CIVIL AVIATION AUTHORITY OF PAKISTAN VS SINDH REVENUE BOARD, 2013 PTD-KARACHI-HIGH-COURT-SINDH 2048 (2013)

Sindh Sales Tax on Services Act (II of 2011)---

----S.3---Constitution of Pakistan, Arts. 165, 165-A & 199---Constitutional petition---Provincial sales tax---Taxable services---Exemption---Civil Aviation Authority contended that it was a statutory body and not liable to pay provincial sales tax on services---Validity---Terms "income" and "property" as used in relation to taxation in Art.165 of the Constitution, were to be given broad meaning and the same were not confined to narrow and strict meaning---Inter-governmental immunity granted by Art. 165 of the Constitution was lifted in relation to provincial entities in respect of income tax by Art.165-A of the Constitution, expressly provided therein and by extension thereof in relation to federal sales tax---Provincial sales tax levied by and under Sindh Sales Tax on Services Act, 2011, was within the broad meaning to be given to "income" in Art. 165 of the Constitution---Inter-governmental immunity from provincial sales tax was available to Civil Aviation Authority, just as immunity from octroi was available to Pakistan Telecommunication Corporation---Civil Aviation Authority was not liable to pay tax under Sindh Sales Tax on Service Act, 2011, and all demands made, proceedings initiated, orders passed or notices issued to the Authority by Provincial Government were quashed and set aside---Petition was allowed accordingly.

Karachi Development Authority v. Central Board of Revenue and others 2005 PTD 2131 distinguished.

Province of N.-W.F.P. v. Pakistan Telecommunication Corporation and others PLD 2005 SC 670 fol.

Central Board of Revenue v. SITE PLD 1985 SC 97; Zafar Ali Shah v. Parvez Musharraf Chief Executive of Pakistan and others PLD 2000 SC 869; Rice Export Corporation of Pakistan Ltd. v. Karachi Metropolitan Corporation and another PLD 1990 Kar. 186; Union Council Allah Wahan Sukkur v. Associated Cement (Pvt.) Ltd. 1993 SCMR 468; Barwick v. The English Joint Stock Bank (1866) LR 2 Exh. 259 and Lloyd v. Grace, Smith and Co. (1912) AC 716 ref.

Salman Talibuddin for Petitioner.

Faisal Siddiqui along with Mohmed Vawda for Respondent No.1.

Hamid Munir, A.A.-G.

Dates of hearing: 21st March and 3rd April, 2008 and 23rd May, 2013.

ORDER

MUNIB AKHTAR, J.---The question that arises in this petition is whether the petitioner, as claimed by it, is not liable to pay the provincial sales tax on services under the Sindh Sales Tax on Services Act, 2011 ("Sindh Act") by reason of Article 165 of the Constitution. A resolution of this issue requires consideration of Article 165A in addition to the Article just mentioned, and also certain judgments that were cited at the bar by learned counsel.

2.The petitioner, the Civil Aviation Authority ("CAA") is a statutory entity established under a federal statute, the Pakistan Civil Aviation Authority Ordinance, 1982 ("1982 Ordinance"). Learned counsel for the petitioner referred to the Civil Aviation Ordinance, 1960 ("1960 Ordinance"). As stated in its preamble, this federal law was enacted "to make better provision for the control of manufacture, possession, use, operation, sale, import and export of aircraft, the control and regulation of air transport services, and the control and development of aerodromes in Pakistan". Learned counsel referred to various provisions of the 1960 Ordinance and submitted that all the powers and functions in terms thereof were to be exercised by the Federal Government. Reference was also made to section 15A, which permits the delegation of powers by the Federal Government to such officer or authority as may be specified. It appears that prior to the promulgation of the 1982 Ordinance, the powers and functions under the 1960 Ordinance were being exercised and performed by the Federal Government itself, through the Department of Civil Aviation in the Ministry of Defence ("CA Department"). Learned counsel submitted (by referring in some detail to the relevant provisions) that upon the promulgation of the 1982 Ordinance, and the establishment of the CAA in terms thereof, all the powers and functions under the 1960 Ordinance, and the assets and undertakings vesting in the CA Department and the civil servants employed therein, stood transferred to the former. Thus, learned counsel submitted, both in terms of the 1960 Ordinance as well as the 1982 Ordinance, the CAA stood in place of and in the same position as the Federal Government when it had acted through the CA Department. It was therefore contended, and this was central and crucial to the petitioner's case, that as presently relevant the CAA was the Federal Government notwithstanding that it was a statutory entity under the 1982 Ordinance.

