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Petitioner: D.G. Khan Cement Company Limited & another VS Respondent: Federation of Pakistan JUDGMENT
Court Name: Lahore High Court Judge(s): Shahid Jamil Khan, Muhammad Sajid Mehmood Sethi Title:D.G. Khan Cement Company Limited & another vs Federation of Pakistan
JUDGMENT
Reported As: PTCL 2020 CL. 443, 2020 PTD 1186, 2020 LHC 1066 Result: Appeal dismissed Judgment JUDGMENT MUHAMMAD SAJID MEHMOOD SETHI, J. This consolidated judgment shall decide instant appeal, along with connected cases detailed in Schedule appended herewith, as common questions of law and facts are involved in these cases. 2. Through instant appeal, appellants have challenged the consolidated judgment dated 22.12.2017, passed by learned Single Bench of this Court in W.P. No.38612 of 2015 , whereby writ petitions filed by appellants, challenging the provisions of Section 4B of the Income Tax Ordinance, 2001 ("the Ordinance of 2001 ") regarding levy of Super Tax, being ultra vires the Constitution of the Islamic Republic of Pakistan, 1973 ("the Constitution "), were dismissed. 3. Brief facts of the case are that imposition of super tax through Section 4B of the Ordinance of 2001 for rehabilitation of temporarily displaced persons was challenged by appellants through various writ petitions before learned Single Bench of this Court, which were dismissed vide consolidated judgm ent dated 22.12.2017, passed in W.P. No.38612 of 2015 , declaring the levy of Super Tax as constitutional and valid. It was further held that Annual Budget Statement duly mentioned Super Tax as sum required to meet other expenditure which the Federal Government proposed to make from the Federal Consolidated Fund, thus, the same was in accordance with the mandate of Article 80 of the Constitution and was imposed / promulgated through a proper procedure and also did not amount to double taxation. It was also observed that the mere fact that the Government mentioned the purpose for which the revenue was being generated did not preclude it of being a tax?. 4. Mr. Imtiaz Rashid Siddiqui, Advocate, opened his arguments by reading Articles 7, 77, 97, 141, 142 & 151 of the Constitution in order to re-visit legislative domain of the Federation and Provinces. However , he conceded that Article 151 does not have any relation with Article 77 of the Constitution, particularly the phrase "purposes of the
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Federation". He submits that the Federation has to legislate exercising normal procedure by getting bill passed from both the houses, whereas to legislate under Article 77, extra ordinary procedure is adopted and bill is passed through the National Assembly . He adds that Article 151 has nexus with Article 142 and not Article 77 of the Constitution. He explains that sovereignty given in the Constitution to the Provinces has not been taken away by Article 151. It only ousts some powers of the Provinces only to the extent and purposes / subjects mentioned in said Article. He concludes that imposition of impugned levy by the Federation under the Ordinance of 2001 for the purpose of rehabilitation of temporarily displaced persons cannot be allowed to be read through Article 151 of the Constitution. Continuing arguments, learned counsel has read entries No.25 & 26 from obsolete concurrent list of the Constitution. He submits that prior to 18th Amendment, the social welfare might have been a subject of Federal legislation, but after 18th Amendment, these words are not found remotely in entries available under Fourth Schedule, therefore, any legislation including the impugned levy in the name of social welfare is not available to the Federal legislature. Distinguishing `fee' and `cess' from tax, he submits that impugned levy being of specific purpose is outside the ambit of tax and referred to Messrs Quetta Textile Mills Limited through Chief Executive v. Province of Sindh through Secretary Excise and Taxation, Karachi and another (PLD 2005 Karachi 55) and Federation of Pakistan through Secretary M/o Petroleum and Natural Resources