PAKISTAN INTERNATIONAL AIRLINES CORPORATION VS PAKISTAN through Secretary, Islamabad, 2015 PTD-KARACHI-HIGH-COURT-SINDH 245 (2014)

Sales Tax Act (VII of 1990)---

----Ss. 3, 4 & 51---Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2---Specific Relief Act (I of 1877), Ss.42 & 54---Suit for declaration and injunction---Interim injunction, grant of---Sales tax on leased aircrafts---Plaintiffs were airline companies who sought aircrafts on lease basis for flight operations---Authorities demanded sales tax on the aircrafts---Validity---Normally taxpayer should be left to make his way through statute and its remedies, paying tax at stipulated point and then asking for a refund, if such had arisen at appropriate stage and from concerned statutory authority---Where adjustment mechanism of output tax minus input tax was a basic feature of statute, the nature of goods remained unaltered throughout and prima facie the facts would spell out that there was no ultimate tax liability---No valid or useful purpose would be served in insisting upon a mechanical application of statutory procedure---Enrichment of State and concomitant impoverishment of taxpayer, even if only temporary could be regarded as unjust---Such was the relief that the statute could not give but a Court exercising equitable jurisdiction certainly could---In such sort of situation reliance placed on provision of S. 51 of Sales Tax Act, 1990, was inapt---Plaintiffs made out a prima facie case and balance of convenience was in their favour and against defendant authorities---If as prima facie appeared to be the case, the ultimate tax liability was zero, it would clearly be more inconvenient for plaintiffs to be impoverished, even if only temporarily, then for defendants to be enriched in like manner---Plaintiffs could well suffer irreparable loss and injury---Application for injunction was allowed in circumstances.

Administrator, Thal Development and others v. Ali Muhammad 2012 SCMR 730; Rohi Ghee Industries (Pvt.) Ltd. v. Collector of Customs and others 2007 PTD 878; Master Foam (Pvt.) Ltd. and others v. Government of Pakistan and others PLD 2005 SC 373; 2005 PTD 1537; Pakistan Beverage Ltd. Large Taxpayer Unit, Karachi 2010 PTD 2673; East and West Steamship Co. v. Collector of Customs and others PLD 1976 SC 618; Federation of Pakistan v. Jamaluddin 1996 SCMR 727; Abbasia Cooperative Bank v. Hakeem Hafiz Muhammad Ghaus PLD 1997 SC 3; Commissioner of Income Tax v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Benyon and Partners v. HM Commissioner of Customs and Excise (2004) UKHL 53 ref.

Khalid Jawed Khan and Muhammad Ahmer for Plaintiff (in Suit No.554 of 2014).

Kafeel Ahmed Abbasi for Defendants Nos. 1 and 2 (in Suit No.554 of 2014).

Ghulam Hyder Shaikh for Defendant No.3 and Ilyas Ahsan Departmental representative (in Suit No.554 of 2014).

Syed Iftikhar Hussain Shah and Imdad Khan for Plaintiff (in Suit No.1543 of 2013).

Sohail Muzaffar for Department (in Suit No.1543 of 2013).

Ziaul Haq Makhdoom, D.A.G. in both suits (in Suit No.1543 of 2013).

Dates of hearing: 3rd and 24th September, 2014.

ORDER

MUNIB AKHTAR, J.---These suits raise an important and interesting issue in relation to the Sales Tax Act, 1990. The plaintiffs are airlines, being respectively PIA (Suit 554/2014) and Air Blue (Suit 1543/2013). Each airline imported aircraft from time to time on lease basis and the question is whether sales tax is payable on such import. In each suit there are applications for interim injunctive relief. In addition, in Suit 554/2014, there is an application seeking rejection of plaint and by consent of parties that application was treated as applying to Suit 1543/2013. The applications were heard together since the issues raised were the same as were the material facts. Since the matters were so heard I will, without intending any disrespect note the submissions of learned counsel for the respective contesting parties together.

2.Learned counsel for the plaintiffs submitted that various domestic airlines from time to time took aircraft on lease basis and these aircraft were brought into Pakistan for flight operations. Leases can be of two types: "wet leases", where the aircraft is taken on lease along with a flight crew, and "dry leases", where only the aircraft is leased and is then operated by the lessee using its own resources. Nothing however turns on this distinction for present purposes. The details of the lease agreements involved in the suits, to the extent presently relevant, can be tabulated as follows:--

Suit 554/2014 (instituted on: 1-4-2014)

Suit 1543/2013 (instituted on 5-12-2013)

3.Learned counsel for the plaintiffs submitted that the lease of the aircraft was not a sale and, because the matter could not therefore come within Entry 49 of the Fourth Schedule to the Constitution, it did not come within the scope of the Sales Tax Act. Furthermore, the bringing of the aircraft into Pakistan on lease basis was not its import within the meaning of section 3 (the charging provision) and hence in any case no sales tax could be levied. Without prejudice to the foregoing it was contended that since the aircraft would leave Pakistan on the termination of the leases, they were also zero rated within the meaning of section 4 read with Entry 1(ii) of the Fifth Schedule to the Sales Tax Act. The result would therefore again be the same and hence no sales tax was payable. Referring in particular to section 2(33) of the Sales Tax Act (the definition of "supply") it was contended that the lease agreements also did not amount to a supply within the meaning of the statute. On this basis, it was contended that section 3(a) did not apply and since (it was contended) all the elements of the said clause had to be read into and treated as part of clause (b), no sales tax could be levied on the putative "import" of the aircraft. As regards the application seeking rejection of plaint, it was submitted that it was well settled that a plaint could only be rejected in entirety, and since in, part at least the suit remained unaffected by the grounds on which rejection, was sought that application ought to be dismissed. Learned counsel submitted that all the ingredients for interim relief were in place and prayed accordingly.

