LAHORE: The Lahore High Court (LHC) has termed interpretation of Section 2 (22A) of Sales Tax Act by FBR contrary to the essence of Sales Tax Law, questioning the legal status of Memoranda of Understandings (MOUs) recently signed between the Federal Board of Revenue (FBR), the Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA).
A single bench of the LHC comprising Judge Ayesha A Malik, in a verdict directed the authorities concerned to accept sales tax return of the petitioners, electronically or manually, by allowing adjustment under provincial sales tax on services being governed the provincial laws.
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In the verdict the judge termed the respondent 2 (FBR) interpretation of Section 2 (22A) of the STA contrary to the mandate of the law. The court referred to Section 7 (1) of STA which entitles the petitioners to adjust input tax from their output tax for a given tax period. The court declared that the STA has clearly defined input tax under Section 2(14) of the STA and output tax under Section 2 (20) (c) of STA to mean provincial sales tax levied on services rendered or provided to the person. Section 2(22A) of the STA defines provincial sales tax to mean tax levied under provincial laws. This means provincial sales tax as promulgated in any or all of the Provinces. Section 2(22A) of the STA further defines that for the purposes of Islamabad Capital Territory, provincial sales tax will be that which is declared by Federal Government to be a provincial sales tax for the purposes of input tax adjustment. This declaration in the official Gazette is required for the Islamabad Capital Territory, which is not a province. The Respondents No 1/FOP and 2/FBR under the cover of Section 2(22A) of the STA have assumed a discretionary power to decide which provincial sales tax should be allowed for input tax adjustment. The effect of this discretion is that the provisions of Section 7 of STA become subject to the discretion of the Respondent No 1. This clearly is not the scheme of the STA, which provides a specific right of adjustment to input tax.
The court opined that Section 2(22A) of the STA cannot be used to deny the right of input tax adjustment by a declaration in the official Gazette.
The LHC pronounced the verdict on 39 identical writ petitions.
It is to be noted that the MoUs were signed by FBR Chairman Tariq Bajwa, PRA Chairperson Iftikhar Qutab and SRB Chairman Tashfeen Khalid Niaz.
