' This judgment will dispose of several petitions whereby the petitioners have challenged the imposition of central excise duty on bank loans, advances and facilities. As in all petitions the questions of law and fact are common, it shall not be necessary to deal with facts obtaining in each petition.
2. The legal factual position is that by Finance Act, 1991 amended Part II of the First Schedule to the Central Excises Act, 1944 (hereinafter referred to as "the 1944 Act") Item 14.14 was inserted thereto, which purported to introduce excise duty at the rate of 1% on 'services provided or rendered", in respect of advances" made by various financial institution in terms as under:-- 14.14 Services provided or rendered by banking companies, financial institutions, insurance companies other lending banks or institutions and other persons dealing in advancing of loans, in respect of advances made to any person1/12th of 1% of the amount each advance outstanding on the last working day of each calendar month."
3. Thereafter, the Federal Government issued S.R.O. No,502(I)/91, dated 30-5-1991, S.R.O. No,558(I)/91, dated 13-6-1991 and S.R.O. No,1065(I)/91, dated 6-10-1991. The effect of these S.R.Os. Was to exempt 'investment loans" from the ambit of central excise duty. Subsequently, the Finance Act, 1992 enhanced the rate of excise duty in Item 14.14 from 1/12th of 1 per cent. To 1/12th of 2 per cent.
Furthermore, the Federal Government issued S.R.O. No,356(1)/92, dated 14-5-1992 and S.R.O.
No,519(I)/92, dated 25-5-1992. The effect of these S.R.Os. Was to curtail the absolute exemption earlier granted to "investment loans" by imposing a duty thereon at a rate of 1%.
4. In this backdrop, the Federal Government, through S.R.O. No,706(I)/91, dated 4-8-1991, added rule 96.ZZI to the Central Excise Rules of 1944 (hereinafter referred to as the "1944 Rules"), sub-rule (1) whereof which reads as follows:-- "96-ZZI. Special procedure for collection of central excise duty on advances made by banks, financial institutions or other persons:--
(I) All banking companies, financial institutions, insurance companies, cooperative financing societies, other lending banks or institutions and other persons dealing in advancing of loans, hereinafter called company, shall pay the central excise duty leviable on the advances made by the company to any person."
5. On record we find the written submissions/synopsis of Muhammad Farogh Naseem, (1) Mr. Siraj- ul-Haq Memon, (2) Mr. Muhammad Munib Akhtar, (3) Mr. Amir Hani Muslim, (4) Mr. Rizwan Ahmed Siddiqui, (5) Mr. Qazi Faiz Essa, (6) Mr. Khalid Javed and Mr. Naeem, the learned counsel for the respondent-banks. Counsel also submitted oral arguments.
6. Mr. Siraj-ul-Haq, the learned counsel, appearing for the petitioners, while challenging the levy, submitted the following arguments:--
(a) the impugned levy is to be paid by the banks and not the customers. This can be confirmed from a plain reading of rule 96-ZZI. In this context a comparison was drawn between other rules i,e, rules 96-ZZE and 96-ZZJ where under the person entrusted to pay the levy has been authorized to pass on the burden to ultimate consumers by use of the expression `collect and pay' whereas in rule 96-ZZI the word 'collect' is missing;
(b) the banks are recovering central excise duty on bank loans from customers, on the strength of administrative Circular No,1(14)CEB/91, dated 26-9-1991. According to the learned counsel this circular conflicts the statutory rule i,e, rule 96-ZZI and is thus, ultra vires. To further support his arguments reliance was placed on Central Insurance v. C.B.R. 1993 SCM R 1232 wherein the Honourable Supreme Court has held that a circular of the Central Board of Revenue cannot influence judicial proceedings before the department. Furthermore, the learned counsel has cited C.I.T. v. Noor Hussain PLD 1964 SC 657 for the point that any departure made by the circular from the provisions of the statute shall render the circular invalid to that extent;
(c) giving of loans and advances by the banks and financial institutions is 'services rendered' but 'business' of such institutions In this provisions of the Banking Companies Ordinance, 1962 may be looked into. In State of Madras v. Gammon AIR 1958 SC 560 it has been held that words used in a particular statute should be construed in the legal sense in which those words have acquired a definite and precise sense and the Legislature must be understood to have used those words in that sense. Using this judgment, it has been contended that the definition of 'finance' as appearing in the Banking Companies Ordinance, 1962 should be adopted;
(d) the fact that under rule 96-ZZI the incidence of central excise duty is upon banks can be established from a reading of S.R.O. No,1064(1)/91, dated 6-10-1991 where under Pak-Kuwait Investment Company (Pvt.) Ltd., has been granted an exemption from the levy of central excise duty on services rendered by it in respect of advances/loans provided by it. It is contended that this exemption confirms the intention of the Legislature to impose the charge on the banks/financial institutions.
(e) the impugned levy cannot be imposed on those financial facilities which have been acquired by customers before the Finance Act, 1991 i,e, before the introduction of the impugned levy. In this regard reference is invited to section 3-C(1)(b) of the 1944 Act, according to which, the rate of duty in case of services shall be the one applicable on the date on which the service has been rendered or provided. In this regard, the judgment of Zaman Textile Mills Limited v. Central Board of Revenue PLD 1993 SC 305 has been cited;
(t) in relation to loans which have been finalized before the impugned levy, the transaction has become past and close. Reliance in the respect is placed upon Malasses Trading v. Federation of Pakistan 1993 SCM R 1905 and C.I.T. v. Olympia '1987 PTD 739;
(g) a strict interpretation has to be given by the Courts to fiscal legislation. Reliance was placed on Mehran Associates v. C.I.T. 1993 SCM R 274 = 1993 PTD 69.
