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Petitioner: Water & Power Development Authority VS Respondent: Excise and Taxation Department, Government of the Punjab & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title:Water & Power Development Authority vs Excise and Taxation Department,
Government of the Punjab & others Case No.: W.P No.25605 of 2014 Date of Judgment:2016-12-02 Reported As: 2016 LHC 3448 Result: Petition allowed Judgment Shahid Karim, J:- This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (?the Constitution ?) seeks the following prayer: ?It is, therefore, most respectfully prayed that instant writ petition may very kindly be accepted and; a) The act and action of the respondents regarding sending different notices/challan forms regarding property tax to the petitioner may kindly be declared as illegal, unlawful and without jurisdiction; b) The letter dated 03.08.201 1 (Annex-A ) issued by the respondent No.3 may kindly be declared as illegal and unlawful and the same may kindly be set aside accordingly . c) The respondents may kindly be directed to implement the directions of the Federal Government issued through O.M dated 19.02.2013 (Annex-B) in letter and spirit. d) By setting aside letter dated 02.10.2013 (Annex-D) the respondents be directed to refund the property tax already received within one month, for which the claim has already been lodged. e) The petitioner/W APDA may kindly be declared as exempted from payment/levy of property tax under Article 165 of the Constitution of Islamic Republic of Pakistan, 1973. ? Facts and Structure of Law : 2. The facts are refreshingly simple. The challenge in this petition is to the notices at Annexure E/1-4 sent to the petitioner in terms of section 16(4) of the Punjab Urban Immovable Property Tax Act, 1958. The notices require the petitioner to make over an amount specified in the notices as property tax. WAPDA, which is a Federal Government instrumentality , disputes the payment of property tax, seeks to its aid the provisions of Article 165 of the Constitution and thereby claims exemption in respect of the tax which is sought to be imposed and demanded by the respondents.
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3. There has been a healthy body of case law on the jurisprudence around Article 165 of the Constitution and the claim of exemption in terms thereof by the instrumentalities of the Federal Government. Under varying circumstances corporations and industrie s of the Federal Government have claimed their properties to be the properties of the Federal Government and thus entitled to the grant of exemption in terms of Article 165 on the property of these corporations and industries. 4. Water and Power Development Authority ("WAPDA") has been set up under section 3 of the Pakistan Water and Power Development Authority Act, 1958 ("the Act, 1958"). It is not necessary at this juncture to refer to the various provisions of this Act, which will be adverted to in the latter part of this judgment. Suffice to say that by fiction the Authority has been assigned the status of a body corporate entitled to hold and dispose of property and having perpetual succession and a common seal. It can also sue and be sued in the name of the Authority. The substantial provisions relating to the Authority and the functions that it carries out on behalf of the Federal Government give an inkling into the precise role of the Authority and its setting in the Constitutional scheme of things. We can begin the discussion by referring to Article 157 of the Constitution, which reads as under: "157. Electricity (1) The Federal Government may in any Province construct or cause to be constructed hydro- electric or thermal power installations or grid stations for the generation of electricity and lay or cause to be laid inter-Provincial transmission lines. Provided that the Federal Government, prior to taking a decision to construct or cause to be constructed, hydro- electric power stations in any Province, shall consult the Provincial Government concerned. (2) The Government of a Province may -- (a) to the extent electricity is supplied to that Province from the national grid, require supply to be made in bulk for transmission and distribution within the Province; (b) levy tax on consumption of electricity within the Province; (c) construct power houses and grid stations and lay transmission lines for use within the Province; and (d) determine the tariff for distribution of electricity within the Province. (3) In case of any dispute between the Federal Government and a Provincial Government in respect of any matter under this Article, any of the said Govern ments may move the Council of Common Interests for resolution of the dispute. ? 5. Subsequently , amendments in Article 157 were brought about by the Constitution (18 Amendment), Act 2010. Therefore, by Article 157, it is the function of the Federal Government to construct hydro-electric or thermal power installations or grid stations for the generation of electricity and lay or cause to be laid Inter-Provincial transmission lines. It is common ground between the parties that the only object and function of WAPDA that remains is the one delineated in Article 157 and the distribution and other functions have been carved out to distribution companies etc. and the role of WAPDA is merely confined to water resources and hydro generation. Item No.3 in Part II of the Fourth Schedule of the Constitution is an entry relating to subjects on which the Parliament is empowered to enact laws in terms of Article 142 of the Constitution. One of the subjects in the said entry includes WAPDA. The subject of WAPDA is also included in the rules of business and more particularly in entry 3A, Item No.30 of Schedule 3 of the rules of business framed by the Federal Government. Article 165 of the Constitution which is the fulcrum of the arguments of the WAPDA as also the Federation and the Province of Punjab reads as under: ?165. Exemption of certain public property from taxation (1) The Federal Government shall not, in respect of its property or income, be liable to taxation under any Act of Provincial Assembly and, subject to clause (2), a Provincial Government shall not, in respect of its property or income, be liable to taxation under Act of Majlis-e- Shoora (Parliament) or under Act of the Provincial Assembly of any other Province. (2) If a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business, be taxed under Act of Majlis-e-Shoora (Parliament) or under Act of the Provincial Assembly of the Province in which that trade or business is carried on. (3) Nothing in this Article shall prevent the imposition of fees for services rendered.th
