KARACHI: The jurisdiction and powers to collect sales tax on toll manufacturing rest with the Federation, the Sindh High Court (SHC) has ruled.
In its latest judgment, the SHC interpreted entry #49 of the Federal Legislative keeping the understanding reached between the Federation and all the provinces in the National Tax Council (NTC).
Explaining details, Supreme Court Advocate Arshad Shehzad and one of the counsels, in this case, said the dispute over the jurisdiction of levy and collection of sales tax between the Federation and the province arose after 2013 when Sindh levied sales tax on toll manufacturing under tariff heading #9830.0000 through Sindh Finance Act 2013. This move was subsequently challenged by the industries that were already paying sales tax to the Federation on manufacturing activity under the Federal Sales Tax Act 1990 and therefore demand of Sindh Sales Tax on the same economic activity being double jeopardy was illegal and ultra vires to the constitution.
Shehzad said that the issue was taken up by the trade and industry with the Federal government.
It further came to light after the demand of the international donor agencies to harmonize the Federal and Provincial sales tax laws to improve and simplify the collection of tax revenue.
The government with this background has formulated a National Tax Council, comprising the representative of the Federation and all the provinces for an amicable outcome of pending issues including a dispute over sales tax collection on toll manufacturing, restaurant services, construction services, sales tax on transportation of petroleum product, implementation of single tax portal, representative of provinces in the board of PRAL, etc. This position was brought before the knowledge of the bench by the counsel’s contesting the matter.
According to a judgment of the SHC, in view of the facts and circumstances of this case read with its order passed on 26-01-2023, all these petitions are disposed of with the observations that during the period under dispute before us, the tax which has already been paid by the petitioners to the Federation through FBR, in respect of toll manufacturing, is their final discharge of liability in respect of sales tax, (either under the Sales Tax Act, 1990 or under the Sindh Sales Tax on Service Act, 2011 Act), and they will not be obliged to pay any further sales tax on such activity.
As a consequence, thereof, any proceedings initiated by the province of Sindh under the 2011 Act to this extent, stand abated/ dispose of in these terms, whereas, if at all the province intends to get any share out of the sales tax already collected by FBR under this head, it may approach the Federation for its amicable settlement, as may be advised.