7. Dr. Muhammad Farogh Naseem, the learned counsel appearing for some of the petitioners has submitted the following arguments:--
(a) section 3 of the 1944 Act is the charging section which prescribes the imposition of central excise duty, inter alia, on excisable services. The term 'excisable services' has been defined in section 2(dd) to mean services which have been specified in the First Schedule (now the definition clause has been renumbered as section 2(20);
(b) the learned counsel has relied upon South Behar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922 wherein it has been held that since the Central Excise Act does not define the term 'goods', the ordinary dictionary meaning has to be seen so as to determine whether the subject-matter of the levy constitutes 'goods'. Applying the same analogy to 'services', the Court has to see whether in pith and substance the present levy is 'services' i,e, ' whether the very advancement of loans/financial facilities and their quantum constitute services per se;
(c) reliance has been placed on Abdul Rahim v. United Bank Limited PLD 1997 Kar. 62 wherein it has been held that mere advancement of loans do not constitute services, especially after 1984 when the entire banking system has been based on the Islamic modes of financing including Modarba, Morabaha and Musharika. As such once words in a statute receive a particular judicial interpretation it has to be assumed that such term has been presumed to have the same meaning by the Legislature. For this point reference was invited to Shamroz Khan v. Muhammad Amin PLD 1978 SC 89;
(d) Originally in Pakistan central excise duty was not levied on services. However, through the Finance Ordinance, 1969 services were brought to the tax net. This amendment was challenged, which failed and it was held in Hirjina v. Islamic Republic of Pakistan 1993 SCM R 1342 that the levy had been saved by Article 179 of the 1973 Constitution. It was accordingly submitted that the term 'services' are how to be read in Entry 44 of the 4th Schedule to the Constitution, which prescribes the levy of central excise duty. If this is so then once again the pith and substance of the term 'services' would have to be looked into as it is settled law that while interpreting. Constitutional entries the Courts are to see their pith and substances P.I.D.C. v. Federation of Pakistan 1992 SCM R 891;
(e) in terms of the definition of 'excisable services' contained in section 2(dd), the latter term means 'services' which have been specified in the First Schedule. In other words, the levy of central excise duty would only arise if services have been specified in the Schedule. In the present case no such services have been specified in the Schedule whereas the burden was on the respondents to have specified and identified the services upon which the impugned levy could be imposed.
Reliance in this regard was placed upon C.I.T. v. S.K. & F 1991 SCM R 2374 = 1991 PTD 999;
(f) The impugned levy has not been imposed on the advancement of the loans/advances themselves. In fact the charge, as per item 14.14, is on 'services provided or rendered' in respect of advances made to any person'. The charge thus, is very clearly on those services which the banks or financial institutions may have provided in consequence of or relatable to or with regard to the advancement of the loans. Accordingly, the manner in which the levy has been imposed and implemented, whereby the respondents have been recovering the duty on the outstanding balances of the loan/advance each month is completely ultra vires, unconstitutional and void. At best the levy could only be in relation to the services which the banks may have provided in addition to the loans;
(g) for the term 'in respect of reliance was placed on Tolaram v. State of Bombay AIR 1954 SC 496; State of Madras v. Chitturi AIR 1957 AP 675; Berger v. Indemnity (1900) 2 QB 348; Brett v. Rajers (1897)
1 QB 525 and Lord Glanely v. Whightman (1933) AC 618;
(h) the language of the statute in question is very clear i,e, the levy is not on the loan/advance itself but the services that might be rendered thereon. The Courts cannot supply any construction to a fiscal statute on the assumption that if the Legislature had thought of the problem it would have used other terms. In this case reliance was placed on (1949) I All ER 865 (HL) at p.868;
(i) the standard laid down by a statute for measuring the tax liability must have nexus with the nature and general character of the levy. In this case, the standard of measuring the central excise duty, in the third column to Item 14.14, is the outstanding balance of the loan, whereas the levy is upon services rendered by the bank in respect of the loan/advance. The outstanding balance of the loan has got nothing to do with the services which the banks may have rendered. Accordingly, the standard of measuring the levy has no rational basis or criterion with the nature of the levy itself. For this proposition reliance was placed' upon Abdul Rahim v. UBL PLD 1997 Kar. 62 wherein it has been held that advancement of loan has no nexus with the services that might be rendered in relation to the loan. On the point that the yardstick of measuring the tax must have nexus with the general character of the levy, reliance was placed on Excise and Taxation Officer v. Burma Shell 1993 SCM R 338; Buxa D.00ars v. State of West Bengal (1989) 3 SCC 211 and H.A. Rahim v. Province of Sindh (sic);
(j) the very subject-matter of the levy is vague as no services have been specified in the Schedule.
Accordingly, the entire levy has to be struck down. In one case from the Indian jurisdiction i,e, Gavin Saran v. C.S.T. (1985) 155 ITR 144 (SC), it has been held that if there is an ambiguity in any component of the levy, the entire levy has to be struck down;
(k) the impugned amendment whereby central excise duty is being charged cannot be given retrospective effect so as to affect transactions past and closed. Accordingly, where contracts of finance have been concluded before introduction of the impugned levy no central excise duty would be payable on such contracts. There is nothing in the impugned amendment to suggest that the levy has been introduced retroactively. Even so, retrospective legislation cannot affect transactions past and closed. Reliance in this regard was placed on Ghnlam Hyder Shah v. Chief Land Commissioner 1983 CLC 1585, Muhammad Abdullah v. Government of Pakistan PLD 1992 Kar.
