Sindh High Court (SHC) Friday restrained Sindh Revenue Board (SRB) from collecting sales tax on services from M/s China Ocean Engineering Construction General Bureau (COECG), which is engaged in the contract of Karachi K-2 and K-3 Nuclear Power Plant Intake & Outfall Structures Project.
A division bench of SHC headed by Justice Aqeel Abbasi directed SRB to submit its reply in the next hearing after Pakistan Atomic Energy Commission (PAEC) along with COECG moved SHC against the notices of SRB, which required Chinese company to "charge, collect and pay sales tax on services".
The petition, submitted by Advocate Bakhtawar Bilal Soofi on behalf of PAEC and COECG made the Sindh government, SRB and others respondents.
The petition stated that Sindh and the SRB have no authority under Article 142(a) of the constitution read with Item Nos. 18, 58, 59 (Part-I) and 4 (Part -II) to legislate on and charge collect, levy any tax on the generation, production of nuclear energy and the generation of electricity therefrom.
It submitted before the court that the services of the petitioners are directly in respect of production of electricity from nuclear energy, which falls outside the residual purview of provincial legislature's competence.
It said that K-2/K-3 Nuclear Power Plants that are the property of the federal government, thus provincial government has neither financed them nor established or constructed them and has nothing to do with any aspect of its production or operations.
Petitioners said that the doctrine of intergovernmental immunity as enshrined in Article 165 of the Constitution bars the provincial SRB from charging or levying any tax on the income or property of the federal government including its instrumentalities and any such tax that operates to burden the performance, or discharge, of any sovereign functions of the state including the production of nuclear energy.
The court was informed that a tax on nuclear energy and its production is ultra vires the provincial legislative domain under different clauses of constitution.
PAEC initiated the necessary processes for the construction of 2 x 1100 MWe Nuclear Power Projects at Karachi ("K-2/K-3 Project") and was required to "maintain the design and carry out its activities. That as part of the design of the K-2/K-3 Project, PAEC entered into a separate contract with COECG - a Chinese firm specializing in the construction of under-sea and under-ground tunnels relating to nuclear power plants - in March 2016 for the Design, Civil Works, Procurement, Installation and Construction of Water Intake and Outfall Structure ("Contract") for which there was no comparable expertise in Pakistan.
As per the terms and conditions, arranged between PAEC and COECG, the contract price didn't include sales tax on services as the former, being a federal entity was exempted from such taxation.
The petitioners prayed the court to set aside the Order-in-Original No. 113 of 2019 dated 13/02/2019, Letter No. SRB-Com- I/AC-03/COB/2018-19/2351 dated 12/12/18, SRB letter dated 02/02/2019 and show cause notice dated 05/01/2019 of SRB and declare them to be illegal, unconstitutional, without lawful authority and void ab initio.
The petitioners also pleaded the court to declare that, in relation to the K-2/K-3 Project, they are not liable to pay any sales tax on services to the Province of Sindh and respondents have no authority to impose sales tax on services rendered. The petitioners requested the court to restrain and prevent SRB from taking any coercive measures against the petitioners regarding illegal and unconstitutional recovery of sales tax on services.
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