M/s Gadoon Textile Mills and 02 others Vs Federation of Pakistan and 02 others

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JUDGMENT SHEET

IN THE PESHAWAR HIGH COURT. PESHAWAR

(Judicial Department) W.P No. 6127-Pl20L9 IWs Gadoon Textile MiUs and 02 others vs. Federation of Pakistan and 02 others.

W.P. No. 415-P12020 Lucky Cement Limited and another vs Federation of Pakistan and 02 others.

W.P No. 443-Pl2020 Cherat Cement Company Limited and another vs. Federation of Pakistan and 02 others.

W.P No. 4 s7-Pt2020 Cherat Packaging Limited and another vs. Federation of Pakistan and 02 others.

W.P No. 5627-Pl2020 IWs Gadoon Textile Mills Ltd vs. Federation of Pakistan and 02 others.

For the Petitioner (s): IWs Salman Akram Raja & Qazi Ghulam Dastagir, Advocates.

For the Respondent (s): IWs Sanaullah DAG, Rehmanullah & Mukhtar Ahmad Maneri, Advocates, along with Siraj Muhammad Assistant Commissioner Inland Revenue.

Date of Hearing: 07.06.2023

Date of Announcement: 07 .09.2023

JUDGMENT

SYED ARSHAD ALI. J. By this common judgment, we intend to dispose of the instant petition as well as connected Writ Petitions No.41 5-P 12020, 443'P 12020, 457'P 12020, and 5627-P\2O2O whereby the petitioners have challenged the constitutionality of amendment in Section 658, of the Income Tax Ordinance, 2001 ("Ordinance") through Finance Act, 2019 ("Impugned Legislation").

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t L iWS Gadoon Textile Mills and 02 others have jointly filed this petition challenging vires of the Impugned Legislation amending section 658 of the Ordinance. It is the contention of the petitioners that in pursuance to the tax incentives offered under section 65B of the Ordinance, the petitioners had invested a huge amount of money in the expansion and upgradation of their textile plant during the period July 1't, 2018 to June 30d', 2019, purchased additional machinery which was installed by the petitioners between July 1't, 2018 and June 30th, 2019. Thus, they are entitled to a ta>r credit in terms of section 658 of the Ordinance on the date of installation. The petitioners contended that the proviso added to section 658 of the Ordinance reducing the ta< credit from Llo/o to 05%o for the tal< year 2019 and the curtailment of sunset clause from June 30ft,2021, to June 3Os.,20t| could not be applied retrospectively so as to vitiate the vested right acquired by the petitioners by making investment as per section 658 ibid beside the same being a past and closed transaction.

3.The respondents have filed their para-wise comments. It is their case in the comments that though the industrial undertakings on investment in plant and machinery during the crucial period were allowed a tax credit equal to l0o/o of amount invested, however, the same has deprived the State Revenue from collection of minimum tax as well as final ta>r which are adjustable against it. The tax credit resulted in tar loss of rupees eighty-seven billion to the revenue for the tax year 2017 alone. Thus, the obvious purpose of the impugned 4 legislation i.e. curtailing tax credit was to generate revenue amounting to rupees eighty-five billion approximately. It is also pleaded that the Impugned Legislation was passed by competent legislation which cannot be struck down on the basis of the claim as raised in the petition.

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( 4. IWs Lucky Cement Ltd has, inter-alia, pleaded that pursuant to the incentives introduced through section 658 ibid, the petitioner/company has installed and expanded the modernization of its already cement plant by adding Vertical Cement Mills, Waste Heat Recovery Systems etc at Pezu and Karachi in the year.- 2017 and was able to install the same before June 30th, 2019 against huge investment and thus ta>< credit has become its vested right which cannot be denied to it. Additionally, the petitioner/company has entered into a contract with Tianjin Cement Industry Design and Research Institute Company Ltd on 01.06.2018 for purchasing machinery etc, therefore, is eligible for tax credit at the rate of lloh for the tax year 2020. The significant partition of the machinery purchased was installed prior to June 30rn,20lg and the new project is now completely functional.