266 and Molasses Trading v. Federation of Pakistan 1993 SCM R 1905;
(l) the contracts of finance have been based upon certain feasibilities and the same cannot be defeated or amended through intervention of the State. Any attempt to defeat such intervention would be against the precepts of Islam and violation of Article 2A of the Constitution. Accordingly, where contracts have been concluded before the impugned amendments, the imposition of any central excise duty would be un-Islamic and against Article 2A. Reliance was placed on C.I.T. v.
Siemens PLD 1991 SC 368 and Province of Punjab v. Amin Jan PLD 1994 SC 141;
(m) the impugned levy lacks classification and accordingly violates Article 25 of the Constitution.
There is no reasonable classification between the different types of finances. Only a crude distinction has been made between investment and non-investment loans. There are many varieties of finance all of which cannot be lumped together. In this regard reliance is placed on Moopil Nayer (1961).3 SCR 77, I.A. Sherwani v. Government of Pakistan 1991 SCM R 1041 and Inam-ur- Rehman v. Federation of Pakistan 1992 SCM R 563.
8. Mr. Munib Akhtar, the learned counsel appearing for some of the petitioners has contended as follows:--
(a) in terms of Item 14.14 the taxable event is not the loan or its advancement but services which may have been rendered in respect of such loans. According to the learned counsel `advancement of loans' or 'loans' can by no connotation be termed as 'services'. This would be more so in view of plain, ordinary and grammatical meaning of the term 'services'. Reliance was placed on Government of Pakistan v. Hashwani Hotel Ltd. PLD 1990 SC 68, wherein it has been held that the foremost principle of interpretation of statutes is that a literal and ordinary meaning is to be given to the words in a statute;
(b) in terms of Item 14.14 the duty is only on services rendered. No services have been rendered, which fact has not been controverted by the department or banks;
(c) any tax necessitates three stages i,e, leviability, assessment and payability. The leviability is mentioned in the second column of Item 14.14, which is only in respect of services, whereas the assessm ent and payability is mentioned in the third column of Item 14.14, which is the outstanding amount of advances every month. In this respect the judgment of Whitney v. Commissioners of Inland Revenue (1924-26) 10 TC 88 at 110 was relied on;
(d) laws are prospective unless they have been made retrospective expressly or by necessary implication. As such the impugned levy cannot hit those transactions or provisions of services which have already been provided before the imposition of levy itself. For this, reliance was placed on Rustam F. Cowasjee v. C.B,R. 1985 PTD 529, Government of Pakistan v. Mardan Industries 1988 SCM R 410, Chief Land Commissioner v. Ghulam Hyder Shah 1988 SCM R 715 and Mercantile Fire v.
I.T.O. 1989 PTD 221;
(e) before the imposition of the levy on both the investment and non-investment loans the petitioners were enjoying an exemption, which could not have been taken away as the petitioners have acquired vested rights to enjoy the said exemptions. For this reliance was placed on Collector of Central Excise v. Azizuddin PLD 1970 SC 439 and Rachna Chemical Industrial v. Government of Pakistan 1991 PTD 1;
(f) in terms of the charging section the tax is chargeable on determined and definite events, whereas in terms of the Schedule i,e, Items 14.14 the tax is charged as a continuing event, upon a balance of outstanding loans every month. Thus the Schedule is inconsistent with the charging section and hence ultra vires the Act. Reliance in this regard was placed on Excise and Taxation Officer v. Burma Shell 1993 SCM R 338;
(g) the levy is unreasonable since if there is no outstanding amount at the end of the particular month, no duty will be chargeable though services may have been provided; whereas duty may be payable when no services have been rendered, while there may be some outstanding balance of the loan.
9. Messrs Rizwan Ahmed Siddiqui, Khalid Jawed, Qazi Faiz Essa and Muhammad Naeem have caused appearance of the respondent-Banks i,e, M.C.B., N.D.F.C., A.B.N. Amro and Standard Chartered Bank, respectively. All the learned counsel for the banks have contended that the banks have entered into contractual stipulations with their customers i,e, petitioners, and in view whereof the burden of the central excise duty could be lawfully passed on to the said petitioners. It has further been contended that rule 96-ZZI of the 1944 Rules or any other provision of law or statute including section 23 of the Contract Act cannot come in the way of the lawful stipulation agreed between the parties to pass on the burden of the duty. A perusal of the written synopsis submitted by the learned counsel for the banks confirmed that Mr. Rizwan Ahmed Siddiqui on merits has opposed the imposition of impugned levy on grounds that it is unlawful, ultra vires and un- Constitutional. It appears that the reasoning is similar to the .One taken up by Dr. Farogh Naseem, Mr. Khalid Jawed in his written synopsis has adopted the arguments of Mr. Rizwan Ahmed Siddiqui, Mr. Qazi Faiz Essa, however, has opposed the petitions also on the ground that .The implied levy is lawful. Such reasons as appearing in his written synopsis are summarized as follows:--
(a) the banks have been, required by C.B.R. Circular No,1(14)CEB/91, dated 26-9-1991, to realize the excise duty from petitioners. In terms of section 1 of the 1944 Act observative has to be made of C.B.R.'s orders, directions and instructions. In this regard the learned counsel has placed reliance on Province of West Pakistan v. Din Muhammad PLD 1964 SC 21 wherein it has been held that all officers and persons employed in the execution of statutes and rules made thereunder shall observe and follow the orders, directions and instructions of the C.B.R.;
(b) the matter regarding the vires of imposition of central excise duty on services has been conclusively settled by the Supreme Court through Hirjina v. Islamic Republic of Pakistan 1993 SCM R 1342 wherein central excise duty on services has been found to be lawful and intra vires;
(c) fiscal laws are to be interpreted strictly, no matter how in-equity or hardship may result. Also there is no room of any intendment or presumption about taxes as the letter of the law has to be looked into. For this reliance has been placed on Commissioner of Agricultural Income Tax v. BWM Abdul Rehman 1973 SCM R 445 and A&B Food Industries v. C.I.T. 1992 SCMR 662;
(d) Courts should lean in favour of upholding the constitutionality of legislation and should be extremely slow to strike the same down. Reference for this is invited to Province of East Pakistan v.
