Announcing its reserved verdict in response to various appeals challenging the decisions of four high courts about competency of the legislature to introduce amendments in Finance Acts, the Supreme Court declared the amendments unlawful and ultra vires to the Constitution.
Identical appeals were filed before the Supreme Court against the verdicts of Islamabad High Court, Lahore High Court, Peshawar High Court and Sindh High Court over competency of the legislature to effect amendments in the respective laws confirming additional rights and imposing liabilities on employer/s relating to contribution in pursuance of Worker Welfare Fund, Employees Old Age Benefits Institution, Karachi Electric Supply Company and 38 other entities.
Dismissing all the pleas in the matter, a three-member bench led by Justice Mian Saqib Nisar ruled, "As we have established from the discussion that none of the subject contributions/payments made under the Ordinance of 1971, the Act of 1976, the Act of 1923, the Ordinance of 1968, the Act of 1968 and the Ordinance of 1969 possess the distinguishing feature of a tax, ie a common burden to generate revenue for the State for general purposes, instead they all have some specific purpose, as made apparent by their respective statutes, which removes them from the ambit of a tax."
The judgement further said, "Amendments relating to the subject contributions/payments do not fall within the parameters of Article 73(2) of the Constitution, the impugned amendments in the respective Finance Acts are declared to be unlawful and ultra vires to the Constitution." The verdict said that consequently, the amendments sought to be made by the various Finance Acts of 2006, 2007 and 2008 pertaining to the contributions/payments do not relate to the imposition, abolition, remission, alteration or regulation of any tax, or any matter incidental thereto (tax).
"We would like to point out at this juncture that the word 'finance' used in Finance Act undoubtedly is a term having a wide connotation, encompassing tax. However not everything that pertains to finance would necessarily be related to tax. Therefore merely inserting amendments, albeit relating to finance which have no nexus to tax, in a Finance Act does not mean that such Act is a Money Bill as defined in Article 73(2) of the Constitution," the bench said in its verdict.
"Tendency to tag all matters pertaining to finance with tax matters (in the true sense of the word) in Finance Acts must be discouraged, for it allows the legislature to pass laws as Money Bills by bypassing the regular legislative procedure under Article 70 of the Constitution by resorting to Article 73 thereof which must only be done in exceptional circumstances as and when permitted by the Constitution," stated the verdict.
Emphasising another aspect of the matter, the bench said that no doubt the feature of having a specific purpose is a characteristic of a fee, which the contributions/payments possess.
The verdict said, "However, there are certain other characteristics of a fee, such as quid pro quo, which must be presented for a contribution or payment to qualify as a fee. This was the main argument of the learned counsel who categorised the subject contributions in the nature of a tax, that they (the contributions) lacked the element of quid pro quo or in other words the benefit of the contribution did not go to the payers."
It added that the industrial establishments or employers etc were liable to pay the contribution but they were not the beneficiaries of the purpose for which such contributions were being made; the beneficiaries were either their employees or workers etc.
Citing the name of a lawyer, the verdict maintained, "Rashid Anwar attempted to argue that the benefit needs not to be direct and can be indirect; therefore although the employees were directly benefited by contributions made to the Employees' Old-Age Benefit Fund as they received the disbursements, yet the employers received an indirect benefit that results in happier employees which ultimately leads to greater productivity".
It added, "Whilst this may be true, albeit a strained argument, the attempt of the learned counsel challenging the legality of the amendments in the Finance Acts has all along been to categorise the contributions/payments as a fee, which would mean that they were not a tax."
The verdict said that while a fee is obviously not a tax, there was absolutely no need to try and squeeze the contributions/payments into the definition of a fee, when all that is required is to take them out of the ambit of a tax. "We may develop this point further; although Article 73(3)(a) of the Constitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2), it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive," the bench said in the verdict.
The judgement added, "There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure."
"The discussion above that the subject contributions/payments do not constitute a tax is sufficient to hold that any amendments to the provisions of the Ordinance of 1971, the Act of 1976, the Act of 1923, the Ordinance of 1968, the Act of 1968 and the Ordinance of 1969 could not have been lawfully made through a Money Bill, ie the Finance Acts of 2006 and 2008, as the amendments did not fall within the purview of the provisions of Article 73(2) of the Constitution," the verdict concluded.