3.Learned counsel submitted that the CAA was providing various services under the Civil Aviation Rules, 1994 (which replaced and repealed the earlier rules of 1978). These Rules were framed under the 1960 and 1982 Ordinances as well as certain other statutes. Reference was made, in particular, to Parts III, IV and IX thereof Referring to the Sindh Act, learned counsel submitted that section 3 imposed the provincial sales tax on taxable services, which were those as specified in the Schedules thereto. Learned counsel drew attention to Tariff Heading 9819.9090, which imposes the tax on "airport operators, airport ground service providers and terminal operators". The Sindh Sales Tax on Services Rules, 2011, in its Rule 2(ivb) expressly defines "airport operator" as including the CAA. Learned counsel candidly submitted that the services provided by the CAA came within the scope and meaning of Tariff Heading 9819.9090. However, his case, as already noted, was that the provincial sales tax was not leviable by reason of Article 165 of the Constitution. This provision, as well as Article 165A, as presently relevant are as follows:--

165. Exemption of certain public property from taxation.---(1) The Federal Government shall not, in respect of its property or income, be liable to taxation under any Act of Provincial Assembly and, subject to clause (2), a Provincial Government shall not, in respect of its property or income, be liable to taxation under Act of Majlis-e-Shoora (Parliament) or under Act of the Provincial Assembly of any other Province.

(2) If a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business, be taxed under Act of Majlis-e-Shoora (Parliament) or under Act of the Provincial Assembly of the Province in which that trade or business is carried on. ....

165A. Power of Majlis-e-Shoora (Parliament) to impose tax on the income of certain corporations, etc.---(1) For the removal of doubt, it is hereby declared that Majlis-e-Shoora (Parliament) has, and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or other body or institution established by or under a Federal law or a Provincial Law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income.

(3) Every judgment or order of any court or tribunal, including the Supreme Court and a High Court, which is repugnant to the provisions of clause (1) or clause (2) shall be, and shall be deemed always to have been, void and of no effect whatsoever.

4.Learned counsel submitted that the term "income" as used in Article 165A had a narrow meaning, and was used only in relation to that tax which was levied under entry 47 of the Federal Legislative List, i.e., the income-tax. However, as used in Article 165, it had a broader connotation and included anything which generated income. The Sindh Act sought to tax the receipts of the CAA for services rendered (and by reason of section 9(1) the legal liability to pay the tax lay on the latter) and the receipts clearly and obviously had a direct nexus with the petitioner's income. Thus, the present case came within the scope of Article 165 and hence the tax could not be levied. However, precisely because the tax was not an income-tax stricto sensu, Article 165A had no application. Learned counsel prayed that the petition be allowed and appropriate relief granted.

5.Learned counsel for the petitioner referred to certain decisions including, in particular, those of the Supreme Court. However, since more or less the same decisions were also cited for the respondents, it will be convenient to take them up together later in the judgment.

6.For the respondents, the case was pleaded by learned counsel for the respondent No. 1, the Sindh Revenue Board ("SRB"). The SRB is a statutory entity created by a provincial law and, as presently relevant, is charged with the duty of levying and collecting the provincial sales tax under the Sindh Act. Learned counsel referred to Article 165A and went through the relevant judgments of the Supreme Court to contend that Article 165 had no application in the facts and circumstances of the present case and in particular to the CAA in relation to the provincial sales tax. While, as just noted, these decisions will be considered later, one judgment in particular may be noted here. This is the decision of the Supreme Court in Karachi Development Authority v. Central Board of Revenue and others ("the KDA case"). It is to be noted that although the judgment was announced on 29-12-1991, it was reported many years later, firstly at NLR 2000 SC 53and subsequently at 2005 PTD 2131. (References to this decision herein are to the report in PTD). At issue was whether, by reason of Article 165, the federal sales tax on goods (then the Sales Tax Act, 1951) could not be imposed on a provincial entity, the Karachi Development Authority (KDA). This question was answered in the negative and KDA's appeal was dismissed. The Supreme Court observed as follows (pp. 2134-5; emphasis supplied):--

"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 sovereign 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."

