NEW ALLIED ELECTRONICS INDUSTRIES (PVT.) LTD. VS FEDERATION OF PAKISTAN through Secretary, Revenue Division, 2017 PTD-KARACHI-HIGH-COURT-SINDH 130 (2015)

(a) Sales Tax Act (VII of 1990)---

----Ss. 3, 7-A, 13, 71, & 2 (13)----Sales Tax Special Procedure Rules, 2007, R. 58-B---S.R.O. 482(I), 2011, dated 03.06.2011---Constitution of Pakistan, Arts. 199 & 77---Constitutional petition---Scope of tax---Levy and collection of tax on specified goods on value addition---Exemption---Special procedure---'Importer'---Meaning and scope---Tax to be levied by law only---Payment of sales tax on account of minimum value addition---Collector of Customs was charging three per cent minimum value addition tax on import of cellular mobile phones from importers under R. 58-B of Sales Tax Special Procedure Rules, 2007 read with S.R.O. 482(I), 2011, dated 03.06.2011---Contention raised by importers was that they were already paying tax under S. 3 of Sales Tax Act, 1990 on imports and taxable supplies, and that levy of said value addition tax did not trigger at import stage, and that the same was, therefore, against scheme of Sales Tax Act, 1990---Validity---Arrangement of Sales Tax Act, 1990 provided that tax was to be charged and collected on added value of goods at each supply---Section 7-A of Sales Tax Act, 1990 empowered Federal Government to specify, charge and collect sales tax on the difference between values of supply, for which, goods were acquired, and value of supply, for which, goods, either in the same state or on further manufacture, were sold or supplied---Under S. 7-A (2) of Sales Tax Act, 1990, if certain persons or class of persons, so required, declared minimum value addition for supply of goods of such description or class as might be prescribed, Federal Government was authorized to waive the requirement of audit or scrutiny of records on such declaration---Levy of value addition tax was interrelated and subject to event of supply of goods---Each supply was supposed to signify value addition to goods, which had been made a taxable activity under Sales Tax Act, 1990 in form of input tax and output tax---If input tax exceeded output tax, difference was refundable or adjustable in next tax year; vice versa, supplier had to pay differential amount---Reason behind charging sales tax at every stage of supply was an admitted increase in value that Legislature had made taxable---"Importer", as defined under S. 2(13) of Sales Tax Act, 1990, was any person who imported any goods into Pakistan, and whose status was palpably distinguishable from that of supplier, who supplied goods after adding some value to the same---Under S. 3 of Sales Tax Act, 1990, 'import' had been distinctively mentioned from "taxable supplies", which suggested dissimilarity between the two events---"Import" and "supplies", by implication and connotation, had to be considered as two different areas for tax purpose---Under Ss. 3(2) & 3(3) of Sales Tax Act, 1990, tax on import had to be paid by person importing goods; specification of manner, mode and fixation of rates, at which such tax had to be charged and collected, had been made prerogative of the Government---No question over authority of Federal Government, as to charging of sales tax at specified rate and mode of recovering such tax, could be legally raised---As soon as importer on arrival of his goods at port was charged with sales tax, event to the extent of import got completed, and then next event relating to supply of goods started, that, under the law, was independently taxable and could not be intertwined or mingled with the imports---Under S. 3 (3) of Sales Tax Act, 1990, person making the supply would pay the tax---Any person supplying goods, under said provisions of Sales Tax Act, 1990, could not be equated with importer---Imposing tax on any activity in manner not provided under any statute is illegal and unlawful---Rules framed by Federal Government by exercising powers under Sales Tax Act, 1990, had to be necessarily in consonance with the Act to achieve its aims and objects---Rule 58-B of Sales Tax Special Procedure Rules, 2007 levying value added sales tax on import of goods was inconsistent with provisions of Sales Tax Act, 1990 and the same, therefore, could not be permitted to hold (the ground)---Petitioners were paying tax in terms of S. 3 of Sales Tax Act, 1990, and value addition tax under R. 58-B of Sales Tax Special Procedure Rules, 2007 could not be charged from them---Constitutional petitions were allowed accordingly.

2010 PTD 2673; 2013 PTD 1491 and 2014 SCMR 220 ref.

Engineer Iqbal Zafar Jhagra and another v. Federation of Pakistan 2013 PTD 1491 rel.

