Imposition of sales tax by FBR: Supreme Court allows Punjab government's plea

The apex court has ruled that the Constitution of Pakistan impedes the federal government from imposing taxes on provincial governments' income and/or property, particularly in cases where the activity is for public purposes. Announcing its reserved judgement on Punjab government's appeal filed against imposition of sales tax by the Federal Board of Revenue's excise & sales tax department in the sale of stones/spawls last week, the Supreme Court allowed the plea with cost.
In 2008, Lahore High Court (LHC) had turned down the provincial government's appeal against the imposition of tax, allowing the FBR to collect the sales tax in the matter. However, Advocate General Punjab challenged the LHC's verdict before the Supreme Court on behalf of Irrigation Department of the province.
Turning down the LHC verdict in the matter, a three-member bench of Justice Mushir Alam, Justice Dost Muhammad Khan and Justice Qazi Faez Isa ruled that the Constitution determines the rights, duties and obligations of the provinces with the federation saying Article 165 (1) of the Constitution stipulates that federal government cannot impose tax on the property and/or income of a provincial government. The bench held in the judgement, "we do not see any reason to exclude stones/spawl from the term property...we may also refer to clause (c) of Article 142 of the Constitution which stipulates that the provincial assemblies have the power to make laws in respect of all matters not mentioned in the Federal Legislative List".
"The Federal Legislative List in the Fourth Schedule restricts the legislative power of the federation to mineral oil, natural gas and minerals for the use in generation of nuclear technology. Consequently, the power to legislate in respect of other minerals including stones/spawl falls within the domain of provincial assembly," the verdict said.
The court ruled that as the Punjab government carries out its business through the irrigation department it cannot be viewed separately from the government and will squarely be within the terms of Article 165 (1) of the Constitution.
The verdict added that stones/spawl within the territory of the province of Punjab are owned by the government of Punjab, in respect whereof laws can only be made by the Punjab Assembly and the same are exempted from federal taxation as laid down in Article 165 (1) of the Constitution.