Supreme Court dismisses pleas challenging GIDC levy

Federal govt will collect Rs420 billion from various companies

ISLAMABAD:

The country’s top court on Thursday dismissed all petitions filed against the Gas Infrastructure Development Cess (GIDC) levy and ruled in favour of the federal government, which would collect more than Rs700 billion from various companies.

A three-member special bench of the Supreme Court, headed by Justice Mushir Alam and also comprising Justice Faisal Arab and Justice Mansoor Ali Shah, heard 107 petitions and appeals filed by several textile, cotton and sugar mills; ceramics, chemical, aluminium and cement companies; CNG filling stations; and match factories against the GIDC levy. The court had reserved its verdict in February this year.

The bench passed the judgment in favour of the federal government with a 2-1 majority.

In August last year, President Arif Alvi had promulgated the GIDC (Amendment) Ordinance 2019 for an out-of-court settlement of the Rs420 billion dispute with industries.

The ordinance allowed the general industry, fertiliser sector and CNG sector to pay 50% of their outstanding dues within 90 days in advance and secure a 50% discount on future bills provided they withdrew their court cases.

The government said it expected net receipts of Rs150-Rs160 billion under the proposed amnesty provided all the stakeholders availed the offer.

However, the government withdrew the ordinance within days of its promulgation after facing strong disapproval from various circles.

It then approached the apex court through the attorney general requesting for an early hearing of the GIDC case.

A 47-page verdict authored by Justice Faisal Arab stated that around Rs295 billion had already been collected on account of the GIDC and together with the outstanding amount the total sum by the end of this month would stand at Rs700 billion, which was more than the estimated cost of the projects in Section 4 of the GIDC Act, 2015.

The apex court held that from the date of its judgment, the federal government had been restrained from charging the cess until the remaining amount was collected. The amount accrued so far but not yet collected will be expanded on the projects listed in Section 4 of the GIDC Act, 2015, which says, "The cess shall be utilised by the federal government for or in connection with infrastructure development of Iran-Pakistan Pipeline Project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline Project, LNG or other ancillary projects."

The court further held that in the remaining period of the financial year 2020-21, the Oil and Gas Regulatory Authority (Ogra) would not take into consideration the element of cess under the GIDC Act while fixing of the sale price of CNG.

“As all industrial and commercial entities which consume gas for their business activities pass on the burden to their customers/clients,” the judgment read.

Therefore, all arrears of ‘cess’ that have become due up to July 31 will be recovered.

However, as a concession, the amount will be recovered in 24 equal monthly instalments starting from August 1 without the component of late payment surcharge.

The late payment surcharge will only become payable for the delays that may occur in the payment of any of the 24 instalments.

The majority judgment further stated that the federal government would take every step possible to commence work on the North-South pipeline within six months and on the TAPI pipeline as soon as its construction in Afghanistan reaches the stage where work on Pakistan soil could conveniently start.

The court also issued directions to start work on the IP pipeline as soon as sanctions on Iran were no more an impediment in the project.

In case no work is carried out on the North-South pipeline within the prescribed time and the two other major pipelines even though the political conditions became conducive, the purpose of levying the cess will be deemed to have been frustrated and the GIDC Act, 2015 will become permanently in-operational and considered dead for all intents and purposes.

The court noted that the objective which parliament had promised in the GIDC Act, 2015 was clearly ‘purpose=based’ which was distinctly defined and carries with it an element of quid pro quo, making it a fee-imposing enactment instead of a pure revenue-raising measure like taxes, in general, are imposed with no precondition attached for their spending.

"After seeing the purpose of the enactment clearly and the fact that its revenue is duly accounted for and has also not been diverted to any other use, we hold that the imposition of cess under GIDC Act, 2015 is not a tax-imposing enactment, “ the verdict read.

Justice Mansoor Ali, however, in his dissenting note stated that “the federal government shall constitute a committee to work out a mechanism for a refund of the GIDC so that the payers are fully resituated; be it the gas consumers under the Act or the final consumers [people of Pakistan],” he wrote.

“Even if the gas consumers have passed on the fee to its customers, technology may be available to credit such customers, so that there is no unjust enrichment on the part of the state.”

Justice Ali further stated that the amount of the GIDC that could be refunded after exploring all other avenues shall remain earmarked and be utilised only for the infrastructure development of the gas sector.

“Energy is vital to industry, transport, infrastructure, information technology, agriculture, household users and more. Any nation with a growing economy and improving living standards must secure a robust energy supply,” he added.

The judge noted that the future of economic development hinged on energy security. Shortage of natural gas in the country is still a reality and the Energy Sector is confronted with a demand-supply gap which needs to be filled up. According to the latest Pakistan Economic Survey, 2019-20 the indigenous natural gas contributes around 38% in total primary energy supply mix of the country.

“Pakistan produces around 4 billion cubic feet per day (Bcfd) against an unconstrained demand of 6 (Bcfd); the gas pipeline projects in question are based on bilateral and multilateral international agreements with other countries,” Justice Ali observed.

“A sum of Rs295 billion has been collected as GIDC for the last almost 10 years. Keeping these facts in mind, and especially the issue of energy security, in the larger national interest, I allow the federal government a period of six months to initiate appropriate legislation in the light of the principles settled in this judgment including a clear description of the services being rendered, provision of a reasonable timeline for the delivery of service (supply) of natural gas to the consumers and a statutory mechanism of obligations and consequences that may arise, if the service is delayed or is not delivered at all.”

The judge further stated that in case the federal government failed to do achieve this during this period, it would refund the amount of GIDC.