Saif Textile Mills Ltd and others Vs Government of Khyber Pakhtunkhwa through its Chief Secretary Peshawar

PESHAWAR HIGH COURT, PESHAWAR

(JUDICIAL DEPARTMENT)

WP No. 5226-P/2018

Saif Textile Mills Limited and others.

...........................Petitioners.

V/s

Government of Khyber Pakhtunkhwa Through its Chief Secretary, Peshawar and 02 others.

.........................Respondents.

For the Petitioners:

For Respondent:

Date of hearing: 23.04.2026

JUDGMENT

SYED ARSHAD ALI, J.- The petitioners in the instant petition, as well as in the connected petitions, are industrial concerns primarily engaged in textile manufacturing and have established their manufacturing units in various parts of the Province of Khyber Pakhtunkhwa. They have filed the instant constitutional petition praying that:

“It is therefore very humbly prayed that on acceptance of this Writ Petition, this Honorable Court may very magnanimously hold, declare and order that: I. Subsection 4 of section 13 of the Finance Act, 1964 alongwith amendments brought in Fifth Schedule of W.P. Act No. XXXIV of 1964 vide Finance Act, 2007, being highly prejudicial, devastative and highly confiscatory in nature is liable to be read down against the Petitioners and no electricity duty whatsoever is payable by the petitioners with respect of the electric power generated and utilized by them indigenously through their own generators. II. No electricity duty is payable by the Petitioner company with respect to line transformation and transmission loses and supplied to their own units. III. Permanently restrain the respondents from making demand of payment of electricity duty generally and more particularly with respects to electric power generated and utilized by the petitioner companies for in house use and also for electric power lost as line losses.

IV. The respondents are bound obligated and required by the law to refund the amount already deposited by the petitioners companies but the way of electric duties.

V. The impugned demand notice dated 01.11.2018 issued by respondent No.2 are illegal, unlawful against the law, without lawful authority and thus without jurisdiction.

VI. All the instruments statutory or otherwise authorizing the respondents to impose, charge or collect electricity duty on generation of electricity through in house generation facilities for self utilization are ultra vires the constitution and this illegal to be struck down and put at naught. VII. Costs throughout”.

2.Essentially, the petitioners challenge the demand notice issued by the Electric Inspector, Khyber Pakhtunkhwa (respondent No. 2), purporting to levy electricity duty on electricity generated through captive power plants and consumed in-house by the petitioners. It is asserted in the petition that the petitioners are companies incorporated under the erstwhile Companies Ordinance, 1984, and hold valid electricity connections from PESCO (respondent No. 3). They contend that, owing to chronic load-shedding and the State’s failure to ensure uninterrupted power supply, despite Khyber Pakhtunkhwa’s status as a surplus hydropower-producing province, they were compelled to establish alternative arrangements through captive generation in order to sustain their industrial operations..

3.The pivotal controversy hinges upon the interpretation of Section 13 of the West Pakistan Finance Act, 1964 (Act No. XXXI of 1964) (“Act, 1964”), as amended by the Khyber Pakhtunkhwa Finance Act, 2007 (Act No. XII of 2007) (“Act, 2007”), and its applicability to electricity generated and consumed within an industrial unit without any element of supply to a third party.

4.At the very outset, it is noted that prior to the 18th Amendment to the Constitution of the Islamic Republic of

Pakistan, 1973 (“the Constitution”), electricity was included in the Concurrent List. However, after the 18th Amendment, electricity was placed in Part II of Schedule IV to the Constitution. None of the petitioners has questioned the validity of the Act or the authority of the Province to levy tax on the consumption of electricity under Article 157 of the Constitution. Nonetheless, the scope of Article 157, which authorizes the Government of a Province to levy tax on the consumption of electricity received by the Province from the national grid, is relevant. Therefore, this Court will restrict its remit to the question of law relating to Section 13 ibid. Before proceeding further, let us examine section 13 of the Act, 1964, as amended through the Act, 2007.

13.(1) From the first day of July, 1964, there shall be levied and paid to Government, on charges for, or as the case may be, the units of energy consumed for the purposes specified in the first column of the fifth schedule, excluding losses of energy in transmission and transformation, a duty (hereinafter referred to as ‘Electricity Duty’) at the rate specified in the second column of that Schedule:

Provided that Electricity Duty shall not be leviable on the energy consumed by, or in respect of the consumers enumerated in the sixth Schedule, except to the extent specified therein:

Provided further that for reasons to be recorded, Government may, by notification in the Official Gazette, exempt any other consumer or class of consumers from the operation of this section.

