JUDGEMENT: MR. JUSTICE MUNIB AKHTAR.--(1). By this common judgment, we intend disposing off the petitions listed in the Appendix since they raise the same issues. The petitions call in A question the vires of section 3A of the Federal Excise Act, 2005 ("2005 Act") and SRO 655(1)/2007 dated 29.06.2007 said to have been issued in terms thereof. Since the vires of the section were challenged, notice was ordered to be issued directly to the Attorney General for Pakistan as well as the respondents on 13.06.2011.
2. Section 3A provided as follows: "3A. Special excise duty.--(I) The Federal Government may, by notification in the official Gazette, levy and collect, subject to such conditions, limitations or restrictions as it may deem fit to impose, Special excise duty on any:--
(a) goods produced or manufactured in Pakistan; and
(b) goods imported into Pakistan; at the rate of one percent of the value of such goods.
(2) Special duty levied under sub-section (1) shall be in addition to any duty levied under section 3."
3. Learned counsel for the petitioners submitted that the petitioners are all (save one) sugar mills engaged in the production and sale of sugar: The remaining petitioner is a cement manufacturing engaged in the production and sale of that article. Section 3A was inserted in the 2007 Act by means of the Finance Act, 2007. (It has since been omitted by the Finance Act, 2011.) The Act of 2007 was of course introduced in the National Assembly as a Money Bill. The Bill was passed by the National Assembly on 22.06.2007 and received the President's assent on 30.06.2007. Section 1(3) thereof stated that it was to come into force on 01.07.2007, unless otherwise provided therein. On 29.06.2007, in purported exercise of the power conferred by subsection (1) of section 3A, the Federal Government issued the aforementioned SRO 655(1)/2007 dated 29.06.2007 ("SRO 655"). This levied the special excise duty on the production or manufacture of all goods listed in the First Schedule to the Customs Act, 1969 except those as were specified in the table to the notification. Neither sugar nor cement was among the goods so specified and thus, SRO 655 purported to levy the special excise duty on their production. The notification provided in its last paragraph that it was to take effect on and from 01.07.2007.
4. It will be seen that SRO 655 was issued (on 29.06.2007) after the Finance Bill, 2007 had been passed by the National Assembly (on 22.06.2007) but before it received the President's assent (on 30.06.2007). Learned counsel for the petitioners submitted that the notification was a nullity in law and without any legal effect or force whatsoever. This was so because on the date on which it was issued, section 3A had not the force of law because the Finance Bill, 2007 did not have any such force. The said Bill became an Act of Parliament only when it received the President's assent on 30.06.2007. It was only then that section 3A became law, and hence the Federal Government could exercise the power conferred upon it only on and from 30.06.2007 onwards. Any purported exercise of such a power prior to that date was non est for the simple reason that no such power then existed, and being a complete nullity any purported notification also had no legal effect. Thus, SRO 655 was an exercise in futility and stillborn in the eyes of law. Inasmuch as it had been enforced against the petitioners and special excise duty levied on and collected from them on that basis, the amounts taken were without any legal sanction whatsoever. The petitioners were entitled to a refund of the duty collected from them.
5. Learned counsel candidly drew attention to the fact that SRO 655 had been challenged by other petitioners before the Lahore High Court on precisely the same ground as noted above, but that High Court had rejected the challenge and upheld the validity of the notification. A learned single Judge of that Court had so concluded by means of a common judgment dated 13.05.2011 in W.P.
7608/2007 (reported as PTCL 2012 CL. 269) and connected petitions. Intra-court appeals preferred against that decision were dismissed by a learned Division Bench. The decision of the learned Division Bench is reported as Chaudhry Sugar Mills Ltd. v. Government of Pakistan and Others PTCL 2012 CL. 598. In essence, the Lahore High Court concluded that a Money Bill acquired the force of law as soon as it was passed by the National Assembly. Thus, the Finance Bill, 2007, and hence section 3A, had legal effect from 22.06.2007 onwards and on this basis, the Federal Government had the requisite legal power on 29.06.2007 when SRO 655 was issued. Learned counsel for the petitioners submitted with the utmost respect that the view that had found favor with the Lahore High Court was erroneous and, inter alia, relied on Article 75(3) of the Constitution to contend that a Bill became law as an Act of Parliament only when (and not before) it received the President's assent. Admittedly, that came about only on 30.06.2007 C and hence section 3A was not law on 29.06.2007 when SRO 655 was issued.
6. The second ground taken by learned counsel to challenge the impugned levy was to question the vires of section 3A itself. Learned counsel submitted that this section constituted an excessive and impermissible delegation of legislative powers on the Federal Government. Learned counsel relied on a Division Bench decision of this Court reported as Cannon Products Ltd. v. Income Tax Officer and others PTCL 1985 CL. 178 where, relying on Mehreen Zaibun Nisa v. Land Commissioner Multan and others PLD 1975 SC 397, it had been held as follows (para 13, pg. CL. 203): "...the absence of standards or guidelines in a statute would not necessarily render the statute unconstitutional but conferment of uncontrolled and arbitrary power on the delegate would render such provision as void."
Learned counsel submitted that section 3A conferred an uncontrolled and arbitrary power on the Federal Government (i.e., the delegate) to levy the special excise duty. No guidelines or policy had been laid down by the legislature for the exercise of the power conferred nor could it be discerned from the section itself. Section 3A therefore constituted an impermissible delegation of legislative power and was ultra vires the Constitution and hence void with the result that the notification issued in terms thereof, SRO 655, also necessarily failed. Learned counsel prayed for suitable declaratory and injunctive relief as well as a refund of all the duty that had been collected from the petitioners under the section and notification.
7. The learned DAG strongly contested the case put forward for the petitioners. Insofar as the first ground was concerned, he relied on the decisions of the Lahore High Court to submit that when SRO 655 was issued on 29.06.2007, section. 3A had the force of law and hence the Federal Government was fully empowered to issue the notification. As for the second ground, the learned DAG relied on the well known decision of the Supreme Court reported as Zaibtun Textile Mills Ltd. v.
