1992 PLP 499 (MLD)

Through this Constitutional petition the petitioners have assailed the imposition of import tax on Liquified Petroleum Gas (L.P.G.) by the Zila Council, District Attock, respondent No.2.

2. Petitioners Nos.1 to 4 are public limited companies while petitioner No.5 is a private limited company, duly incorporated under the Companies Ordinance, 1984 and are marketing Liquified Petroleum Gas (hereinafter referred to as L.P.G.) throughout the country. In the year 1988 the Government of the Punjab, respondent No.1 herein approved a Model Schedule of export tax in respect of the Zila Council .4ttock for the year 1988/1989 wherein export tax on fuel and gas was levied vide item No.22. The Model Schedule was published by the Zila Council in the newspapers and the petitioner objected against its legality through a letter addressed to the Chairman, Zila Council (Annexed `F'). However, the Zila Council assigned the contract for recovery of various taxes to a contractor brushing aside the petitioners' objection. The petitioners also addressed letters to the Government of Punjab, respondent No.l challenging the legality of the export tax on L.P.G. The Provincial Government accordingly ordered deletion of L.P.G. from the Model Schedule with effect from 1‑7‑1989 vide letter No.S.O/VI (LG)‑1‑(97)/86, dated 16‑3‑1989. However, in the meanwhile tax amounting to Rs.8,88,057 (during the period from 1‑7‑1988 to 30‑6‑1989) was recovered from the petitioners. They repeatedly claimed the refund of the amount but their representations were rejected by the Chairman, Zila Council. While the matter of recovery of the tax already paid was being agitated by the petitioners, the Provincial Government again through Notification No.S.O.V v(26)/89, dated 24‑4‑1990 ordered enforcement of tax schedule including item No. 18 relating to Fuel and Gas and Firewood. The above Notification was later modified on 27‑6‑1990 and the word "fuel" was deleted there from. Accordingly the Zila Council Attock levied export tax on the L.P.G. with effect from 1‑7‑1990.

3. In the written statement/parawise comments filed by the respondent No.l it is admitted that tax was imposed on the L.P.G. under the directions of the Provincial Government and that L.P.G. was not declared as natural gas till 2‑8‑1988 and it was also stated in a lukewarm manner that a question whether L.P.G. was a natural gas or not was debatable. It was admitted that L.P.G. was ordered to be deleted with effect from 1‑7‑1989 from the Model Schedule. Respondent No.2 took up the position that it had acted under the directions of the Provincial Government in the matter of levy of export tax on L.P.G. However, the Government of Pakistan, respondent No.3 has taken up a firm position in the written statement that L.P.G. being fluid, Hydrocarbons, was a natural gas within the meaning of law and only the Federal Legislature was competent to impose tax as the item of Petroleum and Natural Gas was included in the Fourth Schedule, Part II, Item 2 of the Constitution of Pakistan. It was also stated that the Government of the Punjab was asked several times not to impose export tax on L.P.G. but it did not care to follow the directions of Federal Government.

4. The petitioners learned counsel contends that L.P.G. is natural gas and only the Federal Government can legislate about it and impose tax on its inter‑provincial export. He further submits that the item of petroleum and natural gas is included in the Fourth Schedule Part II, Item 2 of the Constitution of Pakistan and neither the Provincial Government nor the Zila Council is competent to levy export tax on L.P.G. He adds that even otherwise a model schedule cannot be enforced straightaway and has to be routed through the codal formalities before it can mature into a valid tax. His grievance is that the formalities required under the law for publishing the model schedule, inviting objections from the public and placing the matter before the house etc. were not fulfilled. Hence, the levy of export tax was otherwise illegal. He further submits that the petitioners' representations including above objections were considered by the Provincial Government and deletion of the items relating to gas were ordered with effect from 1‑7‑1989 although, according to the learned counsel it ought to have been done with effect from 1‑7‑1988). After the deletion there was no justification to reimpose the tax on L.P.G. Lastly, he urges that the imposition of export tax will disturb the uniformity of prices of L.P.G. in the country.

