Huzaima Bukhari and Dr Ikramul Haq

The landmark judgement by the Supreme Court [Civil Appeals 1428 to 1436/2016] has once again vindicated our point of view, frequently highlighted in these columns, that power of levying taxes (which includes exemption, waiver and change in tax rates etc) under Article 77 of the Constitution is the sole prerogative of the Parliament and it cannot be delegated to any executive authority.

Tax babus sitting in Federal Board of Revenue (FBR) have been insisting that words “by or under the authority of Act”, as used in Article 77 of the Constitution, authorise “taxation by delegation” as well and they were justified to do so through Statutory Regulatory Orders (SROs). Before the Supreme Court, Additional Attorney General submitted that “the levy and exemption of tax is the function of Parliament under Article 77 of the Constitution and…… power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”. This submission that goes against the view of FBR is confirmed by the Apex Court. It is now binding under Article 189 of the Constitution and any contrary action tantamount to contempt of court.

The facts of Civil Appeals 1428 to 1436/2016 are: the importers of cellular phones and textile goods, enjoying certain exemptions or reduced rates under sales tax law, were subjected to tax by withdrawal of exemptions or the modification of tax rates vide SRO No.280(I)/2013, 460(I)/2013 (both relating to cellular phones), issued in pursuance to sections 3(2)(b), 3(6), 8(1)(b), 13(2)(a) and 71 of the Sales Tax Act, 1990 (hereinafter “the Act”), and SRO 682(I)/2013 (relating to textile goods) issued under sections 4(c), 3(2)(b), 3(6), 8(1)(b) and 71 of the Act dated 4.4.2013, 30.5.2013 and 26.7.2013 respectively.

Aggrieved by the withdrawal and/or modification (in the rate) of sales tax, the taxpayers challenged the same through constitutional petitions before the Islamabad High Court on the primary ground that such notifications had not been issued by the Federal Government in accordance with section 3 of the Act.

The petitions were dismissed by the Islamabad High Court through a consolidated judgment. The Intra-Court Appeals (ICA) filed by the taxpayers also failed. The Supreme Court admitted leave to appeals to consider, inter alia, the following:

“Learned counsel for the petitioners while attacking the impugned judgment of the learned Division Bench of the High Court affirming the judgment of the learned single Judge-in-Chambers submits that the petitioners have no cavil to the proposition that the Federal Government does have the power, jurisdiction and authority to issue the notification, however his argument is that the notifications in question dated 4.4.2013 and 30.5.2013 challenged in the constitutional petitions were not issued by the Federal Government rather by the Additional Secretary who was not competent to do so. It is also submitted that to grant the exemption is only the privileged authority of the Cabinet as per the provisions of Article 90 of the Constitution of Islamic Republic of Pakistan, 1973 and even the Secretary or Advisor to the Prime Minister has no competence to issue such notifications and grant exemption. It is also submitted that the notification dated 4.4.2013 was issued before the approval was granted by the Advisor to the Prime Minister which was done ex-post facto. This again renders the said notification as nullity in the eyes of law.”

As evident from above, the petitioners and their counsel were not aware of the fact that stalwarts (sic) sitting in Ministry of Law & Justice, Finance Ministry and FBR, even in the wake of judgement of the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)] were unlawfully resorting to taxation through SROs. They did not challenge the very issuance of SROs but only its modality that was issuance without the authority of Cabinet.

It is shocking that after judgement of Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)], FBR has been resorting to imposing new taxes or varying the rate of taxes through SROs violating not only Article 77 but also openly defying Article 189 of the Constitution. They were lucky that this aspect was neither considered by the Apex Court nor did the Counsel representing the parties deem it necessary to highlight it for seeking contempt proceedings against the contemnors.