4.Learned counsel for the defendants opposed the grant of any interim relief. It was submitted that the plaints were hit by Order VII, Rule 11(d), C.P.C. and ought therefore to be rejected. The ground taken was that the jurisdiction of the civil courts (and therefore of this Court on the original side) stood excluded and barred by reason of section 51 of the Sales Tax Act. The matter fell wholly within the four corners of the Sales Tax Act and the plaintiffs, if so minded, could avail the applicable departmental remedies. Reliance was placed on Administrator, Thal Development and others v. Ali Muhammad 2012 SCMR 730 and Rohi Ghee Industries (Pvt.) Ltd. v. Collector of Customs and others 2007 PTD 878 (SHC; SB). As regards the applications for interim relief, learned counsel contended that section 3(1)(b) was applicable to the present facts and circumstances. Its language was clear: sales tax was payable on the import of any goods. This clause operated independently of, and separately from, clause (a) and the elements of the latter could not be read into the former. Learned counsel relied strongly on a judgment of the Supreme Court, Master Foam (Pvt.) Ltd. and others v. Government of Pakistan and others PLD 2005 SC 373, 2005 PTD 1537, (2005) 92 Tax 1 to contend that "import" as used in section 3(1)(b) meant simply to bring into the country. Since admittedly the aircraft had been brought into Pakistan that meant that they had been imported within the meaning, and for purposes of, section 3(1)(b) and were liable to tax accordingly. Various clauses from the definition section were referred to. It was also submitted that while the Sixth Schedule to the Sales Tax Act (which provides for exemptions from sales tax) had earlier contained an entry that related to aircraft (entry 43), it had been omitted in 2011. The entry now being relied upon in the Fifth Schedule (Entry 1(ii)) had no relevance since its applicability was contingent on there being a "supply", and section 3(1)(b) applied independently of any such. Learned counsel contended, relying on the above cited decision, that the tax contemplated by Entry 49 of the Fourth Schedule to the Constitution had been held to be a separate taxing event not contingent on any sale and therefore the application of section 3(1)(b) without reference to any "supply" was perfectly lawful.

5.During the course of submissions it appeared to me, keeping in mind that the crucial question was whether section 3(1)(b) applied or not, that since the sales tax was levied as a value added tax (VAT), the principles applicable under such a regime had also to be taken into consideration. The nature of the sales tax as a VAT was considered in some detail by a Division Bench of this Court (of which I was a member) in Pakistan Beverage Ltd. v. Large Taxpayer Unit, Karachi 2010 PTD 2673. In particular, it seemed to me that if learned counsel for the defendants were correct, and "import" (as used in section 3(1)(b)) signified the mere bringing of the goods into Pakistan, then by parity of reasoning the word "export", as used in section 4, ought to carry the meaning of simply taking the goods out of the country. But that section zero-rated goods that were exported. Since the aircraft would leave the country on the expiry of the lease agreements (i.e., be "exported"), they would be zero-rated. The net revenue effect would therefore be zero, since in VAT mode sales tax is only payable on output tax minus input tax basis. Since it seemed that these points could have a material bearing on the outcome of the applications, I invited learned counsel to assist me accordingly.

6.Learned counsel for the plaintiffs submitted that Entry 49, being a field of legislative power, had to be construed broadly. However, while this gave the legislature a wide range of possibilities and options as to how sales tax was to be levied, once a particular mode had been adopted by enacting a sales tax law in a particular form, then the provisions thereof had to be interpreted and applied with reference to the regime actually adopted, and not with reference to Entry 49 generally. Since the present sales tax law was in VAT mode its provisions had to be interpreted and applied keeping the principles of a value added tax in mind. Referring to Pakistan Beverage Ltd. v. Large Taxpayer Unit, Karachi 2010 PTD 2673 learned counsel submitted that the Supreme Court had refused leave to appeal against the decision. It was submitted that the netting effect (output tax minus input tax) in the present case would reduce the tax liability, if any, of the plaintiffs to zero. Hence, no sales tax could be recovered from them on the "import" of the aircraft. Learned counsel also relied on East and West Steamship Co. v. Collector of Customs and others PLD 1976 SC 618 to explain the meaning of "import" and hence, concomitantly, of "export". Learned counsel referred to Federation of Pakistan v. Jamaluddin 1996 SCMR 727 and respectfully submitted that there was an apparent inconsistency between this decision and certain observations in Master Foam Ltd. and others v. Government of Pakistan and others PLD 2005 SC 373. As regards the maintainability of the suits (i.e., with reference to the application seeking rejection of the plaints) learned counsel relief on Abbasia Cooperative Bank v. Hakeem Hafiz Muhammad Ghaus PLD 1997 SC 3; Commissioner of Income Tax v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392.

7.Learned counsel for the defendants submitted (without conceding) that even if the net revenue effect were zero on account of the "export" of the aircraft, the matter still had to be treated within the four corners of the Sales Tax Act. Thus, the sales tax had to be paid on the import of the aircraft and subsequently, as and when they were exported, the plaintiffs could make a suitable filing in their sales tax returns. It was emphasized that the plaintiffs could not avoid their obligation to pay the sales tax on import, even if it subsequently got adjusted (which was not conceded). It was further submitted that just as the levy of the tax on import was contingent upon the arrival of the aircraft in Pakistan the putative adjustment was contingent on export, i.e., their exit from the country. While the former event had admittedly come about, the latter would have to be established as a matter of fact and could not be conjectured. Until and unless this event was factually established there could be no possibility of any zero-rating, and hence adjustment. Again, this could be done (and ought only to be done) before the relevant officer under the Sales Tax Act itself and not by way of the present suits. Learned counsel for the Department in Suit 554/2014 also filed a written synopsis. Learned counsel submitted that no case had been made out for interim relief and the suits themselves were not maintainable. It was prayed accordingly.