5. On the other hand, the learned AA: G. who appeared for respondent No.l urged that L.P.G. was a commodity apart from gas and the Provincial Government could competently order levy of export tax thereon. He further submitted that Provincial Government was competent to issue directions under sections 137, 138 and 139 of the Punjab Local Government Ordinance for imposing tax on different commodities/goods including the L.P.G. The learned counsel for respondent No? reiterated the arguments raised by the learned AA.‑G. and added that Zila Council had duly published the Model Schedule, invited objections and fulfilled all other formalities before imposing the export tax and assigning contract for its recovery. 6.Primarily, the issue relates to the true nature of the commodity known as Liquified Petroleum Gas (L.P.G.). Before proceeding further, it would be advantageous to examine the definition of the word "gas" as contained in the Natural Gas (Control of Production and Distribution) Order, 1965 and the L.P.G. (Production and Distribution) Rules, 1971. In the former Order, Rule 2(F) reads as under: ‑‑ "Gas means natural gas unmixed and natural gas mixed with artificial gas and includes all other flued hydrocarbons not defined as oil." Under the Rules, L.P.G. has been defined as under: ‑‑ "Hydrocarbons, mainly consisting of propane and butane, mixed or un mixed whether with or without other gases, which are vapours at room temperature and pressure but can be liquefied on slight compression." Thus, L.P.G. is essentially a gas composed of propane and butane, both Hydrocarbons of methane series, which are highly inflammable. Under slight compression it is converted into a fluid which turns into gas in the ordinary room temperature. Respondent No.3 had explained in the written statement that the L.P.G. produced by the petitioner is fluid Hydrocarbons and that it is basically a form of natural gas and duly covered in the definition of the word "gas" contained in sub‑rule (f) of Rule 2 of the Natural Gas Rules, 1960. Moreover, in the impugned sanctioned model schedule for the year 1988/1989 and the tax schedule for the year 1989/1990 the item included therein related to "fuel and gas" and respondent No.2 readily treated L.P.G. as gas and the Contractor started recovering export tax therein. Thus, it can be safely concluded that L.P.G. is primarily inflammable natural gas.

7. The subject of mineral oil and natural gas has always been the federal subject. In the Constitution of Pakistan 1956, the subject of mineral oil and natural gas is included as Item No.15 in the Fifth Schedule pertaining to the Federal Legislative List. In the Constitution of Pakistan, 1962 the said subject is included in the Third Schedule vide Item No.24 relating to exclusive powers of the Central Government to make laws. In the present Constitution of 1973, 1 the subject of mineral oil and natural gas; liquid and substances declared by the Federal Law to be dangerously inflammable is included in the Fourth Schedule, Part lI, Item 2 relating to the Federal Legislative List. Power to levy taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy also vests in the Federal Government by virtue of Item No.51 in Part I of the Fourth Schedule. As discussed above, L.P.G. is natural gas, hence the Federal Government alone is competent to legislate about its distribution and control etc. or to levy tax thereon.

