FLYING CEMENT COMPANY VS FEDERATION OF PAKISTAN, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 1945 (2015)

2015 P T D 1945

[Lahore High Court]

Before Syed Mansoor Ali Shah and Mrs. Ayesha A. Malik, JJ

FLYING CEMENT COMPANY

Versus

FEDERATION OF PAKISTAN and others

I.C.A. No.1068 of 2014, decided on 29/05/2015.

(a) Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997).--

----Ss. 7(3), 12(b) & 31(4) & (5)---National Electric Power Regulatory Authority (Tariff Standards and Procedure) Rules, 1998, R.- 17(3)---Law Reforms Ordinance (XII of 1972), S. 3---Intra-court appeal---Determination of electricity tariff---Exclusive function/domain of NEPRA---Scope---Contention of Federal Government was that although tariff of electricity was determined by NEPRA, but it was finalized by the Federal Government under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997---Validity-- Under S.7(3) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, NEPRA had the power to determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies and recommend the same to the Federal Government for notification---Determination or modification of tariff was one of the core functions of NEPRA, and it could not delegate such power---Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, and the National Electric Power Regulatory Authority (Tariff Standards and Procedure) Rules, 1998, did not contemplate any role of the Federal Government in the determination process---Actual determination of tariff laid exclusively with NEPRA, meaning that if any party including the Federal Government desired any change or modification in the tariff, which could include reasons related to the prudency of costs, it would have to file a petition before NEPRA Tariff could only be determined and modified by NEPRA---Once the tariff was determined (by NEPRA) it had to be notified by the Government---Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 being a specific section regarding tariff, casted an obligation on the Federal Government to notify the tariff upon intimation by NEPRA---Any interpretation to the effect that NEPRA (only) recommended the tariff determined by it to the Federal Government for re-examination and review, was not only opposed to the provisions off' the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, it also debilitated and enfeebled the role and purpose of NERPA, which was an autonomous and independent regulator under the said Act---Intra-Court appeal was allowed accordingly.

(b) Words and phrases---

----"Surcharge"---Meaning.

The Free Dictionary by Farlex ref.

(c) Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997)---

----S. 31(5)---National Electric Power Regulatory Authority (Tariff Standards and Procedure) Rules, 1998, R.17(3)---Constitution of Pakistan, Arts. 9 & 24(1)---Law Reforms Ordinance (XII of 1972), S.3 ---Intra-court appeal---Electricity tariff---Equalization surcharge---Debt Servicing Surcharge---Universal Obligation Fund Surcharge-- Neelum Jhelum Surcharge---Surcharges levied on electricity tariff by the Federal Government---Legality and Constitutionality-Involuntary extraction of money from consumers---Contention of Federal Government was that the necessity to impose the surcharges in question was that they represented the cost of the system i.e., the cost of transmission, generation and distribution of electric power consumed, and included capital and development costs for future projects to produce electricity; that the Federal Government was not raising any revenue by levying surcharges but was in fact simply recovering the cost of electricity to ensure economic and efficient generation, transmission and distribution of electricity; that surcharges (costs), over and above the tariff determined by NEPRA were constitutionally permissible and could be imposed by the Federal Government-- Validity---Surcharge was an additional or extra charge on the original charge---Surcharge was supposed to be an add on or additional charge built on an existing charge---Federal Government had argued that all four surcharges (i.e. Equalization surcharge, Debt Servicing Surcharge, Universal Obligation Fund Surcharge and Neelum Jhelum Surcharge) were actually costs of the system, which were not included in the tariff determined by NEPRA---In order for such costs to qualify as a surcharge, there must first exist the original cost to which these surcharges owed their existence to---Impugned surcharges did not rest on an existing charge--- NEPRA has opined that the surcharges in question did not rest on any original cost which is or was under consideration by NEPRA---NEPRA had categorically stated that it had not allowed these costs to be included in the tariff as they did not satisfy the prudency test nor were they directly related to the costs incurred for producing, transmitting or distributing electricity--- Surcharges in question represented costs which were otherwise not included or even considered in the tariff determined by NEPRA, therefore, the impugned surcharges levied by the Federal Government, even though packaged as costs of the system did not figure in the tariff determined by NEPRA---Surcharges in question were, therefore, at best an involuntary extraction of money from the consumers of electricity, labelled as costs of the system or the distribution companies by the Federal. Government---Federal Government levied surcharges in question at its own discretion with no accountability and disclosure of the amounts collected---No prescribed process was laid down under which money collected from consumers was allocated to the power producers---Mode and manner in which the money collected under the impugned surcharges was routed through different accounts maintained by different Government institutions, was not only unconstitutional but also exhibited poor financial governance and discipline, which amounted to playing a fraud on the people---Such extraction of money in the garb of surcharges from the ordinary consumer of electricity was, therefore, violative of the fundamental right to life and property of the consumers---Impugned surcharges, also had no element of quid pro quo, therefore, they could not be labelled as fees---High Court declared the impugned surcharges namely; Equalization surcharge, Debt Servicing Surcharge, Universal Obligation Fund Surcharge and Neelum Jhelum Surcharge levied from time to time through impugned notifications, as unconstitutional and hence set aside the same---High Court directed the Federal Government to refund the amount of surcharges illegally extracted from the consumers---Intra-court appeal was allowed accordingly.

Messrs Gadoon Textile Mills and 814 others v. WAPDA and others 1997 SCMR 641; Sohail Jute Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance and others PLD 1991 SC 329; The Treasurer of Charitable Endowments for Pakistan v.. Central Board of Revenue and 2 others 1986 MLD 1731; Sheikh Nadeem Younas, Chief Executive, Noble Textile Mills, Pattoki, District Kasur v. WAPDA through Chairman WAPDA, WAPDA House, Lahore and 4 others 1996 CLC 1090 ref.

(d) Taxation---

----"Tax and fee"---Distinction---Tax was a common burden for raising revenue compulsorily from the public---Tax was a compulsory extraction of money by the government for a public purpose without reference to any special benefit on the payer of the tax and the amounts collected under a tax became part of the general revenue of the government---Fee on the other hand was levied for rendering some specific service and the amount collected went towards that particular purpose---In the case of a "fee" there must be an element of quid pro quo---"Tax" and "fee" were compulsory extraction of money but the difference between the two laid in the fact that the tax was not co-related to any particular service rendered but intended to meet the expenses of the government and a "fee" was meant to compensate the government for expenses incurred in rendering services to the persons from whom the fee was collected.

Collector of Customs and others v. Sheikh Spinning Mills 1999 SCMR 1402 ref.

(e) Constitution of Pakistan---

----Art. 77 & Fourth Schedule, Parts I & II---Federal Legislative List-- Taxation---Non-tax entries on the Federal Legislative List---Question as to whether the non-tax entries or subject specific generic entries on the Federal Legislative List included the power to taxation---Federal Legislature had the power to make laws in respect of any matter in the Federal Legislative List---Taxation had been specifically dealt with under entries 43 to 53 of Part-I of the Federal Legislative List---Part-II of the Federal Legislative List did not provide for any specific taxation---Purpose of providing specific entries for taxation (entries 43 to 53 of Part-I of the Federal Legislative List) showed that the constitutional intent was to consider "taxation" as a separate subject---Taxation, therefore, could not be read into other generic subject entries in the Federal Legislative List as it enjoyed the status of a separate and distinct subject---Such special space carved out for taxation under the Constitution also found support from Art. 77 of the Constitution which mandated that tax could only be levied under the authority of an Act of Parliament---Such authority to impose taxation had to be specifically and clearly mentioned in the Constitution---In the presence of the specific and clear entries regarding taxation under entries 43 to 53 of Part-I of the Federal Legislative List, it could not be said that the generic entries also included the power of taxation-Taxation was a specific subject and unless specifically and clearly listed in the Federal Legislative List, the power of taxation, could not be read into the general subject entries.

State of W.B. and another v. Kesoram Industries Ltd. and others [(2004 (10) SCC 201] and Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector and E.T.I.O. and others [2007(5) SCC 447] ref.