8.I have heard learned counsel as above, examined the record and considered the case-law. In my view, the outcome of these applications depends on an appreciation of the VAT principles, in the context of the Sales Tax Act as interpreted and applied by the Supreme Court in Master Foam (Pvt.) Ltd. and others v. Government of Pakistan and others PLD 2005 SC 373. It will be convenient to begin by referring to the VAT principles. As noted above, these have been set out in Pakistan Beverage Ltd. v. Large Taxpayer Unit, Karachi 2010 PTD 2673 (hereinafter "Pakistan Beverage"). In order to make this decision self-contained the relevant passages are reproduced below (pp. 2680-82):--

"10. The first point to keep in mind is that the Sales Tax Act as currently in force is a value added tax, or VAT. When sales tax is levied in VAT mode, it is charged at each stage in the supply chain as the goods move from the point of origin to the ultimate destination. At each stage, the sales tax is paid on the value added by the supplier concerned. This is done by taking the sales tax charged by the supplier for the goods sold by him (known as the output tax) and subtracting from it the sales tax paid by him for the goods purchased by him (known as the input tax). If the difference (i.e., output tax minus input tax) is positive over the relevant tax period, i.e., the output tax is more than the input tax, that means that the supplier has to pay the difference to the State. If the difference is negative (i.e., output tax is less than input tax), then the supplier is entitled to a refund of this amount, or its adjustment in the next tax period(s). It will also be noted that in respect of each transaction, other than the first and the last, the sales tax involved has a dual characteristic. For the person making the supply (i.e., the seller) it is his output tax. For the person acquiring the goods (i.e., the buyer) it is his input tax. These are but two sides of the same transaction.

11. The VAT mechanism was succinctly explained in the House of Lords in Fleming (t/a Bodycraft) v. HM Revenue and Customs [2008] UKHL 2 as follows:

"...one of the essential features of VAT ... is the passing on of input tax, to be credited against output tax, along a chain of traders (for instance a supplier of components, a manufacturer, a wholesale distributor and a retailer) until the final output tax is borne by the ultimate consumer. Generally a trader's credit for input tax is obtained by deduction from his output tax, but some traders with a large turnover in zero-rated goods (such as most foodstuffs) may be "repayment traders"---that is, they regularly or occasionally pay amounts of input tax which exceed their output tax, so as to entitle them to a repayment of input tax. By contrast "payment traders" will as a rule simply deduct input tax on making their regular ... returns...." (para 27, per Lord Walker)

..

13. It is of fundamental importance to keep in mind that in a VAT, the output-input adjustment, and payment of tax in terms thereof, is of the essence of the tax. Without such (or any equivalent) adjustment, the tax would simply cease to be a value added tax. In the case of the Sales Tax Act, the principle is given statutory effect in section 7. This is one of the basic provisions of the statute.

14. The second point of importance is that value added taxes can be of two kinds, and it is essential to understand the type of VAT that has been given effect to in the statute under consideration. The two types of VAT have been explained in a standard treatise in the following terms (Valve Added Tax: A Comparative Approach by Alan Schenk and Oliver Oldman, 2007):

"For most countries with VATs, international trade is a significant component of their economies. A country with a VAT must define the jurisdictional reach of the tax; that is, the tax may be imposed on production within the country (an origin principle VAT), on domestic consumption (a destination principle VAT), or some combination of the two. Almost every country with a VAT relies on the destination principle to define the jurisdictional limits of the tax. Under a pure destination principle, imports are taxed and exports are completely free of tax (zero rated)." (pg. 180; emphasis supplied)

The importance of zero rating in respect of exported goods has been explained by the learned authors in the following terms:

"Countries that rely on the destination principle to tax international transactions typically zero rate exports of goods (regardless of the nature of the goods exported)... because those exports will be consumed outside the taxing country. This zero rating is not a preference. The export sales are merely beyond the jurisdictional reach of the tax. The destination principle reflects the near universal understanding that in geographically assigning sales tax or VAT burdens and revenues, the country of consumption gets both...." (ibid., pp. 50-51; emphasis supplied)

15. Under the Sales Tax Act, imports are specifically (and separately) brought to tax by section 3(1)(b). Exports are specifically and expressly zero rated by section 4. It is therefore quite clear that the Sales Tax Act embodies a destination principle VAT. Since zero rating of exports is a fundamental principle of VAT levied in this manner, it is an essential element of the Sales Tax Act.

16. It will therefore be seen that since the Sales Tax Act is in the form of a destination principle VAT, there are (insofar as is presently relevant) two principles of basic application which must be kept in mind, since they form part of the fundamental structure of the statute. The first is the concept of output-input adjustment and the second is the zero rating of exports. It must be emphasized that these elements are not a concession or benefit granted to or conferred on the supplier (known as the registered person); they are integral to the whole concept of VAT under the Sales Tax Act. A failure to keep these principles in mind can result in a serious and basic misunderstanding and misinterpretation of the Act. It would also be mistaken to regard these elements simply, or merely, a part of the machinery provisions of the Act. Of course, these elements may be modified but, and this is the important point, this must be done expressly, either in the statute itself or in exercise of an express power specifically conferred by the statute....

