M/s Telenor Pakistan Pvt Ltd. VS FOP, etc.

JUDGMENT SHEET.

IN THE ISLAMABAD HI H COURT. ISLAMABAD.

JUDICIAL DE PARTIVIENT.

Writ Petition No.1618 of 2015.

M/s Telenor Pokistan (Pvt) Ltd.,38- Paris Plazo, F-77, Morkaz, lslamabod.

Vs, Federotion of Pakistan & four others,

Petitloners by. M/s Ali Sabtain Fazli, Molik Sardar Khon, Sardar Ahmad tamal Sukhora, Ayaz Shoukat, lmtiaz Rasheed Sidiqui ond Syed Husnain lbrohim Kozmi, Advocotes in their respective petitions, Respondents by. M/s Hafiz Munowar lqbal, Babar Bilal, Muhammad lrshad Chaudhry, ond Malik Woris Khokhor, Advocates. Raia Khalid Mehmood, Deputy Attorney-Generol and Rashid Hafiez, Additional Advocote General Puniab, Date ol Heoring, 20.04.2077.

AAMER FAROOQ. J.- This judgment shall decide the instant petition as well as Writ Petition Nos.3402, 3599, 3391, L037, 3426, 3425, 3446, 3427, 3474 of 2013, 2246, 228L, 2309,2585 of 2014 and 1810, 1863 of 20tS as common questions of law and facts are involved.

The petitioners in all the petitions are aggrieved of show cause notice(s) issued by the respondent department i.e. lnland Large Taxpayers Unit, lslamabad seeking to recover Federal Excise Duty in the sales tax mode.

02.Mr. Ali Sibtain Fazli, Advocate Supreme Court, learned counsel for the petitioner, inter alia, contended that under Section 3(t) (d) read with Entry-6 of Table-2 of the L't Schedule to the Federal Excise Act, 2005 (Ihe Writ Petition No.1618 of 2015 Page 1

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a Actl, Excise Duty is charged/levied and collected on Telecommunication Services; that under Section 7 of the Act read with SRO-550 (l) 2006 the referred Excise Duty is to be recovered under the provision of Sale Tax Act, 1990 (SfA) as well as the rutes framed there under; that prior to 18th Amendment in the Constitution, Part-l of the Federa! Legislative List set out in the 4th Schedule of the Constitution provided for levy of the referred duty; that after l.8th Amendment to the Constitution some material changes were made in the legislative list and by virtue of Entry-49 and the power to tax services was transferred from Federation to Provinces. !t was further contended that Section 3(1Xd) and Entry-5 of Table-2 of the 1't Schedule of the Act, Rule-43 of the Federa! Excise Rules, 2005 as well as SRO No.550(1) of 2005 dated 05.06.2016 are ultra vires the Constitution; that L8th Amendment in the Constitution has made complete change in the Iegislative domain in relation to tax on services inasmuch as prior to the 18th Amendment contracts for the provision of services lay in the concurrent list which now stands repealed and the Federal Legislative has no jurisdiction for taxing the same; that ltem No.49 of the Federal Legislative List excludes from the domain of Federa! Legislature tax on sales of services i.e. sales tax on services; that now the sale tax of services is within the purview of the provinces and in this regard appropriate legislation has been made by them; that Article L42 of the Constitution provides for the division of legislative powers between the Federation and the Provinces and in this behalf all legislative powers which appear in the Federal Legislative List are within the exclusive domain of the Federation; that while examining the competence of the legislature to legislate the pith and the substance of the subject is to be examined; that since the Federation does not have the power to levy Excise Duty in relation to the services, therefore, the impugned show cause notice is without jurisdiction.

03.Mr. lmtiaz Rasheed Siddiqui, Advocate Supreme Court, appeared in Writ Petition No.3427120L3. inter alia, contended that levy of Federa! Excise Duty on services under the Act has always been in essence tax on the sale of services hence sale tax on services though with the nomenclature of the Federal Excise Duty; that the referred fact is borne out from the Writ Petition No.1618 of 2015 Page2

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definition as provided in the Act. lt was further contended that the above mentioned argument is further strengthened from the fact that the excise duty is recovered as sale tax under the provision of STA, Rules and Regulations made, in this behalf. lt was further contended that under Article 268 (6) of the Constitution in case no adaptation is made by the legislature in light of any amendment or repeal or alteration, the Courts can construe the law with al! such adaptations as are necessary to bring it into accord with the provisions of Constitution. lt was further contended that the Hon'ble Sindh High Court in case reported as 2077 PTD-7 has already declared the levy of Federal Excise Duty in relation to the province of Sindh as uttra vires. !t was further contended that after L8th Amendment to the Constitution the respondent department cannot raise any demand which is in the nature of tax on sales of services.