(f) Regulation of Generation, Transmission and Distribution of Electric, Power Act (XL of 1997)---

----S. 31 (5)---Law Reforms Ordinance (XII of 1972), S. 3---Intra-court appeal ---Excessive delegation of power by the Legislature to the Executive---Electricity tariff---Surcharge---Power of the Executive (i.e. Federal Government) to levy surcharge on electricity tariff---Legality and Constitutionality---Section 31(5) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, provided that "distribution company shall pay to the Federal Government such surcharge as the Federal Government, from time to time, notify in respect of each unit of electric power sold to the consumers..."---Said section did not specify the design and nature of surcharge to be imposed on the sale of the electric power; it also failed to provide legislative parameters or guidelines or legislative policy for determining the amount and nature of surcharge or the number of surcharges to be levied---Legislature has left it to the discretion of the Executive to decide what it wanted to recover and how---Power vested in the hands of the Executive (under S.31(5) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997) was unguided and uncontrolled ---Section 31(5) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, delegated an essential legislative function to the Executive which was not permissible under the Constitution---Foundations of excessive delegation owed its genesis to the doctrine of separation of powers, which was a fundamental principle of constitutional construct-Section 31(5) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, simply opened an unguided window and empowered the Executive to assume legislative responsibility, which offended separation of powers and fell within excessive delegation---Such unguided and unstructured delegation empowered the Executive with a power which was ex-facie discriminatory and hence not permissible under the Constitution-High Court declared S.31(5) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, and the impugned surcharges namely; Equalization Surcharge, Debt Servicing Surcharge, Universal Obligation Fund Surcharge and Neelum Jhelum Surcharge levied from time to time through impugned notifications, as unconstitutional and hence set-aside the same, and that the Federal Government by charging unconstitutional and illegal surcharges from the consumers of electricity had been unjustly enriched---High Court directed that the Federal Government should refund the amount of surcharges illegally extracted from the consumers; that NEPRA should work out the total amount of surcharges collected from the end consumers to date and evolve a plan for the repayment of the said amount through adjustment in tariff for the benefit of the end consumer---Intra-court appeal was allowed accordingly.

Khawaja Ahmad Hassan v. Government of Punjab and others 2005 SCMR 186; Engineer Iqbal Zafar Jhagra and another v. Federation of Pakistan and others 2013 SCMR 1337 and Messrs Pfizer Laboratories Limited v. Federation of Pakistan and others PLD 1998 SC 64 ref.

(g) Taxation.--

--Imposition, administration and implementation of taxes---Legislature and Executive, powers of---Delegation of power of taxation by the Legislature to the Executive---Scope---Legislature was omnipotent in the exercise of the taxing prerogative---Whereas the right to impose taxes and to determine the circumstances under which they would be done was the privilege of the legislative power, administration of the tax law was the responsibility of the executive power---Certain limitations on the taxing power of the Legislature were self-evident-Since the power to raise taxes was a prerogative of the public authority, a Government had only the right to impose a levy in so far as it was competent to do so---Under such principle, all that was necessary was that the rights of the tax administration and the corresponding obligations of the taxpayers be specified in the law---Implementation of the tax was generally regulated by the executive power---Power to fix the rate of tax was a legislative power but if the Legislature laid down the legislative policy and provided the necessary guidelines, that power could be delegated to the Executive---Merely on the ground that the legislature had entrusted the power to alter, modify, vary the tax, a provision could not be held to be impermissible delegation provided the legislation had given its policy and the relevant Act provided sufficient guidelines.

Taxmann's Interpretation of Taxing Statutes pp.5-9 ref.

(h) Legislature---

----Delegation of power by the Legislature---Scope---Legislature could not repose any power, essentially legislative, in another body or organ; it could not efface itself and set up a parallel legislative authority; it must exercise its judgment on vital matters of policy and enact the general principles which should be embodied in the legislation---Legislature could, however, confer upon any person or body, fit to exercise it, the power to work out details and particulars for carrying out its policy and in order to give effect to the legislation in a particular direction---Legislature could not delegate its power to make a law but it could make a law to delegate powers to determine some facts or state of things upon which the law made or intended to make its own action dependant---Where the law was flexible, having laid down broad principles of its policy, the Legislature could leave the details to be supplied by the administrator to adjust to the rapid changing circumstances.

Taxmann's Interpretation of Taxing Statutes pp.5-9 ref.

Appellant'/Petitioners by:

Muhammad Azhar Siddique Assisted by Shahanshah `Shamil Pirracha, Muhammad Irfan Mukhtar, Muneer Ahmed, Shabbir Ahmad, Maryam Mazhar and Amna Liaqat, Mian Muhammad Hussain Chotya, Mustafa Kamal, Rana Ali Akbar Khan, Mian Muhammad Rashid, Miss Rohi Saleha, Muhammad Mohsin Virk, Shahzad Saleem Bhatti, Muhammad Asim Mumtaz, Adnan Ahmed, Muhammad Kamran Siddiqui, Hasham Ahmad Khan, Mian Tariq Mehmood, Mian Masroor Akbar, Ashfaq Ahmad Tabsassum, Muhammad Nawaz, Mirza Qasim Baig, Mirza Abbas Baig, Muhammad Junaid Ashraf, Saood Nasrullah Cheema, Malik Naveed Suhail, Mian Muhammad Tanveer Chotya, Fiaz Ahmed Khan Baloch, Hamad Shafqat Sulahria, Ch. Mumtaz ul Hassan, Azeem Akram, Ch. Farid Anwar, M. Irfan Liaqat, Rana Nadeem Ijaz, Khalil ur Rehman, Mohsin Ali, Saith Nadeem Hussain, Khurram Shahbaz Butt, Babar Ilyas Chatha, Ahmad Bilal, Rubia Latif, Naveed Shabbir Goraya, Ijaz Ahmad Awan, Mehar Shahid Mehmood, Ch. Muhammad Naseer Gujjar, Faisal Tahir, Ch. Inayat Ullah, Muhammad Adeel Chaudhry, Ch.Muhammad Shahbaz Kang, Amna Asif, Malik Aftab Aslam, Sheikh Akbar Ali Tahir, Mumtaz Ahmed Mangat, Jamil Khan, Rana Muhammd Zahid, Ch. Muhammad Ali, Ch. Abdul Razzaq, Ch. Anwaar-ul-Haq-I, Ms. Shabnum Aslam, Fakhar-uz-Zaman Akhtar Tarar, Rana Ali Akbar Khan, Malik Ahsan Mehmood, Muhammad Umer Riaz, Munir Hussain Panjotha, Irtiza Ali Naqvi, Sultan Hassan Malik, Ahmed Bilal Soofi, Mirza Bilal Zafar, Ch. Naveed Akhtar Bhutta, Main Tabssum Bashir, Abid Minhas, Misbah ul Hassan Qazi, Seth Iftikhar Ali Tayyab, Muhammad Javed Iqbal Qureshi and Muhammad Rasheed Bhatti.

Respondents By:

Mirza Nasar Ahmad and Mian Irfan Akram, Deputy Attorney Generals for Pakistan, Syed Akmal Hussain, Standing Counsel for Pakistan for Federation of Pakistan.

Munawar us Salam and Muhammad Shoaib Rashid for Ministry of Water and Power, Islamabad.

Muhammad Shafique for NEPRA.

Umer Sharif for WAPDA/NEPRA.

Amar Sikandar Ranjha and Mansoor Usman Awan for Respondent NEPRA.

Saad Rasool for WAPDA.

Rasaal Hassan Syed for WAPDA.

Sheikh Muhammad Ali, Barrister Haris Ramzan and Ms. Mubashra Khalid forNTDC/CPPA.

Sh. Muhammad Ali and Ms. Mubashra Khan for FESCO Sarfraz Ahmad Cheema for FESCO.

Aurangzeb Mirza for GEPCO.

Muhammad Ilyas Khan for LESCO and FESCO. Mian Muhammad Javaid for FESCO.

Dr. M. Irtiza Awan for IESCP.

Khalid Ishaq for GEPCO.

Syed Murtaza Ali Zaidi for RESCO and MEPCO.

Zargham Eshaq Khan, Joint Secretary, Ministry of Water and Power, Islamabad.

Muhammad Yousaf Raza, Manager Legal, LESCO and Muhammad Yasin Badar,Legal Consitant, LESCO.

Majid Khan, DG, Legal, NTDCL.

Syed Ausaf Ali, D.G. (Tariff) NEPRA.

Muhammad Shahzad, Addl. Secretary, CCI, Islamabad. Sabir Ali, CEO, PEPCO.

Qamar uz Zaman Farooqi, Joint Secretary (Bueget Imp), Ministry of Finance along with Khan Hafeez, Deputy Secretary, Ministry of Finance.

Amici Curiae:

Khaleeq-uz-Zaman, Waqqas Ahmad Mir, assisted by Hassan Niazi, Faizan Raja, Ms. Noor Bano Khan, Ms. Khizra Tariq, Ms, Fatima Arshad, Wasee-ul-Hasnain Naqvee, assisted by Barrister Saba Qaiser.

Assisted by:

Qaisar Abbas and Mo/lsirt Mumtaz, Civil Judi,cs/Researcb Officers, Lahore High

Court, Research Centre (LHCRC).

Dates of hearing: 16th, 17th, 18th, 19th, 23rd, 24th, 26th February, 2nd, 3rd, 9th, 10th, 11th, 12th, 18th, 19th, 20th, 24th, 25th and 26th March, 2015.