Sirajul Patwari PLD 1966 SC 854 and Multi Line Associates v. Ardeshir Cowasjee PLD 1995 SC 423;
(e) despite section 64-A of the Sales of Goods Act, the burden of the central excise duty on services could be lawfully passed on to the ultimate consumer through private contracts between parties.
Reference is made to Haffaz Seamless Pipe v. Sui Northern Gas 1998 CLC 1890;
(f) reliance by Dr. Farogh Naseem upon C.I.T. v. Siemens PLD 1991 SC 368 supports the case of respondent-Banks on grounds that the contracts between the banks and the petitioners cannot be disturbed;
(g) as the banks are to pay the excise duty, the petitioners have no locus standi to question any ambiguity in the legislation; at best this issue can only be taken up by the banks with the central excise department;
(h) since the agreements between the petitioners and the banks to reimburse the central excise duty pre-date the imposition of tax, it does not constitute a retroactive implementation of law.
10. Mr. Amir Hani Muslim alongwith Mr. Faisal Kamal, the learned counsel appearing for the central excise department, opposed the petitions through oral arguments as also by submitting a detailed write up. In sum and substance Mr. Amir Hani Muslim has submitted as follows:--
(a) Elahi Cotton v. Federation of Pakistan PLD 1997 SC 582 has conclusively enlarged the power of the Legislature to impose tax, which cannot be struck down by Courts on any technical or scientific grounds, Mr. Hani's interpretation of the Supreme Court judgment of Elahi Cotton is that once a tax is imposed, it cannot be invalidated on any legal or Constitutional infirmity. Allied with this argument is his plea that public interest requires collection of taxes and the Courts have to sustain every tax/levy on such ground. This according to him is the mandate of Elahi Cotton;
(b) the impugned levy is not ultra vires Entry 44 of the 4th Schedule to the Constitution since in terms of Elahi Cotton, following Assistant Commissioner v. Buckingham (1970) 75 I.T.R. 6Q3 and Elel Hotels v. Union of India AIR 1990 SC 1664, legislative entries are to be given a very large and liberal interpretation which cannot be narrowed down or restricted; each general word should be held to extend to all ancillary or subsidiary items which can fairly and reasonably come within the scope of legislative entries, which are not powers of legislation but only fields of legislative heads;
(c) under section 3 of the 1944 Act excise duty is payable on excisable services at rates mentioned in the First Schedule. In terms of the definition clause i,e, section 2(dd) (renumbered as section 2(20) of the 1944 Act, 'excisable services' have been defined to mean services specified in the First Schedule. So, whatever services that are mentioned in the First Schedule specify the levy of tax and there is no scope to look into the ordinary and grammatical meaning of the term 'services' since by very definition or fiction whatever is mentioned in the Schedule constitutes 'services. Since Item 14.14 of the First Schedule specifies advancement of loans/financial facilities, there can be no doubt about their taxability;
(d) the argument of Dr. Farogh Naseem that the yardstick to measure the tax has no nexus with the nature and character of the levy is a technical and frivolous argument which cannot be raised in view of Elahi Cotton's case PLD 1997 SC 582 and Hirjina 1993 SCM R 1342;
(e) it is wrong to submit that the tax has been levied not on loans but services rendered in respect of loans. The term 'in respect of' cannot be given any narrow or pedantic connotation. In fact the latter term has to be given the widest amplitude so as to fit within it the taxability on advancement of loans per se;
(f) the judgment of the Division Bench of this Court in Abdul Raheem v. U.B.L. PLD 1997 Kar. 62 cannot be relied upon since that was a judgment regarding the Banking Tribunals Act, 1984 and the same cannot be extended to the Central Excises Act. Even in Abdul Rahim v. U.B.L. The Court had found unsafe to apply by way of analogy definition of terms used in two different statutes. For this reason also reliance cannot be placed on the definition of the term 'banking' as appearing in the Banking Companies Ordinance, 1962;
(g) there is no equity or presumption in taxation. Words in a taxing statute are to be given ordinary/grammatical meaning. Reliance in this respect is placed on Nawabzada Muhammad Amir Khan v. Controller of Estate Duty PLD 1961 SC 190; Don Basco v. Assistant Director PLD 1989 SC 128 and Government of Pakistan v. Hashwani Hotel PLD 1990 SC 68;
(h) despite rule 96-ZZI the burden can be lawfully passed on by the bank to the borrower since admittedly central excise duty is an indirect tax which necessarily entails passing of the burden to the ultimate customer/consumer. Also there is no bar under section 64-A of Sales of Goods Act to pass on the burden of tax. For this reliance is placed on Hirjina 1993 SCM R 1342, Darya Khan v. C.B.R.
1995 M LD 1737 and Elahi Cotton PLD 1997 SC 582;
(i) imposition of excise duty. Under Item 14.14 falls within the domain of delegated legislation, which is lawful under Article 77 of the Constitution. Even where the contracts had been entered earlier, the delegatee is not debarred from imposing the tax;
(j) no comparison can be made between different rules so as to contend that rule 96-ZZI does not allow passing of the burden to the ultimate consumer;
(k) the exemption notification i,e, S.R.O.1064(1)/91, dated 6-10-1991 issued under section 12-A of the 1944 Act in favour of Pak-Kuwait Investment Company cannot be used to establish that the leviability of the duty is on the banks, which cannot pass on the burden to the customers. For this, reliance has been placed on Amin Soap Factory v. Government of Pakistan PLD 1976 SC 277 wherein it has been held that the Government can exempt goods in its discretion and there are no fetters or limitations attached to such wide powers. Another judgment i,e, Collector of Central Excise v.