5.I\4/S Cherat Cement Company Ltd through W.P No.443-Pl2020 claims that in pursuance of incentives offered through section 658 of the Ordinance, it initiated the process of setting/expansion of additional dry clinker Production Line No.III of 6700 tons of clinker production per day along with Waste Heat Recovery Plant etc by investing in the purchase of the aforesaid plant and machinery for the purpose of extension, expansion, balancing, modemization, and replacement of the plant and machinery. The said installed plant and machinery commenced its production by January, 2019; thus, the petitioner is entitled to the full tur credit of l0o/o as provided in section 658 of the Ordinance. 2 L IWS Cherat Packaging Ltd through W.P No.457-P12020 4 claims that in pursuance and acting upon the entitlement available to the petitioner/company under section 65B of the Ordinance, it initiated the process of setting up a flexible packaging project/division in the year 2017 which was installed and commenced its production in the month of

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tt october, 2018, therefore, the petitioner is entitled to 10% of the tax credit against the total amount invested.

7.Mr. Salman Akram Raja, Advocate, the learned counsel on behalf of one of the petitioners has addressed the lead arguments. The leamed counsel has maintained that as evident from un-amended provision section 658 of the Ordinance; as it was on statute book; before the Finance Act, 2019; any company that has invested any amount in the company for expansion of the industrial undertaking set up in Pakistan, a credit equal to l|Yo of the amount so invested shall be allowed against a tax payable. In pursuance of the said incentives, the petitioner-company invested a huge amount in the industrial undertaking for the purpose mentioned in section 658 of the Ordinance, however, by amending section 65B through Finance Act,201,9, not only the tax credit has been halved but the period provided for installation of the machinery by 30ft June, 2O2L was curtailed/brought back to 30th June, 2019. This Impugned Legislation cannot deprive the petitioner-company of the tax credit which had become the properfi of the petitioner as neither the Impugned Legislation could be retrospectively applied to the case of the petitioner nor the vested right accrued to the petitioner by making investment as contemplated through section 65B of the Ordinance could be vitiated. The learned counsel has referred to the judgment passed by the worthy Sindh High Court in the case of CPD 8233 of 2019 (Sapphire Textile Mills Ltd vs. Federation of Pakistan and others) decided on 07.02.2023 wherein a similar issue has been effectively resolved. The learned counsel has also relied upon the law settled by the superior courts relating to the retroactive application of taxing law in the cases of Pakistan & others (2005 PTD 259), Mollasis Trading & Limi

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(1993 SCMR 1905), Shahnmuaz (Pvt\ Limited vs. Pakistan through the Secretary Mintstry of Finance etc (2011 PTD t 558), Pak Elehron Limited & vs. Federal Board of Revenue & others (2018 PTD 778), Zila Council Jhelum through DCO vs. trI/s Pahistan Tobacco Comparyt Ltd & others (PLD 2016 SC 398), Al-Samrez Enterprise vs. The Federation qf Pakistan (1986 SCMR 1917), Province of East Pakistan vs. Sharafatulah & 87 others (PLD 1970 SC 5U) A Al-Tech Ensineers and v^r. Federation of Pakistan and others (2017 SCMR 673).

8.The worthy counsel has finally proposed that the factual aspect of the case as to whether a person had purchased and installed the equipment machinery within the period as contemplated by section 658 ibid or otherwise be determined by the department in any appropriate proceedings, however, this Court may only determine the interpretation of Finance Act, 2019 for having neither arly retroactive application to the past and closed transaction nor can vitiate the vested rights acquired by the Petitioners as agitated in preceding paras.

9.lWs Sanaullah worthy Deputy Attorney General, Rehmanullah & Mukhtar Ahmad Maneri, Advocates, the learned counsels on behalf of the respondents have argued that the Impugned Legislation was passed by the competent legislative assembly i.e. Parliament and the Parliament always has the power, to such extent, to take away the vested right. In support of their arguments, they have relied upon the law laid O down bv the Aoex Court in the case of Messrs Elahi Cotton

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Mills Ltd and others vs. Federation of Pakistan through Secretarv lWs Finance, and 6 others (PLD 1997 SC 552). They do not object to the scope of determination by this Court as proposed by the learned counsel for Petitioners.

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t 10. In order to appreciate the legal issues propositioned by the learned counsel for the petitioners, we deem it appropriate to re-produce the un-amended section 65B of the Ordinance as it was prior to the amendment vide Finance Act,2019; "658. Tax credit or investment (1) where a taxpayer being a company invests any amount in the purchase of plant and machinery, for the purposes of extension, expansion, balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten percent of the amount so invested shall be allowed against the tax payable, including on account of minimum tax and final taxes payable under any of the provisions of it this Ordinance, by in the tnanner hereinafter provided.

(2)the provisions of sub-section (1) shall apply if the plant and machinery is purchased and installed at any time between the Jirst day of July, 2010, and the iTth day of June, 2021.