Explanation—In this section, unless there is anything repugnant in the subject or context-

(a)“consumer” means any person other than a distributing licensee, who is supplied with energy by a licensee;

(b)“energy” means electrical energy when generated, transmitted, supplied or used for any purpose except the transmission of a message;

(c)“licensee” means any person licensed under Part II of the Electricity Act, 1910 (Act No. IX of 1910), to supply energy and includes any person, who has obtained the sanction of the Government under section 28 of the Act.

(2)Every licensee shall collect and pay to the Government, the Electricity Duty payable under this section in such manner as may be prescribed. The duty so payable shall be a first charge on the amount

recoverable by the licensee for the energy supplied by him and shall be a debt due by him to the Government;

Provided that—

(i)the licensee shall not be liable to pay the duty in respect of any energy supplied by him for which he has been unable to recover his dues.

(ii)licensee shall be entitled, for his cost of collection of the duty, to a rebate of such percentage, as may be determined by the Government, on the amount of the duty collected and paid by him under this sub-section.

(3)Where any person fail or neglects to pay the amount of Electricity Duty due from him, the licensee may, without prejudice to the right of Government recover the amount under section 3 of the West Pakistan Government Dues Recovery Ordinance, 1962, (West Pakistan Ordinance No. XXII of 1962), discontinue to supply energy to him and for this purpose, exercise the power conferred on a licensee by sub-section (1) of section 24 of the Electricity Act, 1910 for recovery of any charge or sum due in respect of energy supply by the license.

(4)In the case of energy other than that supplied by a licensee, the person generating the energy shall pay to the Government the Electricity Duty payable under this section in respect of the energy consumed, in such manner as may be prescribed.

Fifth Schedule

1.For energy consumed in respect of premises, not falling under Article 2 of this Schedule, used for—

(a)Residential or Office 8 percent advalorem on the purposes charges for energy consumed.

(b)Commercial purposes 5 percent advalorem on the charge for energy consumed.

(c)An industrial undertaking. 5 percent advalorem on the charges for energy consumed.

(d)Tubewells, irrigation and One paisa for every two units for agricultural machinery energy consumed.

(e)Industrial/Commercial 3 (three) paisa per unit (Kilo Watt undertaking having Hour) of energy generating capacity above generated/consumed.1 500 Kilo Volt Ampere for self use.

5.Section 13 of Act, 1964 constitutes the foundational statutory scheme for electricity duty in the Province. Section 13 (1) provides the substantive charging provision, ordaining that “there shall be levied and paid to Government, on the Clause (e) added through North-West Frontier Province Finance Act, 2007

units of energy consumed for the purpose specified in the first column of the fifth schedule, excluding losses of energy in transmission and transformation, a duty (hereinafter referred to as ‘Electricity Duty’) at the rate specified in the second column of that Schedule. Being a charging provision, it is a cardinal principle of jurisprudence that taxing statute admits of no intendment or equitable construction; the subject cannot be taxed without clear words to that effect, and if the provision is reasonably capable of two interpretations, that which favours the assessee must be adopted. Nonetheless, section 13 (1) creates a general charge on consumption of duty, whereas Fifth Schedule not only provides for the measure of charge but also identifies various sectors, residential, commercial, industrial, and agricultural, having different rates of duties (prior to the amendment in the Act, 2007). Similarly, the responsibility to collect and pay the Electricity Duty to the Government lies on licensee. The licensee stands defined in Explanation (c) “means any person licensed under Part II of the Electricity Act, 1910 (Act No. IX of 1910), to supply energy and includes any person who has obtained the sanction of the Government under section 28 of the Act. It is settled law that in any taxing statute, there are three stages; firstly, the imposition or creation of the very tax or levy known as the ‘charge’. The provision which deal with the latter are called the charging section. Secondly, the quantification of the tax of levy which is called ‘assessment’ and thirdly, the recovery of the levy or tax is called collection. The latter two are the machinery provisions, which are contained in the machinery sections of statute.2 The scope and function of the licensee triggers only at the recovery stage, which is also in respect of the general Electricity Duty charged M.Y. Electronic Industries (Pvt) Ltd. Vs. Government of Pakistan

(1998 SCMR 1404)

under section 13 (1) ibid. Since the impugned demand was raised to the petitioners in respect of the electricity which they have self-generated, therefore, essential to the present controversy is section 13 (4) of the Act, 1964, which provides that “in the case of energy other than that supplied by a licensee, the person generating the energy shall pay to the Government the Electricity Duty payable under this section in respect of the energy consumed, in such manner as may be prescribed”. Prior to the amendment in the Fifth Schedule, through Act, 2007, the reading of section 13 (4) would construe and contemplate a scenario where energy is generated by a person, who is not a licensee but is nonetheless to supply to a consumer. The proposition too “being significant importing the existence of two distinct legal persons: the generator or supplier and the consumer. Explanation (c) originally defined licensee as “any person licensed under Part II of the Electricity Act, 1910 to supply energy and include any person who has obtained the sanction of the Government under section 28 of the Act.”