Learned counsel relied in particular on para 7 and the portion that has been emphasized. His case was that on account of this decision, the crucial and sole determinative factor was whether or not the property or income was of or accrued directly to the concerned Government itself. If there was an intermediate entity, whether created by statute or incorporated under the law relating to companies that created an impermeable barrier, which could not be breached. For purposes of Article 165, the income or property then belonged to the entity and not the Government. Since in the present case, there could be no doubt that there was precisely such an intermediate entity in existence, i.e., the CAA, Article 165 could have no application and hence the provincial sales tax was leviable and payable. This, in its essence was the case put forward by the SRB.

7.We have heard learned counsel as above and have examined the record and considered the case-law. We begin by a consideration of Article 165. Three points require comment. Firstly, as is clear from clause (1), this Article is concerned with intergovernmental immunity, though of a limited nature and scope. Since Pakistan is a federal republic, the State is organized at two levels, the federal and the provincial. Article 165(1) creates an immunity between (and among) these levels in respect of income and property. Thus, the income and property of the Federal Government cannot be taxed by the Provinces, and that of any one Province cannot be taxed by the Federation or any other Province. However, it is to be noted that this provision has nothing to do with what might be called intra-governmental immunity, i.e., the power of the Federation to tax the income or property of a federal entity or that of a Province to so tax a provincial entity of the same province. Secondly, clause (2) creates an exception to the intergovernmental immunity conferred by clause (1). If a Provincial Government carries on any trade or business outside that province, then there is no immunity in respect of the income arising out of such trade or business or the property used in connection therewith. Such income or property may be taxed, either by the Federation or the Province in which such trade or business is being carried on. However, it is to be noted that the Federal Government's immunity remains unaffected; clause (2) applies only in relation to Provincial Governments. Thirdly, a question that arises is as to the meaning to be ascribed to "income" and "property" as used in clause (1), in the context of taxation. These terms obviously carry what may be called the narrow or strict meaning. On this view, the scope of clause (1) would be limited to only the income-tax (i.e., as per entry 47 of the Federal Legislative List) and/or a tax on property itself (e.g., the wealth tax or the urban immoveable property tax). The crucial question is whether these terms can have a broader and more extensive meaning. Further consideration of this point is however deferred to later in the judgment, when the relevant case-law is examined.

8.In what may be regarded as the foundational case, Central Board of Revenue v. SITE PLD 1985 SC 97 ("the SITE case"), the issue involved was income-tax in the strict or narrow sense. The respondent was a company incorporated under company law by or at the behest of the Province of Sindh. It resisted a demand for income-tax (under the Income Tax Act, 1922) on the ground of immunity under Article 165. The High Court granted the relief sought, and the Federation's appeal to the Supreme Court failed. It was observed as follows (pg. 106):--

"But as stated earlier, the facts found by the High Court and its conclusions on the questions raised by learned counsel are unexceptionable. The respondent-Company was carrying on the function of Industrial Development and the trade and business connected therewith for and on behalf of the Government. The truth is that the lifting of veil, has revealed that for the relevant purposes in this case it was doing so just like a department of the Government, notwithstanding the incorporation; which as explained earlier will not make any difference regarding the relevant Constitutional Provision on exemption from Federal Taxation."

