MUHAMMAD AFZAL LONE, J.--The facts are that the appellants are a limited Company and their entire share holding is held by PIA and KLM in the ratio of 2/3rd and 1/3rd respectively. The appellants are running a Hotel near Karachi Airport, for provision of boarding and lodging facilities to their customers, having the following lodging units:--
(i) Economy size Single Room=81
(ii) Normal size Room =121
(iii) Double Room =48
(iv) Suites =6 The dispute between the parties arose out of assessment made and recovery enforced against the appellants of the Tax called Hotel Tax levied by virtue of section 8 of the Sindh Finance Act, 1977. The rates of the Tax are specified in the section itself, which is assessed and collected in the manner and by authorities appointed by the Provincial Government through a notification. Such notification was issued under No,2(8)/70 Tax-2084 dated 22-8-1983. The appellant's case is that it primarily provides facilities to the staff and passengers of the two Airlines, with whom the rates are negotiated from time to time, incorporated in the schedule of the daily charges, and are comparatively lower than those charged from ordinary customers. Another feature of these rates is that these fall much below the rates of rent prescribed in the tariff forming part of section 8.
2. It is apparent from the record that in pursuance of this notification, the appellants filed returns for the years 1982-83, 1984-85 and 1985-86 and disclosed therein the rent actually charged from the Staff and passengers of the said Airlines, as per schedule earmarked for them. The Excise and Taxation Officer as an assessing authority, however, ignored the declared version and in making the assessment applied the flat rate on the basis of maximum rate of tariff laid down in section 8. The appellants filed separate appeals against the assessm ent orders which were dismissed. This dismissal order was challenged in revision before respondent No,
1. The revision petition was partly allowed and the amount of tax modified, but the maximum rate of 20% was applied with which the appellants were aggrieved.
3. The appellants then filed a Constitutional petition in the Sindh High Court for issuance of directions to the respondents to assess the tax on the basis of rates actually charged by them from their customers and not to enforce the levy at the rates applied in the orders impugned before the High Court.
4. It is discernible from the impugned judgment that the appellants succeeding in persuading the learned Judges to hold that the charging of different rates by them for the same lodging unit, from different categories of persons, as per Schedule already fixed is permissible and that section 8 contemplates imposition of tax on the basis of the rates actually charged by the appellants and not on the footing of any amount considered by the Assessing .Authority, as reasonable. The High Court thus, upheld the stand taken up by the appellants before the departmental authorities, which the latter had declined to accept.
Seemingly, the tax assessed by the Assessing Authority had already been paid by the appellants, which was in excess of the amount computed on the basis laid down in the judgment of the High Court. It appears that before the High Court, the appellants prayed for a direction to the respondents to refund the excess amount. This request was disposed of by the learned Judges, as under:-- "In our view since the petitioners have already charged the hotel tax in question from the customers on the basis of their normal rates of the lodging units and the same have been appropriated inasmuch as the same has been paid to the respondents we are not inclined to pass any order in respect of the amount which the petitioners had actually charged, recovered from their customers. However, in respect of the alleged excess amount, if any, paid (which they have not recovered from their customers) and if they can substantiate the same before respondent No,1 we remand the case."
The High Court's judgment dated 19-9-1989 is under challenge in this appeal before us.
5. Leave to appeal was granted to examine the appellants contention that "the fact that an assessee illegally collected the tax from his customers makes no difference to the right vested in him to claim refund."
6. For proper appreciation of the true character of the levy, section 8 which creates a charge, as well as provides the machinery for its imposition, is reproduced below:- "8. Tax on hotels.--( 1) There shall be levied a tax on hotels to be called the hotel tax, at the following rates, namely:--
(a) in case of hotel charging not less than twenty-five rupees and not more than hundred rupees per lodging unit per day.Five rupees per lodging unit per day on seventy-five per cent. Of total number of lodging units.
(b) in case of a hotel charging not less than one hundred and one rupees and not more than two hundred rupees per lodging unit per day.Ten rupees per lodging unit per day on seventy-five per cent. of total number of lodging units.
(c) in case of a hotel charging not less than two hundred and one rupees and not more that three hundred rupees per lodging unit per day.Fifteen rupees per lodging unit per day on eighty-five per cent. of total number of lodging units.
(d) in case of a hotel charging three hundred and one rupeestwenty rupees per lodging unit per day, on eighty-five per and above per lodging unit per cent. Of total number of day. Lodging units.
(2) The hotel tax shall be paid yearly or in such installments as Government may by notification fix, by the owner of the hotel or the person who is, for the time being, performing the duties of Manager thereof.
