P L D 1958 Supreme Court (Pak (PLP)

SHAHAB.UDDIN, A. C. J.‑The appellant Abbasi Textile Mills Ltd., is a joint stock Company carrying on business at Rahim Yar Khan. It was started under an agreement dated 17th January 1947, between the Government of Bahawalpur and the promoters of the Company, one of the terms of which was that for a period of ten years after the commencement‑of the manufacturing processes the said Government will not levy from or impose Sales Tax on the said Company. On 3rd October 1947,‑ the Ruler of Bahawalpur executed an Instrument of Accession to the Federation of Pakistan in respect of Defence, External Affairs and Communications, which was accepted by the Governor‑General on 5th October 1947. This was followed by a Supplementary Instrument dated 1st August 1948, the provisions of which are not relevant in this case. There was a Second Supplementary Instrument of Accession dated 29th April 1951, which was accepted on the 30th April 1951 and which for the sake of convenience shall hereafter be referred to as the Instrument. Clause 3 (a) of this instrument gave the Governor‑General power to extend by Order any existing Federal Law relating to matters included in Parts I and II of the Schedule to the Instrument with such modifications as may be considered necessary. It was declared in clause 4 of the Instrument that "matters included in the said Schedule are as to Part I thereof the several matters included in List I Federal Legislative List, as to Part II thereof, the several matters included in List III‑Concurrent Legislative List and as to Part III thereof, the several matters included in List II‑Provincial Legislative List, in the Seventh Schedule of the Government of India Act, 1935 on the date of the Second Supplementary Instrument". It was also declared under this clause that any change that might be made thereafter by competent authority in the aforesaid lists of the Government of India Act in their application to the Federation of Pakistan shall have effect in relation to the State of Bahawalpur in "such wise that the respective part of the said Schedule shall be deemed to have been modified in like manner as the corresponding list and with effect from the same date". Entry 54‑B in the Federal Legislative list of the Government of India Act, which shall hereafter be referred to as the Consti tution Act, as it stood on the date of the Instrument, was to the same effect as Entry 54‑B in Part I to the Schedule of the Instrument and that Entry is as follows "54‑B Taxes on the sale of goods‑(Note : this entry shall cease to have effect after the 31st March 1952)". Subsequently this entry was amended with effect from 1st April 1952 by inserting it permanently. In 1948 there was a Sales Tax Act in Bahawalpur, which was followed by another Sales Tax Act, which came into force on the 1st April 1950. The Governor‑General under powers conferred on him by clauses 3 and 4 of the Instrument extended by his Order II of 1952 to the Bahawalpur State several Federal Laws including the Pakistan General Sales Tax, Act 1948 and the Sales Tax Act, 1951. Under clause 3 (b) of the Instrument the executive authority of the Federal Government was made exercisable in the State in respect of all matters included in Parts I and II of the Schedule to the Instrument as may be determined by the Governor‑General. Under this power the Governor‑General passed Order III of 1952 under which the executive authority of the Federal Govern ment shall be exercised in the State of Bahawalpur in respect of certain matters mentioned in the Order in which the item 54‑B, tax on the sale of goods is included; and that Order stated that the said executive authority might be exercised either by the officers of the Federal Government, the Central Government or any authority subordinate thereto. The Bahawalpur Government assessed the appellant Company to Sales Tax for the years 1950‑51 and 1951‑52 under the Bahawalpur Law; and for the year 1952‑53, 1953‑54 and 1954‑55, the Federation of Pakistan assessed this Company to the Sales Tax according to the Federal Law. With regard to the tax levied by Bahawalpur State the case of the Company was that it paid a portion of that tax under protest and the balance of eight lacs and odd which remained due was not collected by the Government of Bahawalpur but steps were being taken by the Federation to collect that amount as well as the tax levied subsequent' to the acceptance of the Instrument. In October 1955, Bahawalpur State was integrated in the West Pakistan Province by an Act of the Constituent Assembly, Establishment of West Pakistan Act. The appellant‑Company moved the High Court, Lahore under section 223‑A of the Constitution Act stating that under the law there was no warrant for the Company being assessed to the Sales Tax, that the imposition of the, tax was illegal, and that as the Federation of Pakistan, the Province of West Pakistan the Central' Board of Revenue and the Sales Tax Officer were threatening to take steps to realise the amount assessed, a writ of mandamus directing the Sales Tax Officer to withdraw the demand notices and another writ to the other respondents not to collect or otherwise assist in the collection of the money might be issued. The Company also prayed for a writ directing a refund of the amount already realised. The petition was dismissed by the High Court, and