(b) Constitution of Pakistan---

----Arts. 77 & 199----Sales Tax Act (VII of 1990), Ss. 3, 7-A & 71---Sales Tax Special Procedure Rules (2007), R. 58-B---Constitutional petition---Tax to be levied by law only---Scope---Scope of tax---Levy and collection of tax on specified goods on value addition---Special procedure---Delegated legislation---Powers of Executive---Scope---Payment of sales tax on account of minimum value addition---Levy of tax plays pivotal role in the society, but since it puts pecuniary burden on person, its imposition is not permissible unless warranted by law---Levying tax is essentially the domain of Parliament as mandated by Art. 77 of the Constitution---Article 77 of the Constitution provides in clear terms that tax can be imposed and collected either by or under authority of the Act of Parliament, and nowhere it is provided that Executive, on its own, can introduce some new tax on basis of rules in derogation to what the main statute prescribes---Purpose of delegating powers to Executive to frame rules, devise regulations and issue notifications and guidelines is only to facilitate implementation of laws to the best of their object and mandate---Executive, assuming such powers, is not permitted to frame rules or issue notification that are independent of the scheme of parent law---Any such attempt would render the rules, regulations, etc. nullity in eyes of law.

Engineer Iqbal Zafar Jhagra and another v. Federation of Pakistan 2013 PTD 1491 rel.

Khalid Javed Khan for Petitioner (in C.P. No.D-526 of 2014).

Iqbal Salman Pasha for Petitioner (in C.Ps. Nos. D-1519 and D-2001 of 2014).

Iqbal Salman Pasha for Petitioner (in C.P. No.D-2000 of 2014).

Iqbal Salman Pasha for Petitioner (in C.P. No.D-2577 of 2014).

Iqbal Salman Pasha for Petitioner (in C.P. No.D-2606 of 2014).

Iqbal Salman Pasha for Petitioner (in C.P. No.D-3611 of 2014).

Ghulam Haider Shaikh for Petitioner (in C.P. No.D-3494 of 2014).

Amjad Jawed Hashmi and Ch. Muhammad Zafar for Respondents.

Ashfaque Ahmed Janjua, Federation of Pakistan.

Date of hearing: 9th September, 2015.

ORDER

MUHAMMAD IQBAL KALHORO, J.---The common question in all these petitions arise out of the circumstances where Respondent/ Collector of Customs, Air Freed Unit (AFU), Quaid-i-Azam International Airport, Karachi in pursuance of Rule 58B of the Sales Tax Special Procedure Rules, 2007 (2007 Rules) is charging 3% minimum value addition tax on import of cellular mobile phones from the petitioners.

2.Relevant facts briefly are that the petitioners are private limited companies and are engaged, inter alia, in the import of cellular mobiles phones. They are paying fixed amount of sales tax on import of cellular mobile phones in pursuance of S.R.O. 280(I)/2013 dated 4.4.2013 and S.R.O. 460(I)/2013 dated 30.5.2013. In addition to the above, the petitioners are being constrained to pay sales tax at 3% by value addition under Rule 58B of 2007 Rules. According to the petitioners this is completely illegal as no sales tax except the one already paid by them could be charged at import stage. There is also no adjustment of the input tax paid at the import stage by the petitioners on the imported cellular mobile phones. It is further stated that as regards the tax on activation of SIM Cards, it does not concern the petitioners.

3.In para wise comments, Respondent No.2 has stated that the enforcement of value addition tax at 3% by way of minimum value addition under rule 58B of 2007 Rules read with S.R.O. 482(I)/2011 dated 03.06.2011 is legal, lawful and in conformity with the prevailing rules. The Federal Government is empowered in terms of Section 3(2)(6) of the Act to impose by notification in the official gazette and to declare that in respect of any goods imported into or produced or on any tenable supplies made by a registered person, the tax shall be charged, collected and paid. The value addition tax is enforced; inter alia, under sections 3, 13 and 71 of the Act and rule 58B of Rules 2007 is relevant and correctly enforced.