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6. The Federation supports the stance of WAPDA and through the Deputy Attorney General has made a statement that the property in question i.e. WAPDA House is, in fact, the property of the Federal Government and, therefore, the Federal Government seeks an exemption from property tax on the said property. It may be stated that the issue relates to and concerns WAPDA House which is situated in Lahore and which is an office block which houses the main offices of WAPDA and is also the premises from which the Authority conducts its operations and manages its affairs. It is the jewel in the crown of WAPDA and in case the property is made subject to property tax, WAPDA will not be able to claim exemption for the other properties which vest in it. Precedents on Art.165 of Constitution : 7. As adumbrated, there is cluster of case law of the superior courts which has dilated upon and determined with varying degrees and nuances the issue relating to exemption of the corporations and industries of the Federal Government and in some of the cases the question related to the exemption to properties of WAPDA as well. In a recent judgment by a Single Bench of this Court, National Bank of Pakistan v. Executive District Officer (Revenue) Multan and another (2015 CLC 1618) the entire landscape of the case law has been discussed and the following conclusions were drawn from a survey of the case law:-- 22. From a resume of the case law referred to above it can be culled out as under:--- I. The benefit under Article 165 of the Constitution, is not limited to property owned directly by the Federal Government merely but also extends to properties owned by the Federal Government through its instrumentalities and body corporates. II. The courts have, in case of doubt,pierced the veil of incorporation to ascertain the real ownership and control of a corporation for the purpose of Article 165 of the Constitution. However, there must exist justifiable reasons for making use of this doctrine. III. A corporation whose entire shareholding is owned by Federal Government is included within a sweep of Article 165 of the Constitution. This, too, must cross the threshold set by Associated Cement case. IV. Contrarily, a corporation which is not wholly owned by the Federal Government and part of the shareholding vests in other entities and persons as well, will not be extended the benefit. V. A corporation or instrumentality of the Federal Government having a monopoly in the area of its operation, will be deemed a department of the Government and hence entitled to the exemption under Article 165 of the Constitution. VI. A Government Corporation conducting commercial activities in the normal course of business and competing with similar entities cannot be treated preferentially by extending them the benefit. 23. It may be noticed from a reading of the rulings of the Supreme Court which have been cited above that Associated Cement case is a common strand which runs through every judgment which has been rendered by the Supreme Court of Pakistan following the Associated Cement judgment. That case has set the tone for future jurisprudence, too. The Associated Cement case, therefore, is the law as regards the applicability of the exemption under Article 165 of the Constitution to instrumentalities and corporations claiming to be owned by the Federal Government. 8. It was further held in that judgment:-- ?...The Supreme Court of Pakistan elaborately and with erudition analysed the settled principles regarding lifting of veil of incorporation and referred to various treaties on the subject. It was concluded that the device of lifting of veil of incorporation in the hands of the courts was well established yet the same could not be pressed into service as a matter of course in every case and there should be justifiable reasons to warrant the lifting of veil of incorporation. It was observed by the Supreme Court that courts have not pierced the veil of incorporation in order to allow exemption from payment of tax or to reduce tax burden. It was further held that the companies and corporate entities, though owned by the Federal Government, which were run as ordinary commercial entities, could not be equated with instrumentalities which carried on the sovereign functions of the State as that would place those companies in an advantageous position to the detriment of similar companies which were not so entitled to the benefit of such tax exemptions which accrued on the basis of Article 165 of the
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Constitution. The Supreme Court of Pakistan while relying upon Article 25 of the Constitution held this to work discriminately against other companies... ? 9. It can be seen from the conclusion made in the case of NBP above that the bene fit of Article 165 is not limited to the property owned directly by the Federal Government but also extends to properties owned by the Federal Government through its instrumentalities and body corporate. On this touchstone , WAPDA ostensibly qualifies to the exemption under Article 165. This alone is not enough to extend the benefit of the exemption to WAPDA. The other qualification which was culled out in the case of NBP and which could be made use of by WAPDA is regarding the rule that a corporation or industry of the Federal Government having a monopoly in the area of its operation will be deemed a department of the Government and hence entitled to the exemption under Article 165 of the Constitution. The two judgments which expound these rules were Union Council Ali Wahan, Sukkur v. Associated Cement (Pvt.) Ltd. (1993 SCMR 468) and Province of NWFP through Secretary Local Government and Rural Development Peshawar etc. v. Pak Telecommunication through its Chairman and others (PLD 2005 SC 670). The discussion with regard to these two precedents in the judgment of NBP and reproduced above, brings forth ineluctably that these rules have been recognized to exist by the Supreme Court of Pakistan and if the test laid down with regard thereto in these precedents is fulfilled by a statutory corporation, the exemption under Article 165 must be extended to it and the property held by such statutory corporations must be held to be owned by the Federal Government so as to be entitled for the benefit. 