Central Board of Revenue and others PTCL 1983 CL. 230 ("Zaibtun Textile') to contend that section 3A did not constitute an excessive or impermissible delegation of legislative power. He relied on various passages, reading in particular paras 21-22 at pp. CL. 252-253, para 26 at pg. CL. 256 and para 30 at pg. CL. 258. He contended that the section was constitutionally valid and the conferment of the power thereby on the Federal Government, and its exercise in terms of SRO 655, entirely unexceptionable. Learned counsel for the Inland Revenue Department adopted the submissions by learned DAG and both submitted that the petitions merited dismissal.
8. We have heard learned counsel as above, examined the record with their assistance and considered the case law relied upon. Insofar as the first ground is concerned, we have given the "4. Under our Constitution, a Money Bill has a unique position under Article 73(1A) of the Constitution. After being passed by the most anxious and careful consideration to the decisions of the Lahore High Court. The learned single Judge relied on section 22 of the General Clauses Act, 1897 to conclude that SRO 655 was validly issued. It will be recalled that this section provides that where an Act of Parliament is not to come into force immediately on the passing thereof, and a power is conferred to do anything under the Act (such as issue a notification), then that power may be exercised at any time "after the passing of the Act" but anything so done "shall not take effect till the commencement of the Act". The learned single Judge reproduced section 22 and held as follows (emphasis in original): "5 The scrutiny of the above quoted provision of law reveals that Rules, Bye-Laws can be made, orders and notifications issued under the Act during the period between passing of the said Act and before its commencement. It is immediately noticed that passing of an Act has been used in contradiction to the commencement of Act. At this juncture, perhaps reference can also be made to section 5 of the General Clauses Act, 1897 which postulates that a Central Act unless it is expressed to the contrary therein shall come into operation on the date it receives assent of the President. Said provision is in consonance with Article 75(3) of the Constitution. Same Laws even after the assent of the President may take effect on a later date if so mentioned therein. It has also been noticed that in section 22 of the General Clauses Act, 1897, the Legislature in its wisdom has chosen to use the phrase `passing of the Act' rather than its receiving the Assent of the competent authority viz the President...."
The learned single Judge then reproduced Article 73 of the constitution and continued (emphasis in original): "6 The aforesaid provision leaves little room for doubt that the word 'passing' of the Act when employed with reference to a Money Bill would mean, when such Bill is passed by the National Assembly. Thus, the aforesaid leaves little room for doubt that after the Money Bill has been passed by the National Assembly, and before it comes into force, the power under section 22 of the General Clauses Act, 1897 can be exercised. However, any Rule made or orders issued would become effective in Law, unless otherwise provided, on coming into force of the said Act."
9. The learned Division Bench held as follows (at pg. CL. 602): "4. Under our Constitution, a Money Bill has a unique position under Article 73(1A) of the Constitution. After being passed by the National Assembly, a Money Bill must be presented to the President for his Assent. When so presented, the President must assent the same within 10 days in terms of the duty imposed by Article 75(1)(b) of the Constitution read with Article 75(1)(a) thereof.
Consequently, a duly passed Money Bill is legislation that can be deemed under Article 75(2) of the Constitution to have been assented by the President. Therefore, on the day a Money Bill is passed, it is a validly made law but one that comes into force not later than ten days from the date of its presentation for the Presidential Assent. In terms of proviso to Article 73(1) of the Constitution, a Finance Bill is a Money Bill that contains the Annual Budget statement for that year. For the foregoing reasons the duly passed Finance Bill, 2007 is valid legislation which can be analogized with a 'passed' Act for the purposes of section 22 of the General Clauses Act, 1897. Accordingly the challenge made by the appellants has no force."
10. In our respectful view, a certain difference of emphasis can be discerned in the approach taken by the learned single Judge on the one hand and the learned Division Bench on the other. The former regarded section 22 as directly applicable for the reason that the passing of the Finance Bill, 2007 by the National Assembly could be regarded as the "passing of the Act". However, the latter took the view that for purposes of section 22, the Bill could be "analogized" with an Act that had been passed. The first question therefore is as to the meaning of the words "passing of the Act" used in section 22. This is of course a matter of statutory interpretation. Reference can be made to a decision of the Allahabad High Court reported as Rama Kant v. Shrimati Bi Chandra Krin AIR 1941 All. 312. It is a short judgment, and the following extract sets forth the entire position (emphasis supplied): "This is a debtor's application in revision under Section 75, Provincial Insolvency Act. The opposite party applied to have the applicant adjudged insolvent. The applicant contended that he was an agriculturist and was protected by the provisions of Section 3 of Act 10 of 1937. The question before the Court was whether the applicant was an "agriculturist" at the date of the passing of the Act within the meaning of Section 3(1). The Bill was passed by the Legislature in October 1937. It was assented to by the Governor on 20th December 1937 and it came into force on 1st January 1938.
Admittedly, in October 1937, the applicant was not an agriculturist within the meaning of the Act and admittedly he was an agriculturist within the meaning of the Act by 20th December 1937. The insolvency Judge was of opinion that the words "the date of the passing of this Act" mean the date on E
11. In our respectful view, the weight of authority is clear. The proper meaning to be ascribed to the words "passing of the Act" used in section 22 of the General Clauses Act is the date on which the Bill receives the President's assent and thereby becomes law. It therefore follows that we are, with the utmost respect, unable to which it was passed by the Legislature, which, as I have already said, was some date in October 1937 when the applicant was not an agriculturist. The applicant's objection was accordingly disallowed. He appealed, but the learned District Judge has dismissed the appeal. Hence this revision.
I do not think that the Insolvency Judge was right in holding that the Act was "passed" in October, 1937. Section 60(1)(a), Government of India Act, 1935, provides that in the United Provinces there shall be a Provincial Legislature which shall consist of His Majesty presented by the Governor and two Chambers. Thus the Chambers by themselves do not constitute the Legislature; it is constituted by the Chambers plus His Majesty's representative, and therefore it cannot be said that any local Act is "passed" until it receives the assent of the Governor."
