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Dated: 27-June-2013

Today, Supreme Court of Pakistan has released the detailed reasons in support of the short order dated 21.06.2013 passed in Civil Misc. Application No. 3821 of 2013 in Constitution Petitions No. 33 & 34 of 2005 filed by the Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi questioning increase in GST from 16% to 17% on taxable supplies with effect from the introduction of the Finance Bill 2013-2014.


The case was heard by a three member bench of the Supreme Court headed by Hon’ble Mr. Justice Iftikhar Muhammad Chaudhry, Chief Justice of Pakistan and comprising Hon’ble Mr. Justice Ijaz Ahmed Chaudhry and Hon’ble Mr. Justice Iqbal Hameedur Rahman and the aforesaid Civil Misc. Application was disposed of vide above short order.


The detailed reasons have been authored by the Hon’ble Chief Justice of Pakistan.


The full text of judgment is available on the official website of Supreme Court of Pakistan i.e. , important issues involved in the case and the findings of the Supreme Court thereon are as under:-


“3.           Pending proceedings of the petitions, on 12.06.2013, the Federal Government presented in the National Assembly the Finance Bill 2013 (hereinafter referred to as “the Bill”) containing various financial proposals for the year commencing from the first day of July 2013 and to amend and enact certain laws to give effect to the said financial proposals. The Bill, inter alia,proposed to increase GST from 16% to 17% on the value of taxable supplies made by a registered person in the course, or furtherance, of any taxable activity carried on by him by amending section 3 of the Sales Tax Act, 1990 [hereinafter referred to as “the Act, 1990”]. Along with the Bill a Declaration made under the Collections of Taxes Act, 1931 (Act No. VI of 1931), [hereinafter referred to as “the Act, 1931”], was also appended, contents whereof read as under: -




The provisions of sub-clause (10) of clause 2, sub-clause (2), sub-clause (3), sub-clause (7), sub-clause (13) and sub-clause (14) of clause 3 and sub-clause (6), sub-clause (8)(a)(ii), sub-clause (8)(a)(iii), sub-clause (8)(a)(iv), sub-clause (8)(b) and sub-clause (9) of clause 5 of this Bill shall have effect, for the purpose of this declaration and for the purposes of the provisions of the Provisional Collection of Taxes Act, 1931 (XVI of 1931), as if they were provisions for imposition of sales tax or duties of federal excise or duties of customs. It is hereby declared accordingly in terms of section 3 of the said Act that it is expedient in the public interest that the aforesaid provisions shall have effect on the 13th June, 2013.




The purpose of this Bill is to make financial provisions for the year beginning on the first day of July, 2013. Various provisions have been explained in the Notes on Clauses.”


4.            The Oil and Gas Regulatory Authority [hereinafter called OGRA], by means of notification No. S.R.O…(1)/2013, dated 13.06.2013 issued in exercise of the powers conferred by rule 13 of Compressed Natural Gas (Production & Marketing) Rules, 1992, in supersession of its notification No.S.R.O.02(I)/2013, dated 01.01.2013 determined and notified the maximum sale price of Compressed Natural Gas (CNG) to be charged by a licensee (CNG Station) from a consumer for vehicular or other mobile use as per Federal Government approved policy guidelines and in pursuance of the Federal Government Declaration under the Act, 1931 with immediate….. Immediately thereafter, the dealers started charging sales tax at the increased rate and the prices of petroleum products as well as CNG were increased abruptly. From a perusal of the aforesaid notification of OGRA, it transpired that GST is being charged @ 17% as enhanced under the Bill on petroleum products, whereas on CNG 9% in addition to 17% GST chargeable under section 3 of the Act. 

17.           It is to be seen that the Finance Division has issued “Declaration” in the Bill in routine, otherwise there was no necessity to issue letter dated 17.06.2013 withdrawing GST @ 19% instead of 16% from the unregistered taxable suppliers (owners of petrol pumps) and above clarification.


18.           It may be noted that the Act, 1931 was promulgated before the partition of the Subcontinent in 1947. There are few other countries as well having corresponding provisions of law, but it appears that their constitutionality has never been examined in any of those jurisdictions including the neighbouring country India on the touchstone of the constitutional provisions, except in the case of Abdur Rashid v. Central Board of Revenue and other (PLD 1965 Peshawar 249). Learned Attorney General heavily relied upon this judgment and argued that the Government had been following consistent practice of appending Declaration with the Finance Bill with a bona fide intention, for the reason that in the aforesaid judgment this matter has been found in accordance with the Constitution.


