LHC strikes down section of Sales Tax Act
18 August, 2013
LAHORE: Justice Syed Mansoor Ali Shah of the Lahore High Court (LHC) has struck down Section 8(1)(ca) of the Sales Tax Act, 1990, declaring it unconstitutional. The court subsequently set aside the notice issued to Dera Ghazi Khan Cement Company Limited by Inland Revenue Lahore for recovery of Rs 9.61 million.
The provision was related to the deposit of tax on goods and services i.e. those goods and services in respect of which the supplier had not deposited the sales tax.
The counsel for the petitioner said that the tax imposed by the Federal Board of Revenue (FBR) was against the fundamental rights.
The counsel further said that the company had purchased raw materials from various suppliers and made payments to them through proper banking channels in accordance with the law.
It added that the company's suppliers were reputable organisations like Karachi Port Trust and Rafhan Maize Products Co Ltd and the petitioner company was considered as a defaulter of tax because its suppliers had failed to deposit tax in the government treasury.
The counsel submitted that the company has no control over the supplier and once the transaction has been completed, the purchaser cannot be burdened for the failure of the supplier to deposit sales tax.
In reply, a revenue official argued that in case of fraud and collusion, supplier as well as the buyer are responsible while standing counsel representing the attorney general as well as the federation submitted that the impugned provision has been introduced in the law to address the issue of "tax fraud".
The court held that the non-deposit of tax by the supplier is not the fault of the buyer in the absence of any allegation of collusion between the buyer and the seller.
Therefore, the said act infringes on the right of the taxpayer to do the business or trade.
The court observed that protection of fundamental rights was essential in a democratic dispensation.