Sales Tax refund: Supreme Court dismisses review appeal against FBR

The Supreme Court has dismissed a review appeal filed by Fecto Belarus against the Federal Board of Revenue (FBR) for obtaining refund of Rs 493 million pertaining to bank guarantees encashed by the board on the release of imported tractors without payment of duties and taxes.
A three-member bench of the apex court dismissed the review petition of Fecto Belarus, here on June 4, 2008. The FBR Member Legal, Mumtaz Ahmed Sheikh appeared before the court as counsel for the board whereas Khalid Anwer represented Fecto.
It is a big victory for the FBR Legal Wing for resolving this case pending for the last many years. The case relates to the sales tax refund of Rs 480 million to the company by the FBR, which was collected after withdrawing the exemption on the import of tractors under the Awami Tractor Scheme.
In 1994 the government introduced Awami Tractor Scheme for import of 10,000 tractors without payment of duties and taxes. In the second tranche, in 1996, 10,000 tractors were to be imported (while 8,600 could reach Pakistan).
In 1997, the company filed petition in Lahore High Court against the levy imposed on import of these tractors on the basis of letter of authorisation issued by the Ministry of Food Agriculture and Livestock (Minfal) stating that exemption from duty and sales tax will be available as was extended in case of first tranche.
On reference, the ECC decided that sales tax was payable as no exemption was notified by the FBR, the LHC dismissed the petition of the importer. Afterwards, the Supreme Court first rejected the appeal of the company, whereas another bench of the apex court reversed the judgement by accepting the review petition.
The apex court directed the FBR to refund the amount involved in bank guarantees. When the department did not comply with the judgment, a contempt petition was filed. During the pendency of the contempt petition, the government issued two ordinances to nullify the impact of the judgment.
The then Attorney General, Makhdoom Ali Khan had argued that the court should first determine if the burden was passed on to the consumers or not. In case it is established that the burden is passed to the consumer, the petitioner had no right to pocket money without any justification.
The FBR opined that if the incidence of sales tax was passed on to the consumer, the refund of the same could not be claimed. In addition, the tractors' price was charged at Rs 335,000 to Rs 450,000 instead of an agreed price of Rs 230,000 according to the scheme. The SC issued order in favour of the FBR for not refunding the involved amount.