this is an appeal with special leave from the judgment of the High Court. The case of the Company regarding the exemption from Sales Tax, as first stated in the petition for special leave, was that it collected the tax from its customers owing to pressure, that the undisbursed amount of the tax collected was held in trust for the customers, and that the: Company, being under a legal as well as a moral obligation to its customers, was challenging the vires of the action of the respondents, as it had all along been of the view that the levy was wholly void and without any legal foundation. It was also stated there that in the event of the Company succeeding in the appeal the tax collected would be refunded to the customers. But in a sub sequent petition asking for leave to amend the earlier petition on the ground that the legal implications had been stated slightly Inaccurately in that petition, it was said that the appellant -Company collected the tax on the assumption that the effect of the exemption given by Bahawalpur State was that the Company was entitled to keep for itself "what others are required to pay as tax, charged with their price inclusive of the amount which, but for the exemption, would be paid as sales tax", and that accounts were maintained showing the price and tax separately as the respondents had made demands for the payment of the tax. It was further stated that if this Court decided that the demand of the respondents was illegal and also that/ the appellant was not entitled to keep the amount collected as sales tax, that amount would be refunded to the customers. Mr. Chundrigar for the appellant‑Company contended that the latter position was the correct one and that what' was stated in the earlier petition was a mistake. The argument advanced in support of this position was that the object of agreement obviously was the encouragement of industries in the State, and this object could be gained only by enabling the Company to avoid selling at a cheaper rate owing to competition. It was explained that the Company in effect sold for the full amount realised from the customers as there was no restriction on its realis ing the price it liked, but that for the convenience of account it showed a part of the price equivalent to the sales tax as such tax and that it acted right though on the assumption that the effect of the exemption granted by the Bahawalpur Government was that it was entitled to retain what other companies were required to collect and pay to the State. But the language of the relevant clause in the agreement far from supporting this position is entirely opposed to it. Under It, the Government undertook not to levy on the appellant‑Company amongst other taxes, the Sales Tax. If what was intended by this clause was what Mr. Chundrigar contends for, this provision would have been differently worded. There is nothing in it to show that the right to retain what under the law it had to collect for the State was granted to the Company. On 'the other hand, it is clear from the language of clause 10 (a) of the agreement that the exemption granted by the Government was in respect of the tax which could be imposed on the appellant Company itself, which as far as the Sales Tax is concerned can be only what it pays as such tax on its purchases from others. As regards the sales of the Company to others, the tax ‑was really payable by the customers and the Company in that connection acted only as an agent of the Government to collect the tax. It cannot be said that a tax which really has to be paid by the customers and in respect of which the Company has only to, act as an agent of the Government is a tax imposed on' the' company itself. That the intention .was to exempt the Company from tax and not to grant it the right to retain what is collected for the Government is clear from the fact that the other taxes covered by the same clause were those which the company itself had to pay and not those which it had to realise from its customers or others. Mr. Chundrigar then argued that even if this view was taken the Federation was not entitled either to the balance of the tax due to Bahawalpur Government or to the tax levied con sequent on the extension of the relevant Federal Law to Bahawalpur. His arguments under this head may be summarised as follows (a) The Federation cannot collect the balance due to the Bahawalpur Government as the Instrument did not empower the Governor‑General to extend Federal Law retrospectively and the Governor‑General did not in fact so extend it. (b) As regards the rest of the tax, clause 3(a) of the Instrument under which Governor‑General extended the Federal. Laws was of no legal effect as it varied the functions f the Governor‑General which an Instrument of Accession could not do. Under section 6(I) (a) it can only specify the field over which the Governor‑General can exercise the powers given to him under the Act and these powers except with regard to certain specified areas did not include power to legislate, while extending a law to an area to which it was not originally applicable is an act of legislation. (c) Clause (4) of the Instrument also was of no legal effect as it was in conflict with section 6(5) of the Government of India Act, which requires that if amendments of the Constitution Act are to apply to a State there must be a Supplementary instrument