Triumph of law over economics


Supreme Court’s decision on increase in GST

When it comes to interference in economic policies, I have been a critic of ‘judicial activism’ (whatever that might be), and its spilling over the bounds of separation of power, and into the sphere of the Executive and the Parliament. However, the recent judgment of the honourable Supreme Court, invalidating the hike in General Sales Tax (GST) from 16 percent to 17 percent, is neither an overreach of judicial power nor an undue interference by the judiciary into the realm of the Executive or the Parliament.

The short order of the apex court, passed on 21 June, 2013, is simply a statement of the letter and spirit of the law, and the consequences that such law entails.

The newly sworn-in government of PML-N, through a budget speech delivered by Finance Minister Ishaq Dar on 12 June, 2013, announced a hike in the rate at which the GST was to be collected (from 16 percent to 17 percent) and an addition of nine percent for consumers on CNG. These purported increases were done as ‘a bitter pill’ by the incoming government in order to allow greater collection of taxes for use in other governmental programmes and initiatives. While the move, tough as it was, was noble in its intention, the same was illegal under the law and the Supreme Court has declared it as such.

The government, in advance of the passing of the budget (finance bill), had made these increases by placing reliance upon the antiquated Provisional Collection of Taxes Act, 1931. Specifically, the finance minister had relied upon section 3 of this 1931 Act, which allowed the government to issue “a declaration” which if “expedient in the public interest”, could increase or impose duties or taxes with “immediate effect”. Section 4 of the same Act allowed such an increase in tax or duty to stay in force till such time that a financial bill was passed, or for a maximum of 75 days (whichever is earlier). And section 5 of the 1931 Act allowed for refunds to be made, in case the increase in duty or tax was not duly incorporated into a finance bill, within the stipulated 75 days.

A challenge was made to the increase in the GST imposition, under the 1931 Act, on the basis that provisions of this Act pertained to a bygone age of colonialism, and could not withstand the test of legality, under our current constitutional paradigm. The honourable Supreme Court, agreeing with contentions of the challenge, has declared that the government, through a ‘declaration’ under the 1931 Act (which declaration neither has the status of legislation, nor that of sub-legislation) could not increase the GST rate. Doing so, the apex Court observed, would violate the constitutional articles pertaining to ‘Elimination of exploitation’ (Article 3), ‘Security of Person’ (Article 9), ‘Protection of Property Rights’ (Article 24), and ‘Tax to be levied by law only’ (Article 77). Furthermore, rebutting the assertion of the government that the 1931 Act could be used as a valid legislative instrument, the Supreme Court declared several provisions of the 1931 Act to be either unconstitutional or ‘not enforceable’, thereby restraining all future governments from acting under the shield of this Act, to bypass the constitutional mandate.

Wisely so, the Supreme Court also made provision for the fact that, given PML-N’s majority in the parliament, it is entirely possible that the Finance Bill 2013, when enacted, would bring about the same changes in GST, through the constitutionally mandated procedure. As a result, the court observed that, for now, the “excess amount” collected by the government under this GST hike be deposited with the Registrar of the Supreme Court, and the same shall either be “paid to the Government” (in case the finance bill incorporates the requisite changes) or disbursed back to the consumers (in case the parliament does not enact the requisite changes through the finance bill).

Going a step further, the Supreme Court empathised with the consumers in regards to the “exorbitant” increase in the prices of some of the staple and necessary items, as a result of the hike in GST, and ordered that, per the mandate of Price Control and Profiteering and Hoarding Act 1977, the government should take all actions necessary to keep these prices under check.

This short order of the court demonstrates that dispassionate application of the law, even while it is disfavouring a popularly elected government soon after the election process, can result in alleviating the plight of the very people who voted for such a government. It also goes to show that the honourable court, just by enforcing the law, can influence the economic policies, and need not go beyond the contours of separation of powers to assert this influence.

While we wait for the detailed reasoning of the court’s decision, this short order has upheld the letter of the law and enforced the spirit of the constitution. In a week full of morose news from different parts of the country, the apex court’s order is a breath of fresh air.

The writer is a lawyer based in Lahore. He has a Masters in Constitutional Law from Harvard Law School. He can be reached at: [email protected]