The Apex Court in Civil Appeals 1428 to 1436/2016 has categorically held that “whereas originally the Federal Government had the power to delegate any of its functions to officers or authorities i.e. it would have been possible to delegate functions pertaining to fiscal matters to the Finance Ministry; this is no longer possible”. This is clear indictment of our Finance Minister who has been conducting fiscal operations in violation of law. Though it is obvious he will not resign (as would have been the case under any democratic government), yet Parliament may ask him to at least take responsibility for fiascos he had committed by giving unlawful approval for issuance of SRO 280(I)/2013, 460(I)/2013 and SRO 682(I)/2013 that have been declared null and void by the Apex Court now resulting in substantial refunds!

It is aptly highlighted by the Supreme Court in Civil Appeals 1428 to 1436/2016 that “Constitutionally mandated rules are closely intertwined with the concept of good governance for and in the public interest”. The following observations of Apex Court constitute a charge-sheet against worthy Finance Minister and his brilliant team running (rather mismanaging) FBR:

“If a government department admits that although it has violated explicit provisions of the rules, its violation should be condoned by treating the breach as non-actionable merely on the ground of its supposedly being directory, then surely serious questions arise in relation to the good faith of the department. In each and every case the presumption of law would be that the rules are mandatory and should be observed and followed. If, and only if, a compelling public interest is established as a reason for non-compliance with the rules i.e. other than inadvertence, or negligence, or incompetence then, and only then, can the court consider whether or not to condone the breach in the observance of the rules. These considerations are fortified and amplified for, and in relation to, fiscal enactments. The reason is twofold; firstly Article 77 of the Constitution only enables the levy of tax under law and, secondly, the levy of a tax inevitably implies a restriction of a citizen’s right to property. Payments of tax amount to a corresponding deprivation of property and, since the right to property is a fundamental right, this can only be done by means of strict compliance with the law. It follows that the breach of Rule 16 is fatal to the case of the government”.

The stalwarts of FBR who have been advocating taxation or exemption through SROs (delegated authority) must read the following finding of the Apex Court in Para 67:

He has, however, correctly contended that the levy of tax is the function of Parliament under Article 77 of the Constitution and the regulation and issuance of fiscal notifications is in the nature of subordinate legislation. He has further, again correctly, contended that such powers, if given to the Executive per se, would amount to a negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers. Both these propositions are valid and make the distinction between executive and legislative power clear.

Many experts (self-assumed) are unfortunately reading the judgement of Supreme Court in Civil Appeals 1428 to 1436/2016 by ignoring its true context. They are just emphasising and highlighting one point that Prime Minister cannot take decisions on his own, without the consent of Cabinet. This is very obvious as elaborated by the Apex Court in Para 96 of its order. But the real issue decided by the Supreme Court is that right of taxation cannot be delegated to the Executive [Para 67] even by the Parliament.

Taxation by SROs is a clear violation of the supreme law of the land as per dictum already laid down by the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)] as under:

“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).” [Page 18, Para 20]

It is true that Prime Minister Nawaz Sharif has been running the affairs of State (e.g. legislation through Presidential Ordinances and in money matters particularly) as Badshah Salamat (king). His Vazir-e-Khazana (Finance Minister) has been abusing supreme law of the land by levying taxes or varying the tax rates through SROs. Unfortunately, even after the latest judgement of Supreme Court in Civil Appeals 1428 to 1436/2016 and earlier one [reported as Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak)], the Federal Government enhanced the rates of sales tax on some petroleum products through SRO 808 (I)/ 2016 dated 31-08-2016. This is a blatant violation of Article 189 as the Government has intentionally ignored the following operating part of the judgement of the Supreme Court:

“(vii) Fiscal notifications enhancing the levy of tax issued by the Secretary, Revenue Division, or the Minister, are ultra vires (it is clarified, in passing, that this court has in the past consistently held that a greater latitude is allowed in relation to beneficial notifications and that principle still applies)”.

The federal government by its actions has demonstrated lack of respect for the supreme law of the land and intention of not following the judgements of Supreme Court. FBR will keep on issuing SROs levying taxes or enhancing the tax rates (wrongly assuming that only approval of Cabinet is required whereas approval of Parliament is essential as held in Para 67 of Civil Appeals 1428 to 1436/2016) unless contempt proceedings are initiated or suo motu action is taken by the Supreme Court. (The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)