Sales Tax Act 1990′: LHC strikes down amendment

Lahore High Court has held the amendment made in Sales Tax Act 1990 as well as SRO finding that unconstitutional and of no legal effect through which further tax was levied on locally supplying the goods of five export sectors including textile to unregistered persons. It is second time that LHC has declared the attempt to levy further tax as ultra vires. When contacted Shahid Jami, APTMA Tax Consultant explained the background facts and the implications of the LHC order. Earlier in 2017, sales tax authorities across Pakistan started issuing notices to registered persons falling under the five export sectors special sales tax regime of local sales at zero percent sales tax under SRO 1125(I)/2011 asking for further tax under section 3(1A) on their local sales to unregistered person. The vires of these notices were challenged before LHC on multiple jurisdiction grounds. The petitions were allowed by LHC in the judgment reported as PTCL 2017 CL 178. The legal defect in the sales tax law on which judgment was based were accepted by the then government and through Finance Act, 2017 the provisions of sections 3(1A) and section 4 ( c) of the Act were amended according to the ratio lad down by the High Court. Similarly a new clause (xiv) was also added in SRO 1125(I)/2011 through SRO 584(1)/2017 dated 01.07.2017 issued under amended section 4 (c ) which prescribed that in case where goods covered under SRO 1125 are supplied to unregistered persons there shall be charged further tax at the concession rate of one percent.

Once again some of APTMA member units, challenged the vires of amendment made in section 4 (c ) being un-constitutional and condition No. (xiv) inserted through SRO 584 as ultra vires . The LHC has now declared the amended section 4 (c) and SRO 584 as ultra vires of the Constitution as per principle laid down by Supreme Court in the case of Mustafa Impex.

Jami observed that since FBR has already clarified that yarn being raw material has no use outside the textile sector therefore attempt to levy further tax was not justified and showing good grace should not be tried again through mini budget. He further observed that those units who had not contested the levy and have been paying further tax can apply refund of the same under section 66 provided they can demonstrate that incidence of further tax was not passed on the buyers.