In our respectful view, this decision is directly on the point. In coming to the foregoing conclusion, the Allahabad High Court referred to Halsbury's Laws of England (in the then current 2nd edition) and also to a decision of the (English) Court of Appeal reported as Ex parte Rashleigh; In re Dalzell (1875-76) 2 Ch D 9. This is in fact the leading authority on the point. James, LJ (with whom all the other members of the Bench agreed, although separate judgments were also given) observed as follows (at pg. 12): "I am of opinion that in the Act of 1869 the words "the date of the passing of the Bankruptcy Act, 1861" mean what they say. They are English words common words and words which have a fixed meaning in our language and law. They mean the time when the Royal Assent is given to a Bill which has passed both Houses of Parliament. That is the plain meaning of the words...."
Reference may also be made to R. V. Smith [1910] 1 KB 17 and Coleridge-Taylor v. Novello & Co. Ltd.
[1938] 2 All ER 318. These decisions are cited in Halsbury's Laws of England, Vol. 44(1), 4th ed.
(Reissue, 1995), para 1278, where the following statement of law appears: "An Act is passed when it receives royal assent". '
11. In our respectful view, the weight of authority is clear. The proper meaning to be ascribed to the words "passing of the Act" used in section 22 of the General Clauses Act is the date on which the Bill receives the President's assent and thereby becomes law. It therefore follows that we are, with the utmost respect, unable to reach the same conclusion with regard to this section as found favor with the learned single Judge. Section 22 cannot directly be used to hold that SRO 655 was validly issued on 29.06.2007. The Finance Act, 2007 had not been passed since on that date the Bill had not received the President's assent and the passing of the Bill is not the same thing as the passing of the Act.
12. We turn to consider the approach that found favor with the learned Division Bench. Article 75 of the Constitution needs to be considered in some detail. However, we may note that this Article underwent significant changes brought about by the 18th Amendment to the Constitution in 2010.
In particular, clause (2) thereof was substituted in its entirety. The learned Division Bench appears to have considered Article 75 in its post-Amendment form. With the utmost respect, while considering the position in relation to the Finance Act, 2007, the Article has to be examined as it stood then. 'For convenience, we first reproduce Article 75 (as presently relevant) as it stood in 2007: "75. President's assent to Bills.--(1) When a Bill is presented to the President for assent, the President shall within thirty days,--
(a) assent to the Bill; or
(b) in the case of a Bill other than a Money Bill, return the Bill to the Majlis-e-Shoora (Parliament) with a message requesting that the Bill, or any specified provision thereof, be reconsidered and that any amendment specified in the message be considered.
(2) When the President has returned a Bill to the Majlis-e-Shoora (Parliament), it shall be reconsidered by the Majlis-e-Shoora (Parliament) and, if it is again passed, with or without amendment, by the Majlis-e-Shoora (Parliament), in accordance with Article 70 it shall be deemed for the purposes of the Constitution to have been passed by both Houses and shall be presented to the President and the President shall not withhold assent therefrom.
(3) When the President has assented to a Bill, it shall become law and be called an Act of Majlis-e- Shoora (Parliament)."
By the 18th Amendment, for the word "thirty" in clause (1), the word "ten" was substituted and in clause (3), the words "or is deemed to have assented" were inserted after the word "assented". As noted above, clause (2) was substituted in its entirety. The new clause is as follows: "When the President has returned" a Bill to the Majlis-e-Shoora (Parliament), it shall be reconsidered by the Majlis-e-Shoora (Parliament) in joint sitting and, if it is again passed, with or without amendment, by the Majlis-e-Shoora (Parliament), by the votes of the majority of the members of both Houses present and voting; it shall be deemed for the purposes of the Constitution to have been passed by both Houses and shall be presented to the President, and the President shall give his assent within ten days, failing which such assent shall be deemed to have been given."
13. The changes brought about by the 18th Amendment took effect from 19.04.2010 and did not apply retrospectively. Therefore, Article 75 in its amended form only applies to Bills passed by the National Assembly or both Houses of Parliament (as the case may be) after that date. Thus, with respect, the deeming provisions relied upon by the learned Division Bench could not apply in respect of the Finance Bill, 2007. Furthermore, with the utmost respect, we find ourselves unable to reach the conclusion arrived at by the learned Division Bench in relation to a Money Bill even on the basis of the amended Article 75. Reliance has been placed on clause (2) to conclude that a Money Bill "comes into force not later than ten days from the date of its presentation". However, clause (2) applies only to Bills that may be returned by the President and the ten day period referred to therein applies only after the Bill is re-presented after having been considered by Parliament in joint sitting and passed by a majority of the members present and .voting (whether with or without amendment). A Money Bill cannot at all be returned by the President and hence clause (2) cannot at all apply with regard thereto.
14. We may note that although a Money Bill cannot under any circumstances be returned by the President (and this was so both before and after the 18th Amendment), that does not mean that the latter can withhold (or even delay) assent from such a Bill. The President is to act on the advice of the Prime Minister (or the Cabinet) and has no discretion at all with regard to the assenting or otherwise of Bills. In other words, the power of the President under Article 75 must always (and can only) be exercised on advice and not otherwise. As to why or how in such circumstances a Bill (other than a Money Bill) would ever need to be returned (hence making clause (2) applicable) is a point the consideration of which will take us well beyond the scope of the present petitions. This interesting point must therefore be left for another day. There can be no doubt therefore that a Money Bill must receive the L President's assent; this is constitutionally inevitable. However, notwithstanding this position, we still cannot, with the utmost respect, reach the same conclusion as arrived at by the learned Division Bench in its larger sense. In our view, there is a well settled constitutional distinction between a Bill and an Act. Simply put, the former has not the force of law, while the latter does. This is, in our respectful view, brought home by clause (3) of Article 75, which was relied upon by learned counsel for the petitioners. The words used in this clause, "it shall become law", are also pertinent. They clearly mean that before the President's assent, the Bill was not law; it is only the constitutional alchemy of the assent that transforms it into law, to which the description "Act of Parliament" can be given. There is only one "exception" to all this. It is an M Ordinance promulgated under Article 89. Clause (2) of this Article expressly provides that an Ordinance "shall have the same force and effect" as an Act of Parliament but also requires it to be laid before the National Assembly or both Houses (as the case may be). Clause (3) then provides, though expressly without prejudice to clause (2), that an Ordinance so laid shall be deemed to be a Bill before the National Assembly or the House before which it was laid first (as the case may be).