19.            After the independence, the Act, 1931 was adopted by means of Adaptation of Central Acts and Ordinances Order, 1949, and continued in force as per Article 224 of the Constitution of 1956, then by Article 225 of the Constitution of 1962 and then under Article 268 of the Constitution of 1973. The Act, 1931 was first amended vide the Finance Act, 1967 whereby in section 3, along with the “duty of customs or excise” the words “sales tax” were added. The said Act was then amended by the Finance Act, 1990 whereby besides certain amendments in sections 4 and 5, in section 3, along with the words “for the imposition or increase of a duty”, the words ‘or reduction’ were added. Because in the instant proceedings, constitutionality of sections 3, 4 and 5 of the Act, 1931 is required to be examined……. A perusal of section 3 shows that the Federal Government may cause to be inserted in the Bill a Declaration that it is expedient in the public interest that any provision of the Bill relating to such imposition or increase or reduction would have immediate effect. In the instant case, the Finance Minister, in his budget speech, proposed to increase GST from 16% to 17% by amending section 3 of the Act, 1990, but effect was given to the proposed amendment immediately on tabling of the Bill in the National Assembly and GST on all taxable supplies and activities as proposed to be increased was levied as is evident from the break-up of the prices of petroleum products filed by the Ministry of Petroleum without issuing any notification, whereas notification dated 13.06.2013, reproduced hereinabove, in respect of consequential increase in GST on CNG was issued by OGRA.


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 13.06.2013 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).

23.            On the insistence of learned counsel to treat the Declaration as delegation by the Legislature, we, on having gone through all the judgments relied upon by him, have applied the principles deduced therefrom to the question of delegation of powers one by one, keeping in view the provisions of section 3(2)(b) of the Act, 1990 and section 18(2) of the Customs Act, 1969. . . .  We are not inclined to agree with the learned counsel because in the instant case, except tabling the Bill in the National Assembly, no legislation on the issue has so far taken place. The question of delegation of power or its coming into effect or operation will arise only after the Bill is passed by the Parliament and converted into an Act on receiving assent of the President, i.e., on successful completion of the constitutional process, and the arguments being raised by the learned counsel may perhaps be relevant thereafter. However, as it has been noted hereinabove, the learned counsel himself was of the opinion that delegation of power to the executive/government in the matter of imposing tax will create havoc in the tax regime. Thus, it is sufficient to conclude that no such delegation can be considered to have been conferred upon the government in terms of section 3 of the Act, 1931, allowing it to insert Declaration for the purpose of imposing/increasing or reducing GST with immediate effect.


24.           It is also to be borne in mind that in a Parliamentary system of Government, the scheme of the Constitution is based upon the theory of separation of powers enunciated by the French political philosopher Montesquieu under which powers of the State are distributed among the three organs of the State, namely, Legislature, Executive and the Judiciary. Under Article 7 of the Constitution, 1973, two institutions named earlier find mention, whereas the Judiciary has not been included therein with a view to establishing a system of checks and balances. Similarly, John Locke, in his work “Treatise on Civil Government” has emphasized that “the legislative cannot transfer power of making laws to any other hands, for it being but a delegated power from the people, they who have it cannot pass it over to others. The people alone can appoint the form of the commonwealth, which is by constituting the legislative, and appointing in whose hands that shall be. And when the people have said “We will submit, and be governed by laws made by such men, and in such forms”, nobody else can say other men shall make laws for them, nor can they be bound by any laws but such as are enacted by those whom they have chosen and authorized to make laws for them.”


29.            In the light of the law laid down in the aforesaid judgments, it is clear that the Majlis-e-Shoora (Parliament) /Legislature alone and not the Government/Executive is empowered to levy tax. As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby.


