PESHAWAR: By issuing a stay order, the Peshawar High Court has temporarily stopped the Khyber Pakhtunkhwa Revenue Authority (KPRA) from acting against a private cigarette manufacturing company over non-registration for the collection of tax on services outside the province.

A bench consisting of Justice Syed Arshad Ali and Justice Mohammad Naeem Anwar directed the respondents, including KPRA, not to seek dues from service providers.

It was hearing a petition filed by the Souvenir Tobacco Company Limited, Re-drying and Cigarette Factory, Mardan, against the issuance of notices to it by the KPRA for registration as a withholding agent to deduct sales tax on services and deposit it in the provincial treasury.

The bench issued notices to KPRA’s director general and provincial finance department directing them to file comments to the petition before Feb 25, the next date of hearing.

Petition filed with PHC over collection of tax on services

The petitioner has requested the court to declare the issuance of impugned notices to the company as void and beyond the scope of the KP Finance Act, 2013, which provided for imposition of sales tax on services.

It further prayed the court to declare the KP Sales Tax on Services (Withholding Regulations), 2020, in conflict with the provisions of Finance Act, 2013, as well as enactments of other provinces on sales tax on services.

Qazi Ghulam Dastagir and Nazish Muzaffar, lawyers for the petitioner, said their client was an industrial unit engaged in manufacturing of cigarettes.

They said for the purpose of fiscal liabilities at federal level the petitioner had registered as manufacturer for the purpose of income tax and sale tax with the Federal Board of Revenue and it was not registered as service provider.

The counsel said for the manufacturing process, their client was required to get the services of clearing agents, forwarding goods agencies and others from service providers of other provinces.

They said the KPRA assistant collector–II issued various notices to the petitioner on the grounds that it was receiving services of different service providers of other provinces and it was required to get registration with the KPRA being a withholding agent and was liable to deduct sales tax on services.

The counsel pointed out that the provinces of Punjab and Sindh had legislated on the sales tax on services in 2011 and 2012, respectively, while the KP had made a law pertaining to sales tax on services through the Finance Act, 2013.

They referred to the provisions of laws in different provinces contending that provisions in Punjab and KP were same and therefore, confusion arose which province should be entitled to the tax on services or for that matter withholding tax.

The lawyers contended that the petitioner received services from different persons in different categories but the point of origination of those services was outside the province and therefore, the KPRA had no jurisdiction to tax the services authority.

They added that the petitioner couldn’t be termed as a withholding agent as it was not the requirement of the law to deduct tax from those service providers outside the province.

Published in Dawn, February 12th, 2021