10. There are two clear streams of judgments and before any conclusion is drawn in the instant case, the distinction must clearly be brought forth with regard to these two streams of judgments. The first judgment is based on Article 165-A and must be held to be distinguishable from the facts and circumstances of the present case and, therefore, must be held to be authorities for their own facts. These judgments are not applicable to the present petition and, therefore, do not assist the Province of Punjab in its claim to extract property tax from WAPDA. The cases under Article 165 are also divided in two sub-sets. The distinction between these two sub- sets within Article 165 was brought forth in the Associated Cement case in the words of Salim Akhtar J, to the following ef fect: "...In the present case, the Cement Corporation is not the sole manufacturer of cement in Pakistan. There are several other corporations which are engaged in this business activity . Where a Government owns, controls and manages a corporation which is engaged in a commercial activity competing with other public/private companies engaged in similar business, the Corpora tion can hardly claim any privilege or immunity to the disadvantage of its competitors. Subject to these observations in my view the appeal may be allowed with no order as to costs." 11. Therefore, although the shareholding of Associated Cement entirely vests in the Federal Government, this did not convince the Supreme Court of Pakistan in extending the benefit of Article 165 to the company. It refused to lift the veil of incorporation on the ground that doing so will unduly discriminate against other similarly placed corporations which were competing against Associated Cement and were engaged in a similar commercial activity. The Supreme Court held that this could not be countenanced and the corporation owned by the Federal Government could hardly claim any privilege or immunity to the utter disadvantage of its competitors. This was the basis on which the benefit of Article 165 was denied in the Associated Cement case. The observations of the Supreme Court of Pakistan which went to the heart of the matter were that a corporate entity owned by the Federal Government which was run as a commercial entity could not be equated with an instrumentality which carries on the sovereign functions of the State as that would place those companies in an elevated position to the detriment of similar companies. Therefore, a window was kept open by the Supreme Court of Pakistan in Associated Cement with regard to the instrumentalities which carry on sovereign functions of the State. Thus, the Supreme Court of Pakistan applied what can be termed as the functions test in the application of Article 165 and the determination of the question regarding the grant or refusal of exemption. The first test was whether the instrumentality was carrying on the sovereign functions of the State. 12. The Supreme Court of Pakistan has, in later cases as well, discountenanced piercing of the veil of incorporation in the context of Article 165A of the Constitution as reported in Islamabad and another v. WAPDA and another (PLD 2014 SC 766) and Karachi Development Authority v. Central Board of Revenue through Members Central
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Excise and Land Customs, Islamabad and others (2005 PTD 2131 ). These cases have been referred to by the Province of Punjab but the conclusions drawn in these precedents are not directly applicable to the facts and circumstances of the present case. Karachi Development Authority was a case which related to the imposition of excise duty on bank loans and the issue was regarding the benefit which was claimed by WAPDA which was repelled on the basis of Article 165A and the Supreme Court of Pakistan reiterated the ratio of Associated Cement case as also in the case of 2005 PTD 2131 . Issues : 13. Therefore, the question that requires to be determined is whether in the instant case, the corporate veil ought to be pierced to determine the real ownership of the property in question and whether it vests in the Federal Government. The next question that would require to be answered is as to whether WAPDA carries on the sovereign function of the state and is, in fact, a monopoly as well as a department of the Government. 14. Federal Government states that WAPDA performs the functions of the Federal Government and is an extension of the Federal Government, in fact. We may refer to the definition of the term =Federal Government' as given in Article 90 of the Constitution, which says: ?90. The Federal Government.- (1) Subject to the Constitution, the executive authority of the Federation shall be exercised in the name of the President by the Federal Government, consisting of the Prime Minister and the Federal Ministers, which shall act through the Prime Minister, who shall be the chief executive of the Federation. (2) In the performance of his functions under the Constitution, the Prime Minister may act either directly or through the Federal Minister.? 15. Clearly, the Federal Government consists of the Prime Minister and the Federal Ministers and the Federal Government shall act through the Prime Minister who shall be the chief executive of the Federation. The Federal Government exercises the executive authority of the Federation. The structure of the Federation, therefore, is not dissimilar to a corporate structure and a parallel may be drawn between Board of Directors of a company and the Federal Government. However, Article 165 grants exemption to the property or income of the Federal Government against taxation under any act of the Parliament. From the definition given in Article 90, it is incredulous to think that the ownership of the property shall vest in the Prime Minister or the Federal Ministers and certainly something more will have to be done in order for the Federal Government to own property . A reference, therefore, will have to be made to Article 98 of the Constitution, which enacts that: ?98. Conferring of functions on subordinate authorities: On the recommendation of the Federal Government, Majlis-e-Shoora (Parliament) may by law confer functions upon officers or authorities subordinate to the Federal Government. 