ISLAMABAD: The Supreme Court ruled on Thursday that the Customs authorities have the power to recover uncollected import sales tax and advance income tax resulting from an erroneously granted exemption, if a demand is made before the statute of limitations comes into play.
This power exists even if the error is discovered after the clearance of goods, observed Chief Justice of Pakistan (CJP) Yahya Afridi in a judgement.
The ruling reinstated show-cause notices earlier issued to the respondents with a directive to adjudicate the same on merit.
The CJP headed a three-judge Supreme Court bench which had taken up a set of appeals against several decisions delivered by the Sindh High Court in 2022. Justice Muhammad Shafi Siddiqui dissented and will issue his note later.
Supreme Court verdict reinstates notices served on respondents
The respondents included Nestle Pakistan, Pakistan State Oil Company, General Food Corporation, Prime Foods, Attock Petroleum, Hascol Petroleum, Gas and Oil Pakistan, OTO Pakistan (Pvt.) and Be Energy.
The companies had sought exemption from import-stage sales tax and advance income tax in respect of consignments brought into Pakistan.
Such exemptions were claimed at the time of import with reference to provisions of the Sales Tax Act (STA) of 1990 and corresponding notifications issued under the Income Tax Ordinance (ITO) of 2001.
The exemption claims so made at the time of import were processed and accepted by assessing officers of the Customs Department and the consignments were accordingly cleared upon payment of residual customs duties, taxes, and other charges.
The Supreme Court judgement explained that the provisions of Section 32 of the Customs Act and Section 6(1) of the STA contain language inserted by the Finance Acts of 2014 and 2015.
“These amendments are relevant because they reveal the legislative intent that prompted inclusion of the terms ‘taxes’ in Section 32 and ‘including recovery’ in Section 6(1),” the CJP observed.
Taken together with the subsequent omission of Section 11 of the Sales Tax Act by the Finance Act of 2024, a clear trajectory emerges: parliament has consciously moved away from a broad, catch-all recovery jurisdiction of Inland Revenue and toward a coherent framework in which customs duty, sales tax, and advance income tax are administered.
Parliament seeks coherence
To disregard the significance of these insertions and omissions would be to overlook the deliberate coherence, parliament has sought to create in the scheme of import-stage taxation, the chief justice observed.
The Supreme Court is satisfied that under the statutory framework comprising the Customs Act, STA and ITO, the Customs authorities do retain jurisdiction to recover import-stage sales tax and advance income tax, even where short-levy is discovered after clearance of goods.
Customs duty, sales tax, and advance income tax at the import stage are all charged and collected as part of the same transactional event.
In cases where owing to a misapplied exemption or any other lapse, the full liability is not realised at that stage, it is consistent with both logic and statutory design that the customs authorities should be empowered to address and recover the deficiency, the CJP observed.
Published in Dawn, September 19th, 2025
