Levy of Goods Exit Tax with Retrospective Effect

Levy of Goods Exit Tax with Retrospective Effect Case Laws Civil Law Constitutional Law Industrials Interpretation - Tax Law Knowledge - Civil Law Knowledge - Constitutional Law Litigation & Arbitration Retrospective Solutions - Civil Law Solutions - Constitutional Law Supreme Court Tax Mr. Justice Mian Saqib Nisar in his judgment has decided the issue regarding levy of goods exit tax with retrospective effect in Civil Appeals No. 158 of 2006 etc.

1. These appeals, by leave of the Court, entail the facts, in that, the appellant is a Zila Council constituted under the provisions of the Punjab Local Government Ordinance, 1979 (the Ordinance) and is empowered to levy and collect various taxes including goods exit tax (formerly known as export tax), whereas the respondents operate manufacturing plants of cigarettes (in CA No.158/2006) and soda ash (in CA No.159/2006) within the territorial limits of District Jhelum. The appellant had earlier levied tax on the export of goods and animals from its territorial limits on several items including the products of the respondents in accordance with Rule 5(1) read with Rule 5(5) of the Punjab Zila Council (Goods Exit Tax) Rules, 1990. Aggrieved of the said levy, the respondents agitated the matter through the constitutional jurisdiction of the High Court, which ultimately came to this Court and was resolved [in the judgment reported as Zila Council, Jhelum Vs. I.C.I. Pakistan Ltd. (Formerly ICI Pakistan Manufacturers Limited), Khewra, District Jhelum and another (1993 SCMR 454)] as under:

“As per the Notification dated 24-4-1990, referred to above, even goods in transit have been declared liable to payment of export tax if they remained in the limits of Zila Council beyond certain time limit which might have been fixed by now. As such, the burden of proof regarding each item of export of soda ash while in transit is on the exporter to satisfy the authorities of the Zila Council at the terminal that the goods are in transit and are being exported within the prescribed time limit. The impugned notification was not without lawful authority and the learned High Court has legally erred in declaring it as such.”

Subsequently, the respondents again approached the High Court in its constitutional jurisdiction on the ground that despite the judgment of this Court in Zila Council, Jhelum (supra) the appellant continued to raise demands for goods exit tax even on those goods with respect to which the respondents were able to furnish proof that they remained within the territorial limits of the appellant for less than 24 hours. It was during the pendency of the said constitutional petitions that the Punjab Local Government (Fourth Amendment) Ordinance, 1996 (Ordinance II of 1996) (the Amendment Ordinance) and then the Punjab Local Government (Fourth Amendment) Act, 1996 (Act I of 1996) (the Amendment Act) were promulgated on 4.2.1996 and 21.5.1996 respectively amending the definition of ‘zila’ in the Ordinance to include urban areas for the purposes of goods exit tax. The original and the amended definition(s) of ‘zila’ are reproduced herein below:

Original definition
“3(1)(Ix) ‘zila’ means a Revenue District as notified under the Punjab Land Revenue Act, 1967 (XVII of 1967) but excluding its urban areas and Cantonment areas.”

Amended definition
“3(1)(Ix) ‘zila’ means the Revenue District as notified under the Punjab Land Revenue Act, 1967 (XVII of 1967) excluding its urban areas but for purposes of tax on the export of goods and animals the zila, including its urban areas; and”

The effect of the amendment has been to bring the respondents within the territorial jurisdiction of the appellant for the purposes of goods exit tax (it is undisputed that the respondents fall within the urban areas). It is pertinent to mention that this amendment has been given retrospective effect by virtue of Section 1(2) of both the Amendment Ordinance and Amendment Act, which (sections) read as follows (as they are identical, they are being reproduced once to avoid repetition):

“1(2) It shall come into force at once and shall be deemed to have taken effect on the 1st day of July 1990.”

As a result of the aforesaid developments, the respondents amended their petitions so as to challenge the amended law. It is pertinent to mention that the goods exit tax was abolished on 29.6.1999 vide the Punjab Local Government (Amendment for Abolition of Certain Taxes) Ordinance, 1999 (Ordinance XXIX of 1999) (the Abolition Ordinance). The two main questions involved in the matter before the High Court were, firstly whether the appellant was competent to levy and recover goods exit tax from the respondents on goods in transit and secondly whether the amendment could be given retrospective effect. The learned High Court has, through the impugned judgment, answered the first question against the respondents by holding that the appellant was authorized to levy and collect goods exit tax from the respondents’ goods in transit from 21.5.1996 to 29.6.1999 (the period between the promulgation of the Amendment Act and the Abolition Ordinance), whereas in the second question, it was held that the amendment could not have been given retrospective effect. Thereafter the appellant approached this Court and leave was granted vide order dated 31.1.2006 to consider the following propositions:

“(i) Whether a legislative enactment can be promulgated with retrospective effect and if so, whether a fiscal liability can be created retrospectively?

(ii) What is the effect of repeal of the amending statute within the contemplation of section 6 of the West Pakistan General Clauses Act, 1956?

(iii) Whether petitioner Zila Council would be entitled to enforce the recovery of tax for the intervening period during which the law authorized it to levy and collect export tax on goods?

(iv)Whether ICA was competent against the judgment rendered in these writ petitions by learned Single Judge and as to what is legal impact of not filing such appeal before a Division Bench of the High Court?”

However, during the course of hearing, learned counsel for the appellant candidly conceded that the only question to be resolved in these matters is whether the amendment brought by the Amendment Ordinance would have retrospective effect or not.

2. Learned counsel for the appellant states that the goods exit tax could be validly levied and collected retrospectively in light of the judgment reported as Zila Council, Jhang, District Jhang through Administrator and others Vs. Messrs Daewoo Corporation, Kot Ranjeet, Sheikhupura through Director Contract and others (2001 SCMR 1012) wherein the definition of ‘zila’ (as amended) was examined.

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