(3) The hotel tax shall be assessed and collected in such manner and by such officer, authority or agency as Government may, by notification, specify.
(4) ..............................................................
(5) ..............................................................
(6) ..............................................................
(7) ..............................................................
It will be seen that the charge is cast on the hotel and burden of payability placed on its owner and the Manager. The charging provision clearly indicates that the hotels are divided into four categories on the basis of the rate of rent charged per lodging unit per day and a flat rate of tax is prescribed for each category, computed on the footing of a particular percentage of total number of lodging units of that category. Under this system of assessment, irrespective of the fact that only a few lodging units may have remained occupied and conversely the entire accommodation rented out, during an assessment period, the levy would remain the same. Such a mode of imposition of tax does not pass on the incidence of taxation to the individual customers. Even if some amount of tax is recovered from them, the tax paid by the assessee is not relatable to identifiable individuals.
7. Mr. Khalid Ishaquc, learned counsel for the appellants, has argued that imposition and recovery of the tax should have the backing of the contemporaneous law, and as held by the High Court, there being no warrant in law for categorization of their lodging units, on a basis divorced from the rent actually charged therefor by them; the assessm ent and recovery of tax on the strength of such classification, resulting in application of higher rate of tax were wholly illegal; the Government has no right to retain the recovery made in excess of the amount due from them, except through validation of the unlawful recovery, but no such coverage was given to it. It was thus, submitted that the Government was bound to refund the excess amount to the appellants and the High Court fell in error in withholding the grant of relief to them, in this behalf. These contentions appear to be well-grounded.
8. In the course of hearing of this appeal, our attention has been drawn to Messrs Sajjad Nabi Dar & Co. v.
The Commissioner of Income Tax, Rawalpindi Zone, Rawalpindi (PLD 1977 SC 437) laying down the rules for determination of assessee's right of refund of tax paid not due under law. This was a case relating to refund of sales tax collected on the sale transactions taking place in tribal area, to which the Act had not been extended. This Court took the view that:-- "Now even though the Government was not entitled to levy sales tax in the tribal area, it could have rectified the petitioner's action on the same misunderstanding of the law which had led the petitioner to collect tax from the customers, therefore, nothing turns on the fact that the said Act had not been extended to the tribal areas, and the real question is of the terms on which the petitioner had collected sales tax from its customers. Although that evidence was in the petitioner's exclusive possession, as it withheld that evidence, an adverse inference must be drawn against it, and, in the circumstances, the High Court was justified in holding that the petitioner had collected sales tax from its customers as the agent of the Government.
However even if it is assumed for the sake of argument that the finding of the High Court is erroneous, this will not help the petitioner's case. As the petitioner does not claim to have collected sales tax for its own benefit, it follows that it had collected the tax either as the agent of the Government or as the agent of its customers, and if it was not the Government's agent, it was necessarily the agent of its customers for the purpose of paying the tax on their behalf to the Government. The agency came to an end as soon as it had deposited the tax with the Government, and thereafter only its customers could have sought the refund of the tax paid on their behalf. No doubt, these customers could have authorised the petitioner to apply on their behalf for the refund of the amounts paid by them, but as that is not the petitioner's case, the order of the Sales Tax Officer of 7-2-1959 enabled the petitioner to obtain the refund of money which did not belong to it. And this means that the basis of this order is the proposition that the petitioner was entitled to the tax paid by its customers, because its customers were not liable to pay the tax. This is a legal proposition which is obviously incorrect."
The appellants case is, however, not hit by the ratio of this judgment, for, it cannot be said that they acted as an agent of the Government in collecting the tax, or the recovery, if made from the customers is relatable to individual customers. The question of being agent of customers, therefore, would not arise. The learned Additional Advocate-General could not lay hand on any provision of law justifying the retention of the amount in excess of the amount of the tax legally payable by the appellants. He, however, raised the plea that whatever the declaration was made by the appellants in the prescribed pro forma issued under notification aforesaid was accepted by the department, and on that score the appellants did not hold any amount to their credit as in excess of the tax recovered from them.
9. After hearing both the sides and examining the available record, it is not possible to evaluate the contentions of the learned Additional Advocate-General. This issue shall have to be gone into by the departmental authorities, after examining the record and if need be after holding further inquiry in the matter. However, on principle we direct that on computation of the tax on the basis of the verdict given in the impugned judgment, if any excess amount is found to have been collected from the appellants , it shall be refunded to them.
With the above directions, this appeal is accepted, leaving the parties to bear their own costs.