ISLAMABAD: A full bench of Supreme Court of Pakistan comprising Justice Mushir Alam, Justice Qazi Faez Isa, Justice Sardar Tariq Masood dismissed an appeal by the Sindh Revenue Board against a judgment of High Court of Sindh which ruled in favour of Civial Aviation Authority while deciding a petition challenging the imposition of sales tax on services levied upon CAA under the Sindh Sales Tax on C. A. No. 767/2014. 2 Services Act, 2011 (hereinafter “the Act”) and the Sindh Sales Tax on Services Rules, 2011.
The SHC bench declared that CAA was, “not liable to pay the tax under the Sindh Sales Tax on Services Act, 2011”, consequently, all demands made, proceedings initiated, orders passed or notices issued to CAA under the Act and the Rules were quashed and set aside. Since this case required the interpretation of the Constitution notices under Order XXVII-A of the Code of Civil Procedure were issued to the Attorney General for Pakistan and the Advocate General of Sindh. The said judgment was impugned by the SRB filing a civil appeal (0Civil Appeal No. 767 of 2014).
After hearing the counsel for SRB, Farooq H Naek, Khalid Javed counsel for Sindh government and Syed Naveed Amjad Andrabi, the apex court bench held that SRB cannot tax the CAA. It was declared that CAA performs functions mentioned in the Federal Legislative List and is also a federal regulatory authority envisaged in item 6 of Part I of the Federal Legislative List. The functions and regulatory duties performed by CAA are within the exclusive sphere of the Federal Legislature and the appellants cannot impose sales tax on the purported services provided by CAA. Matters of common concern to the federating units of Pakistan are attended to by the Federal Legislature and the Federal Government has the power to exercise executive authority in respect of all such matters itself C. A. No. 767/2014. 46 or through an authority (like CAA) in terms of Articles 97 and 98 of the Constitution. Amongst the objectives of the Eighteenth Amendment was to further strengthen the Federation and institutions therefore it cannot be interpreted to weaken the Federation and institutions like CAA, the bench ruled adding that the Sindh Sales Tax on Services Act (Sindh Act No.XII of 2011) and the Sindh Sales Tax on Services Rules, 2011 to the extent that they impose on CAA sales tax on services are contrary to the provisions of the Constitution, are void ab initio and of no legal effect. The Sindh Sales Tax on Services Act and the Sindh Sales Tax on Services Rules, 2011 to the extent that they tax CAA violate Article 142(a) since only the Federal Legislature can make laws with respect to matters pertaining to CAA, apex court judgment said upholding the impugned judgment of the High Court.
Earlier the bench noted in the judgment that CAA in addition to performing functions which are mentioned in the aforesaid items in Part I of the Federal Legislative List, CAA is also a regulatory authority (item 6 of Part II of the Federal Legislative List) and regulates aircrafts and air traffic control. The province of Sindh wants to tax CAA undoubtedly to capture a portion of CAA’s revenue. The province’s case is that it always had the power to do so. It further contends that by inserting the words – “except sales tax on services” (in item 49 of Part I of the Federal Legislative List) there remains no doubt that the power to impose sales tax on services now exclusively vests in the provincial legislatures. Before the words -“except sales tax on services”- were inserted in item 49 neither a province nor the Federation had imposed sales tax on the services provided by CAA. Can it therefore now be assumed that the provinces have the power to tax federal C. A. No. 767/2014. 27 bodies or institutions, and particularly regulatory authorities established under federal laws such as CAA? Before answering this question let us consider the management structure of CAA and to what extent it performs the functions of the Federal Government, as the matter of the performance of the Federal Government’s functions was the reason which prevailed with the High Court to extend the Federal Government’s immunity under Article 165(1) to CAA, and, consequently, CAA was held not liable to pay sales tax on services.
Another important feature of CAA is that it has been empowered by the Federal Legislature to levy and collect air route navigation charges, embarkation charges, fees paid in respect of issuance and renewal of licenses and any examination, fees and charges in respect of commercial exploitation of CAA’s properties and landing and housing charges (sub-section (3) of section 16 of the CAA Ordinance). The fees and charges levied by CAA are under the authority of the Federal Legislature. Therefore, the province’s imposition of sales tax in effect constitutes taxing the fees and charges billed and recovered by CAA. This cannot be permissible because it would mean that the province is taxing the constitutional means employed by the Federal Legislature to execute its constitutional powers. In doing so the province is also interfering in Federal functions, the bench noted.