Thus, an Ordinance, once laid before one of the Houses and as long as it has not expired (or been disapproved) has the dual characteristic of both having the force of law as well as being a Bill.
However, this is by express command of the Constitution itself and serves to strengthen and confirm the point being made by us.
15. In view of what has been stated in the above, we find ourselves, with the utmost respect, unable to reach the conclusions that found favor with the learned single Judge and the learned Division Bench of the Lahore High Court. The Finance Bill, 2007 remained a Bill without the force of law up until it received the President's assent on 30.06.2007. It therefore follows that section 3A was added to the 2005 Act and became law only from that date onwards and not before. On 29.06.2007, when SRO 655 was issued, this section was not in force and hence there was no power on that date vesting in the Federal Government to issue the notification.
16. The next question, that arises immediately, is as to the effect of this. It will be recalled that the notification itself stated that it was to take effect on and from 01.07.2007. By that date of course, the Finance Act, 2007 had both received the President's assent and come into force. The learned Division Bench of the Lahore High Court observed as follows (pg. CL. 602): However, even from the point of view of date of enforcement of the impugned notification and with reference to the provision of Article 77 of the Constitution, Special Excise Duty under section 3A of the Federal Excise Act, 2005 became leviable on 1-7-2007 in terms of the impugned notification.
The Finance Act, 2007 had come into force on that date and therefore, the impugned notification was duly supported by enabling legislation in-order to be valid in terms of Article 77 of the Constitution. Accordingly, any cavil to the validity and vires of the impugned levy on and after 1-7- 2007 is illusory and without substance."
We have very carefully considered the above observations. With the utmost respect, we are unable to reach the same conclusion. We are respectfully of the view that the reference to Article 77 of the Constitution is not of any material significance in the present context. It must be remembered that section 3A levied a special excise duty in addition to the duty levied under section 3. The 0 notification issued by the Federal Government was what gave substantive effect to the provision.
Section 3A was, in other words, a charging section in a fiscal statute. It sought to bring the manufacture and production of goods to tax. The manner in which such provisions are to be interpreted and applied is well settled by innumerable decisions of the Superior Courts. The basic principle, stated in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64 and reaffirmed many times, is this: "In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to a tax.
Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used"
(see, among others, Government of Pakistan and others v. Hashwani Hotels Ltd. PTCL 1990 CL. 427 and A & B Food Industries Ltd. v. Commissioner of Income Tax 1992 SCM R 663). An allied principle, also well established, is that whenever two interpretations of a charging provision are reasonably possible the one favoring the taxpayer is to be adopted. Thus, the Federal Court in Commissioner of Agricultural Income Tax v. B.W.M. Abdur Rehman a case decided in 1952 but reported at 1973 SCM R 445, stated as follows: "There is ample authority for the proposition that in a fiscal case, form is of primary importance, the principle being that if the person sought to be taxed comes within the letter of the law, he must be taxed, however great a hardship may thereby be involved but on the other hand if the Crown cannot bring the subject within the letter of the law he is free, however apparent it may be that his case is within what might be called the spirit of the Law" (at pg. 452).
17. Keeping the foregoing principles in mind, we are in no doubt that SRO 655 could not be regarded as having come to life or become effective in law on 01.07.2007 simply because the notification stated that it was to come into effect on that date and section 3A had also by then become effective. The notification was stillborn in law and efflux of time could not infuse life into it. There could be no equity about section 3A or a notification purportedly issued in terms thereof, nor could any recourse be had to the spirit of the law or any intendment nor did any presumption arise. It was the letter of the law alone that was to be applied. On this basis, the conclusion is clear. And if at all there could be any doubt on the point, it must be regarded as being open to two reasonable interpretations, and even on this basis, the interpretation in favor of the taxpayer must be adopted.
18. In our view therefore, SRO 655 did not have any legal effect or force and could not be regarded as having been validly issued on 29.06.2007. Furthermore, it did not become effective or come to life, legally speaking, on 01.07.2007. It was stillborn and remained so throughout, being non est in law and a complete nullity, which did not and could not at any time have any legal effect or force.
It therefore necessarily follows that the first ground taken by the petitioners must be upheld.
19. We turn to consider the second ground, namely that section 3A itself was ultra vires the Constitution as being an excessive or impermissible delegation of legislative power to the Federal Government. As noted above, learned counsel for the petitioners relied on Cannon Products Ltd. v.
Income Tax Officer and others PTCL 1985 CL. 178, whereas learned counsel for the respondents relied on Zaibtun Textile Mills Ltd. v. Central Board of Revenue and others PTCL 1983 CL. 230.
Somewhat surprisingly, the learned Division Bench in Cannon Products was not referred to the Supreme Court decision, although there was a passing reference to the High Court decision against which appeals were preferred that were decided by the Supreme Court (the High Court decision being reported as Zaibtun Textile Mills Ltd. v. Central Board of Revenue PLD 1971 Kar. 333).
With all due respect to the Cannon Products case therefore, we will focus our attention on the Supreme Court decision in the Zaibtun Textile case. (We may note that in the paras below, references to page numbers are to the Zaibtun Textile case, unless otherwise stated or clear from the context.)
20. The dispute in Zaibtun Textile was also in relation to excise duty, under the predecessor legislation, the Central Excises Act, 1944 ("1944 Act"). In order to appreciate the issues involved, it will be pertinent to first note the relevant provisions of section 3, the charging section, as it stood at the relevant time (reproduced in part at pg. CL. 237): "(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods, produced or manufactured, and on all excisable services provided or rendered in Pakistan as, and at the rates, set forth in the First Schedule.
(2) The Central Board of Revenue may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed for different classes or descriptions of the same article.