17. In addition to zero rated supplies, the Sales Tax Act (in line with almost all VATs) also permits exempt supplies, and the difference between the two must also be understood. The position under an exempt supply was explained in the House of Lords in Benyon and Partners v. HM Commissioners of Customs and Excise [2004] UKHL 53 in the following terms:

"[A person making an exempt supply] is treated as if he was a consumer and bears the burden of the whole of the VAT which has been paid when he receives supplies of goods or services for the purposes of his business or profession. His expenses on VAT, like his other expenses, are matters which he must take into account when deciding what to charge his customers." (para 4, per Lord Hoffman; emphasis supplied)

The position obtaining in respect of a zero rated supply (in the context of exports) is stated in Schenk and Oldman, op. cit., as follows:

"Zero rating is the mechanism under a VAT scheme by which the tax can be completely removed from a particular product or service or from a particular transaction. Under a credit-invoice VAT, a seller of a zero-rated item does not charge VAT on the sale. The sale is classified as a taxable sale subject to a zero rate. As such, the seller is entitled to recover as input credit the tax included in the cost of taxable purchases attributable to that sale." (pa 50; emphasis supplied)."

9.Sections 3 and 4 of the Sales Tax Act, as presently relevant, are as follows:--

"3. Scope of tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen per cent of the value of--

(a)taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and

(b)goods imported into Pakistan...."

(The rate of the tax is as presently applicable. It was slightly lower in respect of some of the lease agreements.)

"4. Zero rating.-- Notwithstanding the provisions of section 3, the following goods shall be charged to tax at the rate of zero per cent:--

(a) goods exported ...."

10.This brings me to what is in many respects the most crucial step in the analysis, a detailed consideration of Master Foam (Pvt.) Ltd. and others v. Government of Pakistan and others PLD 2005 SC 373 (herein after "Master Foam"). A number of connected appeals were disposed of by this judgment. The appellants had their manufacturing units in Azad Jammu and Kashmir (AJK), which, as noted by the Supreme Court (pg. 379), is not part of Pakistan. For their operations, the appellants had to bring in raw materials from abroad, which could only reach the units in AJK by being imported through Pakistan. Specifically, the goods arrived at Karachi and were then sent onwards to AJK territory. The Pakistani authorities sought to tax the goods at Karachi on the basis of section 3(1)(b). The appellants argued that such tax was not leviable since the goods were not meant for consumption, use or sale in Pakistan, but were merely in transit through the country for ultimate use in AJK. It was contended that the tax contemplated by Entry 49 of the Fourth Schedule to the Constitution could only be levied if the goods were intended for use, sale or consumption within Pakistan and not otherwise. It was also contended that the mere bringing of the goods into Pakistan was not a taxable event since that, for purposes of the Sales Tax Act, required a sale or "supply". There was also no "import" into Pakistan since that required something more than just the entry of the goods into the country. There had to be some nexus or connection of the goods with Pakistan and mere transit was insufficient. It was also submitted that AJK had adopted the Sales Tax Act, 1990 as an Act applicable in that territory, and exempted the appellants' production from such tax. (The notification issued by the AJK Government is reproduced at pg. 378.) It was contended that the levy of sales tax on import into Pakistan would effectively nullify the exemption. The attempted levy by the Pakistani authorities was challenged in the Lahore High Court, which dismissed the petitions through judgments of various dates, and the matter went to the Supreme Court.

11.The Supreme Court dismissed the appeals, comprehensively rejecting the appellants' case. It was held that "import" as used in section 3(1)(b) carried its natural and ordinary meaning of simply goods being brought into Pakistan. The Court considered a number of decisions, and consulted various dictionaries, to examine what was meant by "import". One of the decisions so considered, and approved, was East and West Steamship Co. v. Collector of Customs and others PLD 1976 SC 6I8, which as noted above has been relied upon before me by learned counsel for the plaintiffs. The Supreme Court observed (at para 26, pg. 391) that "import" had there been given "its ordinary and natural meaning" in the context of the Sea Customs Act, 1878. It was concluded as follows (pg. 392):--

"27. From above it is clear that right from 1963 till date the courts in Pakistan have consistently given the word 'import' its natural and ordinary meaning of 'bringing into' the country and have rejected the imposition of artificial constraints on it, such as those imposed by the American doctrine of original package. It being so, we are of the view that there is no scope that the word 'import' should be given a different meaning that what appears in section 3(1)(b) of the Act of 1990, especially when there is nothing in the statute to indicate that different meaning was intended by the Legislature. It appears that Legislature, by not defining the word 'import' in the Act of 1990 desired the interpretation of said word in accordance with the following principle:-

"...when a Legislature uses in a statute a legal term, which has received a judicial interpretation, it is to be presumed that the term has been used in the sense in which it has been judicially interpreted, unless a contrary intention appears from the statute."

28. Thus the goods were imported into Pakistan by the appellants when they entered the territory of Pakistan and became liable to taxation accordingly. It is immaterial that ultimately they were to be transported to AJK. This is for the reason that import into Pakistan is a distinct taxable even independent of any event following thereafter."

As regards Entry 49 of the Fourth Schedule to the Constitution, it was observed as follows (pg. 392):--

"29. Close scrutiny of Entry 49 and other laws referred to above reveal that acceptance of appellants' argument that Entry 49 authorizes tax on import only when it is followed by sale or purchase in Pakistan, will render the words 'imported, exported, produced, manufactured or consumed' redundant and also frustrate the whole purpose of substituting present entry for the original Entry 49, and the amendment inconsequential. If sale and purchase alone were taxable events, as argued by the learned counsel for the appellants, then there was no point in adding the words 'imported, exported, produced, manufactured or consumed'. Clearly, no redundancy can be attributed to the Legislature and on this ground the argument of the appellants is repelled. It is also to be noted that, if above argument of the appellants is accepted, a situation would arise where import into Pakistan may not be taxed at all. Besides, while examining the validity of a statute, the principle is that there is a presumption of constitutionality of a statute and that every explanation in favour of a statute must be found. Keeping in view the complexity of economic problems, great latitude is shown in favour of fiscal statutes."