16. It is Article 98 of the Constitution, reproduced above, from which the functions test seems to have been deduced by the Supreme Court of Pakistan in the Associated Cement and the PTC cases. By Article 98, the Parliament on the recommendations of the Federal Government, may by law confer functions upon officers or authorities subordinate to the Federal Government. One of the functions of the Federal Government has been delineated in Article 157 of the Constitution which requires the Federal Government to construct hydro electric or thermal power installations or grid stations for the generation of electricity. That function has been assigned to WAPDA by an enactment passed by the Parliament on the recommendations of the Federal Government. This discussion lends actuality to the events by which WAPDA was established as a statutory body. 17. Punjab refers to Article 173 of the Constitution to urge that that Article of the Constitution has not been invoked by WAPDA. By Article 173, the Federation and a Province have been given the executive authority to the grant, sale, disposition or mortgage of any property vested in the Federal Government or as the case may be, the Provincial Government and to the making of contracts. It also provides by clause (2) that all property acquired for the purposes of the Federation or of a Province shall vest in the Federal Government or as the case may be in the Provincial Government. This has to be contrasted with the term of =Federal Government' used in Article 165 of the Constitution. Placing without any disposition, it follows that the Federation may hold and acquire property which shall vest in the Federal Government as also that the Federal Government may also own property to which a reference in Article 165 has been made. In both cases the properties shall vest in the Federal Government. It is
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also not in doubt that the Federal Government may either acquire an own a property directly or through its instrumentalities and this makes little or no difference. For the purposes of invoking Article 165, what has to be shown is that the instrumentality which owns the property performs functions of the Federal Government and is a virtual monopoly and a department of the Federal Government. 18. In our constitutional enterprise WAPDA has a unique position. Reading the various provisions of the Constitution, it comes across clearly that it is the sovereign function of the Fede ral Government to construct or cause to be constructed hydro-electric or thermal power installations. This function is exclusively devolved upon the Federal Government by the Constitution and must be performed by it to the exclusi on of all others. There is no cavil that the Federal Government has a complete sway over the area regarding the construction of hydro-electric or thermal power installations and does not compete with any private commercial entities in the field of generation of electricity . Although, the Provinces have a limited scope of activity in the area of hydro-electric or thermal power installations for the generation of electricity but the extent and sweep of WAPDA is unmatched and without parallel. The scale of construction of hydro-electric and thermal power is unique and is so enormous that no other entity including a Province can compete with WAPDA in such activity . The position, in my opinion,is indefensible that WAPDA exercises the sovereign powers of the Federal Government in the performance of the functions in terms of Article 157 read with Article 98 of the Constitution and is for all practical purposes a department of the Government. 19. The holding of the Supreme Court of Pakistan in Associated Cement and PTC cases and the subtle distinction drawn with regard to the functions test is based on the modern day commercial activity which has taken varying shapes and formats. There is an array of contracting out and privatization where a large number of functions of the Federal Government are being devolved upon corporations which are extensions of the Federal Government and are its instrumentalities yet retain their independent corporate existence. We are in the twilight of the era of large government and lean and efficient government is the requirement of the day. It was precisely these considerations which prompted the Supreme Court of Pakistan to draw a line between corporate entities of the Federal Government competing in the commercial arena and free market and the ones which are virtual departments of the Government and exercise functions which are exclusive and sovereign and which are not performed by private commercial entities. In my opinion, WAPDA still retains the character of a monopoly and a department of the Federal Government and undoubtedly exercise s the sovereign functions of the Federal Government. 20. The character of WAPDA as an authority has been the subject of a cluster of cases by the superior courts. It will suffice to refer to the observations of Saleem Akhtar J., in M/s Gadoon Textile Mills and others v. WAPDA and Federation of Pakistan (1997 SCMR 641). Dilating upon the nature of WAPDA as an authority established by the Federal Government, it was held that: ?22. WAPDA is a corporation constituted under the WAPDA Act. According to the preamble of the Act, it was to provide for the unified anti coordinated development of the water and power resources of Pakistan. The Authority was constituted under section 3 of the Act for the above purpose and for carrying out the purposes of the Act. It was empowered to hold and dispose of property as a…
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