Azizuddin PLD 1970 SC 430 has been cited for the point that the power derived by the Government under section 12-A of the 1944 Act to grant or withdraw exemption is unconditional and the Courts cannot go behind such powers;
(1) it is incorrect to contend that grant of loans does not constitute services especially after 1984 as the entire system of banking has become Islamic since the words 'services provided or rendered in respect of Musharika Financing' have been added by the Finance Act, 1996 to the First Schedule.
Also words 'Leasing and Musharika Financing' have been added to rule 96-ZZI through S.R.O.453(I)/96, dated 13-6-1996. The Courts should save the law as per Multiline PLD 1995 SC 423 and exhibit judicial .... As recommended by Elahi Cotton's case PLD 1997 SC 582;
(m) the impugned levy is neither retrospective nor ultra vires. It can affect past and closed transactions since in terms of Molasses Trading 1993 SCM R 1905 the Legislature can make laws with retrospective affect so as to bind even past transactions. Molasses Trading has interpreted section 31-A of the Customs Act, 1969 so as to nullify the effect of Al-Smrez v. Federation of Pakistan 1986 SCM R 1917;
(n) section 3-C of the 1944 Act has nothing to do with taxability but only concerns the rate of duty;
(o) the averment regarding retrospective operation of the impugned levy holds no water since the Legislature has the power to legislate retrospectively which can be appreciated from the provisions of the Provisional Collection of Taxes Act, 1931, whereuhder duties become payable upon presentation of the finance bill affecting even past transactions;
(p) rights which may have accrued to the petitioners under the principles of promissory estoppel and vested rights can be validly taken away through legislation since a Legislature does not and cannot make any representation. For this reference is made to Army Welfare Sugar Mills v.
Federation of Pakistan 1992 SCM R 1652 and Government of Pakistan v. Muhammad Ashraf PLD 1993 SC 176;
(q) this Court cannot decide the question as to whether the impugned levy violates the Injunctions of Islam and hence Article 2A of the 'Constitution. Any challenge on grounds that the levy is unIslamic can only be decided by the Federal Shariat Court. Without prejudice, the levy does not violate the. Injunctions of Islam;
(r) the levy does not violate Article 25 of the Constitution on grounds of lack of classification.
Reasonable classification does not imply that every person should be taxed equally. Laws which pertain to economic activities should be viewed with a greater latitude. Reliance in the regard has been placed on R.K. Garg v. Union of India (1982) 133 ITR 239; Elahi Cotton's case PLD 1997 SC 582 and Avinder v. State of Punjab (1979) 1 SCC 137;
(s) there is ample nexus between the yardstick to measure the tax and the nature and character of the levy. The judgments cited by Dr. Muhammad Farogh Naseem on this point are irrelevant, while in any event the Supreme Court in Elahi Cotton's case PLD 1997 SC 582 has forbidden logical or scientific interpretation. Of fiscal statutes. The burden to prove that the impugned tax is unlawful is on the petitioners and not the respondents. Reliance in this respect has been placed on Elahi Cotton's case PLD 1997 SC 582, Army Welfare Sugar Mills 1992 SCM R 1652 and Madurai District Cooperative v. 3rd ITO AIR 1975 SC 2016;
(t) the impugned levy does not offend Article 18 of the Constitution, it is neither reasonable nor confiscatory/ expropriatory in nature;
(u) immense loss shall be caused to the exchequer in case the levy is struck down.
11. Mr. Raja Qureshi, the learned Advocate-General, Sindh, who appeared on Court notice, has also opposed these petitions on grounds somewhat similar to Mr. Amir Hani Muslim, Advocate.
According to the learned Advocate-General, the impugned levy is Constitutional and no illegality has been established by the petitioners.
12. We have heard and perused both the oral and written arguments of the learned counsel for the parties. In doing so we have also looked into the record, facts and the applicable law.
13. In our considered opinion the key questions which resolve round these petitions are the following two connected issues:--
(a) while imposing central excise duty on goods or services under the 1994 Act, can the Legislature bring within the tax net any transaction or event which otherwise on a plain, ordinary and grammatical meaning of the terms may by no stretch of imagination be construed as 'goods' or `services';
(b) only if the answer to the first issue is in the negative, whether in fact the grant of advances or loans, especially their quantum in its ordinary signification be construed as 'services'.
14. We shall take up the first issue. Section 3, the charging section, specifies the levy. In doing so it provides that there shall be an excise duty on 'all excisable goods' and on 'all excisable services' on rates set forth in the First Schedule. The term 'excisable goods' and 'excisable services' have been defined in the definition clause i,e, section 2. Section 2(d) (later renumbered as section 2(19) defines 'excisable goods' to mean the goods specified in the First Schedule. Similarly, section 2(dd)
(later renumbered as section 2(20) has defined 'excisable services' to mean services, facilities and utilities specified in the First Schedule. The argument of the respondents is that since the definition clause clearly stipulates that excisable services or excisable goods, as the case may be, have been statutorily specified in the First Schedule, there is no room to speculate the ordinary and grammatical meaning of the term 'services' or `goods', since whatever has been specified in the Schedule has been brought within the tax net in view of the definition clause. In other words, the argument put forward by the respondent is that any event or transaction, if mentioned in the First Schedule, cannot escape taxability, even if the said events or transactions can by no stretch of imagination be termed as 'goods' or 'services'. We cannot subscribe to this argument. In fact the answer appears to have been provided by a judgment from the Indian Supreme Court i,e, South Behar Sugar Mills Ltd. v. Tata Chemical Limited AIR 1968 SC 922 wherein at para. 14 it has been held that since the Central Excise Act does not define the term 'goods', the Legislature must be taken to have used that word in its ordinary dictionary meaning. It shall be pertinent to reproduce the relevant extract from the judgment. The reproduction is as follows:-- "14. The Act charges duty on manufacture of goods. The word `manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive names, character or use. The duty is levied on goods. As the Act does not define goods, the Legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. That it would be such an article which would attract the Act was brought out in Union of India v. Delhi Cloth and General Mills Ltd. 1963 Supp. (1) SCR 586 = AIR 1963 SC 791." (underlined for emphasis).