executed by the ruler after each of such amendments. As the Instrument was executed in 1951, amendment of entry 54(h) of the 1st List of the Constitution Act, which took place on 1st April 1952 cannot apply to the State of Bahawalpur. Consequently the Federation was not entitled to the tax levied for the' period subsequent to 1st April 1952. We are unable to accept these contentions. In our opinion the tax imposed on sales by the appellant‑Company was perfectly legal and the Federation was entitled to collect it. It is convenient to deal with the second contention first. Section 6(1) (a) of the Constitution Act on which the main argument of Mr. Chundrigar rests is as follows: "A State shall be deemed to have acceded to the Federation if the Governor‑General has signified his acceptance of an Instrument of Accession executed by the Ruler thereof, whereby the Ruler for himself, his heirs and successors‑ (a) declares that he accedes to the Federation as established under this Act, with the intent that the Governor‑General, the Federal Legislature, the Federal Court and any other Federal authority established for the purposes of the Federation shall, by virtue of his Instrument of Accession, but subject always to the terms .thereof, and for the purposes only of the Federation, exercise in relation to this State such functions as may be vested in them by or under this Act". It is no doubt true that according to this provision the accession is to be in respect of the exercise of the respective functions of the Governor‑General, the Federal Legislature, the Federal Court and other Federal authorities over the State, but the function which according to clause (3)(a) of the Instrument the Governor‑General was empowered to discharge in respect of the State of Bahawalpur is not foreign to the scheme of the Act. Section 7(2) of the Constitution Act which gives an indication as to what the functions of the Governor‑General are is as follows: ‑ "References in this Act to the functions of the Governor- General shall be construed as references to his powers and duties in the exercise of the executive authority of the Federation and to any other powers and duties conferred or imposed on him as Governor‑General by or under this Act * * * * * * * * * * Now sections 95 and 96 and section 290(a) of the Act gave the Governor‑General legislative functions. For instance, under section 95 no Act of the Federal Legislature shall apply to Balochistan unless the Governor‑General by Notification so directs. Under section 290(a) the Governor‑General may by Order make in respect of the Capital of the Federation such provision for its government and administration and for other matters mentioned therein as he may deem necessary. We see no difficulty in similar power being given to the Governor‑General in respect of a State by an instrument of Accession, as it is executed under the Act and thus comes tinder the words "conferred or imposed on him as Governor‑General * * * under the Act" occurring in section 7(2). Mr. Chundrigar in this respect drew our attention to some pf the speeches made in the British House of Commons when the Bill which became the Constitution Act was being debated, and his contention was that those speeches indicated that there was anxiety on the part of the British Government to avoid a multiplicity of Constitutions within the Federation. He, there fore, argued that it could never have been the intention to enable the Princes to deviate from the pattern of Government in British India. But speeches delivered in those debates are hardly relevant when the language of the enactment is clear and there is no ambiguity. It is most likely that the British Parliament was anxious to obtain uniformity in the Constitution of the country as a whole, but from that it does not follow, that even if a Prince thought it necessary that the Governor‑General should exercise in respect of his State such special powers which the Constitution Act itself has given him in respect of certain specified areas, and the Governor‑General thought it proper to accept the Accession, it would still be void to the extent of the conferment of such functions. On the other hand, it is clear from subsection (4) of section 6 that a large measure of discretion was given to the Governor‑General in the matter. Subsection (4) is as follows: "Nothing in this section shall be construed as requiring the Governor‑General to accept any Instrument of Accession or supplementary Instrument unless he considers it proper so to do or as empowering the Governor‑General to accept any such Instrument if it appears to him that the terms thereof are inconsistent with the scheme of Federation embodied in this Act". It is seen from this provision that the decision whether the terms of a particular accession are consistent with the scheme of Federation or not was left entirely to the Governor‑General. If, as argued by Mr. Chundrigar, the intention was that under no circumstances could the Governor‑General be given the power of legislation under any Instrument of Accession and that a Ruler could give him only such powers as are specifically given to the Governor‑General under the Constitution Act, then the words "if it appears to him" in section 4 would not have been there. The very fact that it was left to the Governor‑General to decide the matter indicates that what was expected was a