JUDGMENT

MRS. AYESHA A. MALIK J.--Appellants and petitioners ("appellants") have challenged the constitutionality, and vires of section 31(5) of the Regulation of Generation, Transmission andDistribution of Electric Power Act, 1997 ("the Act") and the Surcharges levied thereunder. Therefore, this consolidated judgment decides the instant ICA along with connected ICAs (detailed in Schedule 'A') which call into question the judgment of the learned Single Judge dated 26-9-2014, wherein Equalization Surcharge imposed under section 31(5) of the Act was upheld and writ petitions (detailed in Schedule '13') filed after the impugned judgment, challenging all the Surcharges imposed 'under the Act. All these cases raise common questions of law and facts.

2. Appellants before this Court are consumers of electricity who have challenged the vires of section 31(5) of the Act and the following Surcharges levied from time to time since 2008 including:--

(a) Equalization Surcharge ("EQ Surcharge") (subsequently withdrawn vide Notification dated 11-10-2013;

(b) Debt Servicing Surcharge ("D&Surcharge"),

(c) Universal Obligation Fund Surcharge ("UOF Surcharge"); and

(d) Neelum Jhelum Surcharge ("NJ Surcharge")

(b) and d levied through Notifications dated 3-10-2014 and 1-11-2014, collectively referred to as the "Surcharges").

3. The impugned judgment has upheld the levy of EQ Surcharge for being a part of the tariff and that the Federal Government enjoys exclusive power to levy a surcharge under Section 31(5) of the Act. While relying on Messrs Gadoon Textile Mills and 814 others v. WAPDA and others (1997 SCMR 641) ("Gadoon Case"), the impugned judgment declared the EQ Surcharge to be a part of the tariff being cost of electricity. It also finds that the determination of the cost of electricity cannot be "intermingled" with the tariff determined by National Electric Power Regulatory Authority ("NEPRA"). With respect to the vires of section 31(5) of the Act, the impugned judgment holds that the Section neither offends the Constitution of Islamic Republic of Pakistan, 1973 ("Constitution") nor any provisions of the Act.

4. The appellants argued that this is a contradiction in terms as the competent authority under the Act to determine tariff is NEPRA and section 31(5) of the Act allows the Federal Government to levy a surcharge independent of any tariff determination made by NEPRA. The basic issue as argued by the learned counsel for the appellants is the competence of the Federal Government: to levy surcharge without any determination from NEPRA given that NEPRA enjoys exclusive power to determine the tariff. It is their case that the Surcharges are unconstitutional as they are compulsory extraction of money from the consumers. The levy of the surcharge has been delegated to the executive without any guidelines, which renders it illegal and contrary to the constitutional mandate.

5. The appellants have argued that determination of tariff is the exclusive function of NEPRA under the Act and once the tariff is determined by NEPRA as per the Act and the National Electric Power Regulatory Authority (Tariff Standards and Procedure) Rules, 1998 ("Tariff Rules"), the imposition of surcharge over and above the tariff, so determined, defeats the independence and autonomy of NEPRA. It also impairs the right to life, property and fair determination of tariff thereby offending Articles 9, WA, 23 and 24 of the Constitution besides the principles of economic and social justice. It is their case that NEPRA is the regulatory authority which was established to regulate the power sector and for the specialized function of tariff determination. 1 Section 31(5) of the Act allows the Federal Government to bypass the entire process of tariff determination and impose costs which have not been placed before NEPRA and do not conform to the standards and guidelines issued by NEPRA for tariff determination. The appellants argued that the entire purpose and function of NEPRA is defeated when the. Federal Government levies a surcharge and deems it as a cost without any scrutiny from the regulator or under the tariff determination process. This according to them amounts to regulatory capture. They submitted that the imposition of. Surcharges, considered to be cost incurred by the distribution companies, is in effect compulsory extraction of money, which is not permissible under the Constitution. It was also argued that section 31(5) of the Act amounts to excessive delegation of power to the executive resulting in unguided exercise of power which is also unconstitutional. The appellants argued that the Surcharges have been levied to collect revenue from the consumers to meet costs generated due to inefficiency and financial defaults of the Government, theft and line losses in the power sector and related issues. Instead of addressing the faults and gaps in the system, the Federal Government is bridging the deficit by recovering it under the garb of costs of the system from the consumers. It is their case that the Federal Government has failed in its obligation to provide electricity and has placed an unfair burden on the consumers. This amounts to extortion of money from the public which is illegal and violative of the fundamental rights of the consumers of electricity.

6. Learned Counsel for the Federal Government argued that section 31(5) of the Act has been introduced to harmonize the electricity tariff across the country between different distribution companies. The necessity to impose the Surcharges is that they represent the cost of the system i.e., the cost of transmission generation and distribution of electric power consumed and includes capital and development costs for future projects to produce electricity. Learned counsel argued that the Surcharges are aimed at ensuring affordable supply of electricity and stability in the power sector. It is contended that Federal Government is not bound to issue the tariff as determined by NEPRA as it has a constitutional duty to ensure social justice and of providing the basic utility of electricity at an affordable price. Relying on Gadoon's Case they argued that Surcharges (costs), over and above the tariff are constitutionally permissible and can be imposed by the Federal Government. It is their case that the Federal Government is not raising any revenue by levying Surcharges but in fact simply recovering the cost of electricity to ensure economic and efficient generation, transmission and distribution of electricity.

7. Learned Counsel for NEPRA argued that NEPRA did not recommend the levy of any surcharge challenged before this Court. He contented that Surcharges were levied by the Federal Government without any determination from NEPRA. The only surcharge, NEPRA has determined is late payment surcharge, which is a payment to be made by the consumers over and above the tariff, in case of late payment of the electricity bill.

8. Report and parawise comments have also been filed by the National Transmission and Dispatch Company ("NTDC") and Central Power Purchasing Agency ("CPPA") which state that NEPRA determines tariff rates and charges for its licensees and there is no provision under the Act where NEPRA can determine a cost related to the overall system as they only consider cost in terms of their own regulated standards and procedures. The comments further state that the Government has to ensure sustainability of the power sector and has, therefore, levied Surcharges covering costs which are incurred by the system but are not regulated by NEPRA. The role of NTDC and CPPA is to make payments to the producers of electricity. The amounts received by NTDC/CPPA are subject to audit by the Auditor General of Pakistan. Nothing has been concealed and amounts collected are duly notified by the Government. It has also stated that NTDC/CPPA do not maintain any escrow account but on the other hand have opened specific accounts in its name for payments to be made to the generation companies.

9. Pakistan Electric Power Company ("PEPCO"), in its written comments, supports the stance of the Federal Government. Learned Deputy Attorneys General explained that the, Federal Government has the executive authority to levy the surcharge as it has executive authority over all matters contained in the Federal Legislative List ("FLL") and Electricity falls in Part II, Item 4 of the FLL. The Chief Executive Officer of PEPCO also appeared before the Court to explain the role of PEPCO with reference to the Surcharges. He submitted that PEPCO essentially allocates all the amounts recovered as Surcharges amongst the generation companies.

10. M/s. Khaleeq-uz-Zaman, Waqqas Ahmad Mir, and Wasee-ul -Hasnain Naqvee, Advocates were appointed as amici curiae who submitted that tariff determination is the exclusive function of NEPRA in exercise of the powers conferred under section 7(3)(a) of the Act, read with the Tariff Rules. NEPRA determines tariff after following an elaborate procedure in which costs are claimed by the relevant licensees and are determined by NEPRA on the basis of prudency. Tariff is an all inclusive determination which is issued by NEPRA after careful consideration of numerous factors and all costs prudently incurred by licensees to meet the demonstrated needs of their customers. In this entire process the Federal Government can at best require NEPRA to reconsider the tariff but it cannot impose extraneous costs on the tariff. They submitted that the Surcharges, unless determined by NEPRA as a part of tariff, amounts to unlawful extraction of money from the consumer as it has no nexus with the tariff or electricity consumed and therefore places an unfair burden on the consumer. In their opinion the Surcharges are unconstitutional because the Constitution does not allow the Federal Government to arbitrarily impose surcharges and recover its own costs from the consumer. They argued that the Surcharges do not constitute tax because the money collected instead of being deposited into the Federal Consolidated Fund is being routed to different accounts maintained by various institutions to meet the financial requirements of the Federal Government, hence this extraction of money does not pass for a tax and is, therefore, an impermissible levy which cannot be allowed to stand.

Overview of the Power Sector

11. Prior to 1997 electricity was produced, transmitted and distributed to end consumers by the Water and Power Development Authority ("WAPDA") under WAPDA Act, 1958 and Electricity Act, 1910. Thereafter, the entire power sector went through a major restructuring which resulted in the creation of generation companies, a transmission company and nine distribution companies. Generation companies ("GENCOs") include hydropower projects owned by WAPDA, thermal power projects, nuclear power projects, Independent Power Producers ("IPPs") and industrial units with surplus power generation. NTDC is the transmission company. The nine distribution companies are Faisalabad Electric Supply Company ("FESCO"), Gujranwala Electric Supply Company ("GEPCO"), Hyderabad Electric Supply Company ("HESCO"), Islamabad Electric Supply Company ("IESCO"), Lahore Electric Supply Company ("LESCO"), Multan Electric Supply Company ("MEPCO"), Rawalpindi Electric Supply Company ("RESCO"), Quetta Electric Supply Company ("QESCO") and Sukkar Electric Supply Company ("SESCO"), (collectively referred to as "DISCOs").

