NISHAT MILLS LTD. Versus FEDERATION OF PAKISTAN
This judgment shall dispose of this petition and other connected matters mentioned in the list attached herewith, in all of which validity of section 18‑B of the Customs Act, 1969, and Notification dated 22‑10‑1996 has been challenged.
2. Section 18‑B of the Customs Act, 1969 was introduced by an amendment in the Act made by the Tax Adjustments Ordinance (Ordinance No.LXXIX), 1996 and reads as under.
"18.B. Levy of service charge.‑‑The Federal Government may, by notification in the Official Gazette, levy a service charge equivalent to two per cent. ad valorem on all such goods specified in the First Schedule to this Act as are subject to pre‑shipment inspection.
Provided that for the purposes of Sales Tax Act, 1990, such service charge shall not constitute a part of the value supply."
3. Pursuant to the above the Federal Government on 22‑10‑1990, had issued the following notification.
S.R.O.‑‑‑(1)/96 in exercise of the powers conferred by section 18‑B of the Customs Act, 1969 (IV of 1969), the Federal Government is pleased to levy a service charge equivalent to two per cent. ad valorem on all such goods as are specified in the First Schedule to the said Act and are subject to inspection under the inspection, Valuation and Assessment of Imported Goods Rules, 1994"
4. As the above notification refers to the Inspection Valuation and Assessment of Imported Goods Rules, 1994, it is of advantage to mention that those rules have been framed vide Notification No.SRO 1108(1)/94 dated 14‑11‑1994 under section 219 of the Customs Act, 1969 read with sections 25‑B, 30, 32, 79 and paragraphs 3,8 and 23 of the Third Schedule thereof by the Central Board of Revenue to provide for pre‑shipment inspection of the goods specified in Schedule 1 to the Customs Act, 1969 except those mentioned in Annexure A of the Rules. This pre‑shipment inspection is to be carried out in terms of the rules by two companies namely Society Generale De Surveillance and Cotecna Inspection S.A. appointed for the said purpose. It may also be mentioned that validity of these rules is under examination by a Division Bench of this Court in various Constitutional petitions already filed.
5. The challenge in the present petition is confined to the levy of service charge by the notification dated 22‑10‑1996 under section 18‑B of the Customs Act, 1969.
6. Learned counsel for the petitioner have urged with vehemence that section 18‑B of the Customs Act, 1969 is ultra vires the Constitution and the powers of the Federal Legislature as the levy of such a charge is not covered either by the Federal Legislative List or the Concurrent List to the 4th Schedule to the Constitution. It was elaborated that the service charge cannot be considered to be a duty of customs and, therefore, falls outside the purview of item 43 of the Federal Legislative List. It was also argued that the service charge was not a tax but was a fee levied for the benefit of post pre‑shipment inspection companies which do not render any services to the petitioners and as such the impugned levy is without lawful authority.
7. Mr. Izhar‑ul‑Haq, learned counsel for the respondents has, however, contended that notwithstanding that the levy has been described as service charge in section 18‑B of the Customs Act, 1969 and notification issued thereunder it was in essence a customs duty which could validly be divided by the Federal Legislature under Item 43 read with Item 53 of the Federal Legislative List contained in the 4th Schedule to the Constitution. Relying upon various judgments, learned counsel for the respondents has contended that the Court should look to the pith and substance and not nomenclature for determining its validity. He referred to the case of Suhail Jute Mills Ltd. and others v. Federation of Pakistan etc. (PLD 1991 SC 329) to show that the levy of Iqra Surcharge was upheld as being customs duty. He has also relied upon section 18‑B of the Customs Act, 1969 and urged that a duty of customs can be levied not only under the Customs Act, 1969 but also under any law for the time being in force which would include tax Adjustments Ordinance, 1996. It was emphasised that it is the duty of this Court to expore all possible avenues to uphold the validity of any order passed or action taken by the public functionaries. In this behalf, reliance has been placed on Nishat Tek Limited Lahore v. The Federation of Pakistan etc. (PLD 1994 Lahore 347).
8. In order to determine the nature of the levy in question, first thing to be noticed is that neither in the ordinance nor in the Notification issued pursuant thereto, the charge has been described to be a tax. On the other hand, section 18‑B which was added to the Customs Act. 1969 by the Tax Adjustments Ordinance, 1996, authorises the Federal Government to levy service charge. In the Notification dated 22‑10‑1996 also the levy has been described as service charge.