4.Mr. Khalid Javed Khan, learned counsel for the petitioner mainly contended that the tax-charging provision was section 3 of the Act, whereby sales tax was being levied and collected on imports and taxable supplies made in Pakistan; that import and making supplies were two different concepts in the law which needed to be taxed separately; that only on supply of goods additional tax could be levied under section 7A of the Act for the reason that value addition did not trigger at import stage; that collecting additional tax on import from the petitioners at 3% under Rule 58B of 2007 Rules was completely illegal and against the very scheme of the Act which recognized import and supply of goods as two different events operating in distinct regimes. He referred to Section 3 of the Act in this regard and further added that no tax on account of value adding could be charged at the time of import on presumptions and in anticipation of its further sale; that entire sales tax chargeable on the import of cellular phones was already determined and being paid by the petitioners in pursuance of various SROs. According to him as the value added tax was payable at different stages of sale and could be adjusted as input tax from output tax, therefore it could not be imposed on import stage, which just ended as soon as the goods arrived at port; that there was no provision that impugned tax could be passed to the buyers, therefore it was illegal and unjustified; that when the petitioners were already paying fixed tax in terms of SROs that were in the field, no additional tax under Rule 58B of 2007 Rules could be imposed upon them. He further contended that levying additional tax was not only inconsistent with the provisions of the Act but militated against the exemption granted to the petitioners under section 13 of the Act. He lastly stated that no tax other than the one envisaged by section 3 of the Act could be imposed or collected from the petitioner through the subordinate legislation such as Rule 58B of 2007 Rules. He in support of his arguments, relied upon the judgments reported in 2010 PTD 2673, 2013 PTD 1491 and 2014 SCMR 220.

5.Mr. Iqbal Salman Pasha, learned counsel for some of the petitioners argued that although the petitioners were being charged value added tax but contrary to the provisions of the act were not allowed to make adjustment of input tax from the output tax; that as per section 7A of the Act, value addition tax was chargeable only on the supply of goods; that event of import was not the subject matter of said section and no tax other than the normal one chargeable under the Act could be imposed at import stage through the rules.

6.On behalf of respondents Nos.2 and 3, Mr. Amjad Hashmi learned advocate contended that vide SRO 542(I)/2008 dated 11.6.2008 a tax of Rs.500/- was imposed on each imported cellular phone set, thereafter by two subsequent SROs i.e. 280(I)/2013 dated 4.4.2013 and 460(I)/2013 dated 30.05.2013 imported phone sets were classified into different categories and accordingly they were taxed at different rates. He next argued that tax levied and collected through those SROs was according to law as event of import was also a taxable activity. He defended value addition tax charged from the petitioners under rule 58B of 2007 Rules, and stated that as per section 3 (2) (b), (5), (6) of the Act, there were twelve styles and variations under which Federal Government was competent to impose tax, hence the impugned tax was legal and lawful.

7.Heard the parties and perused the record. In view of the contentions raised before us, we are of the view that the controversy between the parties is limited to a single point i.e. whether charging value addition tax at 3% on imports in terms of rule 58B of 2007 Rules is in accordance with the vires of the Act. The arrangement of the Act obviously tells us that it is to be charged and collected on added value of the goods at each supply. Section 7A of the Act has a particular reference in this regard and it unambiguously empowers the Federal Government to specify, charge and collect sales tax on the difference between the value of supply for which the goods are acquired and the value of supply for which the goods either in the same state or on further manufacture are sold/supplied. Under clause (2) of the said section if certain persons or class of persons, so required, declare minimum value addition for supply of goods of such description, or class as may be prescribed, the Federal Government is authorized to waive the requirement of audit or scrutiny of records on such declaration. A bare reading of foregoing provisions denotes that levy of value addition tax is interrelated and subjected to the event of supply of goods. Each supply is supposed to signify value addition to the goods; which therefore is made a taxable activity under the Act in the form of input tax and output tax. If the input tax exceeds the output tax, the difference is refundable and/or adjustable in the next tax year, but in case of vice versa the supplier has to pay the differential amount. The reason therefore, behind charging sales tax at every stage of supply is an admitted increase in value of the goods that the legislature has made taxable. This arrangement by means of its nature and character is quite different to what happens at import stage. In order to understand import and meaning of imports in the present context, we refer to clause (13) of section 2 of the Act where the importer is defined as any person who imports any goods into Pakistan and such status is palpably distinguishable from supplier who supplies goods after adding some value to it. Further in section 3 of the Act, which prescribes scope of sales tax, the import has been distinctively mentioned from taxable supplies suggesting thus the dissimilarity between the two events that by implication and connotation have to be considered as two different areas for tax purpose. By the scheme of subsections (2) and (3) of section 3 of the Act, tax on import has to be paid by the person importing the goods, the specification of manner and mode and fixation of rates at which such tax has to be charged and collected has been made a prerogative of the Government. It is therefore obvious that as long as charging sales tax at specified rate and mode of recovering such tax are concerned, no question over the authority of the Federal Government can be legally raised. However, in the same breath, it must be said that as soon as the importer on arrival of his goods at the port is charged with the sales tax, the event to the extent of import gets complete, and then next event relating to the supply of goods starts that under the law is independently taxable and cannot be intertwined or mingled with the imports. The liability to pay tax in the case of supply of goods has been defined in clause (a) of subsection (3) of section 3 of the Act, according to which the person making the supply shall pay the tax. It needs no repetition that any person supplying the goods cannot be equated with importer in view of above apparent provisions of the Act.

