KARACHI DEVELOPMENT AUTHORITY vs CENTRAL BOARD OF REVENUE through Members Central Excise and Land Customs, Islamabad and others

SHAFIUR RAHMAN, J.---Leave to appeal was granted to the Karachi Development Authority (K.D.A.) to examine whether goods manufactured by it for its on use for purposes enjoined by law were not exempt from sales tax on the authority of Article 165 of the Constitutional considered with the law laid down by this Court in Central Board of Revenue and another v. Sindh Industrial Trading Estate Limited (PLD 1985 SC 97)+ notwithstanding the subsequent addition of Article 165-A in the Constitution.

2. The K.D.A. Had been manufacturing for its on use and not for sale as such pre-stressed cement pipes. This manufacture had been going on since before 1965. The question, whether such a manufacture and use was liable to sales tax or not was considered by the Central Board of Revenue in 1965 and the Central Board of Revenue held it to be not taxable to sales tax. This was confirmed by the Central Board of Revenue in its letter, dated 30th June, 1965 in the following words:- "In continuation of the phonogram sent to you yesterday, it is hereby confirmed that the pre- stressed Cement . Pipes manufactured by the K.D.A. In their pre-stressed pipe Factory at Karachi are not liable to Sales Tax. Necessary instruction in the matter may kindly be issued to the Sales Tax Officer concerned."

3. In 1981, however, a change took place, when the Central Board of Revenue by letter, dated 22nd July, 1981 informed the Director General of K.D.A as hereunder:-- "Please refer to your letter No.KDA/81 (585) BA/Sectt/65/486, dated the 18th May, 1965. The undersigned is directed to say that on re-consideration of the matter, the Board's letter of even number, dated the 30th June, 1965 is hereby cancelled."

4. The appellant made representation to the Central Board of Revenue but did not succeed in getting the revised order revoked or altered to its advantage. As a last resort, a Constitution petition was filed in the High Court of Sindh challenging the levy of sales tax. It appears from the grounds of Constitution petition and the judgment of the High Court that the position taken up therein was that the Central Board of Revenue had by its aforesaid letter of 1965 exempted such manufacturers from levy of sales tax and a rescission of such an exemption was not possible or permissible. This plea was rejected by the High Court by observing as hereunder:- "The letter of 30-6-1965 strictly speaking cannot be said to be a notification in terms of above section 7 of the Act and therefore, the above section apparently is not applicable. However, it may be pointed out that the petitioner as well as respondent No.1 for a period of nearly 16 years considered that the .Petitioner's R.C.C. Pipes manufactured in its Factory were not liable to the payment of Sales Tax. The factum that petitioner has not been made to pay Sales Tax for period of 16 years, in our view does not create any vested right to claim exemption from the payment of Sales Tax if otherwise payable under the relevant provision of the Act. Mr. Imam Ali Kazi, learned Deputy Attorney-General had candidly submitted that the letter of 22-7-1981 cancelling the above letter of 1965 will be enforced prospectively and not retrospectively. In other words, the'petitioner will not, be made liable to pay any Sales Tax in respect of the goods which were manufactured prior to 22-7-1981. In our view, the above concession seems to be reasonable and offers sufficient protection to the petitioner from its liability to pay Sales Tax on the R.C.C. Pipes manufactured prior to 22-7-1981. In our view, no vested right has been infringed either by withdrawing the letter of 1965 or by not hearing the petitioner before the withdrawal of the above letter."

Hence this appeal.

5. Mr. Mansoor Ahmad Khan, Advocate, the learned counsel for the appellant/K.D.A. Has no longer pursued the ground of exemption on the grant of it for .Any reason whatsoever. His claim now rests on the admitted position that K.D.A is a statutory corporation, entirely financed by the Provincial Government, and discharging the statutory and the ordinary sovereign function of the Provincial Government. In that position, the learned counsel considers that the appellant is amply justified in claiming the lifting of the corporate veil in order to demonstrate that the commodity produced and manufactured, which is not to be brought to tax, is Government owned property and it cannot be brought to such a tax under Article 165 of the Constitution. As regards the subsequent amendment that has taken place by addition of Article 165-A, the learned counsel has taken up the position that it should be confined, as the words themselves suggest, to income tax only and to have covered that subject only notwithstanding the judgment given in S.-I.T.E.'s case PLD 1985 SC 97 by the Supreme Court. According to him, this added Article would have no effect on the levy and collection of sales tax. The learned counsel has also referred to a number of precedents where the discharge of sovereign function through instrumentalities like statutory corporations was taken to be a Government function notwithstanding the veil of statutory corporation.

6. We find that by statutory dispensation a juristic personality is created which is distinct from that of the Government. Such a juristic personality is then entrusted with the statutory duties, some of which or all of which may partake of the functions of the Government both so*reign and non- sovereign. In the case in hand, we are concerned with the welfare activity of the Government which has been passed on to the K.D.A. It is not wholly for the discharge of sovereign functions as such.

Nevertheless, .The distinction that was sought to be established on the strength of Article 165 of the Constitution for the purposes of taxability between the property and income of the Government under statutory veil and the property and income of Government under no such veil has been brought to an end. The ultimate ownership of the property or the destination of the income has ceased to be the test. The statutory veil holds good for the purposes of determining the ownership of the property as well as its income.

7. It is true that what is mentioned in Article 165-A(1) of the Constitution is limited to the levy of income-tax. Nevertheless, the purpose, the object and the field of Article 165-A of the Constitution is to fix the legal ownership of the property and the identity of the receipt of the income. This has been achieved by reinforcing the statutory corporate veil for all fiscal purposes. The lifting of the corporate veil as such is no longer permissible and the distinct juristic personality of the incorporated or statutory body has been recognized notwithstanding the control, the destination and the functioning of such bodies. Such a declaratory law would certainly stand in the way of the appellant because the same distinction which was sought to be created by lifting the veil in the matter of the income tax is sought to be achieved in the matter of sales tax.

8. As regards the contention that the articles manufactured are not to be taxed because these are consumed and not sold, we find that an amendment had been made in 1976. In Item No.49 of the Federal Legislative List whereby the expression "taxes on sales and purchases" was substituted by "taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed". No arguments were directly addressed to us on this point but it was mentioned in certain documents.

9. Finally, as regard the claim of exemption and its non-recoverability, we find that it is conceded by the learned counsel for the appellant ultimately, though after the decision of the High Court, that the letter of the Central Board of Revenue was not so much the grant of an exemption as statement of law. On that view of the matter, an incorrect statement of the law was always open to rectification and to penitence. The altered view of the Central Board of Revenue and the correct view according to the law as it stands after introduction of Article 165-A of the Constitution is unexceptionable.

10. No merit is found in this appeal and the same is dismissed with no order as to costs.