As regards the position in AJK, the Supreme Court noted (pg. 386):

"15. Admitted facts in these cases are that the appellants operate manufacturing units in AJK, which is not part of Pakistan and that they import raw material for said manufacturing units through Karachi. The goods so imported arrive at the Port of Karachi, are unloaded there, sometimes even stored there for a while, and then re-loaded for AJK. It is significant to note that the Act of 1990 has been adopted by the AJK Government vide the Sales Tax (Adoption) Act, 1993 (Act No. IV of 1993) and its section 2(4) reads as follows:-

"In determining the input tax under subsection (1) the amount paid as input tax at the import stage to the customs authority in Pakistan shall be deemed to have been paid in Azad Jammu and Kashmir for the purpose of adjustment against the tax liability on the finished goods."

16. It is also a fact that in Pakistan there is no exemption from sales tax on goods imported by the appellants herein. AJK has not levied or collected any sales tax at the import stage on goods imported by the appellants into AJK from Pakistan. The appellants are aggrieved of the demand by the Tax Authorities in Pakistan that sales tax be paid on the raw material imported by them through Karachi."

It was also observed as follows (pg. 392; emphasis supplied): (sic)

"30. The appellants have been granted sales tax exemption in AJK on the goods manufactured by them there. There is no exemption on import of raw materia1. In other words, they have been granted exemption only on the value addition they made to the raw material."

12.The first point that emerges is that since "import" must be given its ordinary and natural meaning, the submission by learned counsel for the plaintiffs that the elements of clause (a) of section 3(1) ought to be read into clause (b) cannot be accepted. As held by the Supreme Court, clause (b) applies on its own footing. There can be no doubt that the aircraft were "imported" into Pakistan in the sense as determined by the Supreme Court. Therefore, learned counsel for the defendants are correct in asserting that there was a taxable event within the meaning of section 3(1)(b). In my respectful view, and this is crucial for present purposes, it necessarily follows from Master Foam that the word "export", as used in section 4, must also be given its natural and ordinary meaning, that of goods simply being taken out of Pakistan. In a VAT context especially there has to be a parity between "import" and "export" unless the statute otherwise expressly so provides. Therefore, the taking of the aircraft out of Pakistan at the end of the lease periods would be an "export" and hence a zero-rated taxing event within the meaning of section 4. One obvious question arises here. If the foregoing is correct then why were the appellants' goods in Master Foam not zero-rated on their "export" from Pakistan to AJK? This question is answered below.

13.The reading of Master Foam urged by learned counsel for the defendants can be stated as follows: the import of goods into Pakistan is a separate and independent taxing event, which applies on its own footing in terms of section 3(1)(b). Therefore, as soon as the aircraft were brought into Pakistan, they were "imported" and sales tax is payable in respect thereof, regardless of the subsequent use of the aircraft and their ultimate fate, i.e., their "export" from the country at the end of the lease periods. It is to be noted that on this reading, the plaintiffs' case is on a weaker footing compared with that of the appellants in Master Foam. In the present case, the aircraft are admittedly for use in Pakistan (taking international flights originating from and/or terminating in the country also to be such use), whereas in Master Foam the goods were simply passing through the country. If sales tax was payable on the import of the latter then, it can be argued not unreasonably, why should it not be payable on the import of the aircraft? On first impression Master Foam may well appear to support the conclusion just stated. However, with the utmost respect, in my view a closer and deeper reading of the judgment is called for. Such consideration, it is respectfully submitted, reveals a more complex picture, and on a finer analysis one reaches a somewhat different conclusion.

14.In my respectful view, the judgment in Master Foam has two perspectives, one narrower and the other broader. The narrower perspective essentially addresses the questions that, formally, were before the Supreme Court: the scope of Entry 49, and the meaning of "import" as used in section 3(1)(b). These questions were answered in the manner noted above. However, in my respectful view, the judgment also has a broader perspective, which is as much an integral part of the decision as any conclusion based on the narrower perspective. In the broader perspective, the Supreme Court looked at the fiscal liability of the appellants holistically, i.e., by examining the tax issue as a whole. In this perspective, it was not merely the liability under the Sales Tax Act as applicable in Pakistan that was relevant. What was also taken into account was the liability of the appellants under that Act as made applicable in AJK. Thus, the narration of how the Act operated in AJK (paras 15 and 16 of the judgment) and the observations on the effect of such operation in the VAT context (para 30) were not in the nature of obiter dicta. In my respectful view, in the broader perspective these were integrated into the ratio and shaped the final outcome. As noted by the Supreme Court (para 15), the Sales Tax Act as adopted by the AJK Assembly by its Act of 1993, expressly provided that in determining the input tax for AJK purposes, "the amount paid as input tax at the import stage to the customs authority in Pakistan shall be deemed to have been paid in Azad Jammu and Kashmir for the purpose of adjustment against the tax liability" in the latter territory (emphasis supplied). Furthermore, it was also expressly noted in para 16: "AJK has not levied or collected any sales tax at the import stage on goods imported by the appellants into AJK from Pakistan." And this led the Court to its conclusion in para 30 regarding the exemption granted in AJK to the appellants: "There is no exemption on import of raw material. In other words, they have been granted exemption only on the value addition they made to the raw material." -

