Legal status of Sindh development and maintenance of infrastructure cess

A question had been raised about the legal status of Sindh Development and Maintenance of Infrastructure (SDMI) that whether or not SDMI is a validly imposed tax. The SDMI cess was first levied and collected under Section 9 of Sindh Finance Act 1994 and the rules made there under, which have been amended from time to time. At present, this cess is levied and collected under the Sindh Finance Ordinance, 20011 on C&F value of the imported goods upon their entering or leaving the province of Sindh, through air or sea.2 Accordingly, the cess at present is being charged on the imported goods which enter in the province of Sindh from outside. Although law provides levy of cess on exports, but for the time being exports are exempt. The rate of the cess was raised from 0.80% to 0.85% in 20083 and presently, the rate of cess stands at 0.90%-0.95%.4

The cess has been imposed for facilitating and maintenance of the infrastructure in the province of Sindh. This perspective of Sindh legislation has given rise to the following issues:

(i). What is the nature of cess;

(ii). Whether or not cess is a tax;

(iii). Whether or not the same has been validly imposed.

As regards the nature of cess, it is submitted that fees, cess and similar type of levies are generally treated as taxes? These kinds of demands may at times represent user’s charges but are levied through an act of the legislature either by the federal government or by provincial government.

The first question which falls for consideration is whether the levy imposed by the impugned Act amounts to a fee relatable to constitutional entries of the legislative list. It is necessary to consider the difference between the concept of tax and that of a fee. The neat and terse definition of tax which has been given by Latham, C. J.,5 is often cited as a classic on this subject. “A tax”, said Latham, C. J., “is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered”.

In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money. by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them, cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee.

Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied.

There is, however, an element of compulsion in the imposition of both tax and fee. When the Legislature decides to render a specific service to any area or to any class of persons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess. Though there is an element of quid pro quo between the taxpayer and the public authority there is no option to the taxpayer in the matter of receiving the service determined by public authority. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered.6

In determining whether a levy is a fee, the true test is whether its primary and essential purpose is to render specific services to a specified area or class, it being of no consequence that the state may ultimately and indirectly be benefited by it.

So judged, the scheme of the Sindh law on the subject leaves no element of doubt that the levy authorised by provincial legislature is a tax in the form of cess as the law is not making any promise to render any specific service to the public in general.

The word cess has been defined as an assessment or tax.7 The word “cess” has a definite legal connotation, indicating tax allocated to a particular thing. Instances may be found among many other federal acts, like Cotton Cess Act, No 14 of 1923. These kinds of enactments authorise levy of a tax worded as cess. According to its import the word “cess” is nothing but a tax.8

From what has been stated above, it emerges that cess is a tax, rather it is tax on tax. Generally it is imposed along with another tax. Say for example education cess on imports. In this instance it is an additional tax on imports. We can conclude from what has been stated above that a cess by its nature is a tax.

This tax was challenged as being unconstitutional on the grounds of:

— Discrimination

— Beyond the legislative competence of the Sindh government

— Violative of Federal Legislative List

However, the Sindh High Court rejected this challenge by declaring it as a valid tax.9 The matter went before the Supreme Court of Pakistan10 but the case was withdrawn by the taxpayers. Hence the Sindh High Court’s decision in the matter remains in the field and accordingly, the cess remains effective and payable as validly imposed tax on the specified events in the law.11

It is concluded that according to its import the word “cess” is a tax and not a mere fee and is payable by importers of goods upon their entering or before leaving the Sindh province.

(The writer is an Advocate and is currently working as an Associate with Azim-ud-Din Law Associates Karachi. To see author’s other areas of interest visit Zafars Blog on International Studies http://blogoninternationalstudy.blogspot.com)

1. In 2001 the Government of Sindh through Ordinance No 16 of 2001 introduced an amendment in the Sindh Finance Act 1994 by substituting subsection (1) of section 9 whereby a cess known as ‘maintenance and development of infrastructure goods cess’ was levied at the rate of 0.5% on the carriage of goods by road for their movement in the province of Sindh or onwards. As per law this tax in the form of cess continues to be paid by those who bring in goods and want to transport it by road. The rate of cess was raised in 2008 and further raised in the budget of 2013-2014 and it now stand at 0.90%-0.95%.

2. See the amended provisions of law as inserted vide Sindh Finance Second Amendment Ordinance 2001, as circulated vide Law Department’s Notification No S. Legis: 1 (6)/2001 dated 15th May 2001.

3. See Sindh Budget 2011-2012 P.28.

4. See Sindh Finance Minister’s Budget Speech 2013-2014.

5. Matthews v. Chicory Marketing Board, (1938), 60 C.L.R. 263, 276.

6. The Hingir – Rampur Coal Co Ltd v The State of Orissa: 1961 AIR 459: 1961 SCR (2) 537.

7. See Black’s Law Dictionary, page 228, (6th Edition), West Publishing.

8. Shanmugh Oil Mills, Erode v Coimbatore Market Committee: AIR 1960 Mad 160.

9. See Press report titled: Infrastructure cess upheld by Sindh High Court.

10. Quetta Textile Mills v Province of Sindh (C.A. 1660/2008).

11. Tax is chargeable on goods which enter or leave the province of Sindh. Presently, it is chargeable on goods on which the customs duty has been paid within the province or outside the province at the rate 0.90% to 0.95% on C&F value.