1992 PLP 458 (CLC)

2. The petitioner company manufactures soda ash, having its plant within' the territorial limits of the Municipal Committee Khewra, District Jhelum. Prior to the issuance of the notification, impugned herein, the Zila Council, Jhelum levied export tax on 31 commodities at different rates including soda ash at the rate of Rs.10 per ton through notification dated 22‑3‑1984. The petitioner preferred an appeal before the Commissioner, Rawalpindi Division. However, during the pendency of the appeal, the Zila Council issued another notification dated 25‑5‑1985 under directions of the Government modifying rates of export tax (on 19 items, not including soda ash). The petitioner felt that tax on soda ash had been removed and did not pursue the appeal. The Chairman, Zila Council again issued the impugned notification purportedly under directions of the Government modifying rates of export tax relating to 24 items including soda ash, to be taxed at the flat rate of Rs.50 per truck. The petitioner challenged it through an appeal which was dismissed by the Commissioner, Rawalpindi Division, vide his order dated 9‑4‑1987.

3. The petitioner's learned counsel submits that the Zila Council can levy export tax on goods which either originate from or are produced within the territorial limits of the Zila. No tax on goods in transit from the limits of the Zila Council can be charged. According to the learned counsel Zila is not synonymous with district. The word `Zila' is defined in clause (ix), section 3 of the Punjab Local Government Ordinance, 1979 as under:‑‑ `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. Urban area has been defined in clause (iii), section 3 of the Ordinance as `a local area of a town, municipality, a city or a metropolis'. By virtue of power under section 137 of the Ordinance a Zila Council can levy any of the taxes enumerated in the Second Schedule in the manner laid down under the Local Councils Taxation Rules, 1980. He further submits that in the present case rules 3 to 8 were not followed. He adds that even if the Government had drawn model tax schedule and issued directions under section 139 of the Ordinance to increase or modify the tax the local council was still bound to publish the proposal and process the matter in accordance with the rules. He places reliance on the case of Rauf Trading Company Ltd. v. Faisalabad Municipal Corporation through Mayor and another (1990 C L C 1732) and an unreported judgment passed by my learned brother Akhtar Hasan, J. in the case of I.C.I. v. Zila Council, Chakwal (W.P. 435/89). On the other hand the learned counsel for respondent No.1 submits that the Government can directly impose tax under section 139 of the Ordinance without complying with the rules. He submits that the present notification was issued under directions of the Government which had to be followed. He places reliance on the cases of Ravi Rayon Ltd., Kala Shah Kaku v. Commissioner, Lahore Division, Lahore and 2 others (P L D 1978 Lahore 58) and Messrs Punjab Feeds Ltd. v. Abdul Ghafoor and 2 others (1990 SCMR 439).

4. A Zila Council can levy export tax only within the limits of the zila as defined under clause (lx) of section 3 of the Ordinance. It means a revenue district as notified under the Punjab Land Revenue Act, 1967, excluding the urban areas and the cantonments. The petitioner company is located in the urban area of Municipal Committee Khewra, which is part of district Jhelum but does not fall within the limits of Zila Council, Jhelum.

5. Under the Second Schedule to the Punjab Local Government Ordinance the taxes leviable by Zila Councils are enumerated. Item 7, part II of the Second Schedule relates to tax for the export of the goods and animals from the Zila as defined under clause (lx), section 3 of the Ordinance. The goods produced elsewhere but in transit from the limits of a Zila Council are not contemplated under Item 7 of Part 2 of the Schedule. At one stage this question engaged the attention of the Government and a policy decision was taken in a meeting held on 11‑3‑1984. The said decision was conveyed to various concerned officials including all the Chairmen of Union Councils in the Punjab. A copy of the minutes embodying the policy decision has been placed on the file of the writ petition as Annexure "I". The relevant para. 4 (iii) reads as under:‑‑ "Export Tax should be imposed by the Zila Councils only on those items which are produced/originate from their Districts and no export tax should be levied on items which are in transit from one District to another." The word `District' used in the above‑quoted para. can mean only the revenue district as defined under the Land Revenue Act excluding the urban and cantonment areas because the jurisdiction of Zila Council to levy export tax cannot extend beyond its territorial limits. However, the intention that only those goods are to be subjected to export tax which are either produced in or originate from the district/Zila is manifestly clear from the above‑referred policy decision. Hence Zila Council may legitimately impose export tax in accordance with the provisions of the Ordinance and the Rules framed thereunder on goods which are produced in or originate from Zila Jhelum. As mentioned above the petitioner company is based beyond the limits of Zila Council Jhelum and manufactures soda ash in the urban area of Municipal Committee, Khewara. Hence the petitioner is not liable to pay export tax under the notification issued by Zila Council Jhelum. If any other person is manufacturing the said commodity within the limits of Zila Jhelum and exporting it therefrom then Zila Council may burden him with the liability to pay tax after levying it in accordance with the law.