15.As is clear from the deeming provision in the AJK statute, the "import" of goods into that territory was treated as having taken place at the place of import in Pakistan as long as the sales tax was paid to the Pakistani authorities. If so, then the VAT adjustment mechanism (i.e., output tax minus input tax) was given full effect in AJK on the basis of such payment. This treatment of the import of the goods under the AJK statute was expressly recognized and given due effect by the Supreme Court. It is of the utmost importance to appreciate that when viewed holistically, the fiscal position of the appellants was not affected at all. The point can be understood by regarding, as would ordinarily have been the case, Pakistan and AJK as two separate jurisdictions for VAT purposes. What ought then to have happened if the VAT principles noted in Pakistan Beverage had been applied literally and strictly? Insofar as Pakistan is concerned, either no sales tax would have been levied because this country was not the destination of the goods, which were merely in transit, or the sales tax would have been paid on "import" but zero-rated on "export" to AJK. In either case there would have been no tax liability in this country. However, as soon as AJK was reached the position would change. The appellants would be liable to sales tax on "import" into AJK (from Pakistan) since admittedly the goods were destined for that territory. The adjustment mechanism would then have become applicable. However, and this is also crucial, the appellants would not have been able to avail the adjustment mechanism because of the exemption under the AJK statute. As explained in Benyon and Partners v. HM Commissioners of Customs and Excise [2004] UKHL 53 (referred to in para 17 of Pakistan Beverage and reproduced in para 8 herein above), the effect of the exemption would be that the appellants would have had to bear the entire burden of the tax. The effect of the deeming provision in the AJK statute was thus to determine as to whom, between the Pakistani and AJK tax authorities, would be entitled to the sales tax on "import". Insofar as the appellants were concerned, it made no difference to their overall tax liability. In the broader perspective, and when viewed holistically, the appellants were fiscally in exactly the same position, whether their goods were regarded as "imported" in Pakistan or in AJK. Their claim therefore that the effect of the exemption in AJK would stand "nullified" if they were taxed on import in Pakistan was rather disingenuous. Viewed holistically, there was undoubtedly an act of "importation". The application of the VAT destination principle (and therefore of the Sales Tax Act) required that the goods be brought to tax. The deeming provision contained in the AJK statute simply had the practical effect, insofar as the appellants were concerned, of advancing the payment of the tax on "import". Instead of paying it when the goods entered AJK territory, they had to pay it at Karachi. However, it did not affect their overall fiscal position one whit. Finally, their inability to ultimately adjust the tax paid against any output tax stemmed not from the fact that it was paid at Karachi: rather, it was a consequence, well understood, of the exemption which they had been granted in AJK. In the broader perspective therefore, the Supreme Court found no merit in their case and dismissed the appeals.

16.In additional to the foregoing, in my respectful view the observations in para 29 of the judgment regarding the scope of Entry 49 was also intended to be read contextually. If read literally and in isolation, they may perhaps appear to carry the meaning urged by learned counsel for the defendants. However, that could mean, for example, that the Supreme Court has obliterated the distinction between the tax under Entry 49 when levied on the manufacture of goods and a duty of excise under Entry 44 (where manufacture is of the very essence of the tax). I would respectfully submit that what the Supreme Court sought to clarify and emphasize was that a sales tax regime could be so structured that a tax may have to be imposed on imports, exports, manufacture, consumption, etc. that might, at first sight, appear to be disconnected with any "sale" and yet be required and valid in the overall context. This is of course what happens when sales tax is levied in the VAT mode on the destination principle. The imports have to be brought to tax, and the exports have to be zero-rated. Both are taxing events in the VAT mode, and while they may appear disconnected from any "sale" if viewed in isolation, are nonetheless integral aspects of the VAT system. That, in my respectful view, is what was intended to be conveyed contextually by the observations in para 29 of the judgment. Even the narrower perspective therefore has a broader element to it. That, overall, was how the Sales Tax Act was applied by the Supreme Court to the appellants before it.

17.When the present plaintiffs' position is considered, one crucial point is at once apparent: as compared with the appellants in Master Foam, the final fiscal position is different. As explained above, the appellants in Master Foam would have had to pay the tax on import regardless of where it was actually levied, and were unable to pass on its burden under the adjustment mechanism because of the exemption. However, insofar as the plaintiffs are concerned, prima facie their fiscal liability is ultimately zero. The aircraft would be involved in two taxing events, one at the "import" stage and the other on their "export". These would (or ought to, at any rate) balance exactly upon an application of the output-minus-input mechanism. The position of the Revenue would also remain unaffected: what it took in at the import stage would have to be paid out when the aircraft were exported. In my respectful view therefore, when the judgment in Master Foam is properly understood, and both its narrower and broader perspectives are kept in mind, it lends support to the plaintiffs' case rather than the position urged by the defendants. Conceptually, in a VAT system based on the destination principle import and export are two sides of the same coin and therefore the fiscal position, especially (as is here the case) in respect of goods that remain the same throughout, ought to balance exactly leading ultimately to no tax liability. However, this is subject to an important qualification. Regard must obviously be had to how the VAT principles are actually legislated in the relevant jurisdiction. To the extent that there is any "deviation" from or "inconsistency" with the conceptual framework, the latter would have to yield to the actual statutory provisions. If this appears to be the case, then whether and if so how, and to what extent, the two can be reconciled is an important question in its own right, the determination of which may not be merely an exercise in statutory interpretation but may also have certain implications on the constitutional plane. This is not however the place to explore these issues further, since the plaintiffs did not put their case in such terms.