6.Much emphasis was laid by the learned counsel for the petitioners on the phrase “licensee” as it appeared under the Electricity Act, 1910 (“Act, 1910”), which has undergone significant changes over time. The learned counsel referred to the definition of licensee provided in section 2(h) of the Act, 1910, and section 2(xvii) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, and contended that PESCO, not being a licensee under the Act of 1910, is therefore not subject to the recovery provision applicable to the petitioners. To further strengthen his arguments, with emphasis on the element of supply, the learned counsel relied upon the judgment of the Apex Court in Government of Punjab through Secretary Irrigation and Power and another v. Kunjah Textile Mills Ltd. and others

(2025 SCMR 239), wherein a similar levy, introduced through an amendment to the Punjab Finance Act, 1964, was declared illegal. Since the learned counsel has placed reliance on the Kunjah Textile Mills Ltd. case (supra), it is appropriate to first refer to the law that was the subject matter of discussion before the Apex Court in the aforesaid case.

4.Section 13, as it stood in 2001 after an amendment made therein by the 2001 Ordinance was as follows (emphasis supplied):

“13. Electricity Duty.- (1) From the first day of July, 1964, there shall be levied and paid to Government, on the units of energy consumed for the purposes specified in the first column of the Fifth Schedule, excluding losses of energy in transmission and transformation, a duty (hereinafter referred to as 'Electricity Duty') at the rates specified in the second column of that Schedule:

Provided that Electricity Duty shall not be leviable on the energy consumed by, or in respect of the consumers enumerated in the Sixth Schedule, except to the extent specified therein: Provided further that for reasons to be recorded, Government may, by notification in the official Gazette, exempt any other consumer or class of consumers from the operation of this section. Explanation- In this section, unless there is anything repugnant in the subject or context-

(a)"consumer" means any person other than a distributing licensee, who is supplied with energy by a licensee;

(b)"energy" means electrical energy when generated, transmitted, supplied or used for any purpose except the transmission of a message;

(c)"licensee" means a person licensed under section 15 or 20 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997) to engage in the generation and sale of energy to a consumer and includes any person generating the electric power from a generator having the capacity of more than five hundred kilowatt for self use.

(2)Every licensee shall collect and pay to the Government, the Electricity Duty payable under this section in such manner as may be prescribed. The duty so payable shall be a first charge on amount recoverable by the licensee for the energy supplied by him and shall be a debt due by him to the Government:

Provided that-

(i)the licensee shall not be liable to pay the duty in respect of any energy supplied by him for which he has been unable to recover his dues;

(ii)the licensee shall be entitled, for his cost of collection of the duty, to a rebate of such percentage, as may be determined by the Government, on the amount of the duty collected and paid by him under this subsection.

(3)Where any person fails or neglects to pay the amount of Electricity Duty due from him, the licensee may, without prejudice to the right of Government to recover the amount under section 3 of the Punjab Government Dues Recovery Ordinance, 1962 (West Pakistan Ordinance XXII of 1962), discontinue to supply energy to him and for this purpose, exercise the power conferred on a licensee by sub section (1) of section 24 of the Electricity Act, 1910 for recovery of any charge or sum due in respect of energy supplied by the licensee.

(4)In the case of energy other than that supplied by a licensee, the person generating the energy shall pay to the Government the Electricity Duty payable under this section in respect of the energy consumed, in such manner as may be prescribed.”

It is to be noted that section 4 of the 2001 Ordinance substituted the definition of “licensee” in clause (3) of the Explanation to subsection (1) such that it became as reproduced above. That is all that section 4 did. For present purposes, it is necessary only to set out the Fifth Schedule, referred to in subsection (1). This stood as follows in 2001:

1.In case of energy supplied by a licensee Electricity duty on the to consumers of categories specified as amount of the energy charges worked out according to the electricity tariff.