(3)The amount of credit admissible under this section shall be deductedfrom the tox payable by the taxpayer in respect of the tax year in which the plant or machinery in the purchase of which the amount referred to in sub-section (l) is invested and installed.

(4)The provisions of this section shall mutatis mutandis apply to a company setup in Pakistan before the first day of July, 2011; which tnakes investment, through hundred percent new equity, duringfirst day of July, 201I and 3A' day of June, 2016, for the PurPoses of balancing, modernization and replacement of the plant and machinery already installed in an industrial undertaking owned bY the comPanY' 2 However, credit equal to twenty percent of the amount so invested shall be 4 iltowed against the tax PaYable, including oi account of minimum tax-and taxes under anY of the final "provisions PaYable o7 tlrit Ordinance' The credit 'shalt be atliwed in the year in whtch the plant and rnachinery in the purc.hase of 'which the investment as foresaid is made' is installed therein.

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Explanation. For the purpose of this section the term "new equity" shall, hwe the same meaning as defined in sub- section (7) of section 658.

(5)Where no tax is payable by the taxpayer in respect of the tax year tn which such plant or machinery is installed, or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof as the case tnay be, shall be carriedforward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than two tax years in the case of investment referred to in sub- section (1) and for more than five tax yeqrs in respect of investment referred to in sub-sectton (4), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub- section (l) or sub-section (4), as the case may be.

(6)Where any credit is allowed under this section and subsequently it ls discovered by the Commissioner Inland revenue that any one or more of the conditions specified in this section was, or were, no fuffilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall recompute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as rnay be, apply accordingly."

11.The essential and salient features of section 658 can be illustrated as following;

i)that a taxpayer company may invest an amount of rnoney in the purchase of plant and machinery for the purpose of expansion, balancing, modernization and replacement of the plant and machinery already installed in an industrial undertaking setup in Pakistan and owned by tt;

ii)The plant and machinery so purchased should be installed. by or before 30'h June 2021.

iii)the said company shall be entitled to a tax credit equal to l0% of the amount so invested

agqinst the tax payable including on account of minimum tax and final tax payable under any provision of the Ordinance;

iv)the tax credit would be allowed against the income tax liability in respect of tax year in which the plant or machinery is purchased and installed;

v)when in the said tax year, the company was not required to pay any tax or its tax liability in the said year ts less than the arnount of tm credit as stated above, the said tax credits are so much of it is in excess thereof,, as the case may be; shall carryforward and deductedfrom the tax payable by a toxpayer for the following two consecutive tax years;

vi)at any time, if the Commissioner finds that the tax credit has been availed by the taxpayer without fulfilling the essential conditions stated above, the competent authority may recompute tax payable by the taxpayer in accordance with law.

72.Unlike; as envisaged by section 65D of the Ordinance and subsection (a) of section 658, sub section (1) of section 658 does not explain the mode of investment through raising of new egutff, therefore it is open to the taxpayer company that in order to avail the tax credit it may opt any option for investment either from its own resources or through a financial institution or a bank.

13.The term "tax credit" has not been defined under the Ordinance, however, the Apex Court in the case of H.M. Extraction Ghee and Oil Industries (Pvt\ Ltd has very elaborately explained the same while referring to a well- known passage of Lord Dunedin rendered in the case of Whrtnef and has held that:

? "Now, there are three stages in the imposition of 4 tax: there is the declaration of liability, that is the part of statute which determines what persons in respect ofwhat property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But H.M. Extraction Ghee and Oil Industries (Pvt) Ltd and another Vs. Federal Board of Revenue and another (2019 SCMR 1081) Whitney v. IR Commissioners ((1926) 10 TC 88)

assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay."

It was finally concluded by the Apex Court while drawing distinction between exemption and tax credit, that the exemption inserts itself between the first two stages i.e. between what is leviable and what is payable where the ta>r credit inserts itself between the second and third stages i.e. between what is payable and what is recoverable.

14.Therefore, it can be said that tax credit once earned under a legal dispensation is a coin in the pocket/trands of the taxpayer which can be adjusted against the ta>( assessed against the tax payer as per the law allowing such adjustment.