18. On the plane of principle I am in no doubt that in the present facts and circumstances, there would prima facie ultimately be no tax liability on the plaintiffs in respect of the aircraft. It is therefore necessary to consider the objection taken by learned counsel for the defendants that even if such be the case (which of course, they do not accept), that is a matter to be resolved within the four corners of the Sales Tax Act and is not something for which relief can, or ought to, be granted in terms of the present suits. As noted above, in this context learned counsel have specifically relied on section 51 of the Act. I am, with respect, unable to agree. Application of the Act would require the plaintiffs to pay the sales tax at the import stage and then later to apply for a refund at the end of the lease period upon the export of the aircraft. But if, as prima facie appears to be the case, neither the taxpayer nor the Revenue will ultimately be any worse off, why ought the taxpayer to be inconvenienced in this way and why should the Revenue be so enriched, even if temporarily? What an application of the Sales Tax Act cannot achieve, but is relief that can certainly be granted by the Court in the exercise of its equitable jurisdiction, is to give immediate recognition to the fact that prima facie there is ultimately no tax liability. Of course, such relief cannot be granted as a matter of routine. Normally, the taxpayer should be left to make his way through the statute and its remedies, paying the tax at the stipulated point and then asking for a refund, if such arises, at the appropriate stage and from the concerned statutory authority. But where the adjustment mechanism of output tax minus input tax is a basic feature of the statute, the nature of the goods remains unaltered throughout, and prima facie the facts clearly spell out that there will be no ultimate tax liability, it seems to me that no valid or useful purpose will be served in insisting upon a mechanical application of the statutory procedure. In such circumstances, the enrichment of the State and the concomitant impoverishment of the taxpayer, even if only temporary, may well be regarded as unjust. (I do not allude here to, nor intend to apply, the legal principles embodied in the law of unjust enrichment; the words are used in a generic sense.) This is the relief that admittedly the statute cannot give, but a Court exercising equitable jurisdiction certainly can. Furthermore, in this sort of situation the reliance placed on a provision such as section 51 is, with respect, inapt. Section 51 focuses, as it must, on the terms of the statute itself. But sometimes a wider approach, which only the Court can take, leads to a result that is not merely fairer but also accords more fully with the VAT principles on which the Sales Tax Act is built. The objection taken by learned counsel for the defendants is therefore misconceived in the facts and circumstances of the present case. The present suits cannot be regarded as barred under section 51 and therefore the plaints cannot be rejected.

19.The decisions relied upon in this context also do not, with respect, apply. In Administrator, Thal Development and others v. Ali Muhammad 2012 SCMR 730, the question of jurisdiction arose in the context of the Colonization of Government Lands (Punjab) Act, 1912. The jurisdictional bar is contained in section 36 of the said Act, and operates vis-a-vis the jurisdiction of revenue officers. At issue was an impugned order of the collector of land revenue. The Supreme Court observed that the bar applied and also drew attention to the fact that there were statutory rights of appeal under section 161 of the Land Revenue Act, 1967. It was observed that the jurisdiction to adjudicate such-like matters vested in the revenue courts. As is obvious, the facts and the statutory provisions were rather different from those at hand. The other decision, Rohi Ghee Industries (Pvt.) Ltd. v. Collector of Customs and others 2007 PTD 878 (SHC; SB), was in relation to the Customs Act, 1969. The jurisdictional bar in that statute is contained in section 217, which is certainly similar to section 51. The facts were somewhat complicated, but for present purposes, it suffices to note that there was a dispute regarding the assessment of certain imported goods. The impugned order was challenged by the plaintiff by availing the departmental remedies up to, and including, the Customs Appellate Tribunal. The plaintiff having lost at all levels then filed a suit in this Court. (Actually, two suits were dealt with by the judgment but that is not presently material.) The jurisdictional objection was raised by the office. On behalf of the plaintiff it was sought to be argued that the next (and obvious) statutory remedy, by way of a reference (or, apparently at that time, appeal) to this Court was not efficacious since only questions of law could be raised and the plaintiff sought to agitate a factual dispute (on which, as just noted, it had lost all the way up to the Tribunal). It is hardly surprising in these circumstances that the learned Single Judge had no hesitation in upholding the office objection. The factual situation of, and the stage at which the suit was filed in, the cited decision were quite distinct from the case at hand. Furthermore, the Customs Act did not then, nor does it now, have any adjustment mechanism in the VAT mode that is one of the key components of the Sales Tax Act. The issue that arises in the present case did not (and could not) arise in the cited decision. This decision also does not therefore support the defendants' case for rejection of plaint.

20.In view of what has been stated in the above, I conclude that the plaintiffs have been able to make out a prima facie case. The balance of convenience lies in their favour and against the defendants. If, as prima facie appears to be the case, the ultimate tax liability is zero, it will clearly be more inconvenient for the plaintiffs to be impoverished, even if only temporarily, than for the defendants to be enriched, in like manner. Finally, the plaintiffs may well suffer irreparable loss and injury. The tax amount appears to involve a substantial outlay, which may adversely affect the operations of the plaintiffs. The foregoing does not however conclude the matter of the grant of interim relief. It is of course trite law that such relief is at the discretion of the Court. While normally it is sufficient for the plaintiff to show that the three so-called "ingredients" exist in his favour, in appropriate cases the Court can nonetheless grant relief only in a suitably modified form or even withhold it. It is this aspect that must now be considered, and two factors in particular must be taken into account. Firstly, for the tax liability to be zero, there must be an export within the meaning of section 4 and hence, as correctly pointed out by learned counsel for the defendants, an actual taking of the aircraft out of Pakistan at the end of the lease periods. This is obviously a question of fact, which must be established by the plaintiffs. It will be noted from the tables given in para 2 herein above that the lease periods in all the leases had still to run when the Suits were filed. In all of the lease agreements, there are specific provisions for the return of the aircraft when the lease periods are over, which will lead to their "export" and I can see no reason why it should be taken that this will not be done. It is true that some at least of the agreements have an option for extension of the lease period but in my view these applications must be decided on the basis of the periods as originally stipulated. Secondly, the terms of the lease agreements must also be taken into consideration, especially in relation to the date on which the suit is instituted. As just noted, in both suits all the lease agreements were in force when the suits were filed. This is as it should be. Had the lease agreements (or more precisely, the lease periods) already expired, then the plaintiffs would but have been entitled at all to any interim relief. Furthermore, in this context regard must also be had to section 7 of the Sales Tax Act. It will be recalled that this is one of the key sections of the statute since it contains the all-important adjustment mechanism. It will also be recalled (see para 17 above) that the actual manner in which the relevant statute gives effect to the VAT principles must also be taken into account. For purposes of the point now under consideration, subsection (1) of section 7 needs to he considered. This as follows:--

"7. Determination of tax liability.---(1) Subject to the provisions of sections 8 and 8B, for the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, be entitled to deduct input tax paid or payable during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax excluding the amount of further tax under subsection (1A) of section 3 that is due from him in respect of that tax period and to make such other adjustments as are specified in Section 9:

Provided that where a registered person did not deduct input tax within the relevant period, he may claim such tax in the return for any of the six succeeding tax periods."