general consis tency with the provisions of the Act. Having regard to the peculiar circumstances of a particular case the Governor‑General might feel satisfied that a variation from the ordinary pattern could be accepted as not inconsistent with the scheme. Similarly the power given to him not to accept an accession is of the widest range. Even if the accession is in terms consistent in every detail with the scheme yet the Governor‑General can decline to accept it. There is then the proviso which is to the effect that if an Instrument has in fact been accepted by the Governor- General, the validity of that. Instrument or of any of its provisions shall not be called in question "and the provisions of this Act shall in relation to the State have effect subject to the provisions of the Instrument". It is clear from this that with regard to an Instrument that has been accepted, after the wide discretion given to the Governor‑General under subsection (4) has been exercised no question can be entertained regarding its validity qua the provisions of the Constitution Act and, therefore the proviso expressly says that the provisions of the Instrument shall prevail over those of the Act. If as argued by Mr. Chundrigar, the intention of the Parliament was that under no circumstances an Instrument which is not strictly in accordance with section 6 (1) (a) should be held to be legal there was no necessity in the first place to give the Governor‑General such wide discretion as is found in subsection (4) or to prevent the validity of the Instrument being questioned by adding a proviso to that subsection. Mr. Chundrigar pointed out that the proviso was enacted in order that the Ruler might not change his mind after the Instrument was accepted by the Governor‑General. But if that was the only purpose of the proviso there was no necessity for the significant words "and the provisions of this Act shall in relation to this State have effect subject to the provisions of the Instrument". These words as urged by the learned Attorney General put it beyond doubt that once an Instrument is accepted the provisions of the Act shall be subordinate to the provisions of the Instrument. We are unable to accept Mr. Chundrigar's contention that these words refer only to those provisions of the Instrument, which specify the subjects in respect of which accession has taken place. We see no justification for thus limiting the ordinary meaning of these words. We, therefore, consider that section 3(a) of the Second Supplementary Instrument of Accession was intra vires and from this it follows that the extension of the Federal Laws on Sales Tax of 1948 and 1951 by the Governor General to the State was legal. As regards the argument in respect of subsection (5) which covers the third of the contentions stated above, it is no doubt true that it contemplates the execution of a Supplementary Instrument after each amendment of the Act by the Federal Legislature and in this view clause (4) of the Instrument would not be strictly in accordance with section'6, but there is the proviso to subsection 4 which prevents the validity of the Instru ment which has been accepted being questioned qua the provisions of the Constitution Act. In this connection it was pointed out by Mr. Chundrigar that under subsection (6) an Instrument of Accession or the Supplementary Instrument was not valid unless n it was executed by the Ruler himself, and that if the proviso was given the meaning indicated above, then even if the Ruler's signature was forged in an instrument no one could question it. But in such a case there will be no Instrument of Accession at all, and that subsection deals with a state of affairs before the acceptance of the Instrument by the Governor‑General. I after it is accepted it is discovered that fraud was committed then the acceptance itself would not be binding. It, therefore, follows that the imposition of the Sales Tax according to the rates prescribed under the law of the Federation was valid and the assessment was therefore not illegal. As regards the first of the above‑mentioned contentions, it is no doubt true that the Governor‑General did not in his Order II of 1952 extend the laws of the Federation retrospectively. But under section 140‑A of the Constitution Act, Sales Tax could be levied and collected by the Federation. Similarly under clause 6 of the Instrument any Federal authority can subject to the terms of the Instrument exercise in respect of the State the functions vested in it by or under the Constitution Act in respect of matters in Parts I and II of the Schedule. Clause 7 is to the effect that the proceeds of the Sales Tax in the State of Bahawalpur shall be allocated between the Government of Pakistan and the State in the same manner as the proceeds of the Sales Tax in the Governor's Province of Pakistan is allocated between the Government of Pakistan and the / Provincial Government. It is significant in this connection that section 7 of the Governor‑General's Order 11 of 1952 says that the Bahawalpur Sales Tax Act shall cease to apply except with regard inter alia to collection of arrears. The entire tax, which the appellant admittedly has collected but not remitted, can be realised under the above provisions by the Federation. Therefore, this argument of Mr. Chundrigar also fails. The appeal is dismissed with costs. A.H Appeal dismissed