75, Through the Finance Act, 2019, section 658 of the Ordinance was amended/substituted in the following manner:- "(13) in section 658,-

(A)in sub-section (I), for full stop, occurring at the end, a colon shall be substituted and thereafier, the following provisos shall be added, namely: - Provided that for the tax year 2019 the rate of credit shall be equal to Jive percent of the amount so invested:

Provided further that the provisions of sub-section (5) relating to carry for-ntard of the credit to be deducted from tax payable, to the following tax years, as specified in the said sub-section, shall continue to apply arter tux year 2019; and

(B)in sub-section (2), for the figure "2021", the .figure "2019" shall be substituted;"

76.The amendment inffoduced through the Impugned 2 Legislation can be illustrated as following;

/ D The first proviso inserted as above; applies to the tax year 2019 (lst July 2018 as per section 74 of the Ordinance) whereby the tax payer making any investment in the monner os provided under sub-section 658 of the Ordinance would be entitled to a reduced rate of tax credit i.e 5 0z6 of the investment.

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il) The second proviso reaffirms the carrying forward of tax credit to the following two tax yeqrs.

III)The machinery or equipment purchased through an investment as envisaged by sub-section I ibid shall be tnstalled by 30th June 2019.

77.The language employed in the Impugned Legislation does not give any impression of its retrospective application in clear words. However, it is the case of the revenue that the effect of the Impugned Legislation is that if taxpayer company though has invested any sum of money for purchasing plant and machinery etc, however, if it has failed to install the said machinery by 30th June, 2019, it will not be entitled to any tax credit, however, if any taxpayer company was able to have installed machinery by 30ft June, zOLg in that case it will only entitled to the tax credit equal to 05o/o of the amount invested in the expansion of undertaking for the tax period,

18.The Allahabad High Court in the case of Upper Doab Sugar Mills3 has aptly summarized the rule of interpretation of taxing statutes as follows:

"it is well settled that in a taxing statute one has to look at what is clearly said. There is no room for any intendment; there is no equity about a tac. Nothing is to be read and nothing is to be irnplted"

19.At common law, there is a presumption that a statute does not have retrospective effect. The statement in Ma>lwell on the Interpretation of Statues, 12ft Edition (1969), page 215 4 is frequently quoted:

"Upon the presumption that the legislature does not intend what is unjust rests the leaning against giving certain statues a retrospective operation. They are construed as operating only in cases or on facts which come into existence after the statues were

Commissioner of Income Tax Kanpur vs. Upper Doab Sugar Mills (1978) All LJ 128.

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passed unless a ret\ospective effect ,s clearly tntended. It is a fundomental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. "

20.Lord Woolf, LCJ while speaking for the Court in the case of Wainwrighta at para-Z7 has stated, "tlte general presumption that legislation should not be treated as changing the substantive law in relation to events taking place prior to legislation coming into force." The principle was very elaborately explained in'the case of Gustavson Drilling (1964) Ltd s by the Supreme Court of Canada wherein at page 279 to 280 Dickson Judge observed that the general rule is that statues are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act. An amending enactment may provide that it shall be deemed to have come into force on a date prior to its enactment or it may provide that it is to be operative with respect to transactions occurring prior to its enactment. In those instances, the stafute operates retrospectively. Superficially the present case may seem akin to the second instance but I think the true view is to be that the repealing enactment in the present case, although undoubtedly affecting past transactions, does not operate retrospectively in the sense that it alters rights as of a past time. The section as amended by the repeal does not purport to deal with taxation years prior to the date of the amendment;

it does not reach into the past and declare that the law or the z<- rights of parties as of an earlier date shall be taken to be something other than they were as of that earlier date. The effect, so far as the appellant is concerned, is to deny for the o W'ainwright v. Home Office[2002J QB 1i34, 1345F s Gustavson Drilling (1964) Ltd v. Minister of National Revenue ueTn I scR 271

future a right to deduct enjoyed in the past but the right is not affected as of a time prior to enactment statute.

27.In our jurisdiction, the Apex Court of Pakistan in the case of Aziz-ud-Din Industries Ltf has affirmed the said principles in our jurisprudence wherein; it was held that: "It is well-settled that no statute shall be construed so as to have a retrospective operatton unless its language ls such as plainly to require such construction. "

22, In the case of Al-Samrez EnterpriseT, the Apex Court while dealing with the matter where exemption was granted by the Government through notification issued under section 19 of Customs Act, 1969 and when the said exemptions were withdrawn after the opening of letter of credit by a party in favour of foreign supplier, the Apex Court has held that: "the opening of letter of credit by a party infovour of foreign supplier had created vested right in favour of the party which could not be token qwait or destroyed by the withdrowal of exemption on the date subsequent to the opening of letter of credit."

