Tax On Mineral Water and Beverage Companies Through Supreme Court’s Judgment

Levy of Water Tax/Charge On Mineral Water and Beverage Companies Through Supreme Court’s Judgment

The Supreme Court of Pakistan recently passed an interesting judgment in a suo moto case regarding the selling of bottled water extracted from the ground without any charge, and its fitness for human consumption.

Some of the new and unique measures provided for in the judgment include the following:

  • levying of a totally new tax/charge by the court,
  • tax incidence not allowed to be passed on to the consumers,
  • collection of said tax by the provinces,
  • utilization of the amount so collected for the federal government’s projects
  • constant monitoring of said collection by a permanent Implementation Bench of the Supreme Court.

Other parts of the judgment merely reinforce requirements like the registration of food products, environmental approvals, installation of water treatment plants and inspection of manufacturing units by the authorities, which already exist under the federal/provincial food laws and environmental laws.

In the first part of the judgment authored by the former Chief Justice, Mian Saqib Nisar, all provincial governments have been required to issue a notification within ten days of the issuance of the order to impose a charge of PKR 1 per liter on the use of extracted/surface water for processing and bottling by water bottling and beverage companies. As per the judgment, in case the prices of bottled water and other beverages are increased, there shall be an automatic pro rata increase in the water rate which shall be notified within a period of seven days from the date of such increase. It is further clarified in the judgment that at no stage would the burden of the water rate be transferred onto or collected from the consumers. According to reports, the Implementation Bench of Supreme Court on the last date of hearing was informed that the said notifications for imposition of water charge had been issued by all the provinces and that the provincial government of Punjab had also started collecting the said tax.

Besides constituting an Implementation Bench for the purpose of implementation and continuous compliance of this judgment, the Supreme Court under this judgment has also constituted a committee, to be headed by Prof. Dr. Muhammad Ahsan Siddiqui, which also includes, among other members, representatives from the offices of the provincial Chief Secretaries and the Director Generals of federal and provincial Environmental Protection Agencies (EPAs). The tenure of the committee as provided under the judgment is one year which may be extended further by the Implementation Bench. The said committee within fifteen days from the date of this order, in consultation with all relevant departments, stakeholders and experts in the field of water charges, has to devise and submit a mechanism for the calculation, collection and monitoring of recovery of water charges of ground and surface water from all major industries consuming surface and groundwater (other than the bottled water and beverage companies).

According to the judgment, the court was informed that in addition to the beverage/water bottling industry, other industries including energy, pulp and paper, cement, ethanol refineries, textile, garments, tanneries, petroleum refineries, petrochemical and fertilizer industries use extensive amounts of water for their processes. The committee has been tasked by the court to recommend the tariff for the above said industries for the use of surface and groundwater, while the respective governments have to notify the tariff so proposed by the committee. The total amount collected by all provincial governments including Islamabad Capital Territory (ICT) in this respect has to be retained in a separate account and a report in this regard has to be furnished to the Implementation Bench of the Supreme Court on a monthly basis. Interestingly, the logistical support and recurring expenses of the said committee have to be borne by the water bottling and beverage companies.

The respective departments of the government have been ordered in the judgment to ensure the installation of foolproof and state-of-the-art meters at every extraction unit within a maximum period of 30 days from the date of this order. Moreover, the departments have been further ordered to require installation of closed circuit cameras at the respective premises of the companies involved in the extraction of groundwater or utilization of surface water for their business, which shall be closely monitored by the respective EPAs on a daily basis and the data collected from monitoring to be maintained.

All provincial governments including the ICT have been required to set up separate and distinct accounts in which all the recovered amounts of water charges will be deposited. Such amounts in the first instance will be used exclusively for the Diamer-Bhasha and Mohmand dams. Once the said dams have been constructed, the provincial governments shall, subject to the order of the Supreme Court, be at liberty to utilize the said funds for other water related initiatives/projects.

With regard to the water bottling companies located in areas like Islamabad, certain parts of Punjab and Balochistan, where the total dissolved solid (TDS) of raw water is less than 500 MPP with no hazardous impurities, the judgment has required these companies to explore further possibilities and make bona fide efforts to avoid reverse osmosis (RO) and utilize such water after conventional processing. As per the court, reverse osmosis causes unnecessary wastage of water. For companies which continue the RO process, the Supreme Court has ordered them to commission and put into operation salt recovery plants/water treatment plants for RO rejection within a period of eight months from the date of the order. However, such time can be extended by the Implementation Bench on the recommendation of the aforementioned committee.