and another v. Durrani Ceramics and others (2014 SCMR 1630 ), Workers' Welfare Funds, M/o Human Resources Development, Islamabad and others v. East Pakistan Chrome Tannery (Pvt.) Ltd. through G.M. (Finance), Lahore and others (PLD 2017 SC 28). Elaborating his argument, learned counsel submits that a specific purpose levy being outside the ambit of tax is outside the ambit of competence of Federal Legislature through Money Bill. He contends that special purpose levy can only be imposed through ordinary mode of legislation. Without prejudice to his argument on competence, learned counsel submits that the purpose of rehab ilitating the displaced persons occurred in 2015 and this levy was introduced, however , it is continuing till today through yearly Finance Acts without showing whether this levy is spent for the purpose and purpose is alive, whereas, as per his information, the purpose is no more. He elaborates that the special purpose levy should not and could not be a part of the National Finance Commission under Article 160, which provides mechanism for distribution of collected tax whereas a specific purpose levy has to be spent for that purpose alone as is mandated by the legislature. Mr. Mansoor Usman Awan, Advocate, one of learned counsel for appellants, subm its that impugned levy is not a tax, as tax could not be levied for specific purpose. He explains that taxing powers of Federation are marked from Entry 43 to 53, which can be levied by invoking Article 73 of the Constitution. He submits that purpose as shown in the Budget speech in fact could not be achieved through the impugned levy. He submits that impugned levy does not come within any of the areas mentioned in Article 160, however , amounts collected through impugned levy is subject to recommendation of the National Finance Commission ("NFC") and has to be distributed between Federation and the Provinces. He argues that Section 4B(1) and annual budget statement show that the amounts collected would not go into the divisible pool. He contends that there is no mechanism in the Constitution for spending special purpose levy for the particular purpose, if claimed to be levied under Entry 47. He maintains that reliance of learned Single Judge on Budget speech to uphold vires of impugned levy is against the available facts and provisions of Article 160(3). He maintains that impugned levy might fall under Entry 54 read with Entry 58 to be charged in connection with `purposes of Federation' as envisaged under Article 77, yet it could not have been levied by the legislature under Article 73 of the Constitution. He concludes that any levy for specific purpose by the Federation being not part of taxes mentioned in Clause (3) of Article 160 has to be taken out of Entries 43 to 53. While referring to Durrani Ceramics Case supra, learned counsel submits that Gas Infrastructure Development Cess (`GIDC') was declared as fee and levy of GIDC was declared ultra vires for being levied by invoking procedure under Article 73. In support of his contentions, he has relied upon Sohail Mills Ltd. and others v. Federation of Pakistan through Secretary , Ministry of Finance and others (PLD 1991 Supreme Court 329), Pakistan Industrial Development Corporation v. Pakistan through the Secretary , Ministry of Finance (1992 SCMR 891) and Pakcom Limited and others v. Federation of Pakistan and others (PLD 2011 Supreme Court 44).
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Mr. Muhammad Asif Hashmi, Advocate, one of learned counsel for appellants, submits that impugned levy cannot be imposed on imputable income as mentioned in Section 4B(2) & (3) of the Ordinance of 2001. He has referred the definition of `imputable income' under Section 2(28A) and submits that the amount reflecting against the paid tax as income is taken as imputable income but the same is an imaginary figure, which does not spell out a taxing event, which is sine qua non for taxin g. He has placed reliance on the judgment reported as Pakistan International Freight Forwarders Assn and others v. Province of Sindh and others [(2016) 114 TAX 413 (H.C.Kar .)]