(4) With the prior approval of the Central Government, the Central Board of Revenue may, in lieu of levying and collecting under subsection (1) duties of excise on excisable goods, by notification in the official Gazette, levy and collect duties on the production capacity of plants, machinery, undertakings, establishments or installations producing or manufacturing such goods; and such notification shall specify--
(a) the guiding principles for the determination of production capacity;
(b) the production capacity, as determined in accordance with such guiding principles, of the plants, machinery, undertakings, establishments or installations affected by it;
(c) the duty or the rate of duty on production capacity; and
(d) the manner of collection of such duty.
(7) The Central Board of Revenue may, by notification in the official Gazette, at any time, cancel a notification under subsection (4); and where a notification is so cancelled or, for any reason whatsoever, cannot be given effect to, the duty under subsection (1), in lieu whereof the duty under subsection (4) was levied by such notification, shall be levied and, with necessary adjustment, collected for the financial year during which such notification is cancelled or for the period for which it cannot be given effect to."
In 1965, the late Constitution of 1962 was amended such that a new item was added to entry No. 43 in the Third Schedule. That schedule listed the legislative entries in respect of which the Central legislature alone could make laws and the new entry enabled it to impose taxes and duties on the production capacity, inter alia, of any establishment or undertaking in lieu of the taxes and duties otherwise leviable, such as excise duty. (This legislative power is now entry No. 52 in the Federal Legislative List, contained in the Fourth Schedule to the Constitution.) In view of the legislative power so conferred, the various subsections of section 3 of the 1944 Act were amended and/or substituted to take the form noted above. In exercise of the powers conferred by subsection (4), the Central Board of Revenue levied excise duty on textile mills by framing the Excise Duty on Production Capacity (Cotton Fabric) Rules and the Excise Duty on Production Capacity (Cotton Yarn) Rules (together, the "Production Capacity Rules").
21. The aforesaid rules, and section 3(4) (and other subsections of section 3) were challenged by the textile mills in the High Court as being ultra vires the 1962 Constitution on the ground, inter alia, of being an impermissible and excessive delegation of legislative' powers. The petitions ultimately failed and appeals were preferred to the Supreme Court. These were of course, decided by the judgment in the Zaibtun Textile case; the appeals were dismissed and the challenge on the basis of impermissible delegation of legislative powers rejected. The case sought to be made out by the appellants was stated in the judgment in the following terms (pg. CL. 255): "It was argued that the Legislature had effaced itself and abdicated its power in favour of a subordinate authority viz. the Central Board of Revenue since the levy, assessment and collection of the duty has been placed within the power of that authority in all its dimensions. It was further submitted that by means of delegation, authority has been given to the Board of Revenue not only to override subsection (1) of section 3, which was the pre-existing charging section but the provisions in question also affirmatively authorised it to impose the duty and to lay down the guiding principles which were to operate as constraints on itself to determine the production capacity. It was further submitted that section 3 as amended comprises two competing. systems, one visualised by subsection (1) on the basis of actual production and another by subsection (4) on the basis of production capacity; and the Board of Revenue has been empowered to choose between these two types of taxes, without the Legislature laying down any guidelines. It was contended that conferment of powers of such amplitude embracing the entire gamut of the taxing power vesting in the Legislature, amounts to handing over the Legislative function itself to be exercised by the Board of Revenue."
22. The Supreme Court largely approved of and adopted the analysis and examination of the large number of cases that had been carried out by Noorul Arfin, J. in the High Court. However, the Court itself also examined the relevant constitutional principles as enunciated by writers such as Montesquieu and Locke as well as certain decisions of the Privy Council. In addition, the Supreme Court also considered in detail the earlier relevant decisions of the Federal Court and the Supreme Court itself (see at pp. CL. 247 252). The Court then observed as follows (pp. CL. 252-255; emphasis supplied): "21. From the aforesaid analysis of the judgments it would appear that it is too late in the day to maintain that the Legislature cannot delegate authority to subordinate or outside authorities for carrying the laws enacted by it into effect and operation... Mr. A. K. Brohi [for the appellants] in his argument also did not put his contention as high as to canvass a total absence of power to delegate any part of the legislative function in connection with a particular statute to outside authorities by the Legislature. But his submission was, as mentioned hereinbefore, that the impugned provisions were invalid inasmuch as the Legislature had effaced itself and abdicated its essential legislative function in favour of a subordinate authority i.e. Central Board of Revenue who has been given power to levy and collect the duty in question in all its dimensions, leaving it unfettered discretion to formulate its own policy and standards according to which the tax was to be levied.
22. The question raised in this argument essentially concerns the question of the constitutional limits to legislative power. In other words the question is as to what extent and on what principles delegation of legislative power to outside authorities is permissible under the Constitution. The Constitution does not expressly lay down and prescribe the limits within which such delegation would be permissible. Nor is there any provision in the Constitution which may define what constitutes the essential legislative function, which may then be kept as a norm to strike down the legislation by which such essential legislative power is entrusted to other agencies. The question whether in a given case the Legislature has incompetently delegated its power has to be determined by the Courts in the exercise of their judicial power under the Constitution. The cases reviewed in this judgment bear testimony to the fact that the Courts in the various jurisdictions have not been able to evolve a consensus on a fixed rule or test to determine this question. Indeed they illustrate the difficulty with which the objection regarding impermissible delegation of administrative power has been applied in individual cases. No uniform test has been laid down in these cases to determine this objection.... The case of Muhammad Ismail & Co. [PLD 1966 SC 388] is perhaps the only case in Pakistan, which attempted to lay down a general rule for determining the question of impermissible delegation, as it was observed that only "essential legislative power" is incapable of being delegated. In this case also reference was made to the laying down of the policy of the legislation in the enactment for the guidance of the rule-making authorities. In the last case referred to viz. Province of East Pakistan v. Sirajul Haq Patwari [PLD 1966 SC 854] also no uniform test could be laid down by the learned Judges delivering their separate opinions but the validity of the impugned enactment was held not open to the objection of impermissible delegation, although it did not in itself lay down any policy or guidelines for the executive authorities to carry into effect the object of the legislation. In this case I would particularly point out what Hamoodur Rahman, J. held to be in his opinion constitutionally permissible, namely, that the provision for details in a statute, particularly when detail are by their very nature incapable of being ascertained by the Legislature itself, can well be left to be worked out by another agency in whom the Legislature places confidence. In the final analysis this being a question of the vires of the assertion of a constitutional power, has to be decided with reference to limitations placed by the Constitution on the scope of the power of the Legislature, either expressly or impliedly by necessary intendment....
