ISLAMABAD: The Federal Board of Revenue (FBR) has failed to effectively deal with the legal issue of chargeability of further sales tax or extra tax on items exempted from sales tax under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act, 1990.

Sources told Business Recorder that the lack of coordination between FBR Member Inland Revenue (Policy) and FBR Member Legal resulted in prolonged litigation in the matter of collection of “further sales tax” or “extra tax” on items exempted from sales tax under the Sixth Schedule (Exemption Schedule) of the Sales Tax Act, 1990.

In the absence of a clear legal clarification from the FBR Member Inland Revenue (Policy), the issue is pending in different courts. At the same time, no categorical clarification has been issued by FBR Member Legal on the same issue.

Sales tax department fails to establish ‘suppression of supplies’

Other sources said that the FBR has to implement the judgement of the Lahore High Court (LHC) that the taxpayer (flour mills) shall not be obliged to pay “further sales tax” or “extra tax” on such items as are exempt in the Sixth Schedule of the Sales Tax Act, 1990.

The issue was related to the chargeability of extra sales tax and further sales tax by the power distribution companies from the flour mills. The FBR Inland Revenue (Policy) was requested to issue guidelines regarding the charge of further tax and extra tax by electricity distribution companies in the light of the judgments of the courts in case of flour mills, the sources said.

According to the sources, the facts of the case are that the Intra-Court Appeal (ICA) has been filed by the department against the judgment of the Single Bench of LHC in WP No53446/22, whereby, imposition of further tax and extra tax in the electricity bill charged from the consumers was challenged, wherein, the Single Bench of the LHC has had declared:- “Since up to the apex Court the imposition of Further Tax and Extra Tax has been prohibited in the items omitted till 27 of the 6th Schedule of the Sales Tax Act, 1990, therefore, the petitioners if found in that category, will not be required to pay the Further Tax and Extra Tax”, it added.

Through the aforementioned ICA, the tax department has raised the issue that the order of the single bench (LHC) of the judgment is based upon presumption and has failed to understand the deep language and spirit of law, hence, the judgment is liable to be set aside.

On December 21, 2023, the subject ICA was fixed along with other connected ICAs before the Division Bench of Justice Shams Mehmood Mirza and Justice Anwaar Hussain of the LHC, Lahore in the said cases.

During the course of the hearing, the legal advisor appeared before the court, but could not point out any illegality against the judgment of the single bench and requested for the relief, which was already granted by the single bench. Therefore, the court has shown its displeasure and dismissed all the intra-court appeals.

The LHC declared that the single judge in the impugned order has taken care of the concern of the appellant by explicitly stating that the respondent shall not be obliged to pay Further Tax and Extra Tax only on such items as are exempt in the Sixth Schedule of the Sales Tax Act, 1990.

In this view of the matter, the LHC do not find any merit in this ICA. It is accordingly dismissed, the LHC added.

Copyright Business Recorder, 2024