. Khawaja Saeed Ahmad, Advocate, another learned counsel for appellants, after reading paragraph 84 from the judgment in Mustafa Impex Case submits that Rules of Business are binding on the Government and after 18th amendment, social welfare is the subject of Provinces. His next argument, with reference to Messrs Elahi Cotton Mills Ltd and others v. Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 others (PLD 1997 Supreme Court 582), is that presumptive tax falls within Entry 52 and once this tax is charged, no tax under Entry 47 can be charged. He argues that `imputable income' is the income which could have been the income calculated being not taxed under presump tive tax regime; if the same transaction is again taxed, it obviously would be a case of double taxation. However , a tax already charged, if made basis, of another charge can said to have been hit by the law laid down by the august Supreme Court of Pakistan in above-referred case. While referring paragraph 22 of the judgment in Workers' Welfare Funds' Case, learned counsel reiterates his arguments that levy for specific purpose does not come within the definition of `tax', therefore, could not be levied by the legislature under Article 73 of the Constitution. Learned counsel has also read subsection (1) of section 153 and subsection (4) of section 4B to submit that appellants have been provided protection of final taxation under these provisions, which is breached by impugned section 4B as additional levy has been levied without referring to and in presence of the protection provided by the already existing sections. He further argues that a taxpayer , falling in presumptive tax regime, cannot be taxed under the machinery provisions of the impugned section 4B of the Ordinance of 2001. He next submits that procedure of charging tax for the taxpayer falling in presumptive tax regime has not been provided, therefore, charging provisions even if applicable shall not be effective. He has placed reliance on the judgment reported as Commissioner of Income Tax Bangalore, etc. v. B.C. Srinivasa Setty , etc. [(1981) 128 ITR 294]. While relying upon the case of Elahi Cotton Mills supra, learned counsel submits that any legislation which does not provide conditions for fixing quantum of levy, the manner for its imposition, assessment machinery , is unconstitutional. He also refers a judgme nt from Indian jurisdiction reported as Commissioner , Central Excise & Customs, Kerala v . M/s Larsen & T oubro Ltd. [(2016) 1 SCC 170]. 5. Mr. Monim Sultan, Assistant Attorney General for Federation of Pakistan, at the outset, has produced statement showing details of Super Tax collected from tax year 2015 to 2018 along with statement showing that Federation has spent more than the amount collected under Section 4B for rehabilitation of displaced persons in Federally Administered Tribal Areas. It is apprised that all the spendings are being made by the concerned Ministry . Dr. Ishtiaq Ahmed Khan, Commissioner Inland Revenue, Lahore, contends that tax can be charged by specifying any purpose in the levy. In support of his contentions, he has made reference to the cases of Sohail Jute Mills Ltd., Pakistan Industrial Development Corporation, Elahi Cotton Mills Ltd., Messrs Lahore Polypropylene Industries (Private.) Ltd. and others v. Federation of Pakistan and others (2012 PTD 1003 ), Durrani Ceramics, Lahore Development Autho rity through D.G. and others v. Ms. Imrana Tiwana and others (2015 SCMR 1739 ), Workers' Welfare Funds, M/O Human Resources Development, Islamabad through Secretary and others v. East Pakistan Chrome Tannery (Pvt.) Ltd. through G.M. (Finance), Lahore and others (PLD 2017 Supreme Court 28), Sindh Revenue Board through Chairman Government of Sindh and another v. The Civil Aviation Authority of Pakistan through Airport Manager (2017 SCMR 1344 ), Syed Nasir Ali and 33 others v. Pakistan through Secretary Ministry of Law, Islamabad and 3 others (2010 PTD 1924 ) and M/s Colony Sugar Mills Ltd. v . Province of Punjab and others [(2016) 1 14 TAX 307]. 6. Arguments heard. Available record perused.