9.As is well known, this decision triggered the constitutional amendment whereby Article 165A was inserted (by means of the Constitution (Amendment) Order, 1985 dated 24-2-1985). Its obvious purpose and intent was to undo the effect of the SITE case. The first and third clauses of this Article require consideration for present purposes. We invited learned counsel for the SRB in particular to assist us in connection with Article 165A and would like to record our appreciation for the submissions made by him as well as learned counsel for the petitioner. The following aspects of Article 165A in particular require consideration. Firstly, facially clause (1) only applies in relation to the power of the Federation to tax the income of the entities as therein specified. It does not, as such, at all relate to the power of taxation of the Provinces. Secondly, clause (1) deals with two distinct sorts of entities: (a) those created by or under federal law and/or as are owned or controlled by the Federal Government, and (b) those created by or under provincial law and/or as are owned or controlled by a Provincial Government. As already seen, Article 165 deals only with intergovernmental immunity and it therefore applies only in relation to the second sort of entity. Indeed, that was the issue in the SITE case: an entity owned or controlled by the Government of Sindh claimed immunity from federal income-tax. Therefore, neither Article 165 is, nor the SITE case was, at all concerned with the first type of entity. Now, there could be no doubt as to what the SITE case did: it decided that if on lifting the veil of incorporation an entity was found to be nothing but an arm, department, instrumentality or organ of a Provincial Government, then it was immune from federal income-tax. It would seem therefore that the words with which clause (1) of Article 165A opens, "for the removal of doubt", are somewhat misleading. Of the two sorts of entities covered by the clause, it was only the second type that was involved in the appeal before the Supreme Court, and to which Article 165 related. There was absolutely no doubt that clause (1) sought to nullify the effect of the Supreme Court decision in relation to this sort of entity. However, the case of the first sort of entity was not at all in issue nor is Article 165 concerned with this type. Thus, the only point on which there could possibly be any doubt was whether the principle enunciated in the SITE case could subsequently, by analogy or otherwise, be extended to this type of entity as well. In our respectful view, it must therefore be kept in mind that Article 165A(1) operates in two distinct spheres, one relatable to Article 165 and the other wholly unconnected with the latter provision.

10.The third aspect of Article 165A that requires consideration is the manner in which the effect of the Supreme Court has been nullified. It is of course well established that in certain (though certainly not in all) circumstances, the legislature can undo the effect of a decision of a superior Court. The well recognized and time honored manner in which this is done is by means of a non obstante clause. A recent constitutional example is Article 270AA, as substituted by the 18th Amendment,clause (1) of which clearly seeks to nullify the effect of Zafar Ali Shah v. Parvez Musharraf Chief Executive of Pakistan and others PLD 2000 SC 869. Clause (3) of Article 165A however takes an altogether different approach, and we have been much troubled by what is therein provided. This provision makes "void and of no effect whatsoever" any judgment of any court including the Supreme Court or the High Court if it is repugnant, inter alia, to anything contained in clause (1), and seeks to give retrospective effect to this by a deeming clause. As is at once obvious, this provision has the most serious repercussions. For example, it could, in effect, rob the SITE case of all precedential value. Indeed, read literally, it would render a nullity the entire judgment of a court even though that which is repugnant therein to either clause (1) or (2) may be but one issue among many that are decided. In our respectful view, when Article 165A is read as a whole, and on account especially of what is contained in clause (3), it should not be given a broad effect or meaning and its application should be limited to that which is expressly contained in it or can be regarded as directly flowing from it.

11.The first reported judgment after the insertion of Article 165A that we were referred to is of a Division Bench of this Court, reported as Rice Export Corporation of Pakistan Ltd. v. Karachi Metropolitan Corporation and another PLD 1990 Kar. 186 ("the RECP case"). At issue was whether octroi could be levied on the petitioner entity, which was incorporated under company law and was owned or controlled by the Federal Government. Article 165 was invoked and this petition thus involved a claim of intergovernmental immunity by a federal entity against a provincial levy. The learned Division Bench expressly noted that Article 165A had not been invoked nor was it engaged since it related to "income" (at pg. 189). The veil of incorporation was lifted and it was concluded that the petitioner was but an organ or instrumentality of the Federal Government (at pp. 189-90). It was observed that "what may pass or figure as assets or property of the petitioner Corporation are in substance those of the Federation of Pakistan" and the intergovernmental immunity under Article 165 was held applicable to the "property" of the petitioner (pg. 190). Now, it is well established that the taxing event in the case of octroi is the bringing into the municipal limits of the relevant goods for local use, sale or consuption. In other words, strictly speaking, the subject of the levy is the movement of the goods and not as such the goods themselves. By concluding that octroi was within the scope of Article 165(1), the learned Division Bench gave a broad meaning to a tax on property for purposes of this provision. In our respectful view, this is an indication that in general the terms "income" and "property" as used in relation to the taxation which is within the scope of Article 165(1) can be broadly construed. It will be recalled (see the third point in para 7 above) that this is of direct relevance for the present dispute.

