1988 PLP 1357 (SCMR)

ZAFFAR HUSSAIN MIRZA, J.‑‑This is a petition for leave to appeal by Karachi Development Authority, a statutory corporation constituted under the Karachi Development Authority Order (P.0.5 of 1957), from the judgment dated 14th May, 1987, by a Division Bench of the Sind High Court whereby the constitutional petition filed by it was dismissed. The petitioner in order to fulfill its statutory obligation to supply water and provide sewerage, established a factory at Karachi for the manufacture of prestressed R.C.C. Pipes, in 1956 and has been manufacturing, from year to year, in various sizes prestressed R . C . C . Pipes for its own use and not for sale. In the events that happened when in about 1965, the Sales Tax Department sought to bring the said pipes manufactured in the factory of the petitioner to charge of sales tax, the matter was taken up with the Central Board of Revenue, who after examining the same by letter dated 30th June, 1965, declared and advised the relevant authorities that the said pipes manufactured at the petitioner's factory "are not liable to sales tax". In view of this direction no sales tax was levied or collected from the petitioner on the aforesaid manufactured goods. However, by its order dated 22nd July, 1981, the Central Board of Revenue informed the petitioner "that on reconsideration of the matter, the Board's letter of even number dated 30th June, 1965, is hereby cancelled". The representation made by the petitioner to the Central Board of Revenue against the aforesaid letter making the petitioner liable to sales tax, having been rejected and demand for payment of tax having been made, the petitioner challenged the action of the authorities in a constitutional petition before the Sind High Court. The learned Judges of the Division Bench who decided the constitutional petition took the view that the earlier letter of 30th June, 1965 not being strictly a notification of exemption from sales tax under section 7 of the Sales Tax Act, 1951, the same did not create any vested right of exemption from the levy of the tax and therefore there was no legal bar on the authorities to withdraw the same. On this view of the matter the constitutional petition of the petitioner was dismissed by the impugned judgment. In support of the petition Mr.Mansoor Ahmad Khan Advocate contended that the learned Judges of the Division Bench misconceived the case of the petitioner as one of withdrawal of exemption granted under section 7 of the Sales Tax Act, whereas the admitted facts on record clearly made out that the declaration made by the respondents in their letter of 0th June, 1965, was a declaration of non‑taxability and not an exemption stricto senso. The argument of the learned counsel was that if the veil of incorporation of the petitioner as a statutory body corporate, is removed, the Karachi Development Authority was nothing but an extension or a department carrying out the duties and obligations of the Provincial Government and in that context the goods produced by its factory are the property of the Provincial Government, which is immune from taxation under Article 165 of the Constitution of the Islamic Republic of Pakistan, 1973. Learned counsel sought support for his argument from this Court's decision reported as Sind Industrial Trading Estate Ltd. v. C.B.R. PLD 1975 Kar.128 as further affirmed in Central Board of Revenue v. S.I.T.E. PLD 1985‑SC 97, and submitted that the tests applied to the Sind Industrial Trading Estate in these cases to hold that the said body performed the functions of the Government as one of its department are equally applicable to the case of K . D . A . After hearing the learned counsel we feel that an important constitutional question has been raised whether, the goods produced or manufactured in the factory of the petitioner were to be regarded as the property of Provincial Government as envisaged in Article 165 of the Constitution and thus exempt from tax under the said provisions of the Constitution, which requires consideration. Leave is accordingly granted. The petitioner shall furnish security for costs in the sum of 3s.2,

500. The appeal shall be prepared on the present record but it will be open to the parties to file additional documents if any. The interim order passed by this Court on 19th July, 1987, shall continue until the decision of the appeal. M.I. /K‑53/S Leave granted.