Section 7(1) is a complex provision, but it does not need to be analyzed in full. What is relevant is the proviso and for present purposes the matter can be stated as follows. The subsection provides for the output tax minus input tax adjustment and requires, as a general rule, that the input tax paid and output tax charged for each tax period be claimed in the tax return for that tax period. (Section 2(43) defines a "tax period" to be a period of one month.) However, the proviso allows the claim for any input tax to be postponed for up to six tax periods following from the period in which such tax is paid. In other words, the claim for input tax can be postponed for up to six months (approximately). This can be of benefit to the taxpayer. For example, suppose that the lease period for an aircraft is four months, and the tax on the import under section 3(1)(b) is paid when the plane is brought into Pakistan. Rather than claiming the tax paid as input tax in that tax period, the lessee has the option of waiting for the tax period (four months hence) when the aircraft is exported and there is a zero-rated taxing event. In that tax period, there will then be an exact adjustment of the tax paid and hence the entire amount will become refundable. Put differently, from the adjustment point of view, the two taxing events of import and export will have occurred essentially simultaneously. However, since the proviso permits a postponement only for six months the "option" just noted would not be available if the lease period is more than six months (approximately). In such a scenario, the input tax on the import and the output tax on the export would have to fall in separate tax periods. This may have a certain effect, perhaps adverse to the taxpayer, on the amount of adjustment and refund that can actually be claimed.

21.The foregoing has obvious implications for the cases at hand. In Suit 554/2014, there is only one lease, and its period is less than six months. In Suit 1543/2013 there are four leases of which only one has a period of less than six months. Therefore, if in respect of the aircraft in all these leases the sales tax were paid on import, it is in only two cases that the plaintiffs could enjoy the benefit of the proviso. In the first three leases listed in relation to Suit 1543/2013, the "option" would not be available. In my view and notwithstanding that I have concluded that the three "ingredients" for interim relief lie in favour of the plaintiffs, the Court, in its discretion, ought to grant such relief only in respect of those leases where the period is six months or less. In other words it is only if, from the tax adjustment point of view, the input and output taxing events can be regarded as having occurred simultaneously that interim relief should be granted. This is so because it serves to emphasize the key feature necessary for the grant of such relief, that the net fiscal effect is prima facie zero. Where the input and output events will, for adjustment purposes, take place in different tax periods, then interim relief ought to be withheld. This will be especially so when, as is the case in the three leases involved in Suit 1543/2013, the tax periods will be separated by significant periods of time. In such cases, the taxpayer must be left to the remedies and procedures as are available to him under the statute itself.

22.Before concluding, one point must be made, which might otherwise cause some confusion. If, in the case of lease periods of six months or less, the proviso enables the adjustment of the output tax and the input tax in the same tax period, why grant interim relief at all? Why not let the taxpayer in such cases also to make a claim under the statute, leaving him to suitably postpone making the input tax claim under the proviso? It is important to keep in mind that I have concluded that the three "ingredients" are in favour of the plaintiffs. Therefore, unless some additional or other factor is involved, the plaintiffs would be entitled to interim relief in respect of all the leases, regardless of duration of the lease periods. The plaintiffs would, in other words, be entitled to get an interim injunction against payment of the sales tax in all the leases referred to in para 2 herein above. The reason why interim relief is being restricted and limited to only some of the leases is because in my view that additional factor is to be found in the proviso to section 7(1). The existence of the proviso serves as a limit to the sort of leases in respect of which the Court ought to grant an interim injunction. That limit is, in effect, set by the proviso. Therefore, the relevant lease period should not exceed six months (approximately). In respect of lease periods greater than that the Court ought, in its discretion, to withhold interim relief even if a case is otherwise made out.

23.Needless to say, whatever has been said herein above is tentative in nature and for purposes of the applications for interim relief. It shall not influence or affect the trial of the Suits, where evidence will be recorded and judgment rendered on its own footing.

24.In view of the foregoing, I dispose of the applications as follows:--

Suit 554/2014

(a)C.M.A. Nos. 4214 of 2014 and 4282 of 2014.---These applications are allowed and since a bank guarantee is in place in terms of the order dared 3-4-2014 the interim order already made is confirmed.

(b)C.M.A. 5749 of 2014.---This application, seeking rejection of the plaint, is dismissed.

Suit 1543/2013

(c)C.M.A. 13498 of 2013.---This application is allowed in respect of the aircraft imported under the lease agreement dated 29-10-2013 (Sr. No. 4 in the table in para 2 herein above) subject to the condition that the plaintiff must, within 14 days, furnish a bank guarantee to the satisfaction of the Nazir of this Court for the amount of sales tax involved. If the bank guarantee is not so furnished, the application shall in relation to this lease agreement be deemed to have been dismissed and the earlier interim order will stand vacated and recalled. Insofar as the aircraft imported under the other three lease agreements (Sr. Nos. 1 to 3 in the table in para 2 herein above), the application stands dismissed and the earlier interim order, insofar as it applies to such aircraft, stands vacated and recalled.

MH/P-34/SindhOrder accordingly.