04, Sardar Ahmad Jamal Sukhara, Advocate Supreme Court, inter alia, contended that the impugned show cause notice as wel! as the demand raised therein is without jurisdiction. ln this behalf it was contended that the demand raised is in essence. Sale Tax on services which is not maintainable under the Constitution after tSth Amendment. Learned Counsel placed reliance on case titled "Hirjina & Co. versus lslamic Republic Of Pakista n" (7993 SCMR 13421to elaborate the nature of the Excise Duty. !t was further contended that items in the legislative list are to be construed on the basis of pith and substance. Other learned counsels for the petitioners adopted the aforementioned arguments by the learned counsels for the petitioners.

04.Hafiz Munawar lqbal, Muhammad !rshad Chaudhry, Babar Bilal and Malik Waris Khokhar, Advocates, appearing on behalf of the respondent department objected to the maintainability of the petitions inasmuch as no adverse order has been passed. ln this behalf, it was further contended that writ petitions are not maintainable against show cause notices and alternate remedy is available to the petitioners. ln support of their contentions learned counsels placed reliance on cases titled "Deputy Commissioner Of lncome Tax/Wealth Tax, Faisalabad vs Punjab Beverage Company (Pvt.) Ltd" (2008 SCMR 3081, "Al Ahram Builders (Pvt.) Ltd.

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vs. lncome-Tax Appellate Tribunal" (1993 SCMR 29). lt was further contended that SRO-550 (l) 2005 applies to all types of telecommunication services. Reliance was placed on case titled "Farhan ud Din Vs. Pakistan Telecommunication Company Limited and others" (2009 PTD L,H.C 5191. lt was further contended that even after LSth Amendment, the Federal Government has the power and authority to levy excise duty and same is borne out from the Entries Nos.44 and 49 of the 4th Schedute. lt was further contended that even lf it is assumed that there is any change after L8th Amendment in the Constitution, the duties levied under the Act shall continue to be applicable in the light of Article 270AA of the Constitution. ln this behalf, reliance was placed on case titled "Government of Punjab vs. Zia Ullah Khan and 02 others" (1992 SCMR 602l.lt was further contended that Entries in the 4th Schedule are to be liberally construed. Reliance was placed on case titled (1993 SCMR 526l.lt was further contended that under Article 270-AA(7) all taxes and fees prior to commencement of 18'h Amendment Act, 2010 shall continue to be levied until they are withdrawn or abolished by an Act of the appropriate legislature. lt was further contended that issues raised in the instant petition already stand decided by this Court in case titled "Pakistan Telecom Mobile Limited vs. Additional Commissioner lnland Revenue Audit Large Taxpayer Unit (W.P. No. 1715/20101 vide judgment dated 09.03.2011;hence in case this Court wishes to take another view in the matter, it has to be referred to the larger Bench in line with the decision of the Hon'ble Supreme Court of Pakistan reported as "Multiline Associates vs. Ardeshir Cowasjee" (1995 PLD SC 423ll. ln support of their contentions, learned counsels further placed reliance on cases titled "M/s Friends Sons and Partnership Concern vs. The Deputy Collector Centra! Excise and Sales Tax, Lahore and 03 others" (PLD 7989 Lahore 33n, "Hirjina and Co. vs. lslamic Republic of Pakistan and another" (7993 SCMR 13421and "Federation of Pakistan and others vs. Haji Muhammad Siddiqui and others" (PLD 2007 SC 1331.

05.The learned Deputy Attorney General, inter olia, contended that Section 3(1Xd) of the Act and Rules framed under the Act as wel! as SRO Writ Petition No.1618 of 2015 Page 4

550(l)/2006 are in accordance with provisions of the Constitution and not ultra vires in any manner.

06.Learned Additiona! Advocate General Punjab, inter alio, contended that sales tax on services is now being charged by the Province of Punjab hence, Federal Government has no authority to levy the same.