9. There is another important document on the record which is helpful in determining this controversy. This document is the letter of the Central Board of Revenue dated 16‑10‑1996 addressed to the President, Federation of Pakistan, Chamber of Commerce and Industry in which it is stated that these charges have been levied for the benefit of two pre‑shipment inspection companies on the goods which are liable to be inspected by those companies. The letter categorically states that "the service charge shall be chargeable on goods in respect of which service fee of the companies becomes payable".
10. Although it is true that it is the pith and substance of the levy and not its nomenclature which determines its true nature but in the present case, it is I obvious that both in name as also in substance the levy is not a tax and cannot be considered to be an additional duty of customs.
11. It is aximomatic that a duty of customs is a tax which is levied on the import and export of goods. The taxable event in such case is the import or export as the case may be. According to section 18 of the Customs Act, 1969 which is the charging section, the customs duty is levied at such rates as may be prescribed in the First and Second Schedules or any other law of the time being in force on the goods imported or exported in Pakistan. Neither First nor the Second Schedule contemplates payment of any service charge on the import of goods and, therefore, the impugned levy is outside the purview of section 18 of the Customs Act, 1969.
12. Learned counsel for the respondents however submitted that tax can be also levied according to section 18 under any other law for the time being in force and Tax Adjustments Ordinance, 1996, being a law for the time being in force could validly provide for the imposition of service charge. This contention of the learned counsel is not sustainable. The Tax Adjustments Ordinance, 1996 did not by itself levy the service charge but amend the Customs Act, 1969 by adding section 18‑B which has now become its part. The expression "any other law for the time being in force" in section 18 would not obviously include the Customs Act itself.
13. A comparison of section 18 with section 18‑B of the Customs Act, 1969 also lends support to the view that the charge levied under section 18‑B is not a duty of customs especially when the levy is restricted to these goods which are subjected to pre‑shipment inspection and not to all goods imported into Pakistan. If the intention of the Legislature was to impose an additional duty of customs it would have stated so in the Tax Ordinance itself or that result could have been achieved by making amendment in section IS of the Customs Act, 1969 which is the charging section and not by adding a new section. Clearly legislative intent was to levy service charge and not additional duty of customs. In Suhail Jute Mills v. Federation of Pakistan (PLD 1991 SC 329) one of the contentions which prevailed with the Supreme Court of Pakistan for holding that Iqra Surcharge was a duty of customs was that it has repeatedly been described in the Ordinance levying the charge itself as additional duty of customs. Nowhere either in the amending ordinance or notifications issued pursuant thereof or the Rules or General Order has the levy been described as an additional customs duty.
14. There is another aspect which is that duty of customs is generally levied on all goods imported into Pakistan at least a class of goods, Section 18‑B states that the service charge shall be recoverable only in respect of the goods which are subjected to pre‑shipment inspection. There is thus merit in the contention of the learned counsel for the petitioners that customs duty is directly relatable to import while in the present case what is being levied is pre‑shipment inspection and not the import itself. Furthermore, it has been pointed out that the same system of pre‑shipment inspection is in vogue in few other countries of the world. If the same goods originate from the countries where the said system is not prevalent or where P.S.I. companies have not offices, the importers would not have to pay service charge while if the same goods are imported from other countries where pre‑shipment inspection is carried out by the companies, two per cent. service charge shall have to be paid.
15. Learned counsel for the respondents has stated that the amount recovered from the petitioners as service charge is credited to the general consolidated funds of the public exchequor and is not paid to the P.S.I. companies. However, as has been argued by the learned counsel for the petitioner, mere fact that the amount is credited to the general consolidated funds is not conclusive of the nature of the charge. It was so held by the Indian Supreme Court in Sreenivasa General Traders etc. v. State of Andhra Pradesh etc. (AIR 1983 SC 1246) State of Rajasthan and others v. Sajjanlal Panjawat and others (AIR 1975 SC 706) and The Government of Andhra Pradesh etc. v. Hindustan Machine Tools Ltd (AIR 1979 SC 2037).
16. The question as to whether a particular levy is to be considered to be a tax or, fee is an ultimate analysis depends upon the facts of each case. In the present case, there cannot be doubted that the levy has been made in order to enable the respondents to bear the expenses of P.S.I. companies for carrying out inspection. It stands established beyond any doubt from the letter of Central Board of Revenue dated 16‑10‑1996 in which it has been categorically stated that "2% service charge will be chargeable on the goods in respect of which service fee of P.S.I. Companies becomes payable". In the same letter, it is stated that when the inspection companies cease to operate levy of service charge shall also cease to be operative.
17. The service charge as the name signifies is a charge for rendering service. The ordinary meaning of the word "charge" is a liability to pay money which in the present case arises when the services are rendered by the companies by inspecting the goods. In words and phrases permanent Edition 38‑A, while defining service charge, the following statement appears at page 568.