12. NEPRA is established under Section 3 of the Act and is referred to as the Authority under the Act. It comprises of five members including a Chairman and four members, one from each Province, all appointed by the Federal Government. NEPRA was established to regulate the generation, transmission and distribution of electric power and matters related thereto. The main functions attributed to NEPRA are the issuance of licenses for generation, transmission and distribution of electric power; the establishment and enforcement of standards to ensure quality and safety in the service of electric power to consumers; and to determine tariff for generation, transmission and distribution of electric power. Essentially NEPRA regulates the power sector to ensure coordinated, reliable and adequate supply of electric power. In doing so, NEPRA is mandated to protect the interest of the consumers and the investors. In terms of Section 7(6) of the Act, in performing its functions NEPRA, as far as practicable, must protect the interest of consumers and the companies providing electric power services in accordance with the provisions of the Act and the guidelines provided by the Federal Government. Section 7 of the Act provides that NEPR A shall determine tariff, rates, charges and other terms and conditions for supply of electric power services and recommend the tariff to the Federal Government for notification.

13. The Electricity Cycle entails electricity being produced by the GENCOs, transmitted across the country through NTDC and distributed to the end consumers by the DISCOs. The consumer pays the cost of electricity to the DISCOs, which then pay the cost of generating and transmitting electricity to NTDC. NTDC is the exclusive company engaged in the business of transmission of electric power through the 500 KV, 220 KV and 132 KV transmission lines. The entire process of making payments to generation companies on behalf of DISCOs for supply of electricity through the network is routed through NTDC, which in turn, has set up CPPA to make payments against the invoices raised by the GENCOs.

14. The Government issues its power policies from time to time to set out its vision and guidelines for the power sector. The National Power Policy, 1998 set out the role of NEPRA as an autonomous regulatory authority to promote the establishment of a competitive and efficient power sector while safeguarding the interests of electricity consumers and power sector investments. The Policy states that NEPRA is to determine the tariff and also set guidelines for tariff determination. In terms thereof tariff has two main components; capacity and energy. Tariff also includes prudent costs related to generation, transmission and distribution of electric power as determined by NEPRA. Under the Policy for Power Generation Projects, 2002, NEPRA was again seen as a friendly regulator to protect the interests of consumers and companies providing electric power in line with the guidelines provided by the Federal Government. In terms of the National Power Policy, 2013 issued by the Government of Pakistan, NEPRA was to be strengthened to create a world class regulatory authority with sophisticated and efficient capacity to establish tariffs and set the foundation for a competitive bidding process. The Policy recognizes that tariff rationalization will minimize or eliminate subsidy within the industrial, commercial and bulk consumers. One of the short term objectives set out in this Policy is to harmonize the electricity capacity by rationalizing the tariff. The cost of power generation is to be reduced and efficiency of power generation, transmission and distribution to be increased. The Government of Pakistan also issued the National Power Tariff and Subsidy Policy Guidelines, 2014 with respect to electricity prices and cost allocation so that policy makers, planners, companies, regulators and customers have a concrete picture of the steps required to achieve a sustainable power sector for the country. The policies show that NEPRA is an independent and autonomous regulator of the power sector and enjoys the exclusive responsibility of determining tariff.

Scope and Meaning of Tariff

15. Tariff is defined under. Rule 2(m) of the Tariff Rules to mean: the rates, charges, terms and conditions for generation of electric power, transmission, inter-connection, distribution services and sales of electric power to consumer by a licensee.

Section 7 of the Act provides for the powers and functions of the Authority and vests exclusive responsibility with NEPRA to determine tariff. The Section is reproduced hereunder for ready reference:--

(1) The Authority shall be exclusively responsible for regulating the provision of electric power services.

(2) In particular and without prejudice to the generality of the foregoing power, only the Authority, subject to the provisions in subsection (4), shall -

(a) grant licences for generation, transmission and distribution of electric power;

(b) prescribe procedures and standards for investment programmes by generation, transmission and distribution companies;

(c) prescribe and enforce performance standards for generation, transmission and distribution companies;

(d) establish a uniform system of accounts by generation, transmission and distribution companies;

(e) prescribe fees including fees for grant of licences and renewal thereof;

(f) prescribe fines for contravention of the provisions of this Act;

(g) review its orders, decision or determinations;

(h) settle disputes between the licensees;

(i) issue guidelines and standards operating procedures; and

(j) perform any other function which is incidental or consequential to any of the aforesaid functions.

(3) Notwithstanding the provisions of subsection (2) and without prejudice to the generality of the power conferred by subsection (1) the Authority shall

(a) determine tariff, rates, charges and other, terms andconditions for supply of electric power services by thegeneration, transmission and distribution companies andrecommend to the Federal Government for notification;

(b) review organizational affairs of generation, transmission and distribution companies to avoid any adverse effect on the operation of electric power services and for continuous and efficient supply of such services;

(c) encourage uniform industry standards and code of conduct for generation, transmission and distribution companies;

(d) tender advice to public sector projects;

(e) submit reports to the Federal Government in respect of activities of generation,transmission and distribution companies; and

(f) perform any other function which is incidental or consequential to any of the aforesaid functions.

(4) Notwithstanding anything contained in this Act, the Government of a Province may construct power houses and grid stations and lay transmission lines for use within the Province and determine the tariff for distribution of electricity within the Province.

(5) Before approving the tariff for the supply of electric power by generation companies using hydro-electric plants, the Authority shall consider the, recommendations of the Government of the Province in which such generation facility is located.

(6) In performing its functions under this Act, the Authority shall, as far as practicable, protect the interests of consumers and companies providing electric power services in accordance with guidelines, not inconsistent with the provisions of this Act, laid down by the Federal Government." [Emphasis added]

In terms of section 7(1) of the Act, NEPRA is exclusively responsible for providing electric power services, which means the generation, transmission or distribution of electric power and all other services incidental thereto [section 2(x)] section 7(3)(a) requires NEPRA to determine tariff, rates, charges and other terms and conditions for the supply of electric power services by the generation, transmission and distribution companies and recommend the same to the Federal Government. Section 31 of the Act pr. vides that NEPRA shall determine and prescribe the procedures and 'standards for determination, modification or revising rates, charges and terms and conditions for generation of electric power, transmission, inter-connection, distribution services and power services to consumers. The required standards and procedures are set out in the Tariff Rules. In terms thereof any licensee, consumer, or person interested in tariff can file a petition with NEPRA for its determination. The Tariff Rules sets out the procedure to be followed for tariff determination and Part III of the Tariff Rules provide the Standards and Guidelines which are applied when tariff is determined. In terms of Rule 17, NEPRA can issue standards and guidelines from time to time, and can modify, amend or revoke the same. Rule 17(3) sets out the applicable standards currently followed by NEPRA. Since NEPRA determines the tariff for generation, transmission and distribution companies, the petitions are filed by each licensee, separately. The generation tariff is determined for the term of the Power Purchase Agreement executed with the Federal Government, which is reflective of the life of the power project. The tariff is determined at the inception of the project and thereafter monthly adjustments are made by NEPRA to cater for the fuel cost as contemplated under section 31(4) of the Act. Transmission and distribution tariff is determined on an annual basis and is also subject to monthly adjustments under section 31(4) of the Act.

16. NEPRA hears the petitions in terms of the Act and the Tariff Rules and issues its rulings. Under Rule 16(2), a petition is to be decided within four months of the date of its admission. In the event that the tariff requires recalculation a party may move NEPRA for its recalculation and adjustment. NEPRA can also be petitioned for review of the tariff by a party or by the Federal Government. Once the tariff is finalized it has to be notified by the Federal Government in the official gazette and becomes effective on the issuance of the notification. However, the monthly adjustments are notified by NEPRA.

17. Under Rule 17(3)(i) of the Tariff Rules, the tariff should allow the recovery of all costs prudently incurred.

17. Standards and guidelines:

(3) Tariffs shall be determined, modified or revised on the basis of and in accordance with the following standards, namely:-

(i) tariffs should allow licensees the recovery of any and all costs prudently incurred to meet the demonstrated needs of their customers, provided that, assessments of licensees, prudence may not be required where tariffs are set on other than cost - of - service basis, such as formula-based tariffs that are designed to be- in place for more than one years;" [emphasis added]

The term cost is not defined anywhere in the Act or the Tariff Rules, however, NEPRA has developed a prudency test against which the costs are considered. The Federal Government has justified the Surcharges for being a cost of the system which means the actual cost incurred in the generation, transmission and distribution of electricity and includes future costs for development and costs related to the growth of the system. They have also explained that all costs are directly related to the tariff determined by NEPRA but they were never placed before NEPRA for determination. It is the case of the Federal Government that they are fully competent to levy surcharge on the tariff because they finalize the tariffs. According to them, while NEPRA determines the tariff, its finalization is dependent upon the approval and consequent notification issued by the Federal Government. They argued that the Federal Government has to take into consideration many social and economic conditions related to the power sector and the different classes of consumers. The Government also takes into consideration factors which NEPRA cannot look into as per its standards and guidelines and also has to consider the over-all sector, its stability and growth. In this way the Federal Government can recover the cost of the system in the form of a surcharge on the tariff.