12.The next decision, chronologically, is of course the Supreme Court decision in the KDA case, decided in 1991 though reported many years later. The relevant facts and the portion from the decision that was relied upon by learned counsel for the SRB have already been stated above. As noted, it was contended that the effect of this decision was to make the separate corporate personality of the entity concerned an impermeable barrier, and that it was no longer permissible to lift the veil of incorporation. Obviously, if this understanding and reading of the Supreme Court decision is correct, that is a complete answer to the case put forward by learned counsel for the CAA. However, we defer further consideration of this decision for the time being, because in our respectful view, this case has to be considered in the light of how it was regarded by the Supreme Court itself in two subsequent decisions. One point however may be noted before proceeding further. The tax involved in the KDA case was the federal sales tax on goods. We would respectfully suggest that the Supreme Court could have denied KDA's claim on the basis that the intergovernmental immunity under Article 165(1) was limited and confined only to the income-tax. In other words, it could have taken what has been described in para 7 above as the strict or narrow meaning of a tax on "income" and/or "property". On this basis, Article 165(1) would have no application in relation to the federal sales tax. The Supreme Court did not however, in our respectful view, take this approach. Insofar as Article 165A was concerned, it was indeed expressly noted as being confined to the income-tax. But then, basing itself on Article 165A, the Supreme Court extended its scope (and hence its exclusionary effect) to sales tax also. In our respectful view, this suggests that had the exclusionary effect not been so extended, the intergovernmental immunity under Article 165 could also have covered the sales tax.

13.The next case that requires consideration is Union Council Allah Wahan Sukkur v. Associated Cement (Pvt.) Ltd. 1993 SCMR 468 ("Associated Cement"). This was again a case of a levy of octroi on the respondent, an entity incorporated under company law and owned or controlled by the Federal Government. The levy was resisted on the basis of Article 165 and this Court granted the relief sought. The Union Council preferred an appeal to the Supreme Court, and leave was granted, inter alia, to consider whether this provision could be pressed into service in view of the then recent judgment in the KDA case (pg. 471). The Supreme Court observed that the question which needed consideration was "whether the High Court was justified to lift the veil of incorporation of the respondent in order to make above Article 165 applicable to the respondent" (pg. 474). The principles of company law were considered in some detail. The relevant Pakistani and English cases were referred to, as were the leading legal treatises on company law. Reference was also made to the SITE case, the KDA case and the RECP case. The two Supreme Court decisions were summarized in para 12 of the judgment (pg. 480). It was observed as follows (pg. 482):--

"17. The cases referred to in the above treatises on the Company Law and the comments of the authors indicate that the Courts have not pierced the veil of an incorporate entity in order to allow exemption from payment of tax or to reduce tax burden. On the contrary, the doctrine of lifting the veil of incorporation has been pressed into service in order to deter tax evasion."

The Supreme Court concluded in para 19 (pp. 483-4) by giving the reasons why it was of the view that the veil of incorporation ought not to be lifted in the facts and circumstances of the case before it. The appeal was accordingly allowed and the respondent company was held liable to the payment of octroi.

14.The learned Bench that decided the appeal in Associated Cement comprised of Ajmal Mian, Sajjad Ali Shah and Saleem Akhtar, JJ. The judgment of the Court was delivered by Ajmal Mian, J. Saleem Akhtar, J. wrote a concurring opinion. His Lordship noted that he was a member of the Division Bench in this Court that had decided the RECP case, and subsequently on elevation, of the Bench which decided the KDA case. He felt it necessary "to clarify the matter from my point of view" (pg. 484). As regards the KDA case, his Lordship observed as follows (pg. 487):--

"The observation quoted in the judgment proceeds on the interpretation of Articles 165 and 165-A(1) of the Constitution and applies to sales tax the principles which have been laid down for income-tax. It however does not mean that in fit cases and situations not relating to income-tax or sales tax the veil of incorporation cannot be pierced."

We may note that the "judgment" referred to was the judgment of Ajmal Mian, J., wherein at pp. 479-80, paras 5 to 7 of the decision in the KDA case were reproduced. Of course, paras 6 and 7 have also been reproduced herein above by us (see para 6).