23.In order to nulli$ the effect of Al-Samrez's case, the then Government through parliament had inserted section 3lA in the Customs Act, 1969 through Ordinance No.2 of 1988 in the following manner: - "Sectton 3lA.Elfective rate of duty.-(I) Notwilhstanding anything contained in any other law for the time being in force or alty decision of any Court, for the purposes of section 30[30AJ and 31, the rate of duty applicable to ony goods shall include any amount of duty imposed under Section 2 18p8A and 18C1. [OmittedJ and the

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amount of duty that may have become payable in consequence of the withdranal of the whole or any part of the exemption or concession from duty whether before or a after the conclusion of contract or agreement for the sale of such goods or

Collector of Central Excise and Land Customs and 3 others vs. Azizuddin lndustries Ltd, Chittagong (PLD 1970 Supreme Court 43e)

Al-Samrez Enterprise Vs. Federqtion of Pakistan(1986 SCMR 191n

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opening of a letter of credit in respect thereof

(2)For the purpose of determining the value of any imported or exported goods, the rate of exchange at which any foreign curuency is to be converted into Pakistan currency shall be the rate ofexchange inforce on the date immediately preceding the relevant date referred to in Sections 30, 30A or 31."

24.The effect and retrospective applicability of insertion of section 31A to the law laid down by the Apex Court in the case of Al-Samrez Enterprise once again came up before the Apex Court in the case of Mollasis Trading & Export (Pvt) Limited wherein it was approved and confirmed that the legislation has achieved the purpose by inserting Section 31A in the Customs Act to nulliff the effect of the judgment passed by the Apex Court in the case of ,4\-Samrez Enterprise, however, relating to the past and closed transaction, the Apex Court has opined;

" In the light of the aforesaid principles it cannot straightoway be held that the mere fact that section 3I-A has been given retrospective ffict, it will affect even the past and closed transactions or all the vested rtghts that have accrued. It ts in this context that the remaining contentions ofthe learned counsel for the appellants are to be examined.

It has been urged on behalf of the appellants that as the bill of entry was presented in all these cases before lst July, 1988, when section 3l-A was enacted and enforced, their cases are past and closed transactions.

There seems to be a great deal offorce in this submtssion. Before the insertion of section 3l-A the position wos that upon the presentation of a bill of entry, by virtue of section 30 of the Act the levy of duty was crystallized. As explained in the case of Al-Samrez Enterprise, the liability to tax was created under section 18 with Mollasis Trading & Export (Pvt) Limited Vs. Federation of Pakistan & others (1993 SCMR 1905)

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reference to this date, because it is the rate of duty by application of which the tax liability can be quantified or assessed. Simultaneously, any benefit of exemption also takes effect on the same date because in the very nature of things, the liabiltty is wtped off by virtue of the exemption -at the same time. Therefore, this is the crucial point of time at which, by operation of law the liability is discharged. In other words, the rights and liabilities of the importers attained fixity on the said cructal date. Inevitably therefore a vested right has been created and the transaction is closed by the quantification of the tax, if any, or by the discharge of liability on that date. The mere fact that any proceedings remained pending for assessment of the tax by a statutory functionary for the purpose of recovery of the dues, will not prevent the law from operating and producing the result of closing the transaction, This is on the simple principle that eyery functionary is bound by the provisions of law and has to pass a lawful order which alone is protected. Besides on this date the liability to pay toc and the exemption .from payment are matters of mere calculation in terms of section 30 read with sections 18 and 19 of the Act, because the rate and value of the goods become fixed with reference to this date. Indeed no adjudicative process is involved in such a matter. Viewed in this pcruWctiva if q{fect is given to the provisions of section 3l-A so as to undo the discharqe of the liabilit.v which had already taken q{fect. it will amount to re-opening a pqst and closed transaction. The simple reason ts that under the existing lan there was no further liabilitlt to palt the tax and by giving retrospective operatton to the new dispensation a liabilitv is being created for the pqtment -- of the tm. I cannot see anything in the language qf section 3l-A. expressbt or by necessary intendment. to that e.ffect. Such { result is there.fore not a necessarlt corollary o.f the rtcfion created by the deeming provisions of section 5 of the Finance Act 1988. Other'wise also it will be contrary' of the principle. menttoned above. namely. that liabilities once .fixed or rights created by operation of law upon facts or events. must not be disturbed btt a general provision given

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retrospective effect unless such intention is clearl:t manifested by the language emplolted. In the case o.f Mehreen Zoibun Nisa (suprat retrospective effect was not siven to the changed low so as to invalidate certain acts qf legis.lature.