35.            . . . . . status of the declaration made under section 3 of the Act, 1931 cannot be of a sub-legislation qua the Finance Act, which ultimately is to be passed in pursuance of the Finance Bill by the Majlis-e-Shoora (Parliament) under Article 77 imposing increase in the levy of the sales tax, which essentially shall create burden upon the consumers, to whom ultimately the sales tax shall pass on. It is to be borne in mind that it is the duty of the State to protect the life and property of the citizens under Articles 3, 9 and 24 of the Constitution. Essentially for protection of their Fundamental Rights, they cannot be subjected to exploitation in terms of section 3 of the Act, 1931 for the purpose of subjecting them to pay GST on the taxable supplies in furtherance of any taxable activity. Article 9 of the Constitution has been interpreted by this Court in number of cases wherein the scope of guaranteeing the Fundamental Rights enshrined in the said Article has been widened to ensure guarantee of life of the citizens. . . . in light of the above discussion, any provision of an enactment, which is against the provisions of Article 77 of the Constitution and infringes the Fundamental Rights of the citizens enshrined in Articles 9 and 24 of the Constitution by depriving them of their life or property without any proper legislation, is also tantamount to violation of Article 3 of the Constitution and the same cannot be considered to be a legislative or a sub-legislative instrument for the purpose of imposing or increasing GST pending passing of the Bill by the Majlis-e-Shoora (Parliament), which has already been tabled before it. As such, section 3 being contrary to Articles 3, 9, 24 and 77 of the Constitution is declared to be unconstitutional and void.


36.            It may also be seen that the Government/Executive subsequent to tabling of the Bill in the Majlis-e-Shoora (Parliament) itself realized that charging of additional 2% GST from unregistered petrol pumps/dealers/retail outlets was an error in the Declaration, suspended the same and allowed them to get themselves registered within two weeks and in this behalf letter dated 17.06.2013 was issued, contents of which have already been reproduced hereinabove. We appreciate the conduct of the Government/Executive in suspending the imposition of additional 2% GST not for the reason stated in the letter, but in view of the above discussion that no additional GST is leviable save by or under the authority of Act of the Majlis-e-Shoora (Parliament) under Article 77 of the Constitution. We feel that this understanding had been developed because of increase of the prices of essential items as well, exemption of which has been granted under section 13(1) and the Sixth Schedule of the Act, 1990, and ultimately the consumers have to bear the financial burden of additional GST, may be at the rate of 17% of the value or additional GST @ 2%.


38.            When we pointed out the above position to the learned Attorney General for Pakistan, the learned counsel for the FBR presented a clarification, which has been reproduced hereinabove, according to him wide publicity is being given for information of the consumers that items mentioned therein are exempted from GST but in the meanwhile the Media has been consistently reporting that in the garb of the Declaration, the Government/Executive has proposed to increase GST by 1% on amendment of the relevant provisions of the Act, 1990, but had given immediate effect to its recovery with the result that the prices of essential items have increased up to 15% or more. On this, we inquired from the learned counsel for the FBR as to why the prices are not being checked through Sales Tax Inspectors, he stated that instructions in this behalf have already been issued to all concerned. We are sorry to observe that despite issuance of clarification and the withdrawal of additional 2% GST, the prices of the essential items along with others have not increased by 1% only, but the same have been increased exorbitantly and are not likely to come to the level prevailing before the speech of Finance Minister. In this manner, the Fundamental Rights of the citizens enshrined in Articles 9 and 24 of the Constitution have been seriously violated, for which the Government/Executive is required to take necessary measures/actions under sections 6 and 7 of the Price Control and Profiteering and Hoarding Act, 1977 to keep the prices consistent as per the Sixth Schedule read with section 13(1) of the Act, 1990.


40.            . . . .  In the instant case, the Declaration, which we have already dilated upon, cannot be deemed to be a legislation or even sub-legislation for the purpose of section 4(1) of the Act, 1931 having force of law. Therefore, the Declaration being contrary to the provision of Article 70 of the Constitution, GST cannot be recovered at the increased rate pending the passing of the Bill by the Majlis-e-Shoora (Parliament) otherwise it would be tantamount to violation of Articles 9 and 24 and such recovery shall be deemed to be exploitation within the ambit of Article 3 of the Constitution. It may be noted that a law, which has not been enacted following the procedure prescribed in Article 70 of the Constitution, but merely on the basis of colonial legacy, and which impinges upon the Fundamental Rights of the citizens enshrined in the Constitution is not sustainable. As far as section 5 of the Act, 1931 is concerned, though it has already been amended as indicated hereinabove, but the mechanism mentioned therein is not workable and the recovery of GST on the basis of the provisions of sections 3 and 4 of the Act, 1931 in view of the ambiguity and absurdity of the language employed in section 5 cannot be enforced as ultimately if it is found that the GST has been recovered illegally, the same is required to be refunded in line with the law laid down in Salonah Tea’s case (supra). This Court, as it has been pointed out hereinabove, in a number of judgments, has exercised power of judicial review and examined the constitutionality of different statutes. Reference in this behalf may be made to the case of Baz Muhammad Kakar v. Federation of Pakistan (PLD 2012 SC 923). Primarily, such authority is derived by the Court, inter alia, from the provision of Article 8, which empowers this Court to declare any law or any custom or usage having the force of law, in so far as it is inconsistent with the rights conferred by Chapter 1 of Part II of the Constitution, to the extent of such inconsistency, void.