07.The petitioners have, inter olia, challenged the vires of Section 3(1Xd) of the Act as welt as Entry No.6 of Table-2 of the 1't Schedule and Rule 43 of the Federal Excise Rules, 2005 along with SRO No.550 (!)2005 dated 05.06.2006. The Hon'ble Supreme Court of Pakistan in case titled "Lahore Development Authority through its D.G vs. Ms. !mrana Tiwana & others" (2015 S C M R 17391 laid down the principles regarding examining the legality of any legislative instrument. !n this regard, the Apex Court propounded as follows:

"1, There is a presumption in lavour ol constitutionality and a law must not be declared unconstitutional unless the statute is placed next to the Constitution and no way can be found in reconciling the two;

ll. Where more than one interpretation is possible, one ol which would moke the law volid and the other void, the Court must preler the interpretation which fovours validity;

lll. A statute must never be declared unconstitutional unless its invalidity is beyond reasonoble doubt. A reasonable doubt must be resolved in lovour ol the statute being valid;

lV, lf a case can be decided on other or norrower grounds, the Court will abstain from deciding the constitutional question;

V. The Court will not decide o larger constitutional question than is necessary fior the determination ol the cose;

Vl. The Court will not declare a statute unconstitutional on the ground thot it violates the spirit of the Constitution unless it also violates the letter ol the Constitution;

Vll. The Court is not concerned with the wisdom or Writ Petition No.1618 of 2015 Page 5

prudence of the legislation but only with its constitutionality;

Vlll, The Court will not strike down stotutes on principles of republicon or democratic government unless those principles are placed beyond legislative encroachment by the Constitution;

lX. Mala fides will not be attributed to the Legislature."

08.The crux of the above motioned principles is that law is to be saved rather than destroyed and every effort should be made to bring legislative instruments in harmony with the provisions of the Constitution and only when the same cannot be done the legislative instrument is to be struck down.

09.Under Section 3(1Xd) of the Act, there is levied and collected, in such manner as may be prescribed, duties of excise on services provided in Pakistan including the services of originated outside but rendered in Pakistan. Similarly, under Entry 6 of Tabte-2 in Schedule 1't of the Act, Telecommunication Services are susceptible to excise duty. Likewise, Rule 43 of the Federal Excise Rules, 2005 provide for special procedure for collection of Federal Excise duty on Telecommunication Services. ln this regard, under Section 7 of the Act the services which are notlfied in the official gazette, the excise duty is to be paid in the Sales Tax Mode. The nature of the excise duty was elaborated by the Hon'ble Supreme Court of Pakistan in cases reported as "Hirjina & Co. versus lslamic Republic Of Pakistan" (1993 SCMR 13421in the following manner:- "The expreision 'duties of excise' has no precise content, ln its norrowest sense it is used in contradistinction to the expression 'duties of customs' thus the levy on goods imported into the country would fall under the heoding'duties ol customs'whereas the goods locatty produced or manufoctured for home consumption would lall under the heading 'duties ol excise'. ln o comporatively larger sense 'duties of excise' would relate to levy made ot any stage lalling between the production or monufacture of goods and their sale to the ultimate consumer. ln a still wider sense it would cover a diverse variety of indirect taxes which have no nexus with the Writ Petition No.1618 of 2015 Page 6

production or monulacture of goods. Similorly, the word 'excise' has no precise or definite meoning."

Similarly, the expression 'charged' and 'levied' were duly considered by the Hon'ble Lahore High Court in case reported as "M/s Friends Sons and Partnership Concern vs. The Deputy Collector Central Excise and Sales Tax, Lahore and 03 others" (PLD 7989 Lahore 337) observed as follows:- "There are three distinct types ol provisions generally in every liscal enactment, The charging provisions, which relate to the levy or chorge ol the tqx, which usually state that tax is to be levied and on what motter, or goods or income and in which monner ond of whot rate and matters relevont thereto. The ossessment provisions, which deol with the ossessment, colculation or quantiftcation of the tox for the purposes of determining the omount of tox due ond payable or which has escaped collection or has been under assessed f or assessed at a lower rate or on which excessive relief or refund has been ollowed, The collection provisions, which relate to the mode ond manner ol receipt or collection oI the tox. The charging sections have to be strictly construed and ony benefit found therein hos to be given to the tax-payer, However, the ossessment and collection provisions ore merely the machinery sections and they con be liberally construed,

The words "levied", "chorged", "paid" and "collected" generolly used in chorging sections do not indicote that ossessment provisions or collection provisions ore included in the charging sections, These words are only used in a general sense to indicote that the duty or tax would be demanded or collected at the rate or in the monner as provided by the charging section, The procedures as regards ossessment and collection ore separately provided for, By itself the words "levied", charged" ond "collected" do not impose the charge. The charge or imposition arises by virtue ol the longuage ol the charging section itself, These words only point or give indication to the element of demand, namely, thot it will be demanded, cloimed or collected ot the rate and/or in the monner provided in the charging section. However, opart lrom charging sections, the word "levy" or "levied" in other ports ol fiscal enoctments could indicate not only the power to impose or roise a tox or duty, but also to ossess or collect the some, depending upon how, where and in whot contert the word is used ond whether such Writ Petition No.1618 of 2015 PageT

extended meoning is possible, There is no cardinal rule that wherever the word "levy" or "levied" occurs, the element of dssessment or collection must be deemed included."