24. ... To my mind the relevance of the rule against delegation of legislative function is confined and based on the aforesaid constitutional position. But it may be emphasized once again that no specific test can be formulated and laid down for general application in every case which comes up for examination by the Courts in regard to the objection on the ground of impermissible delegation.... Thus it will be futile to attempt to further narrow down the broad constitutional position mentioned above into the form of fixed and determined rule for ready application. Each case has to be determined in the context of its particular circumstances and considerations, in the background of the broad principles mentioned above."
23. The Supreme Court then considered the provisions of section 3 of the 1944 Act as challenged before it on the touchstone of the principles enunciated and, as noted above, the appellants' case was rejected. In our respectful view, the challenge failed for three reasons. Firstly, it was held as follows (pg. CL. 256; emphasis supplied): "26. All that is provided by subsection (4) is to make available to the Federal Government an alternate mode of the imposition of excise duty on the basis of the production capacity of plants and machinery, etc., instead of on the actual production and output of goods by such plants and machinery. Having regard to the constitutional amendment amending Entry No. 43 of the Third Schedule of the Constitution (1962) whereby an additional subject for making laws was included to empower the Central Legislature to make laws providing for imposition of taxes and duties on the basis of the production capacity, in lieu of, inter alia, excise duties, it cannot be contended that the Legislature had no authority to authorise the levy and collection of duties on the production capacity. The objection seems to be that it has been left to the discretion of an outside authority to levy either of the duties in its own discretion. No serious exception can be taken in conferment of discretionary power upon officers or functionaries for the exercise of alternate powers according to the exigencies of the situation prevailing at a particular time or place. Invariably the choice between the two courses of action would seem to fall in field of implementation of the laws made by the Legislature."
24. Secondly, it was held as follows (pp. CL. 256-257; emphasis supplied): "27. There is no substance in the submission that the amended section 3 provided for two different competing taxes. The amended Entry No. 43 the Third Schedule to the Constitution (1962) clearly empowered the Legislature to provide for capacity tax in lieu of the tax on actual production of goods and by the impugned legislation, the Legislature ... made the law ... leaving it to a body like the Board of Revenue which was already charged with the duty and committed with the power to levy and collect as well as to alter the rates of the existing excise duties. The Board being a responsible body with the expert knowledge in the working of the existing scheme, was an appropriate agency in which the Legislature reposed confidence, to carry out the legislative purpose of levying and collecting duties on production capacity in lieu of the duties it was empowered under subsection (1) of section 3 to levy and collect. The aspect that the concept of production capacity as the basis for taxes and duties, being a new and untried idea in the realm of taxation, cannot be lost sight of. Apparently the production capacity of plants, machinery, undertakings, establishments and installations, was a complex matter depending on a number of variables and consideration of different factors, like condition of such plants and machinery, working conditions, categorywise national average annual production, past annual production etc. and many other factors arising from time to time, so that in their very nature laying down of detailed guidelines for determination of such production capacity were in capable of being ascertained by the Legislature itself, which could not be expected to undertake such unwieldy and cumbersome task with the limited time at its disposal. In entrusting such a task to a body more suited for such work can the Legislature be said to have effaced itself or abdicated its legislative function? As already pointed out there is authority for the proposition that in such circumstances, the Legislature will be within its constitutional limits to employ appropriate agency to accomplish its legislative purpose. There can be no manner of doubt that the Legislature intended to introduce the new concept of capacity tax and fulfilled its legislative obligation by making provision for the same in clear and unambiguous terms. It, therefore, did not delegate its essential legislative function contrary to the terms of the instrument which had constituted it.
28. The foregoing reasons amply meet the argument that no guidelines or other policy of legislation was laid down in the impugned enactment. However, sufficient, safeguards were, nonetheless provided, in that the Central Board of Revenue was required to first lay down the guiding principles for the determination of production capacity and then to determine the same in accordance therewith. Not only that but all this was to be done with the prior approval of the Central Government."
25. Thirdly, it was noted as follows (pp. CL. 259; emphasis supplied): "31. In view of the aforesaid discussion, there is no force in the contention that the amendments made by the Central Legislature in section 3 of the Act by the Finance Act, 1966, are invalid on the ground of impermissible delegation of legislative power. A further consideration which fortified this conclusion is the unrebutted fact that the Excise Duty on Production Capacity (Cotton Fabrics)
Rules, 1968 and the Excise Duty on Production Capacity (Cotton Yam) Rules, 1968, under which the impugned production capacity was determined, were expressed to be made not only under section 3(4) of the Act, but also under section 37 of the Act, which is the rule-making clause in the Act. These rules were then said to have been placed before the Central Legislature in accordance with the proviso to section 38 of the Act, as it then stood, and consequently these rules and notifications have effect as if enacted in the Act. The Legislature in point of fact having itself approved the rules, which include not only the guiding principles but also the production capacity of the affected mills, as already determined it cannot be argued that the legislation suffers from the defect of excessive delegation by vesting uncontrolled authority to an outside body."
26. We would respectfully summarize the reasons that found favor with the Supreme Court as follows. Firstly, the legislature being admittedly competent to levy excise duty on production capacity, the scheme adopted by it in the amended section 3 was to continue the levy of duty on actual production (subsection (1)) but to create a mechanism whereby, in the alternative, it could be levied on production capacity (subsection (4)). What was in the hands of the CBR (subject to the approval of the Central Government) was merely the implementation of the scheme adopted by the legislature, i.e., of deciding which of the two modes would be adopted. And the reason why this was so was because, secondly, the matter of levying duty on production capacity was not merely a novel device, but also involved consideration of a large number of variables that could not at all be adequately covered and decided by the legislature itself. It therefore necessarily had to be in the hands of an expert body like the CBR, which was the appropriate agency to deploy in this regard. Furthermore, guidelines and safeguards had been provided in the legislative scheme adopted in terms of subsection (4). Finally, the scheme actually adopted by the CBR, i.e., the Production Capacity Rules, was not merely to be regarded as if the said rules were enacted in the 1944 Act itself, but the rules also had to be laid before the legislature, which could modify them or even declare that they were not to take effect at all (section 38 and proviso). Thus, in effect, the legislature itself must be regarded as having approved the Production Capacity Rules.
