ISLAMABAD: The Supreme Court of Pakistan on Thursday suspended a Nov 26, 2019 Balochistan High Court (BHC) order, as well as that of the two other forums, which accepted the tax refund of a timber trader on the basis that the Sales Tax Act 1990 was not applicable to the federally and provincially administered tribal regions.

A three-judge bench headed by Chief Justice of Pakistan (CJP) Umar Ata Bandiyal, Justice Qazi Faiz Isa and Justice Syed Mansoor Ali Shah had taken up an appeal moved by the Federal Board of Revenue (FBR), represented by their counsel Hafiz Ahsaan Ahmed Khokhar.

Messers Sherani Traders House Balochistan — a taxpayer organisation — had imported timber from Afghanistan in 2005-06 for the non-tariff area of District Zhob of Balochistan. The timber trader also claimed sales tax refunds in view of Article 247(3) of the Constitution on the grounds that the sales tax was not applicable to non-tariff areas — i.e. Fata and Pata — by filing refund claims for the amount the customs department had recovered at the time of clearance of the consignment.

But the complainant failed to provide relevant invoices and proof for the consumption of the timber in the non-tariff areas to the tax authorities.

However, the Commissioner Appeal, Appellate Tribunal and BHC accepted the contention of Sherani Traders and ordered refunds of the sales tax.

In its judgement, BHC had held that April 25, 2011 Commissioner Inland Revenue Karachi and the Nov 29, 2011 order by the Tribunal Inland Revenue Karachi were not suffering from any legal infirmity since nothing had been brought on record by the appellant — the Commissioner Inland Revenue Quetta — to prove that the timber imported for District Zhob (non- tariff area) was sold by Sherani Traders outside the district and thus making it liable to pay the sales tax.

During the hearing, Advocate Hafiz Khokhar opposed the three judgements of the forums arguing that the tax exemption was available under Article 247 (3) of the constitution to PATA areas of Balochistan, yet while claiming tax exemptions/refunds under the Sales Tax Act 1990, the taxpayer was legally obliged and has to fulfill the requirements of sections 22, 23 and 73 of the same act.

Article 247(3) explains that no act of parliament will apply to any Fata unless the president so directs, and no act of parliament or a provincial assembly will apply to a Pata unless the governor of the province, in which the tribal area is situated, orders it.

The FBR counsel argued that the taxpayer while submitting his refund claims under the sales tax has to show the documents and invoices for such consumption in support of his refund claim to the tax authorities that the imported goods after importing from Afghanistan have been consumed only in the non-tariff area.

And in case he failed to do so, he has no right to claim refunds in the present case.

The counsel argued that the three forms while deciding the present case relied on an earlier 2003 Supreme Court judgment but that verdict had been revisited by another judgment in 2008.

Published in Dawn, September 9th, 2022