8.Having discussed so, we now proceed to advert to the fact that, when in the very Act regulating levy of sales tax there appears no provision to charge value addition tax on imports, can the Executive Authorities by having recourse to the subordinate rules impose such tax. No doubt levying of tax plays pivotal role in the society but since it puts pecuniary burden on the person; its imposition is not permissible unless warranted by law. The arena of levying tax essentially is the domain of the parliament as mandated by Article 77 of the Constitution, which prescribes in clear terms that a tax can be imposed and collected either by or under the authority of Act of the parliament. Nowhere, it is provided that the Executive on its own can introduce some new tax on the basis of rules in derogation to what the main statute prescribes. Imposing tax on any activity in the manner, not provided under any statute is illegal and unlawful. It appears that under S.R.O. 480(I)/2007 dated 9.6.2007, 2007 Rules were framed by the Federal Government by exercising powers under the Act. These rules therefore have to be necessarily in consonance with the Act to achieve its aims and objects. It needs to be emphasized here that the purpose of delegating powers to the Executive to frame rules, devise regulations and issue notifications and guidelines is only to facilitate implementation of laws to the best of their object and mandate. By assuming these powers, the Executive however are not supposed to, and are also not permitted to frame rules or issues notification that are independent of the scheme of the parent law. Any such attempt would render the subject rules, regulations etc., nullity in the eyes of law. The question of levying tax though executive authority also came under discussion before the Honourable Supreme Court in the case of Engineer Iqbal Zafar Jhagra and another v. Federation of Pakistan (2013 PTD 1491), wherein following observations have been recorded in paras 20 and 21:--

"20. It is well settled proposition that levy of tax for the purpose of Federation is not permissible except by or under the authority of Act of Majlis-e-Shoora (parliament). Reference in this behalf may be made to the case of Cyanamid Pakistan Ltd. v. Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislative powers cannot be delegated to the Executive Authorities. Also see Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh ( 2004 YLR 192).

21. There cannot be two opinions that the Declaration dated 13-6-2013 inserted in the Bill unless passed by the Majlis-e-Shoora (parliament) was an executive act of the Government and not a legislative act of the Majlis-e-Shoora (parliament), therefore, imposition or increase as well as reduction of the sales tax with immediate effect in pursuance of the Declaration made under section 3 of the Act, 1931 was against salutary principle envisaged by Article 77 of the Constitution, which lays down that no tax shall be levied for the purpose of the federation except by or under the authority of Act of Majlis-e-Shoora (parliament)."

9.After having had above discussion and taking guidance from the referred decision, we are left with no doubt that Rule 58B of 2007 Rules levying value added sales tax on import of goods is inconsistent with the provision of the Act and cannot be permitted to hold under the facts and circumstances discussed above. The petitioners are paying tax in terms of section 3 of the Act and additionally under the SROs referred to above in Para No. 2, the value addition tax as per rule 58B of 2007 Rules cannot be charged from them. Resultantly the petitions in hand are liable to be allowed in such terms with no order as to costs. All the petitions are disposed of accordingly along with pending applications. These are the reasons of our short order dated 09.09.2015.

SL/N-35/Sindh Petitions disposed of.