ISLAMABAD: The Supreme Court on Wednesday restored deduction of withholding tax, sales tax and service charges on pre-paid cellular scratch cards by vacating its earlier suspension order.

“For the reasons to be recorded later this human right cell case and all interim orders are disposed of,” Chief Justice Asif Saeed Khosa said while dictating an order after a daylong hearing. He also said the court would not interfere in revenue matters.

On public complaints, the apex court had taken up a case relating to unreasonable deduction of tax/other charges from mobile phone pre-paid cards and easy load, besides deducting Rs40 in the form of different taxes for every Rs100 charge.

During the hearing, the court was told that the state had suffered a loss of about Rs90 billion since the issuance of the suspension order.

Taking suo motu notice on May 3 last year, then chief justice Mian Saqib Nisar asked whether deduction of Rs40 on every scratch card of Rs100 was not exploitation and observed that the matter involved public interest.

At a previous hearing, the apex court was informed that about Rs120 billion was earned by the Punjab government, Rs90bn by the Sindh government, Rs36bn by the Balochistan government and Rs55bn by Khyber Pakhtunkhwa government through such deductions annually.

Apex court vacates earlier suspension order issued by ex-CJP Saqib Nisar

During Wednesday’s hearing, the chief justice recalled that the basis of the instant suo motu proceedings was a post on social media, but nobody knew who the initiator of the message was. “There is every possibility that fake message may have been posted since nowadays social media is full of fake items,” the chief justice regretted.

Read: SC questions use of suo motu powers over top-up card tax

Before suspension, on each calling card of Rs100, withholding tax (income tax) of 12.5 per cent was deducted under Section 236 of the Income Tax Ordinance 2001 by the Federal Board of Revenue (FBR), whereas 17pc excise duty was charged from the users in Islamabad Capital Territory. The provinces were charging 19.5pc sales tax on services from the users. In addition, cellular companies were deducting 10pc for the services rendered by them.

Thus when a card of Rs100 is purchased or easy load top-up is procured, Rs25 is deducted immediately and the mobile phone subscriber received around Rs75 in his/her account. And when the subscriber makes a call, the call charges plus FED or the provincial sales tax are deducted from the value of services consumed by the subscriber.

In its response, the FBR contended that the matter regarding deduction on scratch cards was beyond the scope of Article 184(3) of the Constitution as held by the Supreme Court in the 1997 Ellahi Cotton Mills Limited case, adding that this issue did not constitute violation of any fundamental rights. It argued that the policy of a tax might result in hardships or advantages or disadvantages to individual assesses which were accidental and inevitable and, therefore, laws should always be saved rather than destroyed and the court must lean in favour of upholding the constitutionality of legislation and the rule of interpretation.

The legislation, particularly in economic activities, enjoyed a wide latitude in the matter of selection of persons, events, etc, for taxation and the presumption was in favour of the validity of legislation, the FBR said.

Senior counsel Khalid Jawed Khan, representing the Sindh Revenue Board, argued that as far as the deduction of advance tax under the Income Tax Ordinance (ITO) was concerned, the law permitted such deduction even in cases of users of telecommunication service, including mobile card, who otherwise were not paying income tax by filing returns or whose income fell below the taxable income.

Referring to various provisions of the ITO, the counsel contended that the definition of income was wide enough to include all advance taxes, including those levied on imports, sale of goods, contracts and services. It also included other advance taxes collected from all persons under the ITO irrespective of whether they were taxpayers or not, the counsel said, adding that if it was not so, then not only advance taxes on mobile use would be struck down but levy of a large number of other advance taxes would also be restricted to the extent of existing taxpayers.

This would mean penalising those already paying taxes while benefiting those escaping from the tax net, he contended. Thus the collection of advance tax on mobile phone use being part of the overall tax scheme as enshrined in the ITO was a valid levy, the counsel said.

Referring to the levy by Sindh of sales tax on telecommunication services under the Sindh Sales Tax on Services Act, 2011, the counsel said it was levied in term of Entry 47, 4th Schedule to the Constitution and thus was a valid levy. He also pointed out that as a result of stay against recovery since June 2018, Sindh has suffered a loss of about Rs8bn. Being an indirect tax, every consumer using the services was liable to pay irrespective of his status, the counsel contended, adding that since the levy was constitutional, the stay on deductions was unwarranted and liable to be recalled.

Barrister Syed Ali Zafar, representing the Punjab Revenue Authority, argued that the Punjab government could not recover a sum of more than Rs27bn because of the suspension order. He submitted that the jurisdiction of Article 184(3) could be exercised only if the matter was of public importance as well as enforcement of fundamental rights, but in this case the jurisdiction had been assumed by the Supreme Court on a note put up by the court’s human rights cell.

Barrister Zafar contended that under Article 184(3), it was a requirement that before exercising this jurisdiction, the SC bench must apply its mind and come to the conclusion that prima facie a matter of public importance involving enforcement of fundamental rights existed. In this case, after reading different judgements, he argued, when it came to the matter of tax, the imposition of any kind of tax or fee was a sovereign power of parliament and the provincial assemblies.

“If a tax is challenged, then the appropriate procedure under the Constitution is that the case should first be filed by an aggrieved party under Article 199 of the Constitution before the appropriate high court and the Supreme Court should only examine the validity of tax laws in exercise of appellate jurisdiction,” the counsel contended, adding that in this way the court would have the benefit of the decisions of the high court as well.

Regarding the imposition of sales tax on services under the Punjab Sales Tax Act, 2012, he said the tax was being levied in accordance with and under the provisions of valid law and no one was aggrieved by it nor had it been challenged being contrary to any of the fundamental rights enshrined in the Constitution and, hence, the suo motu proceedings undertaken by the apex court should be disposed of.

Published in Dawn, April 25th, 2019