' It is important to note that in the Indian jurisdiction the Central Excise. Act does not extend to services but only to the manufacture of goods. The end result viz a viz "excisable services", as in Pakistan, in the present context, would be the same. In India, section 3 of the Central Excise Act is the charging section which creates the charge in terms that duty of excise shall be chargeable on all excisable goods produced or manufactured in India as set forth in the Schedule. Section 2(d) defines "excisable goods" to mean the goods specified in the Schedule. The judgment of the Indian Supreme Court cited above i,e, South Behar Sugar Mills v. Tata Chemicals has made it tacitly clear that the definition clause in the Central Excise Act cannot be interpreted so as to permit the Legislature to bring within the tax net any subject-matter by merely mentioning the same in the Schedule, even if the same by no stretch of imagination be termed as "goods". It is because of this that the Indian Supreme Court observed that the ordinary and grammatical meaning of the term "goods" has to be looked into, considering also that such term has not been defined in the statute.
The judgment of the Indian Supreme Court has full application to matter at hand i,e, "services".
Section 3 of the 1994 Act, as already stated above, creates the charge of excise duty on excisable services, while excisable services are defined by section 2(dd) to mean services specified in the First Schedule. As the statute does not provide for any guidance as to what is and what is not a `service", the Courts- will have to look at the pitch and substance of the subject-matter of tax to ascertain whether in ordinary signification the same can be construed as "service". There is yet another reason for Courts in Pakistan to look into the pith and substance of the subject-matter when it comes to excisable services. Entry 44 of the fourth Schedule of the Constitution of Pakistan, 1973 empowers the Federal Legislature to impose duty on excise. Originally in Pakistan, central excise duty was only levied on the manufacture of goods and not on services. However, through the Finance Ordinance, 1969 service was brought within the tax net. This, amendment was challenged, however, the Honourable Supreme Court in Hirjina's case 1993 SCM R 1342 held that the levy i,e, excise duty on services had been saved by Article 278 of the 1973 Constitution. If this is so then the term 'services" has to be read as part of Entry 44 of the Fourth Schedule of the Constitution, which prescribes the levy of central excise duty, as has already stated above. Once the term 'services" is read into Entry 44, it is' the fundamental principle of interpretation of Constitutional entries that Courts have to look whether in pith and substance the subject-matter of the levy in question comes within the ambit of the Constitutional Entry. No doubt the Courts have to give a very liberal and stretched connotation to Constitutional entries, however, at the end of the day in pith and substance the ordinary, grammatical and literal meaning of the terms will have to be seen. Even in Elahi Cotton's case PLD 1997 SC 582, vehemently relied upon by the learned counsel for the respondent, this fundamental principle of interpretation of Constitutional entries has not been deviated from. Earlier also in P.I.D.C. v. Federal of Pakistan 1992 SCM R 891 the Honourable Supreme Court while following United Provinces v. Mst. Atiqua Begum AIR 1941 FC 16 and Navin Chandra Mafatal v. C.I.T. (1954) 26 ITR 758, held that words in a statute should be read in their ordinary, natural and grammatical meaning subject to the rider that in construing the words in the Constitution conferring the legislative power, the most liberal interpretation should be put upon the words so that the same may have effect in their widest amplitude. Writing for the Court, Saleem Akhtar, J. As he then was observed that items in the list in respect of which the power of taxation can be exercised should not be interpreted in a restricted and pedantic manner. Whether looking from the standpoint of interpretation of statutes per se or from the other angle of interpretation of legislative entries in the Constitution, the ordinary, plain and grammatical meaning of the words will have to be seen. This is so because in case of the former i,e, interpretation of statutes per se there is no guiding definition of the term "services" defined in the 1944 Act except reference in the definition clause that whatever is mentioned in the Schedule is excisable services; viewing from the latter, interpretation i,e, interpretation of Constitutional entries, once again the ordinary and grammatical meaning of the expression in a liberal manner will again have to be seen. Accordingly the first issue is answered in negative.
15. Coming to the record issue i,e, as to whether in fact advances or loans, in particular their quantum, can or cannot be termed as "services" appears to have been answered by a Division Bench of this Court in Abdul Rahim v. U.B.L PLD 1997 Kar.
62. In this judgment Dr. Ghous Muhammad, J., as he then was, while delivering the judgment, held in categorical terms that mere advancement of loans or finances by the Banks to customers would not amount to rendering of services. This would be more so when the advancement of loans was structured on the Islamic mode of finance. It would be pertinent to reproduce the relevant part of this judgment:-- "On principle and as a matter of general rule we do not feel that an agreement for finance between a bank and its customer would be a contract concerning service. It is only when the bank specifically undertakes to render any service, for example, to process cheques, to look after a portfolio or finance of its customer or to process other documents pertaining to import or export that it can be considered to render a service. The amount of service renderable by a bank is not relatable to the principle or outstanding amount of the loan, finance of interest. In other words, there is no nexus whatsoever between the worth of services that are to be rendered by a bank and the value or extent of a finance. It is quite possible for a bank to render considerable amount of services to a customer without extending any financial facility and vice versa. The concept of rendering of services by the bank has got nothing to do with extension of a financial facility to a customer. We would further illustrate this point by distinguishing between finance based on interests where the customer receives a loan or an advance carrying interest and where the contract of finance is mark-up based and structured on an Islamic mode of finance:--
(i) In the first type of finance, i,e, where money is given on loan or advance carrying interest, the contract cannot by itself be termed as that relatable to services. Separating some actual services, as indicated above (i,e, concerning processing of cheques, looking after portfolios etc.), may be rendered by the bank. We would cite in support New York State Association of Life Underwriters v.