27. In our respectful view, the Supreme Court decision can be regarded as having two dimensions.
The first is the constitutional principle that is laid down. This in itself has two aspects. Firstly, it is the "essential legislative power" alone that cannot be delegated. Other than that, there can, in appropriate cases, properly be a delegation to some other authority or extraneous agency.
Secondly, no universal or general rule, nor any specific test, can be laid down for determining what the "essential legislative power" is. Each case has to be examined in its own context and by application, and against the backdrop, of the broad principles identified by the Supreme Court. The second aspect of the decision is of course, the application of the constitutional principle to the actual facts that were before the Supreme Court. Here, as noted above, three reasons found favor with the Court for concluding that the challenge of impermissible delegation must fail. In order therefore to consider whether section 3A of the 2005 Act, presently under challenge, constitutes an impermissible or excessive delegation of legislative power, both dimensions of the Zaibtun Textile case will have to be considered and section 3A tested on the touchstone of each.
28. Before embarking on this exercise, it would be pertinent to consider the matter of the "essential legislative power" in more detail. An obvious corollary to the constitutional principle that this power cannot be delegated is that there must be such a power. Put differently, however difficult it may be to ascertain the "essential legislative power" in any particular case, and however few may be the instances where the Courts have concluded that it has been impermissibly delegated, it cannot be denied nor must it ever be forgotten that such a power must necessarily exist. One advantage of a case by case approach is of course that it gradually builds up a body of instances of what can or ought to be regarded as the "essential legislative power" and what falls outside its purview (as the case may be). Without of course ever forgetting the Supreme Court's caution that no specific test or universal or general rule can be laid down, we would respectfully suggest that perhaps a federal constitutional system has an aspect that may, in appropriate cases, provide assistance in ascertaining the "essential legislative power" in the particular case before the Court. This stems from the need in a federal system to divide the powers of the state between the federal and provincial organs, and hence to enumerate the legislative powers, i.e., to identify them in one or more lists. Any law made by a legislature in a federal system must, in the end, be shown as attributable in its pith and substance to one or more of the entries that fall within the legislative competence of that legislature (or as falling within the "residuary" powers if those be its legislative domain). Indeed, if this cannot be shown, then the law is ultra vires the legislature that made it. We would respectfully suggest that if the question of "essential legislative power" arises in respect of a particular statute, some indication of the nature and scope of this power may be gathered by reference to the legislative entry under which the law must, in its pith and substance, be regarded as having been made. Thus if the "essential legislative power" may not, as the Supreme Court appears to have indicated, have a uniform nature that is universally applicable to all the legislatures in a federal system or to all the laws that each such legislature can make, this may be because the contours or shape of this power vary with (and therefore can be ascertained by examining) the different legislative powers that fall within the domain of each legislature. In other words, it may be that some indication of the nature of what constitutes the "essential legislative power" may be gathered from the entry to which the law must relate in its pith and substance. Now, the contours of the various entries differ (sometimes radically) from each other and completely different and disparate legislative powers may fall within the domain of a particular legislature. It may therefore be that the "essential legislative power" may also likewise vary from entry to entry and indeed, the power may take radically different shape and form depending on the entry concerned. But once the pith and substance of the law under challenge has been identified, and it has therefore been tied to one or more particular legislative entries, that may usefully provide assistance and guidance as to the nature, scope and shape of the "essential legislative power" involved.
29. There can of course be no doubt that the 2005 Act, and also section 3A, were enacted with reference to entry No. 44 on the Federal Legislative List, which relates to duties of excise. When entry No. 52, in relation to taxes or duties on production capacity is considered, it is clear from the Zaibtun Textile case that there can, in appropriate cases, be a permissible delegation in relation thereto in respect of its levy, collection, the rate of duty and essentially all the elements that constitute such taxation. But the question is whether this conclusion ought to apply uniformly in respect of all entries relating to taxation? In our respectful view, the answer to this question should be in the negative. What may (or may not) be regarded as the "essential legislative power" in relation to one entry relating to taxation may not necessarily be applicable in relation to another.
We would respectfully suggest that although fiscal matters share certain common characteristics and hence there can be a certain commonality of approach in considering the legislative entries relating to taxation, it may not be appropriate to assume that the "essential legislative power" in respect of each is identical or so substantially similar that what is true of (or for) one is true of (or for) all others. Indeed, a tax, on production capacity has one characteristic, crucial for present purposes, that is not to be found in respect of the other taxes and duties. It is that it must be in lieu of any one of the other taxes/duties. In Elahi Cotton Mills Ltd. v. Federation of Pakistan and others PTCL 1997 CL. 260, a five-member Bench of the Supreme Court expressly noted (at pg. CL. 393) that both a tax on production capacity and any of the taxes of which it can be in lieu of, cannot be simultaneously imposed. And in the Zaibtun Textile case, this point was also made though somewhat differently when it was held (see paras 23 and 26 above) that the levy and collection of excise duty under subsection (4) was a different mode of levying the excise duty otherwise levied under subsection (1). Indeed, it is clear from section 3 of the 1944 Act as a whole (including, in particular its subsection (7)) that the two levies were in the alternate.
30. In our view, it follows from the foregoing that the "essential legislative power" of a tax on production capacity is different from that of what might be called the standalone taxes (i.e., those which can be levied independently of any other tax such as, e.g., excise duty under entry No. 44).
More particularly, the contours and scope of the "essential legislative power" with regard to the tax on production capacity are substantially narrower and more restricted than the contours and extent of this power in respect of any of the other taxes or duties. Thus, what might be permissibly delegated in a situation where the former is involved may yet be an impermissible or excessive delegation in a situation where any of the latter are engaged.
