Unconstitutional levy

The PTI government on June 26, 2020 to the utter surprise and dismay of all increased the prices of all petroleum products substantially; it is usually done on the first day of every month after a summary is submitted by the Oil and Gas Regulatory Authority (Ogra) for increase or decrease.

This time there was no prior intimation, no summary from Ogra and everyone was taken aback that only a few days back the prime minister took pride in passing out benefits of lower prices to the people and after shortage ordered an inquiry into the matter. Reportedly, the FBR even started stocktaking of the oil companies.

According to a brief statement issued by the finance division, the rise in prices of petroleum products was “in view of the rising oil prices trend in the global market”. The increase per litre was overwhelming: petrol (motor spirit) by Rs25.58, from the existing Rs74.52, high-speed diesel by Rs21.31 from Rs80.15, kerosene oil raised by Rs23.50 from Rs35.56 and light diesel oil up by Rs17.84 from the current Rs38.14.

The catch was to raise non-tax revenue through maximum imposition of petroleum levy (PL) of Rs30 per litre as it remains with the federal government, whereas any rise in GST has to be shared with the provinces as per the prevalent NFC Award giving them 57.5 percent of proceeds.

As expected, the rise has been widely criticized by business houses, public at large and the opposition. The criticism needs to be understood in a proper perspective. Everybody was aware of the fact that POL prices would increase in July 2020 because the price of international crude oil increased from $20 a barrel two months ago to more than $40 per barrel in June 2020.

However, the question is: can the government levy maximum Rs30 per litre of PL after standard imposition of 17 percent GST? For the last many months, the PTI government has been increasing PL to recoup the huge revenue shortfall faced by the FBR. Nobody has yet raised the constitutional position of imposing PL. From where does the government derive power to enhance it without seeking approval from parliament? The answer is the amendment made in the Petroleum Products (Petroleum Levy) Ordinance, 1961 through the Finance Act, 2018 under the PML-N government. It was in gross violation of the constitution.

The Finance Act, 2018 substituted the Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 authorising maximum imposition at the rate of Rs30 per liter on high speed diesel oil, motor gasoline, superior kerosene oil, light diesel oil, high octane blending component and E-10 gasoline. As regards LPG (produced/extracted in Pakistan), the maximum levy can be Rs20,000 per metric ton. After this amendment, the government needs not go to parliament and can raise the PL anytime while remaining within the maximum limit.

Since PL is a non-tax item, any amendment in the Petroleum Products (Petroleum Levy) Ordinance, 1961 could not have been made through the money bill. The law passed in 2018 was thus unconstitutional. In 2011, amendments were made in the Petroleum Products (Petroleum Levy) Ordinance, 1961.

The substitution of the Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 through the Finance Act 2018, passed by National Assembly on May 18, 2018, bypassing the Senate was a flagrant violation of the constitution. Now, its use by the PTI government is a continuation of the violation of the supreme law of the land. This was explained by the Supreme Court of Pakistan in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt) Ltd through its GM (Finance), Lahore etc and others [(2016) 114 TAX 385 (SC Pak)] as under:

“We may develop this point further; although Article 73(3)(a) of the constitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2) it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive. There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure.”

The above decision of the Supreme Court approved the judgement of the Lahore High Court reported as 2011 PTD 2643 holding as: “The special legislative procedure is, therefore, an exception and must operate in its restricted scope. Being a special procedure it also has to be construed strictly as it is a deviation from the normal legislative process under the constitution. Integrity of a money bill must be jealously guarded and matters falling outside the purview of Articles 73(2)(a) to (g) of the constitution should not be permitted to stealthily crawl into a money bill (at times due to political sophistry of the government in power) and adulterate its sanctity”.

At the time of the passage of the Finance Act, 2018, the above judgement of the Supreme Court was in the field but nobody in the National Assembly, including members of the PTI raised the issue as to how an amendment in the Petroleum Products (Petroleum Levy) Ordinance, 1961 could be made through a Money Bill.

It is a cardinal principle of law that if the foundation of any law is unlawful then the superstructure automatically collapses. Since the very amendment in the ordinance was unconstitutional, all actions taken thereunder are untenable in law.

If the opposition is sincere, it must go to the Supreme Court against this action by the government, or their protest will be nothing but mere lip-service. The Supreme Court may also take suo-motu action on this issue.

The writer, an advocate of the Supreme Court, is adjunct faculty at Lahore University of Management Sciences (LUMS).

Email: ikram@huzaimaikram.com

Twitter: @drikramulhaq