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7. The main argument of appellants is that Super Tax, which has been levied by inserting Section 4B in the Ordinance of 2001, vide Finance Act of 2015, is not a `tax' and is, therefore, liable to be struck down for the following reasons: The impugned levy is for a specific purpose, which is a characteristic of `cess' or `fee' and does not come within the ambit of `tax'; It could not be enacted through a money bill, by invoking provisions of Article 73 of the Constitution as impugned levy does not come within any of the clauses mentioned in sub-Article (2) & (3) of Article 73 of the Constitution; and Normal procedure, as provided under Article 70, was required to be adopted to impose impugned levy; 8. Impugned Section 4B, as inserted in the Ordinance of 2001 through Finance Act of 2015, and amended from time to time, is reproduced below: "4B. Super tax for rehabilitation of temporarily displaced persons.? (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax years 2015 and onwards, at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division. (2) For the purposes of this section, "income" shall be the sum of the following:-- (i) profit on debt, dividend, capital gains, brokerage and commission; (ii) taxable income (other than brought forward depreciation and brought forward business losses) under section (9) of this Ordinance, if not included in clause (i); (iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and (iv) income computed, other than brough t forward depreciation, brought forward amortization and brought forward business lossess under Fourth, Fifth, Seventh and Eighth Schedules. (3) The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply . (4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance. (5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under subsection (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance. (6) The Board may , by notification in the of ficial Gazette, make rules for carrying out the purposes of this section." 9. Although the terms `Tax', `Fee' and `Cess' have been elaborated by the superior Courts in various pronouncements and are also subject of jurisprudential debate, but to address the main argument of the appellants, as noted above, it would be appropriate to briefly discuss ingredients of tax and distinguishing features of these overlapping concepts. Classic definition of tax has been given by Chief Justice Latham of the High Court of Australia in Matthews v . Chicory Marketing Board (60 C.L.R. 263, 276.): "A tax is a compulsory exaction of mone y by public authority for public purposes enforceable by law and is not payment for services rendered" Supreme Court of India, in the case of Sri Lakshmindra Thirtha Swamiar supra, while referring to the above definition given by Latham C.J ., has discussed the essential characteristics of tax in the following words: "This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer 's consent and the payment is enforced by law (Vide Lower Mainland Dairy v . Orystal Dairy Ltd. [1933] A.C. 168.). The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected form part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority (See Findlay Shirras on "Science of Public Finance", Vol. P. 203.).
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Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay ." One of the precedents on which learned counsel for the appellants have mainly relied to argue that the impugned levy is not a tax but a cess is the judgment passed in the case of Quetta Textile Mills Ltd. (ibid). In that case, Hon'ble Sindh High Court, while relying on a number of authorities, have aptly highlighted the distinguishing features of `T ax', `Fee' and `Cess' in the following words: "Tax is compulsory exaction of money by public authority for public purposes enforceable by law. (PLD 1977 Kar. 742, 1986 CLC 533, 1990 CLC 550, NLR 1994 Tax 114). In contrast , a fee is a sort of consideration for the services rendered, which necessitate that there should be, an element of quid pro quo. Therefore co-relationship must exist between the fee charged and services rendered against it like parking fee. (PLD 1997 Kar. 604,1990 CLC 197 and 638, 1999 SCMR 1402 ). It is, however , not necessary those services mathematically are proportionate or equal with the benefit to the person charged or necessarily is uniform. At the same time it may not be excessively disproportionate. (See 1990 CLC 197, PLD 1975 Lah. 748, PLD 1997 Kar. 604). A Cess is a tax confined to local area for specified objec t or a particular purpose. It is in fact specie of same class to which Tax belong, therefore, no quid pro quo betwe en the services rendered and the imposition is necessary to maintain its validity (AIR 1954 282, AIR 1960 AP 234, AIR 1960 Mad. 160, AIR 1967 SC 1512, AIR 1990 SC 85). From the discussion made above, it appears that the Cess is an imposition more like tax blend ed with certain attributes of fee, in the sense that it is imposed for some specified and declared purpose. The imposition is correlated to the object for which it is to be used. The purpose and object either precedes or succeeds the imposition (i.e. Cess), for instance Education Cess (under Section 3 of the Workers Children (Education) Ordinance), 1972. Tobacco Development Cess (under section 11 of North-W est Frontier Province Finance Act 1996) and Cess for special development of infrastructure for smooth and safer movement of goods (under section 9 of the Sindh Finance (Amendment) Ordinance 2001. The tax realized form part of general revenue of the State. Whereas, Cess like fee is