LAHORE: The Lahore High Court (LHC) has ruled that a person producing “exempt supplies” and not liable to be registered under the Sales Tax Act 1990 cannot be burdened with payment of “further tax” and “extra tax” for non-registration.

Justice Raheel Kamran Sheikh ruled this on petitions filed by several ice factories challenging the recovery of the taxes in the utility bills of the Lahore Electric Supply Company (Lesco) and the Sui Northern Gas Pipelines Limited (SNGPL).

The petitioners argued that they were engaged in production and sale of ice which admittedly stood exempt from Sales Tax under Section 13 read with item No 27 of the sixth schedule to the Sales Tax Act, 1990.

For running their factories, the petitioners had been provided electricity and gas connections by Lesco and SNGPL, respectively, and paying sales tax on the supplies purchased by them.

Court rules ice factories make tax-exempt supplies & Sales Tax Act doesn’t provide for their registration

The petitioners argued that they did not make any taxable supplies but only exempt supplies, therefore, they were not obligated to obtain sales tax registration under the law.

When they were not required by the law to be registered, they were also not liable to pay “further tax” and “extra tax” for their non-registration, they contended and assailed the charging of the taxes from them in the utility bills.

On the other hand, the revenue authorities argued that “further tax” and “extra tax” were being levied on supplies of electricity and gas which were taxable supplies. They said only those recipients who fell within the definition of “registered person” as envisaged in the Act were not liable to pay the said taxes, which the petitioners admittedly were not.

The authorities claimed the Sales Tax Act did not provide any concession or margin for those persons who were involved in making exempt supplies, therefore, the petitioners were bound to obtain registration or else pay “further tax” and “extra tax”.

In his verdict, Justice Sheikh observes that the petitioners are engaged in making of exempt supplies of ice and there is no provision of the Sales Tax Act that requires them to be registered. The petitioners are not required by any other federal law to be registered under the Sales Act, he adds.

Therefore, the judge holds, the registration of the petitioners is not warranted even under Section 14(2) of the Sales Tax Act and the argument of the tax authorities is thus fallacious.

He maintains that the petitioners (ice factories) are paying sales tax on taxable supplies purchased by them from the SNGPL and Lesco, but their supplies of ice are exempt from the levy of sales tax.

The judge observes that to hold that a person, who is not liable to be registered under the Act, is burdened with “further tax” and “extra tax” would undermine the scope of exemption under Section 13(1) of the Act and violate fundamental rights and constitutional guarantees available to the petitioners.

The judge rules that the petitioners are not liable to pay “further tax” and “extra tax” on taxable supplies purchased by them from SNGPL and Lesco in view of the fact that the supplies of ice are exempt from the levy of sales tax and they are not liable to be registered under the Act.

Published in Dawn, July 14th, 2021