41.            . . . . . We ourselves are of the opinion that while examining constitutionality of a statute, a Court must exercise restraint and efforts should be made to save the statute instead of destroying it. Reference may be made to Baz Muhammad Kakar’s case, but on having concluded hereinabove that sections 3 and 4 being ultra vires the Constitution and in derogation to Articles 9, 24 and 77 of the Constitution, it is not possible to allow such a law to remain on the statute book. Similarly, section 5 of the Act, 1931 on account of its absurdity and ambiguity, even if it is allowed to remain on the statute book, it would be of no use and purpose for the Government or the executive, therefore, while holding section 3 and 4 to be ultra vires  the Constitution, section 5 too is held to be redundant and the same would also serve no purpose if it is allowed to continue on the statute book. Reference in this behalf too is placed on Baz Muhammad Kakar’s case.


43.            We are conscious of the fact that subject to generating funds, the Government machinery for the welfare of the citizens cannot run smoothly, therefore, despite having declared certain provisions of Act, 1931 ultra vires the Constitution, we have not issued direction for immediate refund of 1% GST which has been charged from the end users, but have allowed the Parliament to examine this aspect of the case subject to all just exceptions. However, if the levy of the GST is applied with retrospective effect, the amount of GST so charged shall be handed over to the Government otherwise proper orders shall be passed.


44.            We have noticed that by means of the Bill, GST was proposed to be increased from 16% to 17% by amending section 3 of the Act, 1990 from 13.06.2013 on the value of taxable supplies made in course or furtherance of any taxable activity, but the notification issued by OGRA clearly indicates that GST is being charged on CNG on the increased rate of 26%, contents of the notification have already been reproduced hereinabove, and the increased recovery is being made under the provision of rule 20(2)(c) of the Sales Tax Act (Special Procedure) Rules, 2007, which too has been reproduced hereinabove. This recovery is absolutely contrary to section 3 as it has been sought to be amended in the Bill. Therefore, GST at the increased cannot be recovered unless so provided under the statute.


46.            . . . . . We, thus, declare that the Federal Government has no lawful authority to impose or recover GST on CNG @ 26% and @ 17% on the value of taxable supplies made in the course or furtherance of any taxable activities with effect from 13.06.2013 until passing of the Finance Bill. The excess amount equal to 1%, i.e., 17% - 16%, of GST recovered on the petroleum products/CNG or any other taxable supplies w.e.f. 13.06.2013 onward is thus refundable to the consumers and the concerned authorities are directed to deposit it with the Registrar of this Court subject to passing of the Bill by or under the authority of Majlis-e-Shoora (Parliament). The observations following the procedure of its refund have already been made hereinabove. Similarly, the Government has also been directed to deposit 9% out of 26% of GST charged on CNG as per notification dated 13.06.2013 in the same manner. In respect of recovery of additional 9%, statement shall also be filed on behalf of the Government showing the amount of GST so recovered from the consumers under proviso to rule 20(2)(c) of the aforesaid Rules of 2007 on the value of CNG in addition to 16% GST imposed under section 3 of the Act, 1990 as this amount is also to be refunded to the consumers, for which appropriate order shall be passed subsequently.  


47.            As far as rules are concerned, those are to be framed under sections 51 and 71 of the OGRA Ordinance. A perusal of the said provisions indicates that rules cannot be framed for the purpose of levying additional GST. GST is to be levied on the taxable supplies in furtherance of section 3 of the Act, 1990 and not by any rules or instrument which has conferred right upon them to impose the tax, therefore, the aforesaid rule, being contrary to the Act, is hereby declared non est and also violative of the provision of section 4 of the Act, 1990.


The titled Civil Miscellaneous Application is disposed of in the above terms.”

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