10.ln light of the above provisions and the case law it is evident that Section 3(1Xd) of the Act imposes duties of excise on services rendered in Pakistan which include Telecommunication Services (Entry 5 Table-2, Schedute l-'t of the Act) and Rule 43 of the Federal Excise Rules, 2005 as well as SRO No.550(l)2006 provide the procedure and mechanism for the collection of the referred duty. As already stated under Section 7 of the Act, the excise duty on notified services can be recovered in the Sales Tax Mode, otherwise, under the Rules. ln this behalf, SRO No.550(l)2005 dated 05.06.2005 specifically include Telecommunication Services hence, the Federal Excise Duty on Telecommunication Services can be recovered in the Sales Tax Mode and in this behalf all the relevant provisions of STA and the Rules framed under it are applicable.

11.The thrust of the arguments by the learned counsels for the petitioners was that after incorporation of LSth Amendment in the Constitution, the legislative power of the Federal Legislature has changed drastically and it does not has the power to legislate on sales tax on services. ln this behalf it was contended that since in pith and substance the Federal Excise Duty on services is sales tax on services hence, the Federal Government i.e. Federal Excise Department has no authority and power to raise any demand with respect thereto after passing of 18th Amendment Act, IOLO in the Constitution. The effect of LSth Amendment is that the concurrent list has been done away and the subjects in the Federal Legislative tist falls within the exclusive domain of the Federal Legislature and other subjects are within the purview/domain of the Provinces. For the purposes of the instant petitions Entries No.44 & 49 of Part-l of the Federal Legislative List provided in 4th Schedule to the Constitution are relevant. The referred entries are as follows:-

Entrv No.44.

Duties ol excise including duties on salt, but not including duties on alcoholic liquors, opium ond other narcotics.

Writ Petition No,161B of 2015 Page I

a Entrv No.49.

Taxes on the soles and purchases of goods imported, exported, produced, manufactured or consumed (except soles tax on servlces).

L2. The above two entries clearly show that duties of excise are separate from taxes on the sales and purchases of goods even sales tax on services. The contention of the learned counsels for the petitioners is that in essence the excise duty on services is tax on the sales of the services hence sales tax on services; the referred argument is not correct inasmuch as if such was the case the legislature would not have had two separate entries for duties on excise and taxes on the sales and purchases of goods. The fact that there are two separate entries for the referred taxes means the legislature for all the legal and practical purposes intended two levies to be separate. The fact that excise duty on telecommunication services is to be recovered through sales tax mode also does not make the levy sales tax on services. !n this regard as mentioned in PLD 7989 Lahore 337 supra the assessment and collection provisions are merely the machinery sections distinct from the charging provision. On the referred basis the legislature under section 7 of the Act and SRO No.550 (t) 2006 has made the machinery of sales tax applicable for collecting the Federal Excise Duty and the same is only for the referred purposes only. The tax/levy/duty so collected remains duties on excise under section 3(1) (d) of the Act.

13.lt was also argued on behalf of the petitioners that under Article 268(6) of the Constitution the Court can make necessary adaptations if legislature has not made any amendment in the law. ln view of the above interpretation of Entries No.44 & 49, no adaptation is required in the instant case. ln this behalf while interpreting the recovery of duties of excise in the sales tax mode and incorporation of the provision of STA in the Act, this Court in its decision dated 09.03.2011 in case titled "Pakistan Telecom Mobile Limited vs. Additional Commissioner lnland Revenue Audit Large Taxpayer Unit (W.P. No. 7775/2010) observed as follows:- " 76. There is no cavil to the proposition that ony low can be incorporated by way of relerence and con be made part of onother enactment, The legislation hos every right to incorporqte one act Writ Petition No.1618 of 2015 Page 9

a into another by way ol reference, The dispute in the present case in not regarding the competence to incorporote low by way of reference rather the octual controversy is regarding the effect of the incorporated low.

