petitioners fall within the purview of those entitled to. 'benefits' under both the SROs, as they are registered and carrying on business in the "Affected Areas" and that too in 'textile sector'. However, the crucial fact remains that S.R.O. 180 has restricted the 'benefit' to 50% of the rate of sales tax leviable under subsection (1) of Section 3 of the Act. 21. The petitioners' claim to be granted the benefits provided under S.R.O. 180. Revenue, on the other hand, is not declining the same but restricting it to 50% of the rate of sales tax leviable under subsection (1) of Section 3 of the Act, as expressly provided therein. This stance of the Revenue is in accord with the clear terms stated in S.R.O.180. 22. Thus, the impugned letter of FBR dated 7-7-2011 is the correct appreciation of the provisions of S.R.O.180. Accordingly, this Court is not inclined to accept the mail: claim of the petitioners challenging the interpretation of SROs taken by the Revenue in its impugned letter dated 7-7-2011. ALI ERNATIVE AND MOULDING OF RELIEF. 23. As this Court has declined to accept the main prayer in the instant petitions, it would then proceed to examine the alternative relief sought by the petitioners in two of the petitions. The main thrust in the said relief is the challenge made to S.R.O. 180 being illegal on the ground of 'main fide' and for revival of the 'benefits' provided to the petitioners under S.R.O.165. 24. This Court is adjudicating the present petitioners, while exercising its jurisdiction under Article 199 of the Constitution. In appropriate cases, this Constitutional Court may mould relief already
---
## Page 7
sought in the four petitions or even grant fresh relief appropriate for just and equitable resolution of the dispute pending adjudication. The authority of this Court to do so was initially discussed by the Apex Court in Salahuddin's case (Pi .D 1975 SC 244) in terms:- "It is indeed true that in the High Court the relief claimed by the> appellants was so worded as to fall under clauses (2)(a)(i) and (2) (a)(ii) of Article 201 of Interim Constitution, and attention was not directed to the provisions contained in clause (2)(b)(ii) thereof, but this failure on the part of the appellants did not relieve the High Court of its constitutional duty to afford relief where it was lawfully due. The appellants had invoked the extraordinary jurisdiction of the High Court, and it mattered little whether the relief claimed by them fell under one clause or the other of the relevant provision of the Constitution. To dem, relief to the citizen on such a hypertechnical ground would, in our view, amount to a negation of the beneficial jurisdiction conferred by the Constitution on the High Court in the larger public interest. In any case, the question was indeed one of law touching the interpretation of the Constitution permission to raise such a question has invariably been a-corded by this Court even though the matter was not agitated in the Courts below. We consider, therefore, that relief cannot be refused to the appellants only on the ground that they did not invoke clause (2)(b)(ii) of Article 201 in the High Court." (Emphasis is added) The ratio decidendi of the aforementioned case has been consistently followed in various other pronouncements of the Superior Courts including Messrs Facto Belarus Tractors Limited Karachi's case (PLD 2006 Karachi 479), All Pakistan Textile Mills Association's case (PLD 2009 Lahore 494), Mst. Amina Begum's case (PLD 1978 SC 220), Marghub Siddiqi's case (1974 SCMR 519), Mehrab Khan's case (2005 CLC 441). As circumstances leading to filing of all the petitions are common, this Court would also consider the alternative relief sought in the two petitions, for remaining four petitions. CHALLENGE ON THE BASIS OF 'MALA FIDE'. 25. Let us consider the alternative relief. The impugned action of the Federal Government is challenged on the touchstone of 'mala fide'. Before we proceed to do the same, it would be important to first understand the true meaning of the term 'mala fide'. 26. The term 'mala fide' has two facets; 'mala fide in fact' or 'malice in fact' and 'mala fide in law' or 'malice in law'. These two terms have been defined in various judicial dictionaries and commentaries, some of the leading observations on the issue in hand are as follows:-- BLACK'S LAW DICTIONARY (NINTH EDITION) Malice in the legal sense imports: (1) The absence of all elements of justification, excuse or recognized mitigation, and (2) The presence of either (a) an actual intent to cause the particular harm which is produced or harm of the same general nature, or (b) the wanton and wilful doing of an act with awareness of a plain and strong likelihood that such harm may result .The Model Penal Code does not use 'malice' because those who formulated the Code had a blind prejudice against the word. This is very regrettable because it represents a useful concept despite some unfortunate language employed at times in the effort to express it. "Rollin M. Perkins & Ronaid N. Boyce, Criminal Law 860 (3d ed, 1982). THE LAW OF LEXICON (SECOND EDITION (REPRINT) 2002). Malice in fact.---"Malice in Fact" means express malice. MALICE IN FACT OR ACTUAL MALICE, relates to the actual state or condition of the mind of the person who did the act. Malice in fact is where the malice is not established by legal presumption or proof of certain facts, but is to be found from the evidence in the case.
---
## Page 8
Malice in fact implies a desire or intention to injure, while…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.