31. One point is clear from the Zaibtun Textile case. The setting of the rate of taxation may well not be part of the "essential legislative power" of any from of taxation. This may be delegated as long as some guidance is provided (see at pg. 381). This point is of course not in issue in the present case since in section 3A the legislature had itself set the rate at 1% of the value of the goods: What then can be regarded as the "essential legislative power" in relation to a provision such as section 3A? The question can be approached by considering what it is that the delegate (the Federal Government) could or could not have done under this provision. It could not have set the rate of the duty, but that is in any case not relevant for present purposes. However, other than that, it could have done anything and everything that the legislature can do in respect of a duty of excise on goods. It must be remembered that section 3A was a provision in relation to the imposition of a tax.
It was a duty additional to the one levied by the legislature itself in terms of section 3. The Federal Government could have chosen not to levy the duty at all by the simple expedient of not issuing any notification. It could have chosen to tax any or all goods or anything in between, ranging literally from a single article to every conceivable type of goods. It could at any time have brought the levy to an end by withdrawing the notification, either in totality or in respect of some of the goods therein specified. Again, it must be appreciated that this would not have been by way of an "exemption" but by bringing the actual levy itself to an end. And, if a notification issued were withdrawn, the Federal Government could then have reimposed the levy by once again issuing a notification, whether of the same scope or otherwise. In our view, the issuance of a notification would, functionally, have been the equivalent of the imposition of the duty by the legislature, the withdrawal of the notification would have, functionally, been the equivalent of its repeal, and the subsequent issuance of another notification the functional equivalent of its re-enactment. And there was nothing to prevent the Federal Government from doing all of this over and over again.
Indeed, when the 2005 Act is examined, it appears that the legislature placed in the hands of its delegate a power that it had itself chosen not to exercise in respect of the charging provision, section 3. The reason is that the latter section imposes a duty of 15% ad valorem on all goods produced or manufactured in Pakistan or imported into the country, but provides that the goods specified in the First Schedule to the 2005 Act shall be charged to duty at the rates therein specified. Crucially however, section 16 provides that all goods imported, AA manufactured or produced in Pakistan, other than the goods specified in the First Schedule, are exempt from the whole of the excise duty imposed by section 3. Thus, other than the limited number of goods listed in the First Schedule, the legislature has itself exempted all other goods. On the other hand, the delegate under section 3A, the Federal Government, was not subject to any such restriction. It could, and by means of the impugned notification SRO 655 did, impose the special excise duty on a vast number of goods.
32. In our view, the nature of the power conferred by section 3A on the delegate was indistinguishable from the nature of the power that could be exercised by the legislature in exercise of its legislative competence under entry No. 44 of the Federal Legislative List. It touched the very core of that power. The Federal Government could in effect have made or unmade the very levy itself and could have done this over and over again. We are therefore of the view that in relation to section 3A the "essential legislative power" was engaged. Thus, the first dimension of the Supreme Court decision in the Zaibtun Textile case (see para 27 above) was applicable. Insofar as the second dimension is concerned, we are of the view that none of the three reasons (see para 26 above) that found favor with the Supreme Court in upholding section 3(4) of the 1944 Act apply in the present case. The third reason is clearly not applicable since the 2005 Act has no equivalent to section 38 (or its proviso) of the 1944 Act. The second reason also does not apply since no guidelines were given nor any safeguards built into section 3A as would regulate the exercise of the power thereby conferred or provide any policy pursuant to which the notification(s) could be issued. As regards the first reason, the duty under section 3A was expressly stated to be in addition to that levied by the legislature itself under section 3 and the point was reinforced by, inter alia, providing (by an addition made by the Finance Act, 2007) that the exemption in section 16 would only apply to the duty levied under the latter provision. Thus, the actual facts and controversy in the Zaibtun Textile case were, in our respectful view, materially different from the issues raised in the present case and what was sought to be achieved by section 3A was of a different nature from the objectives sought to be achieved by section 3(4) of the 1944 Act.
33. In view of the foregoing, we uphold the second ground urged by learned counsel for the petitioners. Section 3A that had been inserted into the 2005 Act in 2007 was ultra vires the Constitution as being an excessive and impermissible delegation of legislative power. It was void ab initio, a nullity in law and of no legal effect. It necessarily follows that the impugned notification purportedly issued pursuant thereto, SRO 655, was likewise a nullity and of no legal effect whatsoever.
34. Before concluding, we may note one point in relation to SRO 655 for purposes of completeness.
This notification was issued, as already noted, in purported exercise of the powers conferred by section 3A(1). However, it also stated that it was issued in exercise of the powers conferred by section 16(2). The latter provision allows the Federal Government to exempt any goods or class of goods from the whole or part of the excise duty. In our view, the reference to and reliance on section 16(2) was otiose and has no relevance for present purposes. This is for two reasons. Firstly, a question of exemption can arise only if there is a levy since it is well established that an exemption only inserts itself (as it were) between the levy of the tax/duty and its payment. Since we have concluded that SRO 655 could not have been issued under section 3A(1) at all no question arose of any "exemption" from the purported levy. Secondly, section 3A itself empowered the Federal Government to choose the goods on which the special excise duty was to be levied. The specific listing of goods in the table to the notification thus had the effect of taking such goods outside the purview of the levy itself. Again, there was no need for nor any point in granting any putative "exemption".
35. In view of the foregoing analysis and discussion, the petitions are allowed. It is declared that section 3A was void ab initio, a nullity in law and of no legal effect and that SRO 655(1)/2007 dated 29.06.2007 was likewise a nullity and of no legal effect, whether on account of that reason or because it in any case never took legal effect for the reasons stated in the earlier part of the judgment. It follows that any amounts recovered from the petitioners by reason thereof were unlawfully acquired and the petitioners are entitled to a full refund thereof. Such refund may be made by way of direct repayment or adjustment (against any tax or duty) and in one lumpsum or in installments, as the Federal Board of Revenue may determine (but the same policy must be adopted in all cases). However, the entire amount that is refundable must in each case be settled in full not later than 31.12.2013. There shall be no order as to costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.