77.ln judgment reported as PLD 2007 Karochi 422. it wos held that

"when dny low to which relerence is mode, is incorporoted/made applicable to the proceedings under any special stoture or the stotue having reference, then all the provisions contoined in the statute to which reference has been mode ore attracted except those which dre expressly excluded,"

78.ln judgment reported in 7985 SCMR 70, lt was held thot "Affect ol incorporation by reference to the provision of o formol act is as if new oct has come into lorce containing all those provisions subject to such modifications and alteration, if any, as mode by indicoted in odopted Act."

19.ln judgment reported in AIR 2002 5.C.3499, it wos held that "When an earlier Act or certoin of its provisions ore incorporated by reference into o lotter Act, the provisions so incorporoted become if port and parcel of the loter Act os they hod been bodily tronsposed into it. The incorporation ol an earlier Act into o later Act is a legislative device odopted for the soke of convenience in order to avoid verbatim reproduction ol the provisions of the eorlier Act into the later, But this must be distinguished from a referential legislotion, which merely contains o reference or the citation of the provisions of an earlier statue. ln o cose where a stotus is incorporoted, hy reference into o second stotute the repeal of the first stotute by a third does not olfect the second. The later Act alongwith the4 incorporated provisions of the earlier Ad constitute an independent legislation, which is not modlfied or repealed by a modilication or repeal of the earlier Act. However, where in later Act there is o mere reference to on earlier Act, the modification, repeal or amendment ol the stotute this is relerred will also have an affect on the stotute in which it is referred, Whether a lormal statue is merely relerred to or cited in a loter stotue or whether it is wholly or partially incorporated therein, is a question of construction.l Writ Petition No.16LB of 2015 Page L0

20.Keeping in view the afore mentioned iudgments, it becomes clear that if provisions of one Act are incorporated into another Act then the incorporated provisions become port ol Act, in which those provisions have been incorporated. The aflect ol the provisions qre to be determined lrom the language ol incorporated low ond proper interpretation ol words used.

27.ln the present case Central Excise Act, 7944 wos omended. Section 3 of said Act provides thot Excise Duty sholl be levied ond collected in such monner os may be prescribed. By woy of the impugned amendment, the prescribed manner was odopted from sales Tax Act. The contention ol the learned counsel lor the petitioner is thot since in the omendment it was provided thot excise Duty shall be levied and colleded as if it were a tox poyable under Section 3 of Sales Tox Act, 7990, so after the said amendment charging section is that ol Soles Tax Act and not the Central Excise Act, The learned counsel lor the petitioner lurther contended thot whenever words levied ond collected are used together in a fiscol statute then statue hecomes a chorging section, This contention of the leorned counsel lor the petitioner is not correct, Charging provisions relate to the levy of charge of tax, which usually stote that tax is to be levied and on what matter, and in which manner and at what rote and matters relevont thereto. ln the instont case the authority of levying the Excise Duty is derived from Section 3 of Central Excise Act ond not lrom Sales Tax Act. The said provision relotes to the mode and monner and receipt or collection of tax, The ossessment qnd collection dre merely the machinery sections. This il too is not correct thot words levied ond collected are used together in a fiscol stotute then soid statue would become a charging section. ln loct the whole section determines ds to whether the same is charging section or not, However, in the present cose there con be no doubt that the charging section is Section 3 ol Central Excise Act, 7944, os far as the modality of assessment ond tax ond collection of tax is concerned, those have been derived from Sales Tox Act, 7990. Since those provisions by referred provisions became part ol Centrol Excise Act, 7944, therefore, legality or constitutionality ol the some connot be questioned os under Centrol Excise Act duty can be imposed on seruices rendered by a person.

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t4. Moreover, the protection was afforded to all levies and taxes by the Parliament in 18th Amendment as provided in Article 270 AA (7) of the Constitution.

15.The objection raised by the respondents regarding maintainability of the petitions in light of availability of alternate remedy as well as petition under Article 199 being not maintainable against the show cause notice are without substance inasmuch as the petitioners had challenged the vires of Federal Statute as well as Rules made under the same and also raised important questions of law.

16.For what has been stated above, all the petitions mentioned hereinabove are without merit and are accordingly dismissed.

Gn"frirn rfn

JUDGE

Announced in open court this 7th day of luly 2OL7-

tAltol Malik*

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Uploaded By :- Engr.Umer Rasheed Dar

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