imposed for specified object and purpose, is not part of the general revenue , but must be employed for the attainment of "the purpose and object of the imposition. (Chief Commissioner v. DCM, AIR 1978 SC 1181 (para. 4-5), State of Mahrashtra v . Salvation Army AIR 1975 SC 846). (emphasis added) 10. In brief, both `tax' and `fee' are compulsory exaction of money by the publi c authorities. However , tax is a common burden for raising revenue, which becomes part of public revenue of the State whereas fee is exacted for a specific purpose and for rendering services or providing privilege to particular individuals or a class or a community or a specific area. For a levy to be a `fee', relationship between purpose and the persons from whom levy is being exacted, is also to be established. The Courts have decided this question upon examining the facts and circumstances of each case keeping in mind the criteria for holding the levy a 'fee' or 'tax'. From reading of the provisions of Section 4B of the Ordinance of 2001, it is clear that revenue generate d through impugned levy would be used for rehabilitation of temporarily displaced persons and no favour , privilege or advantage is being extended to persons paying the levy. It is not the case of appellants that impugned tax is in lieu of certain services being rendered to appellants. Therefore, in absence of essential element of quid pro quo, the impugned levy does not seem to be covered under the term `fee'. The main features of `tax' are compulsory exaction of money by public authority for public purposes enforceable by law, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law and its imposition does not advance any special benefit to its payer , and no element of quid pro quo between the taxpayer and the public authority . Another prominent feature of `tax' is that it is a common burden for raising revenue, which becomes part of public revenue of the State. The Annual Budget Statement duly mentioned the impugned levy i.e. super tax as sum required to meet other expenditures which the Federal Government proposed to make from the Federal Consolidated Fund. All the aforementioned features of `tax' are very much apparent in the impugned levy . 11. Now, the question whether mentioning of specific purpose in the impugned levy would exclude it to be a `tax', needs determination as the learned coun sel for the appellants has argued that since a specific purpose has been
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associated with the impugned levy, therefore, it is not a `tax'. First of all, the elem ent of a levy having a specific purpose cannot be taken in isolation to determine whether the levy is a 'tax' or a 'fee' or 'cess'. Regarding the characteristic of specificity of purpose in a levy / payment / contribution, Hon'ble Supreme Court of Pakistan has observed as follows in the case of Workers' Welfare Fund (ibid): "23. No doubt the feature of having a specific purpose is a characteristic of a fee, which the subject contributions/ payments possess as discussed in the preceding portion of this opinion. However , there are certain other characteristics of a fee, such as quid pro quo, which must be present for a contribution or payment to qualify as a fee." 12. As far as the term 'cess' is concerned, it can either be `tax' or `fee', depending upon the nature of the levy as observed by the Hon'ble Supreme Court of Pakistan in the case of Durrani Ceram ics. 'Cess' has been understood and defined by opinion of the courts as a tax, which raises revenue to be applied for a specific purpose. Reference in this regard can be made to Kunwar Ram Nath and others v. The Municipal Board, Pilibhit (AIR 1983 SC 930), Messrs Shinde Brothers v. Deputy Commissioner Raichur (AIR 1967 SC 1512), Shahtaj Sugar Mills v. Province of Punjab (1998 CLC 1912 ), Shahtaj Sugar Mills v. Province of Punjab (1998 SCMR 2492 ) and Quetta Textile Mills supra. However , when the element of quid pro quo is present in a `cess' then it can be classified as a fee. Reference can be made to Jindal Stainless Ltd. etc. v. State of Haryana and others [2006 (7) SCC 241], M. Chandru v. Member-Secretary , Chennai Metropolitan Development Authority and another [2009 (4) SCC 72] and Mohan Meakin Limited v. State of Himachal Pradesh and others [2009 (3) SCC 157]. Cess is a form of tax charged / levied over and above the base tax liability of a taxpayer . It is usually imposed additionally when the State or the Federal Government looks to raise funds for specific purpose. Cess is levied to develop only a particular service or sector . It is introduced to promote a particular scheme which, according to the government, needs attention as in the present case rehabilitation of internally displaced persons is intended. Cess is an imposition more like tax blended with certain attributes of fee, in the sense that it is imposed for some specified and declared purpose as observed in case of Quetta T extile Mills. Learned Single Bench has rightly observe d in the impugned judgment that in a particular case the element of a levy having a specific purpose may overlap in the case of a tax and a fee but what distinguishes a fee is its additional elements such as rendering services or providing privileges to particular individuals or a class on which that levy has been imposed. Hon?ble Supreme Court of Pakistan, in the case of Durrani Ceramics, has observed as under: "19. Upon examining the case-law from our own and other jurisdictions it emerges that the 'Cess' is levied for a particular purpose. It can either be 'tax' or 'fee' depending upon the…
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