(a)domestic 7 percent

(b)office or commercial 3 percent

(c)industrial undertakings 3 percent (d) tubewells and irrigation and 4 percent agricultural machinery

(e)premises where the supply of energy 4 percent by a licensee is unmetered

2.In case of energy not supplied by a Electricity duty per unit licensee to consumers of categories specified as

(i)domestic 2.50 paisa

(ii)industrial 1.50 paisa

EXPLANATION

1."electricity tariff means Schedules of Tariffs made under provisions of sections 12, 13 and 25 of the West Pakistan Act XXXIV of 1958.

II. Premises which are used wholly or principally for manufacturing processes within the meaning of section 2 of the Factories Act, 1934 shall be deemed to be used for an industrial undertaking." The 2001 notification was in the following terms:

"In exercise of the powers conferred upon him by Section 4 of the Punjab Finance Ordinance, 2001 (VI of 2001) and in supersession of all previous notifications, the Governor of the Punjab is pleased to direct that any person generating the Electric Power from a Generator having the capacity of more than 500 KW shall pay the Electricity Duty w.e.f. 01- The previous notification superseded, as relevant for present purposes, was one issued on 30.12.1985, which was in the following terms ("1985 notification"):

"In exercise of the power conferred on him under Section 13 of the Punjab Finance Act, 1964 (Act No. XXIV of 1964) the Government of the Punjab is pleased to exempt the consumers using private generators from the payment of electricity duty with immediate effect”.

7.There is a marked distinction between Entry No. 2 in the Fifth Schedule as applicable in Punjab and its introduction through the Act of 2007 in the Province of Khyber Pakhtunkhwa. In Punjab, Entry No. 2 emphasizes the supply of energy by a person who is not a licensee to a consumer, whereas in Khyber Pakhtunkhwa the language is explicit that the charge is imposed upon an industrial or commercial undertaking having a generating capacity above 500 Kilo Volt Ampere for self-use. Furthermore, Khyber Pakhtunkhwa not only omits supply as a condition precedent for the levy but also encapsulates the consumption of energy for self-use as the taxing event. In this context, since in the case of energy for self-use the element of supply is absent, the clear language of subsection (4) of section 13, read with the Fifth Schedule, does not constitute a taxing event; hence, the levy was not

legally sustainable. Paragraphs 8 and 9 of the said judgment are accordingly reproduced.

8.What does the first column of the Fifth Schedule indicate? It is a table that comprises of two entries. Both relate to the supply of energy to consumers, the first by a licensee and the second by a person who is not a licensee. Now, this has two aspects. Firstly, it is in the nature of a “supply” that, unless something else is shown in the relevant statutory provisions, it ordinarily relates to two distinct and separate persons, one being the supplier and the other to whom the supply is made. The second aspect is that it is the second person who must be the consumer of the energy. Thus, the taxing event in terms of section 13 (1) is on the energy consumed, such consumption resulting from a supply of energy by either a licensee or someone who is not a licensee to a person who is the consumer of the energy, said consumers falling in the various categories or classes set out in the first column of the Fifth Schedule. This is the first stage, or the leviability of the duty.

9.This brings us to the next question: do the respondents fall within the taxing event? In our view, the answer must be in the negative. They certainly produce energy by means of their generators of more than 500 KW capacity. But this energy is for self use, i.e., consumed by the respondents themselves. Thus, there is no “supply” of the energy in terms as just explained. The second element of the taxing event did not apply to them and hence they are not within the levy.

8.Following the judgment in Kunjah Textile Mills Ltd.’s case, the Province of Punjab further amended the Punjab Finance Act, 1964 through Act No. LXXXVI of 2025. Thus, the mischief was remedied by the Province of Punjab..

9.In the present case, a reading of subsection (4) of section 13 of the Act, 1964, in juxtaposition with Entry No. (e) in the Fifth Schedule, makes it clear that the charging provision applies where, in the case of energy other than that supplied by a licensee, the person generating energy for self- consumption is liable to pay duty at the rate prescribed in the Schedule. The law relating to the interpretation of taxing statute is clear, as observed by Rowlett, J, in the case of The

Cape brandy Syndicate v. The Commissioner of Inland Revenue 12 Tax Cases 358:

“That in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax; there is no presumption as to tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly, and that is the tax”.

10.In the present case, notwithstanding the constitutional scheme relating to the authority of the Province to levy Electricity Duty, a plain reading of subsection (4) of section 13, read with Entry No. (e) of the Fifth Schedule, confirms the validity of the Electricity Duty imposed by the Province. Accordingly, for the aforesaid reasons, these petitions are dismissed.

JUDGE

JUDGE

Date of announcement Of judgment.............

Nawab Shah CS (DB) Justice Syed Arshad Ali & Justice Muhammad Faheem Wali