‘Further sales tax’ and ‘extra sales tax’: conflicting FBR accounts cause a great deal of confusion

ISLAMABAD: The conflicting legal clarifications of the Federal Board of Revenue (FBR) on the chargeability of extra sales tax and further sales tax by the power distribution companies from the flour mills have resulted in confusion for the court and the industry.

In this regard, the Chief Commissioner of Regional Tax Office Quetta has requested the FBR Inland Revenue (Policy) to issue guidelines regarding the charge of further tax and extra tax by electricity distribution companies in the light of the judgments of the Balochistan High Court in case of flour mills. In the absence of a clear policy of the FBR, there is total confusion among the business community as well as judicial fora on the collection of sales tax from the flour mills.

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Brief facts of the case are that Quetta Electric Supply Company (QESCO) being a withholding agent under the jurisdiction of the Regional Tax office, Quetta charging sales tax (extra tax and further tax) through monthly electricity bills from the flour mills in the light of SR0509(1)/2013 read with SRO 1222(1)/2021.

Consequently, M/s Etimad Flour Mills, Quetta filed CP in the High Court of Balochistan, Quetta and prayed that M/s QESCO authorities be directed not to charge extra tax and further tax from the flour mills.

The High Court of Balochistan, Quetta while deciding the issue instructed that the provisions of SRO 1222(1)/2021 are not applicable to the petitioner, who enjoys exemption in terms of section 13 read with item No19 of the Sixth Schedule to the Sales Tax Act, 1990 from payment of sales tax, as the petitioner is not making any taxable supplies in terms of section 2(41) of the Sales Tax Act, 1990.

The High Court of Balochistan said that as per SR0.509(1)/2013 read with SRO 1222(1)/2021 extra tax is not applicable to the registered persons who are on the active taxpayers list (ATL) maintained by the FBR; whereas, further tax is chargeable u/s 3(1A) of the Sales Tax Act, 1990 who have not obtained sales tax registration number (STRN).

M/s QESCO is charging extra tax and further tax from those flour mills including the petitioner case, who are not on ATL maintained by the FBR and who have failed to obtain sales tax registration number in the light of aforesaid SROs.

In the instant case, attention is invited towards board’s letter dated August 2012 and sales tax circular No.1/2-STB/2019 dated 15th July 2019, wherein, it is categorically stated that flour mills (not engaged in any other activity) are not required to be registered under the Sales Tax Act, 1990, and that they are exempted from sales tax levy.

The subject matter had also remained sub judice before the Wafaqi Mohtasib (Ombudsman) whereby a complaint was lodged by chairman Pakistan Flour Mills Association, Balochistan Circle stating, therein, that M/s QESCO is charging sales tax (extra tax and further tax) through monthly electricity bills, even when their subsequent supply i.e. flour is exempt from sales tax.

As per the above complaint, this act on the part of M/s QESCO was unlawful. During the course of the hearing and on the directions of the Wafaqi Mohtasib, a clarification from the board was sought.

In response, the Board vide letter of 2020 clarified that “To avail the benefit of said SRO the flour Mills are required to be registered and file their tax returns to be in active taxpayers list as defined under the Sales Tax Act, 1990.Similarly a CP No726/2013 which was filed by Pakistan Flour Mills Association, Balochistan Circle was also sub judice before the High Court of Balochistan Quetta wherein the High Court passed judgment in CP No.726/2013.

It said that “since the extra tax is not leviable to the Flour Mills and same has wrongly been charged by QESCO from the Flour Mills, therefore the aggrieved Flour Mills are held at liberty to approach the forum (s) of FBR as provided under the Act, for redressal of their grievance or the aggrieved Flour Mills may approach QESCO for grant of relief claimed for in prayer clause ‘b’ of the instant constitution petition.” As per board’s letter of 2012, it was categorically clarified that flour mills (not engaged in any other activity) are not required to be registered under the Sales Tax Act, 1990.

Later on, as per the board’s letter of 2020 in response to CCIR RTO, Quetta’s letter was categorically clarified, “in order to avail the benefit of SRO 509(1)/2013, flour mills are required to be registered and file their tax returns to be in active tax payers list as defined u/s 20) of the Sales Tax Act, I990.“Similarly, extra tax has been levied through later SRO 1222(1)/2021 superseding SRO 509(1)/2013.

Lahore High Court in a similar case in WP NoI0432 of 2022 has decided in favour of the department. As per judgment of the LHC, it is thus clear that the federal government has levied extra tax and further tax on electricity supply made by LESCO in terms of section 3(5) of the Act read with SRO No509(1)/2013 dated 12.06.2013 which still in existence.

The amount of these taxes is validly being passed on to the petitioners to which no exception can be taken.

In view of abovesaid board’s clarifications and conflicting judgments of the High Courts, Balochistan and Lahore, following points envisage: (i) Whether the flour mills are required to be registered and file their tax returns, as per the provisions of Sales Tax Act, 1990, to avail the benefit of SRO. 509(1)/2013 read with SRO. 1222(1)/2021?

The High Court Lahore in its judgment in WP NO.10432 of 2022 filed by Waqar Flour Mills, has upheld the levy of extra tax and further tax on the person whose subsequent supplies are not taxable. On the other hand, Balochistan High Court through judgments held that the provisions of SRO 1222(1)/2021 are not applicable to the persons who enjoy exemption in terms of section 13 of the Sales Tax Act,1990, irrespective of the person being registered (filer or not.)

Keeping in view the above-stated detailed position and in the light of the board’s directions, CPLA was filed before the Supreme Court of Pakistan against the judgment dated22.08.2022 passed by the High Court of Balochistan, Quetta in CP No610/2022which is pending.

Now the flour mills have filed/preferred contempt applications before the High Court of Balochistan, Quetta besides approaching this office by the Pakistan Flour Mills Association (Balochistan circle) requesting for redressal of grievances.

In the light of above-stated detailed position, guidance is solicited in the light of judgements passed by the High Court of Balochistan in case of various flour mills, further being a policy matter and beyond the jurisdiction of this office Board may like to issue guide lines and para wise comments for onward submission before the High Court of Balochistan, Quetta, the RTO Quetta added.

Copyright Business Recorder, 2023