The Nature of the Surcharges

18. Before examining the legality and constitutionality of the Surcharges, it is necessary to first understand the nature of the levy. According to the Federal Government, the justification of the Surcharges is as follows:

UOF Surcharge

The surcharge was levied to maintain a uniform tariff which is based on socio economic objective and related budgetary targets, approved by the Council of Common Interest ("CCI") and Economic Coordination Committee of Cabinet ("ECC"). The amounts collected under this head are deposited into an account titled Universal Obligation Fund maintained with CPPA. The distribution company sends its demand to the CPPA against its invoice. The demand is forwarded to PEPCO which then allocates amounts amongst the DISCOs. CPPA then releases the funds to the GENCOs as per PEPCO's allocation.

DS Surcharge

This surcharge is levied to service the mark up due to the IPPs. The Federal Government has explained that due to law and order situation, administrative and regulatory reasons and lack of consumer discipline, there has been a deficiency in the recovery of dues for supply of electric power. This caused a financial crunch and delayed payments to the IPPs. In order to resolve the matter and meet the financial requirements, the power producers were constrained to obtain funding from commercial banks to prevent the encashment of the sovereign guarantees. The DS Surcharge has been imposed to meet the mark up and late payment component of these loans. The amounts collected under this head are deposited into an account maintained with the CPPA and paid to the Federal Government for amounts paid to the IPPs.

NJ Surcharge

The Government of Pakistan is in the process of building the Neelum Jhelum Hydropower Project with an installed capacity of 969 MW in Azad Jammu and Kashmir by WAPDA through the Neelum Jhelum Hydro Company which is wholly owned by WAPDA. The surcharge collected under this head is deposited in a Fund called `Neelum Jhelum Development Fund" for use in the Neelum Jhelum Hydro Power Project.

EQ Surcharge

This surcharge is essentially an inter DISCO subsidy. Since the Government seeks to maintain a uniform tariff, the EQ Surcharge balances the cost profile of different DISCOs. The amounts collected under this head were deposited in an escrow account maintained by the CPPA for exclusive use for discharging the liabilities of the DISCOs.

19. In terms of the explanation provided by the Federal Government the Surcharges are a recovery of different costs of the power sector. It is their case that the imposition and- collection of the Surcharges directly relate to the cost of electricity and is being imposed as an additional charge on the original cost of electricity. During the course of arguments, Mr. Munawar us Salam, Advocate explained that the Surcharges are aimed at ensuring economic efficiency in the supply of electricity and stability of the power sector. Learned counsel stated that the Surcharges are in line with the policy guidelines set by the CCI and the ECC.

OPINION OF THE COURT

20. In order to examine the constitutionality of Section 31(5) of the Act and the legality of the impugned Surcharges, it is useful to first understand the role of NEPRA and the nature of the Surcharges.

Tariff Determination - sole prerogative of NEPRA

21. Under section 7 of the Act, NEPRA is exclusively responsible for regulating "electric power services" i.e., the generation, transmission or distribution of electric power and all other services incidental thereto [section 2(x)]. Under section 7(3) NEPRA shall determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies and recommend to the Federal Government for notification. Determination is one of the core functions of NEPRA, as is evident from Section 12(b), which shows that NEPRA cannot delegate the power to determine or modify tariff. Section 31 (1) provides that NEPRA shall determine and prescribe procedures and standards for determination of tariff. The purpose of tariff determination is to eliminate exploitation and minimize economic distortions [section 31(2)(f)]. Notification of NEPRA's approved tariff for supply of electric power services by generation, transmission and distribution companies shall be made in the official gazette by the Federal Government upon intimation by NEPRA.

22. Collective reading of the above provisions of the Act reveals that the tariff can only be determined and modified by NEPRA. Once the tariff is determined it has to be notified by the Government. Section 31(4) being a specific section regarding Tariff, casts an obligation on the- Federal Government to notify the tariff upon intimation by NEPRA. The word "recommendation" in section 7(3) of the Act has to be read with section 31(4) and is in the nature of an intimation or request to the Federal Government to notify the tariff. The recommendation to the Federal Government under section 7(3) is only to notify the tariff. It is not that the tariff determined by NEPRA is being recommended to the Federal Government for re-examination and review. Any such interpretation is not only opposed to the provisions of the Act it debilitates and enfeebles the role and purpose of NERPA, which is an autonomous and independent regulator under the Act.

23. Further, the proviso to Section 31(4) of the Act states that the Federal Government can require NEPRA to re-consider its tariff determination and NEPRA shall provide its reconsidered determination within fifteen days. Therefore, the Federal Government at best can request NEPRA to reconsider the tariff determined and no more. The actual determination of tariff lies exclusively with NEPRA. This means that if any party including the Federal Government desires any change or modification in the tariff, which can include reasons related to the prudency of costs, it will have to file a petition before NEPRA. The Act and the Tariff Rules do not contemplate any role of the Federal Government in this determination process. This is also in line with the Power Policies issued by the Government from time to time, where NEPRA is seen as a front line regulator, as well as, a specialized forum where tariff is determined. The contention that the tariff is finalized by the Federal Government under the Act is totally misconceived and not supported by any provisions of the Act.

24. The specific role of NEPRA to determine tariff has a constitutional underpinning. Electricity is a basic utility and has a direct link with the livelihood and quality of life of the people. Tariff determination of this basic utility, therefore, assumes constitutional importance and touches upon the fundamental rights of the people. The legislative wisdom behind establishing an exclusive authority (NEPRA) for determination of tariff structured on provincial representation meets the constitutional value of cooperative federalism. This thought is also echoed elsewhere in the Constitution, where common interests of the Federation are safeguarded by setting up a Council for Common Interests [Articles 153 and 154] which is headed by the Prime Minister and consists of the Chief Ministers of the Provinces and three members from the Federal Government. Similarly, NEPRA has a Chairman and four Members, each Member representing the four Provinces. Constitution mandates that institutions that are regulated by CCI and owe their genesis to Part-II of the FLL, must have a federative character, watching the common interests of all the Provinces and by functioning in an inclusive and collaborative manner. NEPRA is one such institution, which microcosmically reflects this constitutional ethos.

Meaning and validity of the Surcharges

25. The word "Surcharge" is an additional sum added to the usual cost and signifies an addition to an already existing charge.' The levy of 1 a surcharge has come up before the superior courts in several cases. In Gadoon's Case, WAPDA levied a surcharge on the tariff at the rate of 2.5% on the supply charge in the electricity bill. An additional surcharge of 10% for late payment of bill was also levied. The august Supreme Court of Pakistan held that mere nomenclature is not the decisive factor in determining the nature and meaning 'of the levy and the Court must consider the attending factors and circumstances of the case, the reality involved in it, the conduct of the parties, the manner and object of the levy and then decide what in effect the levy is.. The Court held that the word surcharge has to be construed in the context in which it is used.

26. In terms of the pronouncement of the august Supreme Court of Pakistan to appreciate the nature of the surcharge, it is necessary to understand the original charge, as the surcharge is an additional or extra charge on the original charge. In Gadoon's Case, the impugned surcharge was upheld because the surcharge was found, to be a part of the tariff. WAPDA wanted to increase the tariff so it imposed the surcharges. The august Supreme Court of Pakistan 'found -that since WAPDA was competent to determine the tariff for the' supply of electricity, WAPDA could, therefore, also enhance the tariff by imposing a surcharge. The Court held that the surcharge levied wag a part of the tariff and therefore its nomenclature was of little significance. The Court found that since the original charge was the tariff determined by WAPDA, it was well within the power of WAPDA to increase the tariff through a surcharge.

27. In Sohail Jute Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance and others (PLD 1991 SC 329), the levy of iqra surcharge by the Federal Government on imported goods was challenged. The august Supreme Court of Pakistan found that since the iqra surcharge was an additional customs duty imposed on the existing customs duty, it was legal. Therefore, a surcharge, is a levy which is over and above an existing charge and not an independent levy.

28. In The Treasurer of Charitable Endowments for Pakistan v.Central Board of Revenue and 2 others (1986 MLD 1731) the levy of flood relief surcharge was challenged. A Division Bench of the Sindh High Court found that the flood relief surcharge was an additional excise duty leviable on the production of sugar. The court held that surcharge means something additional or in excess of. Since the original charge was the excise duty levied by the Central Board of Revenue, the flood relief surcharge was in fact an additional excise duty on the existing excise duty. Hence the flood relief surcharge was upheld.