The Supreme Court has directed all the companies engaged in the business of water bottling and beverages, which have not applied for registration of their products before, to apply for such registration within 30 days from the issuance of order. The court has observed that after the Eighteenth Amendment to the Constitution, food has become a provincial subject, therefore the said companies should apply for registration of their products with the relevant provincial food authorities. The said observation of the Supreme Court is likely to have serious bearing on the already pending litigation between a federal body, the Pakistan Standards and Quality Control Authority (PSQCA) and the Punjab Food Authority at the Lahore High Court regarding the power to regulate the food business. Although the said observation of the Supreme Court forms part of the obiter dictum of the judgment, as per already established law even obiter dicta of the Supreme Court cannot be ignored by the High Courts and other subordinate courts.

The Supreme Court in this judgment has also required all bottling and beverage plants operating in the provinces as well as ICT to obtain requisite environmental approvals within a period of three months, failing which the authorities have been asked to seal/seize their factories.

The court has also directed all water bottling and beverage companies to hire duly qualified chemists and environmental specialists holding requisite postgraduate degrees in their respective fields, complete the upgradation of all laboratories within a period of four weeks, and submit a compliance report before the Implementation Bench. The court has also required the RO operators of all companies to attend extensive capability development training programs to be arranged by the aforementioned committee in consultation with other stakeholders and universities.

The Supreme Court has also expected from each company to plant/arrange the plantation of 10,000 trees per annum and put in place a comprehensive program to gradually phase out plastic bottles. In the meantime, companies are to ensure that the plastic used in bottles has been certified by the competent laboratory to be fit for such use.

The judgment has also required all water bottling and beverage companies to provide a chart detailing milestones for meeting all the objectives spelt out in the order. Such companies have been required to submit monthly compliance/progress reports with the Implementation Bench.

The respective food authorities and the committee constituted under this judgment have been given the powers to conduct surprise inspections of any of the factory premises and water bottling/beverage facilities, in order to ensure strict and faithful compliance of this order.

The manner in which the judgment has dealt with various issues relating to the extraction and processing of water for selling purposes undoubtedly manifests a high degree of sensitivity of the apex court towards the looming water crisis in the country and the provision of safe drinking water to the people. Such efforts are certainly laudable, however, these efforts will bear the desired and sustainable results only if they are undertaken by duly taking into account all other vitally connected matters such as the constitutional scheme of the country, the economic viability of the court’s order and its uniform application. Perhaps these were the reasons due to which the Supreme Court felt it appropriate to leave out many things to be determined and put into operation by the committee, respective governments and the Implementation Bench in due course of time after consulting with all stakeholders and experts in the relevant fields. However, this course has certainly not been adopted by the judgment in dealing with water bottling and beverage companies.

Jurisprudentially speaking, the judgment has given rise to some very significant questions which in my view deserve to be resubmitted before the Supreme Court in the form of a review petition. The said concerns can be summarized below:

  1. Whether the power of levying taxes under article 177 of the Constitution is not the sole prerogative of the Parliament/Provincial Assembly and whether such power can be bestowed upon the provincial executive authority by the Supreme Court. It is important to note that the apex court in Engineer Iqbal Zafar Jhagra case (2013) 108 TAX 1 (SC. Pak) and in the Civil Appeals 1428 to 1436/2016 has already unequivocally declared that the power of levying taxes cannot be delegated to any executive authority.
  2. Whether imposing a charge/tax for ground/surface water on one industry (without even affording  to many companies/stakeholders part of that industry, an opportunity of being heard), and ordering to make further deliberations and consultations with stakeholders and relevant experts for proposing tariffs and devising mechanisms for other industries is discrimination in terms of Article 25 of the Constitution.
  3. Whether restraining a person to pass on a tax incidence against the economic principles of “price elasticity of demand” and “price elasticity of supply” is tantamount to violating the right to do business as enshrined under the Constitution.
  4. Whether levying and collection of a tax/charge by/through a provincial government and utilization of the amount so collected for the federal government’s projects is against the scheme of federalism as provided under the Constitution.

Apart from the judgment of the Supreme Court discussed above, generally speaking there can be no second opinion as to the significance of water conservation projects and initiatives in the country. However, if the measures taken and the efforts made in this respect are not well thought out and realistic and/or if they are not in consonance with the constitutional scheme, then such plans and initiatives are likely to cause serious damage to the businesses, the society at large and to such initiatives themselves. Therefore, these issues should always be carefully dealt with by the authorities after consulting with all the stakeholders. Instead of relying on the opinion of one or two experts, soliciting maximum views of different experts is always advisable. Special attention should always be paid to ensure that such plans or initiatives are realistic and economically viable.


The views expressed in this article are those of the author and do not necessarily represent the views of or any other organization with which he might be associated.

Shahid Bhatti

Author: Shahid Bhatti

The writer is an Advocate of the High Court and is currently rendering legal support to an industrial group, Master Group of Companies. He is interested in writing about democracy, human rights and the rule of law. He can be reached at [email protected]