15.The next decision that requires consideration is reported as Province of N.-W.F.P. v. Pakistan Telecommunication Corporation and others PLD 2005 SC 670 ("the PTC case"). This was in fact a common judgment whereby two separate appeals, against different decisions of the Peshawar High Court, were disposed off. In order to understand the decision of the Supreme Court, the legislative background needs to be kept in mind as, inter alia, explained by the Court at pp. 676-680. As presently relevant, matters relating to telecommunications under various statutes were originally being dealt with by the Pakistan Telegraph and Telephone Department in the Government of Pakistan ("T&T Department"). By means of the Pakistan Telecommunication Act, 1991 ("1991 Act"), which of course was a federal statute, the Pakistan Telecommunication Corporation ("PTC") was set up as a statutory entity. Under the 1991 Act, the assets and liabilities of the T&T Department were transferred to PTC and likewise the departmental employees of the former became the employees of the latter. For all intents and purposes, PTC principally took over the functions that were being performed and powers that were being exercised by the T&T Department in respect of telecommunications. By means of the Pakistan Telecommunication (Re-organization) Act, 1996 ("1996 Act") the 1991 Act was repealed and various statutory bodies and entities, not presently relevant, were set up which were to perform the functions and exercise the powers as specified. What is of relevance is Chapter IV of the 1996 Act, comprising of sections 34 to 40. Section 34 provided that the Federal Government was to set up a company registered under company law, to be known as the Pakistan Telecommunication Company Ltd. ("PTCL").Section35providedthattheassets,propertiesandliabilitiesofPTCweretovestinthevariousbodiesandentitiesbeingset up by or under the 1996 Act, including PTCL, and its employees were also to be so dealt with (see section 36). Many (though of course not all) of the functions in relation to telecommunications were transferred to PTCL.

16.The position, as relevant for present purposes, that emerged was therefore as follows. (We may note that the two Acts being referred to were each preceded by Ordinances, but that does not affect the discussion so no reference is being made to the same.) The original T&T Department, which had been part of the Federal Government, was in effect dissolved into PTC by the 1991 Act. Subsequently, the latter ceased to exist and PTCL came into the picture. Thus, from 1991 to 1996, telecommunication matters were dealt with by or through a statutory corporation established under federal law and from 1996 onwards by a company registered under company law and (initially) owned and controlled by the Federal Government. Subsequently of course, PTCL was privatized but the Federal Government continued to retain a substantial shareholding therein.

17.While PTC was in existence, octroi was demanded in respect of its goods and articles by the Peshawar municipal corporation. This was resisted by PTC on the basis of Article 165 and it filed a petition in the Peshawar High Court seeking appropriate relief. This petition thus involved a claim of intergovernmental immunity by a federal entity against a provincial levy. The High Court granted the relief, and against this decision the N.-W.F.P. Government preferred an appeal to the Supreme Court (C.A. 1184/1999; herein after referred to as "the PTC appeal"). This was the first of the two appeals disposed off by the common judgment in the PTC case. After PTC had ceased to exist and PTCL had come into the picture, a demand of urban immoveable propertytax,aprovinciallevy,was made against the latterbytheN.-W.F.P. Government. This demand was resisted by PTCL on the basis of Article 165 and it filed a petition in the Peshawar High Court. This petition thus again involved a claim of intergovernmental immunity against a provincial levy. The High Court however, concluded that PTCL was not entitled to any such relief and dismissed the petition. The decision is reported at PLD 2003 Peshawar 153. Against this decision, PTCL filed an appeal in the Supreme Court (C.A. 1493/2004; herein after referred to as "the PTCL appeal"). This was the second of the two appeals disposed off by the common judgment in the PTC case.

18.The Supreme Court, after a detailed consideration of the lawandthefacts,dismissedthePTCappealthathadbeenfiledbytheN.-W.F.P. Government. Thus, insofar as PTC was concerned, the relief granted to it by the Peshawar High Court was upheld. The Supreme Court also dismissed the PTCL appeal. Thus, insofar as this entity was concerned, the denial of relief by the Peshawar High Court was upheld.

19.Insofar as the PTC appeal was concerned, the Supreme Court referred to Article 165 and observed as follows (pg. 681):

"Now in the light of the test laid down in this Article, it has to be seen whether the goods of respondent-Corporation can be treated to be the property or income of the Federal Government."

After considering the provisions of the 1991 Act and other relevant statutory provisions and the case-law cited before it, the Supreme Court concluded as follows (pg. 684):

"16. In the light of the resume of the case-law, nature and composition of the respondent-Corporation, though styled as such by virtue of various duties and functions performed by it under different provisions of Act 1991, we are firmly of the opinion that PTC essentially and primarily performed functions of Telegraph and Telephone Department of the Federal Government and would, thus, be entitled to exemption from payment of octroi tax, which was available to Telegraph and Telephone Department before coming into existence of this Corporation. The view taken by Peshawar High Court, thus, does not suffer from any error of law or want of jurisdiction and is unexceptionable."