29. In Sheikh Nadeem Younas, Chief Executive, Noble Textile Mills, Pattoki, District Kasur v. WAPDA through Chairman WAPDA, WAPDA House, Lahore and 4 others (1996 CLC 1090), a Division Bench of this Court held that WAPDA fixed the tariff and thereafter imposed a surcharge at the rate of 2.5% of the tariff which was then increased up to 10.4% vide different notifications. An additional surcharge was levied which was further increased by subsequent notifications. The argument advanced in this case was that surcharge and additional charge was a tax and not a part of the tariff, hence could not have been imposed by WAPDA. It was argued that the surcharge is a tax which can only be levied through an act of Parliament. The court held that the surcharge was appendage to the tariff of the electricity consumed and therefore WAPDA could increase the tariff by way of a surcharge and an additional surcharge.

30. In the instant cases, the respondents have argued that all four Surcharges are actually costs of the system, which are not included in the tariff determined by NEPRA. In order for the costs to qualify as a surcharge according to the jurisprudence discussed above, there must first exist the original cost to which these Surcharges owe their existence to.

31. The DS Surcharge, services the mark up and late payment surcharge for the benefit of the Government of Pakistan. When payments by CPPA are delayed to the IPPs, the IPPs charge mark-up pursuant to their Power Purchase Agreements. This mark up is paid by the Government through the levy of the DS Surcharge, which is collected from the consumer by the distribution companies and deposited with the NTDC and finally paid to the IPPs by being routed through the CPPA.1 This stands established by the statement of the Government that it has made payments of approximately Rs.146 billion as mark up to the IPPs. Admittedly this cost is not included in the tariff nor considered by NEPRA as a prudent cost.

32. Universal Obligation Fund Surcharge and the Equalisation Surcharge according to the Federal Government is to impose a tariff that is uniform on all consumers in all regions. Therefore, for a particular type of consumer(s), in order to ensure uniformity in the tariff, the Federal Government allows a subsidy by committing to make payment of the unpaid amount under the determined tariff. The Federal Government notifies NEPRA's approved-tariff but instructs for a certain category of consumers to be charged less than that determined by NEPRA. Consequently only a portion of the tariff determined by NEPRA is paid by, the consumer, and the difference (in the amount paid by the consumers and the tariff determined by NEPRA) is paid by the Federal Government as a subsidy. The UOF Surcharge recovers for the Federal Government all amounts paid by it in the form of a subsidy. The respondents have justified these Surcharges on the ground that even after its levy the Federal Government does not exceed the approved tariff determined by NEPRA, hence nothing extra is being charged from the consumer. In effect, the amount of subsidy, intended to politically project a people friendly image of the government, is immediately recovered, through financial gimmickry in the shape of Universal Obligation Fund Surcharge and the Equalisation Surcharge which has no legs or legal justification to stand on.

33. As to the NJ Surcharge it has been imposed to meet the capital cost for the construction of the Neelum Jhelum Hydro Power Project. The surcharge collected from the consumers is paid to a company engaged in the construction and development of the project. It has no direct relation or nexus with the unit of electricity consumed. It is money collected for the purposes of construction and development of the Neelum Jhelum Dam which has yet to be completed. Again there is no original cost (regarding tariff) on the basis of which this cost has been added on as a surcharge.

34. It has been repeatedly stated before us that the Surcharges represent the cost of electricity which are not included in the costs allowed by NEPRA. As explained by Mr. Khalique-uz-Zaman and Mr.Wasee ul Hassnain Naqvi, Advocates/Amici Curiae, NEPRA disallows all costs which are unjustified and a burden on the consumers. In their opinion the Surcharges do not rest on any original cost which is or was under consideration by NEPRA. This statement is not denied by the Federal Government who admit and accept that the Surcharges represent costs which are otherwise not included or even considered in the tariff determined by NEPRA. Therefore, the impugned Surcharges levied by the Federal Government, even though packaged as costs of the system do not figure in the tariff determined by NEPRA. Surcharge is supposed to be an add on or additional charge built on an existing charge. The impugned Surcharges do not rest on an existing charge. The constitutionality and legality of these Surcharges will be examined hereunder in this background.

Constitutional vires of Section 31(5), of the Act and the legality of the Surcharges.

35. The fundamental question before us is the constitutional vires of Section 31(5) of the Act and the constitutionality and legality of the surcharges imposed thereunder. Section 31(5) is reproduced hereunder for convenience:.

31. Tariff (1).-- As soon as maybe, but not later than six months from the commencement of this Act, the Authority shall determine and prescribe procedures and standards for determination, modification or revision of rates, charges and terms and conditions for generation of electric power, transmission, inter-connection, distribution services and power sales to consumers by licensees and until such procedures and standards are prescribed, the Authority shall determine, modify or revise such rates, charges and terms and conditions in accordance with the directions issued by the Federal Government.

(2) The Authority while determining the standards referred to in subsection (1) shall

(a) protect consumers against monopolistic and oligopolistic prices;

(b) keep in view the research, development , and capital investment programme costs of licensees;

(c) encourage efficiency in licensees operations and quality of service;

(d) encourage economic efficiency in the electric power industry;

(e) keep in view the economic and social-policy objectives of the FederalGovernment; and

(f) determine tariffs so as to eliminate exploitation and minimize economic distortions.

(3) The procedures established under sub-section (1) shall include

(a) time frame for decisions by the Authority on tariff applications;

(b) opportunity for customers and other interested parties to participatemeaningfully in the tariff approval process; and

(c) protect-ion for refund, if any, to customers while tariff decisions are pending.

(4) Notification of the Authority's approved tariff, rates, charges, and other terms and conditions for the supply of electric power services by generation, transmission and distribution companies shall be made, in the official Gazette, bythe Federal Government upon intimation by the Authority:

Provided that the Federal Government may, as soon as may be, but not later than fifteen days of receipt of the Authority's intimation, require the Authority to reconsider its determination of such tariff, rates, charges and other terms and conditions. Whereupon the Authority shall, within fifteen days, determine these anew after re-consideration and intimate the same to the Federal Government;

Provided further that the Authority may, on a monthly basis and not later than a period of seven days, make adjustments in the approved tariff on account of, any variations in the fuel charges and, policy guidelines as the Federal Government may issue and, notify the tariff so adjusted in the official Gazette.

(5) Each distribution company shall pay to the Federal Government such surcharge as the Federal Government, from time to time, notify in respect of each unit of electric power sold to the consumers and any amount paid under this subsection shall be considered as a cost incurred by the distribution company to be included in the tariff determined by the Authority.

The Federal Government has taken pains to argue that Section 31(5) of the Act actually levies costs of the system which are packaged and labelled as Equalization Surcharge, Debt Servicing Surcharge, Universal Obligation Fund Surcharge and Neelum Jhelum Surcharge. NEPRA has categorically stated that it has not allowed these costs to be included in the tariff as they do not satisfy the prudency test nor are they directly I related to the costs incurred for producing, transmitting or distributing electricity. Surcharges are, therefore, at best an involuntary extraction of money from the consumers of electricity, labelled as costs of the system or the distribution companies by the Federal Government. The question before us is to first determine the nature of this involuntary extraction of money from the public and then judge its constitutionality and legality.

36. Under the Constitution, the only recognized mode of involuntary extraction of money from the people is through "Taxation" and another close variant is the levy of "Fee" where, the government charges for rendering a service in return. In. Federation of Pakistan through Secretary M/o Petroleum and Natural Resources and another v. Durrani Ceramics and others (2014 SCMR 1630) it has been held that "where the levy is extracted for public purpose, the imposition will be treated as a tax. Tax is a common burden for raising revenue compulsorily from the public." Tax is a compulsory extraction of money by the government for a public purpose without reference to any special benefit on the payer of the tax and the amounts collected under a tax become part of the general revenue of the government. A fee on the other hand is levied for rendering some specific service and the amount collected goes towards that particular purpose. In the case of a fee there must be an element of quid pro quo. In Collector of Customs and others v. Sheikh Spinning Mills (1999 SCMR 1402) it has been held that tax and fee are. compulsory extraction of money but the difference between the two lies in the fact that the tax is not co-related to any particular service rendered but intended to meet the expenses of the government and a fee is meant to compensate the government for expenses incurred in rendering services to the persons from whom the fee is collected.

37. Articles 77 and 142 read with the relevant entries in Part-I of the Federal Legislative List ("FLL") of the Constitution provide the legislative competence of the Federal Legislature in matters of taxation. Entries 43 to 53 of Part-I of the FLL deal with Taxation i.e., taxes on income, corporations, sales, capital value, mineral oil, natural gas and minerals used in generation of energy, on production capacity of any plant and terminal taxes on goods and passengers. Competence of the Federal Legislature to impose fee is provided under entry 54 of Part-I and entry 15 of Part-II of the FLL, which provides for the levy of "fees in respect of any matters in this Part." There is no other mechanism under the Constitution to charge money from the public. In the present context, the Surcharges, in pith and substance, are involuntary extraction of money and it matters less what name they carry.