although the entry in the relevant legislative list had been changed with retrosoective effect. " (underltne is for emphasis)

25.In the case of Zila Council Jehlum', it was held by the Apex Court, although the Legislature can legislate prospectively and retrospectively, such power is subject to certain constitutional and judicially recognised restrictions. According to the canons of construction, every stafute including amendatory statutes is prima facie prospective, based on the principle of nova constitutio futuris formam imponere debet, non praeteritis (which means oa new law ought to regulate what is to follow, not the past' as per Osbom: Concise Law Dictionary); unless it is given retrospective effect either expressly or by necessary implication. In other words, a statute is not to be applied retrospectively in the absence of express enactment or necessary intendment, especially where the statute is to affect vested rights, past and closed transactions or facts or events that have already occurred. This principle (s) is attracted to fiscal statutes which have to be construed strictly, for they tend to impose liability and are therefore burdensome (as opposed to beneficial legislation). Furthermore, it is not only the wording/text of the statute which is to be considered in isolation; we are not to examine simpliciter whether such law 2 has a retrospective effect or not, rather it has to be examined holistically by considering several factors such os, the dominant intention of the legislature which is to be gathered Zila Council Jehlum through District Coordination Oficer Vs Messrs Pakistan tobacco Company Ltd and others (PLD 2016 SC se8),

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from the language used, the object indicated or the mischief meant to be cured, the nature of rights affected, and the circumstances under which the statute is passed.

26.The law laid down in Zila Counctl's case ibid was reaffirmed by the Apex court in the case of Qaisar Abbas and otherslo, further elucidating the matter thatretrospectivity can only be attributed to a statute where it is made explicit or can be inferred by necessary implications; it cannot be presumed.

27.In the Impugned Legislation, the first proviso inserted after sub-section (1) of section 658 of the Ordinance clearly mentions that the taxpayer company will be entitled to a reduce rate of tax credit at 5Yo for the tax year 2019 followed by a second proviso reaffirming the carrying forward of the tax credit for the following two tax years. Similarly, the substitution of figure 2019 for 2021 does not give any impression of its retrospective application. The later part of the Impugned Legislation substitutes the period of installation of the plant & machinery purchased in terms of sub section 658 ibid which has the effect that the earlier period provided has seized to exist and the new period is brought into existence in its place. The meaning of substitution has been elaborately discussed by the Bombay High Court in the case of The Central Provinces Manganeselt, as "the theory is advance that "substituted" means (i) repeal, and (ii) enactment or re-enactment." Therefore, the effect of insertion of figures 2019 for 2021 is that the earlier figure of 2021 was repealed and re-enacted as 2019, a cut of date for installation of plant & -_--7 machinery as required under sub section 1 of section 658 ibid. 4 The effect of repeal on any right privilege, obligation or liability acquired, accrued or incurred under any enactment so 10 Member (Iaxes) Board of Revenue Punjab, Lahore and others Vs Abbas and others (2019 SCMR 446) 11 Qaisar The Central Provinces Mangonese Ys The State of Maharashtra (1972 29 STC 74 Bom)

repealed has been protected under section 6 of the General Clauses Act, 1897 unless a different intention appears in the repealing Act. In the present case, the Impugned Legislation being a repealing Act to the extent of curtailing the cut of date (from 2021 to 2019) has no retrospective effect to the investment made and machinery or plant purchased by the taxpayer companies pursuant to section 658 of the ordinance. Had the legislature intended so, it must have provided the same in very clear words as laid by the Canadian Supreme Court in the case of Gustavson Drilling (1964) Ltd and in the cases of Mollasis Trading & Export (Pvt) Ltmited, Zila Council and Qaiser Abbas (supra) as decided by the Apex Court.

28.Unlike section 31A of the Customs Act, Lg6g the Impugned Legislation does not give any impression to specifically deal with the transaction ensued by a tax payer prior to the promulgation of Impugned Legislation. It is the case of some of the petitioners that prior to 30ft June, 2018, the petitioners had purchased and installed the machinery pursuant to the incentives provided through section 658, therefore, to the said extent they were entitled to the tax credit for the said tax year when the machinery was installed equal to l|Yo as provided under un-amended provision (658 ibid) and thus if in the said tax year either they had to pay no tax or the tax payable was lesser than their tax credit they would be entitled to adjustment of the entire tax credit at the rate of l|oh of their investment for the following two years. It is so ? for two reasons; firstly, that when they had invested amount in 4 the manner as provided under section 658 ibid, purchased the machinery and installed the same, it obviously became past and closed transaction, therefore, under the law laid down by the Apex Court in the cases of Molasis Trading and Export (Pvt) Ltd and Gustavson Drilling (1964) Ltd (supra) neither

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the past and closed transaction could be destroyed by subsequent legislation nor the first proviso added through the Impugned Legislation does give any such impression of retrospective application nor it in specific words envisages that the reduction in the tax credit would be applicable to those undertakings/taxpayers who had invested the money and installed the machinery and equipment prior to the Impugned Legislation.