20.One of the cases to which the Supreme Court was referred was its decision in the KDA case. As to this decision, the Supreme Court observed as follows (pg. 684):

"Last in the line of reference is judgment in Karachi Development Authority (supra) which deals with the liability of a statutory juristic person for payment of sales tax and exemption from payment thereof, under the provisions of Articles 165 and 165-A of the Constitution, which essentially deal with the exemption of tax on income of Federal Government and levy of tax by Parliament on such Corporations. The case, in our view is beyond, the point and does not lead to solution of the controversy."

21.The petitioner and PTC are both statutory entities set up by federal law. Learned counsel for the SRB very fairly (and in our view quite correctly) accepted that there were many striking parallels between the two entities. When the PTC case is read as a whole, in our respectful view, it is clear that the Supreme Court attached great importance to the manner in which PTC was set up and structured and in particular the fact that it succeeded to the Federal Government itself (in respect of the T&T Department). Of course, as already noted, the CAA also took over the functions of the CA Department, which was part of the Ministry of Defence. The Supreme Court gave the following description of PTC in terms of the various provisions of the 1991 Act, and for comparative purposes, we have inserted (in square brackets) references to the corresponding provisions of the 1982 Ordinance (pg. 681):

"It would be seen from various provisions of the Ordinance, 1990 and the Act, 1991 that, for all intents and purposes, PTC has been discharging its duties and functions, which were earlier performed by the erstwhile Telegraph and Telephone Department of the Federal Government. For this purpose, we may pierce the veil of incorporation and notice that entire control, administration, management and all the affairs of the Corporation, no doubt, vests in the Board of Directors but all such Directors and the Managing Directors were required to be appointed by the Federal Government and none else [section 7]. The properties of T & T Department, on establishment of the respondent-Corporation, vested in it and, legally speaking, all assets and liabilities of the said Department were acquired and incurred by the respondent-Corporation by operation of law [section 11]. All officers working in Telegraph and Telephone Department stood transferred to the Corporation with total protection of terms and conditions of their service, including the right to enjoy the status of a public servant [section 14]. Furthermore, the Corporation was bound in all matters to abide by the instructions and directives issued by the Federal Government from time to time and to follow the policy decisions of the Government, who was declared to be the best judge to decide as to which question would be a question of policy [section 4]. Indeed, entire income from the proceeds of the Corporation went to the public exchequer and not to an individual or a juristic person [section 16]."

In addition to the foregoing, the description of PTC at pp.676-78 must also be kept in mind. It is to be noted that both PTC (section 11 of the 1991 Act, noted at pg. 677) and the CAA (section 21 of the 1982 Ordinance) had (and have) to submit in respect of each financial year "a report on the conduct of its affairs for that year" along with a report of the audit of its affairs. Whilein the case of PTC this audit was to be conducted by chartered accountants and could also be done by the Auditor General (also noted at pg. 677), in the case of the CAA, the Auditor General alone is mandated by section 18 to carry out the annual audit. These reports were (and are) to be placed before the Senate and the National Assembly, and subsection (3) of section 21 of the 1982 Ordinance specifically provides that the Public Accounts Committee shall scrutinize and examine the reports and exercise the same powers in relation thereto as "in respect of appropriation accounts of the Federal Government". Furthermore, section 15 of the 1982 Ordinance provides that the budget of the CAA is to be approved by the Federal Government. In relation to PTC, the Supreme Court observed (pg. 682):--

"It would, thus, be seen that prior to the coming into being of PTCL duties and functions performed by the respondent-Corporation were allocated to a Federal Government Division and, thus, its properties and income would be exempt from Federal as well as Provincial tax regime under the provision of Article 165."

It was further observed as follows (pg. 683-4):--

"It would, thus, be legitimate and safe to conclude that, after unveiling the veil of incorporation and ascertaining true role and actual nature and status of respondent Corporation virtually serving as an organ of State performing duties and functions primarily to be performed by the Federal Government, would be entitled to the benefits, concessions and exemptions, which were available to the erstwhile Telegraph and Telephone Department before its inception."