Superintendent of Ins. N.Y.S. 2d 172, 176, 37 A.D. 2d. 304 (quoted in Words and Phrases, Permanent Edition, Volume 38-A, 1993 Cumulative Annual Pocket Part, where it was held that the relationship between a bank and its depositor was not one such as to create a service within statute prescribing sale of life insurance as an inducement to, or interdependent with purchase by public of any 'goods, securities, commodities services or subscriptions to periodicals; Farmers and Merchants State Bank of Krum v. Ferguson Tex Civ. App., 605 S.W. 2d 320, 324 (quoted in Words and Phrases (supra) at pp.305 and 306) where it was held that it was only the regular routine process honouring cheques which constituted services; First Nat. Bank of Mercedes v. La Sara Grain Co. Tex App. 13 Distr., 646 S.W. 2d 246, 252 (Words and Phrases (supra) at where the same approach as in Farmers and Merchants State Bank of Krum was taken; and Bank One, Texas, N.A. v. Taylor, C.A. 5
(Tex) 970f. 16, 28 (quoted in Words and Phrases. Permanent Edition, Volume 5, 1993 Cumulative Annual Pocket Part, p.93) wherein it was held that a depositor is a consumer of banking services within the purview of Deceptive Trade Practices Consumer Protection Act only where the depositors pay services fee and the bank in return agrees to process the cheques of the depositor. These decisions would amply reveal that mere lending of money or advancement of loan with or without interest does not constitute rendering of services. It is only where the bank renders services covering processing of cheques or looking after portfolios or finances of its customers which is specifically agreed to or processing of other documents, that services can be taken to be rendered by the bank. As already stated such must be the clear agreement.
(ii) Where the type of finance is mark-up based and structures on an Islamic mode of finance there is all the more reason to hold that the bank does not render any services merely by providing such a finance of facility. In the Islamic mode of finance which is based upon Musharika i,e, profit and loss sharing arrangement, equity participation, or Modaraba the essential idea is to enter into or participate in an entrepreneurial type of arrangement. This arrangement can be in the shape of a partnership or a profit or loss sharing formula. Mere providing such a finance which would result in the said entrepreneurial or partnership relationship' between the Bank and the customer can qualify to constitute a contract where services are received or rendered. Here also the Banks can specifically agree with the customer to provide services pertaining to processing of cheques etc. Already highlighted above."
The above extract from Abdul Rahim v. U.B.L. Fully applies to the matter at hand and there is no reason for us to take a different view. "Service" in the context of advancement of loans would be, as observed by the learned Division Bench in Abdul Rahim v. U.B.L., managing portfolios, issuance of cheque books, or something relatable to the advancement of loans. Perhaps it was for this reason that the Legislature in its own wisdom in Item14.14, column two mentioned services "in respect of" advancement of loans. The term "in respect of" means relatable to, which on a plain reading implies that what has been taxed is not mere advancement of loans but rather services which may have been rendered in relation to giving of such loans. The observations in Abdul Rahim v. U.B.L. Do not apply to altogether different fields/areas of law. The observations therein were made in the context of banking laws and in these petitions the fact that the grant of loans/advances constitutes services can only be answered by recourse to banking concepts and laws. The definition of "banking" as appearing in section 5 read with section 7 of the Banking Companies Ordinance, 1962 confirms that banking is "business" and not "service". The fact that Item 14.14, column two imposes the charge on "services" in respect of loans and not on loans/advances per se is obvious from a plain reading of the statute. 'In fiscal statutes the Court cannot supply any omission or extra words or cannot change the expressions used in the statute on grounds that the Legislature would have used a different word had it thought about it i,e, there is no scope for any intendment (see Bisvil Spinners v. Superintendent Central Excise PLD 1988 SC 370). Accordingly we hold as follows:--
(a) mere advancement of loans or financial facilities, or quantum thereof, does not constitute rendering of services and hence the same cannot be subjected to central excise duty;
(b) on a plain and grammatical reading of Item 14.14, Column two, the charge or levy is not on the mere advances or loans but any services which may be rendered with regard thereto, in relation thereto or in respect thereof.
This is not the end of the matter. The yardstick to measure the tax, as stated in column three of Item 14.14, has provided a fatal blow to the validity of the levy. According to column three of Item 14.14 the yardstick of measure the levy is the outstanding balance of the loan/advance at the end of every month, whereas the charge is on services "in respect of" loans or advances. The two have no corelation. The loan amount may be greater and services rendered very meager, or vice versa.
Both in Pakistan and India now it is an established principle of taxing law that the yardstick to measure the tax must have nexus with the nature and character of the subject-matter of the tax. In case this nexus is missing the levy also fails.
