ISLAMABAD: The Islamabad High Court (LHC) has declared a sales tax notice issued by Inland Revenue Department to a fertiliser manufacturing company as unlawful and without jurisdiction.

The court found that the notice, which accused the company of illegally shifting finished goods to undisclosed warehouses, lacked legal backing under the Sales Tax Act 1990 and the Sales Tax Rules 2006.

The petitioner was issued a notice under Rule 9 of the Sales Tax Rules 2006. The tax authorities alleged that the company had moved finished products to locations that were not officially notified, arguing that this movement could be considered a sale, thereby making it subject to sales tax.

The company, however, refuted the claims, stating that it had already informed tax authorities about its warehouses in a letter dated February 19, 2016.

The company also challenged the validity of the notice, arguing that Rule 9 does not cover allegations of illegal shifting of goods, making the notice legally flawed.

The company’s legal counsel Sardar Ahmed Jamal Sukhera and Sikandar Sukhera contended that the notice was issued based on assumptions and without jurisdiction.

They said under the law, merely moving goods between warehouses does not constitute a sale and was therefore not taxable.

The counsel also cited multiple Supreme Court and high court rulings, emphasising that mala fide or baseless tax notices can be challenged under Article 199 of the Constitution.

During the court proceedings, the legal representative of the tax department failed to justify how the movement of goods met the legal definition of “sale” under the Sales Tax Act 1990. After reviewing the arguments and relevant laws, the court ruled in favour of the petitioner.

The IHC observed that Rule 9 only pertains to the registration process for taxpayers and has no connection with the alleged offense. The judgement cited past Supreme Court rulings, emphasising that a mala fide notice was inherently without jurisdiction and cannot be sustained under law.

The high court declared the sales tax notice null and void and ruled that the mere movement of goods to warehouses - even if not officially notified - does not automatically trigger a taxable event unless it qualifies as a sale or supply.

Published in Dawn, February 16th, 2025