In our respectful view, if such conclusions were warranted in relation to PTC, they ought to hold true in respect of the CAA as well.

22.The point that still requires consideration however is whether the KDAcase, on which so much reliance was placed by learned counsel for the SRB, is applicable to the facts and circumstances of the present case. In para 12 above, we noted that the applicability of this decision had to be considered in light of two subsequent judgments of the Supreme Court, and these decisions have now been set out above. These are of course, the PTC case and the observations of Saleem Akhtar, J. in his concurring opinion in Associated Cement. The fact that his Lordship was a member of the learned Bench which decided the KDA case has been noted and the relevance of this may be elucidated. In Precedent in English Law (4th edition, 1991), which is one of the most influential works on the subject in the common law world, the learned authors (Cross and Harris) state that the ratio decidendi of a case must be interpreted in the light of prior and subsequent cases (pg. 45). We are bound by Supreme Court decisions by reason of Article 189 of the Constitution in respect of any principle of law decided thereby or enunciated therein, and of course it is not necessary that such principles be part of the ratio decidendi of the decision. However, in our respectful view. the principle stated by the learned authors can usefully be applied even in relation to Article 189 in order to understand the scope, applicability and true meaning of a principle of law decided or enunciated by a decision of the Supreme Court. The learned authors give an interesting example (pp. 45-47) of the principle articulated by them. This was how the ratio decidendi of a decision of the Exchequer Chamber (the predecessor of the Court of Appeal) was subsequently explained in rather different terms by the House of Lords. The two decisions are, respectively, Barwick v. The English Joint Stock Bank (1866) LR 2 Ex. 259 and Lloyd v. Grace, Smith & Co. [1912] AC 716. The learned authors note that in the House of Lords, Lord Macnaghten based his understanding of what Willes, J. (the author of the Exchequer Chamber judgment) had decided "on statements made by other members of the court in Barwick v. The English Joint Stock Bank when giving judgment in later cases". It is in this sense therefore, that the observations of Saleem Akhtar, J. in relation to the KDA case, reproduced above, are particularly relevant. What the Supreme Court said in the PTC case in respect of the KDA case while deciding the PTC appeal has also been noted. In our respectful view, when the KDA case is considered in light of the two subsequent decisions, the conclusion is inescapable that the Supreme Court has limited the scope of the principle laid down therein to the income-tax and the federal sales tax, when provincial entities have sought to claim intergovernmental immunity from such taxation.

23.We would therefore respectfully conclude as follows in light of the discussion and analysis in the paras herein above. The terms "income" and "property" as used in relation to taxation in Article 165 are to be given a broad meaning. These terms are not confined to what we have described as the narrow or strict meaning. The intergovernmental immunity granted by Article 165 has been lifted in relation to provincial entities in respect of the income-tax by Article 165A, as expressly provided therein, and by extension thereof in the KDA case in relation to the federal sales tax. However, the exclusionary effect of the KDA case goes no further and in particular, it does not apply to the intergovernmental immunity available to federal entities in relation to provincial taxation in respect of income or property. The provincial sales tax levied by and under the Sindh Act comes within the broad meaning to be given to "income" in Article 165. Since there is, as presently relevant, no material difference between the position of PTC and the CAA, the intergovernmental immunity from the provincial sales tax is available to the latter just as immunity from octroi was available to the former. In other words, in our respectful view, the controlling Supreme Court authority in the present facts and circumstances is the PTC case insofar as it relates to and decides the PTC appeal, and not (with the utmost respect) the KDA case.

24.It follows from the foregoing that the petitioner is entitled to the relief that it is seeking. Accordingly, this petition is allowed. It is declared that the petitioner is not liable to pay the tax under the Sindh Sales Tax on Services Act, 2011. All demands made, proceedings initiated, orders passed or notices issued to the petitioner under or in terms thereof are hereby quashed and set aside. On 25-7-2012, the petitioner was granted interim relief subject to deposit of a certain amount with the Nazir of this Court and the furnishing of a bank guarantee. The bank guarantee stands discharged and the Nazir is directed to return the amount along with accrued profit if any to the petitioner subject to proper verification and confirmation. There will be no orders as to costs.

MH/C-9/KPetition allowed.