38. Another aspect of this levy is the manner in which the amounts recovered are being spent. Interestingly, the amounts recovered are parked in different escrow/special accounts and then forwarded to CPPA for onward distribution amongst the GENCOs and to the Neelum Jhelum Company. This means that the recovered amounts are not placed in the Federal Consolidated Fund as prescribed by the Constitution as per Article 78 of the Constitution.

39. What is of concern here is the fact that the Federal Government levies Surcharges at its own discretion with no accountability and disclosure of the amounts collected. All Surcharges go into different accounts and from these accounts the money is routed to CPPA, which releases the payment to PEPCO for payments to the GENCOs. PEPCO having no mandate to do so under its Memorandum of Association releases the funds totally at its discretion. There is no prescribed process under which money collected from consumers is allocated to the power producers. PEPCO as a private limited company whose object as per its Memorandum of Association is to act as a managing agent of WAPDA for the purposes of restructuring WAPDA is managing the revenue collected by the Federal Government under the impugned Surcharges. This self-prescribed role of PEPCO does not find any sanctity in the law or under the Constitution. The mode and manner in which the money collected under the impugned Surcharges is routed through different accounts maintained by different institutions, is not only unconstitutional but also exhibits poor financial governance and discipline, which amounts to playing a fraud on the people. This extraction of money in the garb of Surcharges from the ordinary consumer of electricity is, therefore, violative of the fundamental right to life and property of the consumers.

40. The impugned Surcharges, have no element of quid pro quo, therefore, they cannot be labelled as Fees. With respect to the NJ Surcharge, it could be argued, that there is an element of quid pro quo. However, even if this was the argument, the said Surcharge could not be levied by way of a Money Bill. It is an admitted position that section 31(5) was introduced through Finance Act, 2008 and, therefore, passes for a money bill. Reliance is placed on E.P.C.T. (Pvt.) Ltd. v.Federation of Pakistan, etc [2011 PTD 2643]. Even otherwise, the NJ Surcharge seeks to recover amounts for contribution in the capital costs for the construction of the Neelum Jehlum Dam. Since there is no immediate service being provided as the dam has yet to be constructed even the quid pro quo element of this surcharge is questionable. Hence NJ Surcharge cannot be construed as a Fee.

41. Without further deliberating on the question, whether the present surcharge is truly a tax or some hybrid extraction of money which has no constitutional permissibility or recognition, we proceed further assuming that the surcharge is a tax. This requires us to answer two questions: (a) Whether the Federal legislature is competent to impose the impugned Surcharges through section 31(5) of the Act? and (b) Whether section 31(5) of the Act suffers from excessive delegation, whereby the legislature has surrendered its essential legislative function and policy to the Executive ?

42. In response to the first question the Federal Government has argued that the Surcharges are costs and are imposed under the head `Electricity' (entry 4 of Part-II of the FLL). We have already discussed above that the Constitution does not recognize any involuntary extraction of money other than tax. So what needs to be examined is whetherin-tax entries or subject specific generic entries of the FLL include the power of taxation.

43. Closer review of the FLL shows that the Federal Legislature has the power to make laws in respect of any matter in the FLL. Taxation has been specifically dealt with under entries 43 to 53 of Part-I of the FLL and deals with the following taxes:

43. Duties of customs, including export duties.

44. Duties of excise, including duties on salt, but not including duties on alcoholic, liquors, opium and other narcotics.

45. Deleted

46. Deleted

47. Taxes on income other than agricultural income.

48. Taxes on corporations.

49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed [except sales tax on services.]]

50. Taxes on the capital value of the assets, not including taxes on immovable property.

51. Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.

52. Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation in lieu of the taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them.

53. Terminal taxes on goods, or passengers carried by railway, sea or air; taxes on their fares and freights.

Part-II does not provide for any specific taxation. The purpose of providing specific entries for taxation shows that the constitutional intent is to consider "taxation" as a separate subject and takes it to be at par with other subjects. Taxation, therethre, cannot be read into other generic subject entries as it enjoys the status of a separate and distinct subject. This special space carved out for taxation under the Constitution also finds support from Article 77 of the Constitution which mandates that tax can only be levied under the authority of an Act of Parliament. This authority to impose taxation has to be specifically and clearly mentioned in the Constitution. In the presence of the specific and clear entries regarding taxation under items Nos.43 to 53 of the FLL, it cannot be said that the generic entries also include the power of taxation. This view finds support from State of W.B. and another v. Kesoram Industries Ltd. and others [(2004 (10) SCC 201], where a five member bench of the Indian Supreme Court held that "[taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence2." In Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector and E.T.1.0 and others [2007(5) SCC 447] Indian Supreme Court emphasised that "[A] clear distinction is provided for in the scheme of the lists of the Seventh Schedule between the general subjects of legislation and heads of taxation. They are separately enumerated. Taxation is treated as a distinct matter for purposes of legislative competence vis a vis the general entries...The power to impose tax ordinarily would not be deduced from a general entry as an ancillary power3."

44. Entries Nos. 54 and 15 of Part-I and Part-II of the FLL, show that FLL specifically provides for Fees in respect of any matters in these parts. There is no such provision for taxation besides it also shows that even fee cannot be imposed under the general entries. Therefore, we are of the view that taxation is a specific subject and unless specifically and clearly listed in the FLL, the power of taxation, cannot be read into the general subject entries. Therefore, Federal legislature does not enjoy the legislative competence to impose "taxation" (under section 31(5) of the Act) under the generic entry of Electricity in Part-II of the FLL.

45. Can these Surcharges pass for sales tax under entry 49 of Part-I of the FLL? We do not require to answer this question if section 31(5) of the Act falls on the score of excessive delegation. Section 31(5) of the Act does not provide legislative parameters or guidelines or legislative policy for determining the amount and nature of surcharge or the number of surcharges to be levied. The legislature has left it to the discretion of the executive to decide what it wants to recover and how. The power vested in the hands of the executive is unguided and uncontrolled. The unlimited and unchecked power in the hands of the Executive is visible if we look at the Notifications issued under section 31(5) of the Act. Some of the Notifications, for ready reference are reproduced hereunder:--

Government of Pakistan

Ministry of Water and Power

Islamabad, the October 03, 2014.

NOTIFICATION

SRO No. 984(1)/2014. In pursuance of subsection (5) of section 31 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997), the Federal Government is pleased to notify the surcharge at the rate of Rs.0. 30/KWh on account of recovering the debt servicing applicable to all the consumer categories on per unit consumption in respect of Ex-WAPDA Distribution Companies (XWDISCOs) namely:-

Government of Pakistan

Ministry of Water and Power

Islamabad, the November 01st 2014

NOTIFICATION

SRO No.984 (1)/2014. In pursuance of subsections (4) and (5) of section 31 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997), and in supersession of its Notification No. SRO No.913(1)/2013 dated the 11th October, 2013, the Federal Government is pleased to notify that there shall be levied a surcharge at the rate mentioned against following categories of electricity consumers for electricity sold by Faisalabad Electric Supply Company (FESCO), during each of the billing month, for maintaining uniform rates of electricity across the country for each of the consumer category in accordance with the Federal Government policy with effect from 1st October 2014 namely:-

No.	Tariff category/Particular	Rate (Rs. kWh)
	Residential A1
1.	301-700 Units	1.00
2.	Above 700 Units	0.50
	For peak load requirement 5 kW and above	--
3.	Time of Use (TOU)- Peak	-0.50
4.	Time of Use (TOU)-off-Peak	1.00
	Commercial A 2
6.	For peak load requirement less than 5 kW	0.50
	For peak load requirement 5kW and above
6.	Regular	1.00
7.	Time of Use (TOU)-Peak	0.50
8.	Time of Use (TOU)-Off-Peak	1.00
	Industrial B
8.	BI	-
10.	BI Peak	0.50
11.	BI Off Peak	1.00
12.	B2	-
13.	B2-TOU (Peak)	0.50
14.	B2-TOU (Off-peak)	1.00
15.	B3-TOU (Peak)	0.50
16.	B3-TOU (Off-peak)	1.00
17.	B4-TOU (Peak)	0.50
18.	B4-TOU (Off-peak)	1.00
	Single Point Supply for further distribution
19.	Cl (a) Supply at 400 Volts-less than 5 kW	-
20.	,C1(b) Supply at 400 Volts-5kW and up to 500 kW	-
21.	Cl (c) Time of Use (TOU)-Peak	0.50
22.	Cl (c) Time of Use (TOU)-Off-Peak,	1.00
23.	C2(a) Supply at 11 Kv. -
24.	C2(b) Time of Usew (TOU)-Peak	0.50
25.	C2(b) Time of Use (TOU)-Off-Peak	1.00
26.	C3 Supply above 11 Ky.	-
27.	C3(b) Time of Use (TOU)-Peak	0.50
28.	C3(b) Time of Use (TOU)-Off-Peak	1.00

2. Faisalabad Electric Supply Company (FESCO) shall deposit the amount of this surcharge in a Fund called the "Universal Obligation Fund" to be kept in the Escrow Account maintained at Central Power Purchasing Agency for exclusive use for discharging the liabilities of power producers and surcharge paid under this notification shall be considered as 'a cost incurred by the distribution company to be included in the tariff determined by NEPRA.