"The inspection fee required to be paid to the State Department of Agriculture by the first seller in .the state of all kerosernce or illuminating oils sold in the states is a 'service charge' to meet expenses of the inspection."
18. It follows from the above that the service charge levied under section 18‑B of the Customs Act, 1969 cannot be considered to be a duty of customs and is thus not covered by item 43 of Part of the Federal Legislative List of 4th Schedule to the Constitution. It is true that the entries in the schedule are intercepted in the widest possible manner and not in narrow and pendantic sense but considered even from that angle the levy cannot be said to be a duty of customs and, therefore, is ultra vires the powers of the Federal Legislature.
19. On the question as to whether the impugned levy can be justified as a fee, the first thing to be noted is that according to the stand of Mr. Izhar‑ul‑Haq, learned counsel for the respondents, the impugned charge is not a fee and has not been levied in lieu of any service rendered to the petitioners. There is thus no element of quid pro quo and, therefore, the charge is not sustainable as a fee.
20. Be that as it may, admittedly no services are rendered by the P.S.I. companies to the petitioners. On the other hand the object in employing these P.S.1. companies is to assist the customs authorities in arriving at correct valuation of the imported goods which is an obligation of the authorities of customs under section 25 of the Customs Act, 1969. The petitioners cannot be asked to pay anything additional enabling the customs authorities to perform their own duties. It may be stated that the validity of the rules by virtue of which these companies have been created has also been challenged in this Hon'able Court. That aspect of the matter is under examination by a Division Bench of this Court. I purposely refrain from making any comments on this aspect of this matter.
21. For the present, suffice it to say that even if the rules in question are valid, there is no element of quid pro quo even by remotest standards and as no services are being rendered by the P.S.I. companies to the petitioners, they cannot be asked to make any payment. It is well‑settled proposition of law that there should be some nexus with the levy and service and the persons asked told pay fee must derive some benefit be if direct or indirect. Reference may be made to Muhammad Ismail & Co. v. The Chief Cotton Inspector etc. (PLD 1966 SC 388) and Nishat Tex Limited Lahore v. Federation of Pakistan etc. (PLD 1994 Lahore 347). This element is wholly lacking in the present case. Thus, the impugned levy cannot be sustained even as fee.
In view of what has been stated above, all these petitions are allowed and it is declared that section l8‑B of the Customs Act, 1969 as introduced by Tax Adjustments Ordinance, 1996 and notifications issued pursuant thereto are ultra vires the Constitutions and are of no effect.
No order as to costs
List of cases.
Writ Petitions Nos.2537, 2551, 11936, 19597, 19628, 19629, 19973, 20089, 20169, 20170, 20228, 20298, 20519, 20643, 20671, 20829, 20830, 20908, 20933, 21028, 21045, 21089, 21070, 21071, 21087, 21088, 21089, 21130,21160, 21175, 21191 to 21200, 21233, 21244, 21297, 21353, 21354, 21355, 21358, 21365, 21401, 21471, 21493, 21494, 21499, 21500, 21535, 21540, 21592, 21593, 21608, 21625, 21740, 21758, 21768, 21773, 21785, 21807, 21832, 21839, 21863, 21897 to 21900, 21918, 21920, 21948, 21957, 21974, 22002, 22030, 22066, 22090, 22153, 22185, 22261, 22270, 22311, 22315, 22346, 22349, 22378, 22379, 22380, 22414, 22415, 22466, 22542, 22590 to 22595, 22615, 22719, 22722, 22730, 22752, 22814, 22971, 22975, 23022, 23046 to 23050, 23056, 23236, 23238, 23266, 23305, 23428, 23433, 23466, 23507, 23516, 23531, 23532, 23618, 23627, 23628, 23647, 23648, 23656, 23743, 23757, 23798, 23858, 23859, 23865, 23989, 24053, 24056, 24057, 24094, 24130, 24132, 24208, 24209, of 1996 and 28, 29, 30, 36, 70, 72, 122, 123, 148, 214, 215, 222, 223, 240, 258, 261, 263, 287, 328, 352, 534, 591, 650, 695, 961, 1227, 1251, 1252, 1253, 1288, 1289, 1408, 1473, 1515, 1816, 1820, 1831, 1953, 2097, 2170, 2275. 2338, 2522, 2633, 2770, 3085, 3106, 3146, 3150, 3367, 3512, 3895, 3922 and 4105 of 1997.
H.B.T./N‑43/L Petition allowed.