16. The result of the above discussion is that the impugned levy is both ultra vires the 1944 Act and the Constitution and hence cannot be sustained. As we have already come to this conclusion it is not necessary to decide the other questions raised by the learned counsel, in particular as to whether in terms of rule 96-ZZI the charge is on the banks and whether the banks could lawfully pass on the burden to the customers; or whether the levy violates the Injunctions of Islam. However, it is needless to point out that even if the levy had been sustained as lawful it could not have been given any retrospective operation to affect contracts of loans already concluded between parties before the introduction of the levy. This is so since no retrospectively has been found to be expressed or implicit. Also if the impugned levy was found to be retrospective it could not have affected transactions past and closed as held by a Division Bench of this Court in Ghulam Hyder Shah v. Chief Land Commissioner 1983 CLC 1585 that even where law is given a retrospective expression it can effect transactions past and closed. Also it appears relevant to mention that in Item 14.14 the law has intended a one-time levy by use of the expressions "provided" and 'rendered"; in other words the calculation of the levy on a continuing basis i,e, according to the balance of outstanding loans every month, as mentioned in the third column of Item 14.14 conflicts the charge mentioned in the second column of Item 14.14.
17. There is one another aspect which must be discussed. The learned counsel for the respondents have vehemently stated that in Elahi. Cotton's case PLD 1997 SC 582 the Supreme Court has virtually foreclosed the doors of a challenge to a fiscal statute or levy on grounds that it violates the Constitution or law. We beg to disagree. This would amount to reading too much into Elahi Cotton which has neither been expressed nor intended. Elahi Cotton was a case wherein the vires of sections 80C, -80CC and 80D of the Income Tax Ordinance, 1979 were called into question mainly on grounds that the same violated the legislative power contained in. Entry 47 of the 4th Schedule to the Constitution. The argument in that case was that since sections 80C, 80CC and 80D of the Income Tax Ordinance, 1979 allowed imposition of income-tax on sales and purchases, the same could not have been validly done under Entry 47 since thereunder only taxes on income could be imposed. The Supreme Court found the levies to be intra vires on the ground that in pith and substance taxes on sales and purchases were covered by the Constitutional entries listed out in the 4th Schedule of the Constitution. A true interpretation of Elahi Cotton would be .That since Entry 49 of the 4th Schedule of the Constitution had prescribed 'taxes on sales and purchases", to challenge that the taxes introduced through sections 80C, 80CC and 80D fell outside the scope of Entry 47 was rather immaterial, since the same could fall under Entry 49. It is correct I that the Court should lean in favour of finding possible explanations to uphold rather than destroy legislation, but that is .Only the first principle. The second principle as held in Sabir Shah v. Shad Muhammad Khan PLD 1995 SC 66 is that where on a plain reading of a statute and the Constitution the legislation is so ultra vires that it cannot be saved despite a very liberal connotation, it is the duty of the Courts to strike the same J down since the principle regarding presumption of Constitutionality of laws is only a rebuttable presumption. In the same judgment the Honourable Supreme Court has held that the question as to whether laws are intra vires or ultra vires do not depend upon the consideration of jurisprudence or policy but depend simply on examining the language of the Constitution and of comparing the legislative authority conferred on the parliament with the provisions of the sub- Constitutional law by which the parliament purports to exercise that authority. It is true that Sabir Shah's case is not regarding the interpretation of fiscal legislation, but this basic principle to examine the statute viz a viz the law and Constitution, even in cases of fiscal legislation, is not different. Ellahi Cotton has not changed this basic principle. All that it says is that a very liberal interpretation is to be given to fiscal legislation. In the present case we have attempted a very liberal interpretation but that too does not save the levy. In the present case by no figment or stretch of imagination could we find the impugned levy to be intra vires.
' The learned counsel for the parties relied on the following case-laws in support of their contentions. Pakistan through Secretary, Ministry of Commerce and 2 others v. Salahuddin and 3 others PLD 1991 SC 546, Ram Nawas Guppy and others v. State of Haryana through Secretary Local Self Government Federation of Pakistan and others v. Ch. Muhammad Aslam and others 1986 SCM R 916, Al-Samrez v. Federation of Pakistan 1986 SCM R 1917, Government of Pakistan v.' Messrs Mardan Industries Ltd. 1988 SCM R 410, Colony Sarhad Textile Mills Ltd., Nowshera v. Superintendent Central Excise and Land Customs Muhammad Younus v. Central Board of Revenue, Government of Pakistan and others PLD 1964 SC 113, Government of Pakistan and others v. Muhammad Ashraf and others PLD 1993 SC 176, Government of Pakistan v. Hashwani Hotel Ltd. PLD 1990 SC 68, Mondi's Refreshment Room and Bar, Karachi v. Islamic Republic of Pakistan and another PLD 1983 Kar. 214, Messrs Abdul Wajid, Abdul Majid v. Government of Pakistan and others 1993 SCMR 18, Central Insurance Co. Ltd. v. C.B.R. 1993 SCM R 1232, C.I.T. v. Noor Hussain PLD 1964 SC 657, State of Madras v.
Garrission AIR 1958 SC 560, Zaman Textile Mills Limited v. Central Board of Revenue PLD 1993 SC 305, Madras Trading v. Federation of Pakistan 1993 SCM R 1905, C.I.T. v. Olympia 1987 PTD 739, South Behar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922, Abdul Rahim v. U.B.L. PLD 1997 Kar. 62, Shamroz Khan v. Muhammad Amin PLD 1978 SC 89, Hirjina v. Islamic Republic of Pakistan 1993 SCM R 1342, P.I.D.C. v. Federation of Pakistan 1992 SCM R 891, C.I.T. v. S.K. & F 1991 PTD 999 = 1991 SCM R 2374; Tolaram v. State of Bombay AIR 1954 SC 496, State of Madras v. Chitturi AIR 1957 AP 675, Berger v. Indemnity (1900) 2 QB 348, Brett v. Rajers. (1897) 1 QB 525 and Lord Glanely v. Whightman (1933) AC 618.
' In result the petitions are allowed, however, there shall be no order as to costs.