3. Provided further that there shall be levied till the 31st December 2015, an additional charge at the rate of Rs.0.10/kwh on the consumption of electricity by every category of electricity consumer except the lifeline domestic consumers of the category "Residential A-1 and such additional charges:-

(a) shall not form a part while calculating the difference between the relevant rates of NEPRA determined tariff and Gop notified rate.

(b) shall be deposited in a Fund called the "Neelum-Jhelum Hydro Power Development Fund" to be kept in the Escrow Account of the Neelum Jhelum Company for exclusive use for the Neelum-Jhelum Hydro Power Project.

4. The Order of the Authority is placed at Annex-I, Fuel Price Adjustment Mechanism at Annex-II, FESCO Power Purchase Price at Annex-III and the Terms and Conditions at Annex-IV to this notification.

Government of Pakistan

Ministry of Water and Power

Islamabad, the November 01st 2014

NOTIFICATION

SRO No. 990(1)/2014. In pursuance of subsection (4) of section 31 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997) and in supersession of its Notification No. SRO No.325(1)/2014 dated the 25th April, 2014, the Federal Government is pleased to notify the National Electric Power Regulatory Authority's determined schedule of electricity tariffs for PESCO, Order of the Authority at Annex-I, Fuel Price, Adjustment Mechanism at Annex-II, PESCO Power Purchase Price at Annex-Ill and the Terms and Conditions of Tariff (for supply of electric power to consumers by distribution licensees) at Annex-IV to this notification, with effect from 01st October, 2014 in respect of the PESCO, namely.

2. Provided further that there shall be levied till the 31st December, 2015, an additional charge at the rate of Rs.0.10/kwh on the consumption of electricity by every category of electricity consumer except the lifeline domestic' consumers of the category "Residential A-I and such additional charges:

(a) Shall not form a part while calculating the difference between the relevant rates of NEPRA determined tariff and GoP notified rate.

(b) Shall be deposited in a fund called the "Neelum-Jhelum Hydro Power Development Fund" to be kept in the Escrow Account of the Neelum Jhelum Company for exclusive use for the Neelum Jhelum Hydro Power Project.

46. Section 31(5) in fact delegates an essential legislative function to the executive which is not permissible under the Constitution. The foundations of excessive delegation owes its genesis to the doctrine of separation of powers, which is a fundamental principle of our constitutional construct. "The first foundation of the modern perspective of the separation of powers is that there is a recognized distinction between the different branches such that each branch of Government has a function that serves as its central and primary function. The primary function of the legislative branch is to legislate (to create statutes, in their functional meaning); legislate (to create statutes in their primary function of the executive branch is to execute the laws; the primary function of the judiciary branch is to judge (in other words, to resolve disputes by determining the facts, interpreting the law, filling in gaps, and/or developing the common law). This approach recognizes that the separation of powers is not pure and that, in addition to its primary function, each branch of government performs some functions that belong to the other branches, so long as they are intimately related to the branch's primary function. " "The legislature is omnipotent in the exercise of the taxing prerogative. Whereas the right to impose taxes and to determine the circumstances under which they will be done is the privilege of the legislative power, administration of the tax law is the responsibility of the executive power. Certain limitations on the taxing power of the Legislature are self-evident. Since the power to raise taxes is a prerogative of the public authority, a government has only the right to impose a levy in so far as it is competent to do so. Under this principle, all that is necessary is that the rights of the tax administration and the corresponding obligations of the taxpayers be specified in the law; that is in the text adopted by the peoples' representatives. The implementation of the tax is generally regulated by the executive power... It is true that the power to fix the rate of tax is a legislative power but if the Legislature lays down the legislative policy and provides the necessary guidelines, that power can be delegated to the executive... merely on the ground the legislature has entrusted the power to alter, modify, vary the tax, the provision cannot be held to be impermissible delegation provided the legislation has given its policy and the Act provides sufficient guidelines. The Legislature cannot repose any power, essentially legislative, in another body or organ; it cannot efface itself and set up a parallel Legislative authority; it must exercise its judgment on vital matters of policy and enact the general principles which should be embodied in the legislation. But it can confer upon any person or body, fit to exercise it, the power to work out details and particulars for carrying out its policy and in order to give effect to the legislation in a particular direction.... The Legislature cannot delegate its power to make a law but it can make a law to delegate powers to determine some facts of state of things upon which the law makes or intends to make its own action depends. The law being flexible, having laid down broad principles of its policy, the Legislature then can leave the details to be supplied by the administrator to adjust to the rapid changing Circumstances.5" It has been held in the case titled Municipal Corporation of Delhi v. Birla Cotton Spg. & Wvg. Mills (AIR 1968 SC 1232) that the principle is well settled that essential legislative function consists of determination of the legislative policy and its formulation as a binding rule of conduct and cannot be delegated by the Legislature. Nor is there any unlimited right of delegation inherent in the legislative power itself. This is not warranted by the provisions of the Constitution. The Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary far implementing the purposes and objects of the Act.

47. In the present case, section 31(5) of the Act provides that "distribution company shall pay to the Federal Government such surcharge as the Federal Government, from time to time, notify in respect Of each unit of electric power sold to the consumers..." This does not specify the design and nature of surcharge to be imposed on the Sale of the electric power. It also fails to specify the number of surcharge permissible under the law. It simply opens an unguided window and empowers the executive to assume legislative responsibility, 'Which offends separation of powers and falls within excessive delegation. Such unguided and unstructured delegation empowers the executive with power which is ex-facie discriminatory and hence not permissible under the Constitution. Reliance, with advantage is placed on Khawaja Ahmad Hassan v. Government of Punjab and others (2005 SCMR 186), where the august Supreme Court of Pakistan has held that:

Where a Court is required to determine whether a piece of delegated legislation is bad on the ground of arbitrary and excessive delegation, the Court must bear in mind the following 'Well-settled principles:-

(1) The essential legislative function consists of the determination of die legislative policy and its formulation as a binding rule of conduct and this cannot be delegated by the Legislature.

(2) The Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation-necessary for implementing the purpose; and objects of the Acts.

(3) Where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the Courts should not interfere.

(4) What guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a consideration of the provisions of a particular Act with which the Court has to deal, including its Preamble.

(5) The name of the body to which delegation is made is also a guidance in the matter of delegation.

(6) What form the guidance should take, will depend upon the circumstances of each statute under consideration, and cannot be stated in general terms. In some cases guidance in broad general terms may be enough in other cases more detailed guidance may be necessary.

In Engineer lqbal Zafar Jhagra and another v. Federation of Pakistan and others (2013 SCMR 1337) (Jhagra Case), it was held that the levy of tax is only permissible under the authority of an act of Parliament. This power of levying the tax cannot be delegated to the executive authority. The basic argument was that the power to impose tax by

Parliament cannot be delegated to the executive where the delegatee of such power can decide at what rate the tax is to be imposed and the duration for which the tax is to be imposed. The august Supreme Court of Pakistan in Jhagra Case held that the authority to levy tax cannot be delegated to the executive. Section 31(5) of the Act, therefore, suffers from excessive delegation and is therefore violative of Article 25 of the Constitution.

48. For the above reasons, Section 31(5) of the Act and the Surcharges namely; EQ Surcharge, DS Surcharge, UOF Surcharge and NJ Surcharge levied from time to time since 2008 through impugned Notifications are, therefore, declared as unconstitutional and hence set aside. For the same reasons, impugned Judgment of the learned single judge dated 26-9-2014 is also set aside.

49. The Federal Government by charging unconstitutional and illegal Surcharges from the consumers of electricity has been unjustly enriched. Therefore, the Federal Government is directed to refund the amount of Surcharges illegally extracted from the consumers. Reliance is place on the case titled Messrs Pfizer Laboratories Limited v. Federation of Pakistan and others (PLD 1998 SC 64). NEPRA is directed to work out the total amount of surcharges collected from the end consumers to date and evolve a plan for the repayment of the said amount through adjustment in tariff for the benefit of the end consumer within three months from the receipt of this judgment.

50.For the above reasons, the instant appeal and the connected matters are, therefore, allowed, with no orders as to costs.

MWA/F-23/LAppeal allowed.