6. The impugned notification is not sustainable in law because it was issued by the Chairman Zila Council, Jhelum in violation of the law, just two days after the receipt of the model schedule from the Government through letter NO.SONI (LG) 1027/84, dated 28‑6‑1985. The model tax schedule is framed under rule 10 of the Punjab Local Councils (Taxation) Rules, 1980, which reads as under:‑‑ "(1) Government may frame model tax schedules and where such schedules are framed the Chairman shall be guided by such schedules in framing his taxation proposals. (2) Where Government have framed a model tax schedule regarding the tax proposed to be levied, the Chairman shall, in a note appended to the taxation proposals, specify whether the model has been followed and where any departure has been made from the model, shall give the justification therefore." The model schedule was simply meant to guide the Chairman in framing his taxation proposals. He could follow it in toto or make departure there from giving justification for the same. The taxation proposals, even if prepared under the direction of the Government issued under section 139 of the Ordinance or framed in the light of the model schedule prepared by the Government under rule 10 for levying a fresh tax or effecting an increase or modification thereunder have to go through the entire process prescribed under the Rules before maturing into a tax. Again, if directed by the Government he is bound to levy all or any of the taxes, enumerated in the Second Schedule through proper notification but cannot do so without previous publication unless otherwise directed by the Government. This is clearly laid down under section 138 of the Ordinance. The previous publication is intended to make the general public aware of the tax to be exacted from them and to enable them to raise objections against the proposed levy. In the present case the model schedule framed by the Government was immediately notified by the Chairman as a sanctioned tax without complying with the requirement of previous publication under section 138 of the Ordinance and provisions of rules 3 to 8 of the Rules. Therefore, the impugned notification is without lawful authority and of no legal effect.

7. The above view finds support from the case of Rauf Trading Company Ltd. v. Faisalabad Municipal Corporation through Mayor and another (1990 C L C 1732) in which it was held that the taxation proposals mature into a tax only after compliance of the mandatory provisions of the rules and that failure to comply with the same vitiates the levy of the tax. In an unreported judgment passed by my learned brother Akhtar Hasan, J. in the case of I.C.I. v. Zila Council, Chakwal (W.P.435/89), decided on 3‑2‑1990 it was held as under:‑‑ "If the idea was to increase the rate of tax, a set procedure therefore was provided in the various provisions of the Ordinance, 1979 and particularly in Rules 4, 5, 6 etc. of the Punjab Local Councils (Taxation) Rules, 1980, requiring previous publication of the proposal and calling objections thereto. In fiscal matters, for extending liability on the subject there could be no shortcut." There is no substance in the argument raised by the respondents' learned counsel that the notification was valid as it was based on Government directions issued under section 139 of the Ordinance. Firstly, no Government direction within the meaning of section 139 of the Ordinance has been placed on the record and secondly the impugned notification dated 30‑6‑1985 itself shows that items at Sr. Nos.20 to 24 were included in the model schedule vide letter No.SO V1 (LG) 1027/84, dated 28‑6‑1985. Soda ash appears at Sr. No.20 and the tax shown in the model schedule was Rs.50 per truck, Rs.100 per railway wagon, Rs.150 per trolla and Rs.6.25 per trolley, wagon or pick up. There is clear distinction between a direction issued under section 139 of the Ordinance and a model schedule prepared under Rule 10 of the Rules. A direction has to be followed by the local council as laid down under section 137 of the Ordinance and if not complied with within the specified time, then the Government can make an order independently giving effect to the direction. On the other hand the model schedule prepared under Rule 10 is simply meant to guide the Chairman in drawing up his taxation proposals. In any event, a taxation proposal prepared by the Chairman on the basis of model schedule or under directions of the Government can mature into a tax after compliance of the provisions of rules 3 to 8 of the rules. If the Government specifies a time limit, all the necessary steps have to be taken by the local council within the said period, failing which the Government can give effect to the direction by its own order. The case of Messrs Punjab Feeds Ltd., relied upon by the respondents' learned counsel pertains to the levy of export tax within the limits of District Council under the direction given by the Provincial Government. It was proved on the record that the Government had issued the direction which was complied with by the District Council. The said judgment does not pertain to taxation proposals prepared on the basis of the model schedule framed by the Government. Moreover, the question as to whether a local council had to follow the prescribed procedure under rules 3 to 8 after receiving Government directions to levy or in crease a tax was not considered. Ravi Rayon's case is also distinguishable. In that case it was held that sanction of Government was not required by the local council for imposing export tax, under section 138 of the Punjab Local Government Act, 1975 and that the tax imposed did not suffer from any procedural defect. In the present case, tax had been levied in flagrant violation of the Rules. The question whether goods in transit from some other Zila or urban or cantonment area and not originating from or manufactured within the limits of Zila Council levying the tax, could at all be subjected to export tax was not examined in the precedent case. Moreover, the policy decision of the Government like the one available in the present case, was not available in the precedent case.

8. For the foregoing reasons I accept this writ petition and declare the impugned notification dated 30‑6‑1985 to be without lawful authority and of no legal effect. The order dated 9‑4‑1987 passed by the Commissioner, Rawalpindi Division is also set aside being arbitrary and illegal. The parties are left to bear their own costs.