29.Moving on to the second limb of the claim of the petitioners. As stated above; it is the case of revenue that though if the taxpayer; pursuant to the mandate of section 65B ibid had invested money in purchasing the machinery, however, if it has failed to install the machinery by 30th June, 2019 as (date brought back through the impugned legislation from 2021), the taxpayer would not be entitled to any tax credit.

30.Against that it is the case of petitioners that by investing the money and purchasing the machinery, it has taken a material step and thus acquired a vested right for entitlement of tax credit equal to 1,0Y0 of the total investment and the Impugned Legislation thus cannot vitiate the same. Whether the company by tnvesting money and the purchase of machinery for enlargement of the existing undertaking prior to the Impugned Legislation (having ffict from |s' July 20tB as per section 74 of the Ordinance), a vested right has accrued to the petitioners which cannot be taken cway by the Impugned Legislation unless there is specific language in this ) regard is the core issue which we intend to resolve.

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31.In the case of Vishwas Bajirao Patilt2 the Court of Bombay held that the expression 'vested rights' is not defined by the legislature in any statute. The word 'vest' is normally t2 Vishwas BajiraoPatil vs. The State of Maharashtra (AIR 2019 Bom s1r)

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used where an immediate fixed right in present or future enjoyment in respect of a property is created. With the long usage of the said word 'vest' has also acquired meaning as 'an absolute or indefeasible right.' It had a 'legitimate' or 'settled expectation' to obtain right to enjoy the properly etc. Such 'settled expectation' can be rendered impossible of fulfillment due to change in law by the legislature. Besides this, such 'settled expectation' or the so-called 'vested right' cannot be countenanced against public interest and convenience which are sought to be served by amendment of the law.

32.Similarly, the Hon'ble Supreme Court of Pakistan had the occasion to consider the expression "vested right" in the case of Nabi Ahmed and anothrr".Itwas observed that: "vested right is free from contingencies, but not in the sense that it is exercisable anywhere and at any moment. There is hardly any right which can be so exercised. There must always be occasions at which and circumstances under which they may be exercised, Those occasions and circumstances do not constitute contingencies but are the peculiar characteristics of those rights. For instance, the right to cross-examine (not to re-cross-examine) a witness is a vested right, although the occasion for exercising it arises only tf the witness says or has said something unfavorable and ofien ofier his examination-in-chief is over. The occasion to cross- examine may not arise or may not be exercised but the right is not to be denied."

This view was reaffirmed in the cases of Zaman Cement Company (Pvt) Ltd4 and Asadullah Mangi and othersts.

33.However, wo should not detain ourselves in the definition and explanation of the "vested rights" because the essential issue is whether the impugned legislation has a 4 13 Nabi Ahmed and another v. Home Secretary, Government of West Pakistan, Lahore and4 others (PLD 1969 SC 599). 14 Zaman Cement Company (Pv) Ltd. V. Central Board of Revenue and others (2002 SCMR 3|2) rs AsadullahMangi and others v. Pakistan International Airlines Corporation and others (2005 SCMR 445).

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retrospective application and thus the rights accrued to the petitioners by investing money and purchasing the machinery/equipment as required under section 65B ibid before the cut-of-date would confer upon the petitioners the vested right to claim tax credit as envisaged through un- amended law, which cannot be effected by the Impugned Legislation meaning thereby that the Impugned Legislation has no retrospective application to the cases of the petitioners.

34.In support of the arguments, the learned counsel has relied upon the law laid down by the Superior Court in the cases of Sapphire Textile Mtll Ltdu, Shohrawaz (Pvt) Ltd7, Anwar Yahyats, and Gulshan Spinning Mills Limitede. In the case of Gulshan Spinning Mills Limited, a similar preposition was resolved in favour of the taxpayer wherein it was held that the ta>c credit crystallized upon making of relevant investment and installation was material only in respect of tax year when the credit was to be claimed. The same view was re-affirmed in the case of Sapphire Textile Mills Ltd by the Sindh High Court.