8. The L.P.G. is being marketed by the petitioners under different trade names like Life Gas, Fan Gas, Pak Gas and Burshane etc. At one stage the issue cropped up whether Burshane marketed by petitioner No.4 was liable to octroi tax or not. Burshane was originally marketed in Karachi and later supplied to other major cities and smaller towns as well. The Government of the Punjab ordered that no tax could be imposed because it was a natural gas as defined under the Natural Gas (Control of Production and Distribution) Order, 1965. The relevant portion from letter No.S.O.VI (L.G), 3‑637/69, dated 20‑3‑1971 is reproduced below: ‑‑ "Since the Burshane Gas (Liquefied Petroleum Gas) has been defined as natural gas under the Natural Gas (Control of Production and Distribution) Order, 1965, it has been decided by the Government that the Municipal Committees in the Punjab should not charge any octroi on Burshane Gas and Burshane Gas Cylinders which are returnable." Prior to that the Federal Government had already issued directions vide letter No.S.O.‑II (L.G.‑13)(92)/64, dated 12‑3‑1964 that the local bodies were not competent to levy any terminal tax/octroi tax on natural gas because the said item was included in 3rd Schedule of the Constitution of Pakistan and only the Central Government 'was competent Jo impose tax, if it so desired. Thereafter, keeping in view the above letter of the Central Government, the Provincial Government again issued letter No. L.P.G.2(9)/75‑I1, dated 26‑11‑1975 (On representations from petitioner No.4) saying that the L.P.G. be treated as natural gas and that necessary instructions be issued to all concerned for granting exemption to petitioner No. 4 from payment of tax. Again on 25‑3‑1984 the Government of the Punjab on representation made by petitioner No.l wrote a letter No.S.O.‑VI (L.G.) I‑23/78 to all the Zila Councils in the Punjab saying that no Export Tax be levied on Petroleum and Gases of all kinds. Despite the clear position taken by the Provincial Government earlier a deviation was made in the year 1988/89 and a model schedule was sanctioned in respect of Zila Council, Attock levying Export Tax on various items including fuel and gas. The model schedule was forwarded to the Chairman of the Zila Council through letter dated 4‑4‑1988 for enforcing the tax with effect from 1‑7‑1988. It was published in the Press and the petitioner immediately represented against it but it was enforced and the Zila Council started recovering Export Tax from the petitioners with effect from 1‑7‑1988. For the purposes of recovering Export Tax respondents Nos.l and 2 readily asserted that L.P.G. was a gas because the model schedule had included Item No.22 relating to "fuel and gas". If they assert that L.P.G. was a commodity apart from oil or gas, it is not subject to levy of tax even if the model schedule is held to be valid. Anyhow the L.P.G. was again declared by the Central Government to be natural gas through letter No. B.G.O. (L.P.G.‑2)(9)/88, Vol‑III, dated 2‑8‑1988. Thereafter the Provincial Government directed deletion of L.P.G. from the model schedule through letter No. S.0‑VI (L.G)‑1‑77/88, dated 16‑3‑1989 with effect from 1‑7‑1989. In fact, the Provincial Government ought to have ordered deletion with effect from 1‑7‑1988 because the very, levy of tax was un‑constitutional and illegal. Surprisingly, the Provincial Government again included "gas" in the schedule of Export Tax and the Zila Council readily accepted the same and got the matter approved through the House. It appears that some latent hand was out to create confusion and to exploit the issue for ulterior motives. The Zila Council was not bound to give effect to the patently illegal directions of the Government which on the face of it were violative of the Constitutional provisions. As mentioned above, the subject of Mineral Oil and Natural Gas falls within the exclusive legislative competence of the Federal Government. The Provincial Government or for that matter the Zila Councils, could not meddle with the said subject. The Zila Council had illegally awarded contract for the recovery of tax on L.P.G. As the petitioners have not impleaded the Contractor (who had actually recovered the tax from them pertaining to the period from 1‑7‑1988 up to 30‑6‑1989) as a respondent in the petition, I am not inclined to direct refund of the amount. The petitioners if so advised, may seek their remedy against the Zila Council and the Contractor in accordance with the law. For the above view formed by me regarding competence of the Zila Council to levy Export Tax, I need not go into the question whether codal formalities for imposing the tax were fulfilled by the Zila Council or not.

9. For the forgoing discussion, the petition is allowed to the extent of declaring the imposition of Export Tax on L.P.G. as being without lawful authority and of no legal effect. The Sanctioned Model Schedule issued by the Provincial Government for the year 1988/89 and the subsequent Tax Schedule for the period 1989/90 relating to the Item of "gas" are declared to be illegal and without jurisdiction. The parties are left to bear their own costs. M.BA./F‑17/L Petition allowed.