35.If the tax payer has invested the money and purchased the plant and machinery through a concluded agreement followed by establishment of letter of credit at any time prior to the enactment of Impugned Legislation ( having effect from Ist July 2018) its right to claim tax credit stood crystalized, and verbiage of the Impugned Legislation does not give any impression of its retrospective application, therefore, the 2 Impugned Legislation does not affect the claim of the 4 companies for tax credit at the rate of I0Yo of the total t6 Sapphire Textile Mills Ltd vs. Federation of Pakistan and others (CPD 8233 of 2019 decided on07.02.2023).

t7 Shahnawaz (P\t) Ltd vs. Pakistan through the Secretary Ministry of Finance etc (20n PTD lss8).

Anwar Yahya vs. Federation of Pakistan tkough Secretary and 4 others (2017

PTD 1069).

Gulshan Spinning Mills Ltd and others vs. Government of Pakistan and others (200s PTD 2se).

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investment as envisaged by the un-amended section 65B of the Ordinance.

36.In the case of Sapphire Textile Mills Ltd, the worthy Sindh High court has held that if the qualified person has purchased the plant or machinery in terms of section 658 of the Ordinance by or before 30th June 2OIg its vested right could not be vitiated through the Impugned Legislation. However, with profound respect, we cannot subscribe to the same in totality and would take the exception that the said machinery or plant ought to have been purchased on or prior to 30ft June 2018 that is before the insertion of the Impugned Legislation as on enactment of Impugned Legislation ( having effect from I't July 2018) if the qualified person has failed to have taken any material steps that is purchasing the plant and machinery as contemplated by the un-amended provision of section 658 ibid, it cannot be clothed with any right for the tax credit what to say of a vested right. Indeed with effect from I't July 2018 the legat dispensation regarding the availing of ta>r credit has been altogether changed that is to say that with effect from the date of enactment of the Impugned Legislation (1" July 2018) any ta<payer company may invest in purchasing of plant & machinery in term of section 658 ibid, however, on such investment the taxpayer company shall be entitled to 5Yo of the total investment tax credit and has to install the machinery and equipment by or before 30th June 2019. For this reason, we with profound respect disagree that the Impugned Legislation is ultra vires.

Indeed, it is settled law that a law made by Parliament or the Legislature can be struck down by Courts on two grounds viz, (i) lack of legislative competence (ii) violation of any of the fundamental rights guaranteed under the

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constitution.2o Further, N.s. Bindra in his book Interpretation of Statutes (7'h Edition) atpageTTL commented as under: "In construing a taxing measure for determining tts Constitutional validity, the question of reasonableness cannot enter a judicial mind. The only consideration, which is germane, is whether the legislation challenged is permitted by the Constitution. The reasonableness or otherwise of such a State ts o matter of legislative policy and it is notfar the Court to adjudicate upon.

Thus, in the present case, when the obvious interpretation of the Impugned Legislation is that it is not retrospectively applicable as mentioned above then there is no occasion to strike it down.

37.The nutshell of the above discussion is that the Impugned Legislation does not give any impression that it has either affected the vested rights of the petitioners as stated above nor is retrospectively applicable, therefore, we hold that the Impugned Legislation does not require any interference being passed by a competent legislation having prospective effect except in the following manner: -

(i)That the petitioners' companies who have made investment in the monner and mode as provided under sub section (1) of section 658 of the Ordinance and have installed machinery and equipment in their industrial undertaking by or prior to 30th June 2018 witt be entitled to a tax credit of 10%for the tax year in which the plant & machinery was installed and will be also entitled for carrying forward the tax credit for the following two tax years /1 @ of 10% of their investment in the manner & mode as provided under the un-amended section 658 of the Ordinance.

Ql fhe petitioners' companies who have invested any amount in terms of sub section (1) of section 658 of the Ordinance, though could not install the plant & machinery by 30'h June 2018 will still be entitled to the tax credit @ of l0% of their investment provided before iT'h June 2018 they had purchased the machinery and executed a binding contract with the manufacturer followed by establishment of LCs and State of M.P. vs. Rakesh Kohli and others (2013 SCMR 34)

has installed the machinery and equipment etc before 3dh June 2021.

38.All the petitions stand disposed of accordingly.

Announced rn)

S

JUDGE

a >r-. i

JUDGE

Eoid.! Shoh SSS (DB)Eon'ble Mr. tustice Abdal Shakoot aild Hor'ble Mr. tustice Syed A6hod Ali