The Peshawar High Court (PHC) has ruled that the requirement of a pay order for the clearance of tax-exempt consignments undermines the exemption regime granted to certain businesses.
In its judgment in the case of M/s Taj Vegetable Oil Processing Unit (Pvt) Limited and Others Vs Federation of Pakistan, the PHC stated that the condition of submitting a pay order equivalent to the sales tax amount at the time of clearance contradicts the purpose of the exemption, which had been granted to the petitioners based on their geographical location and business activities.
The PHC noted that while the petitioners are not liable to pay tax on raw materials imported through the concessionary regime, they are allowed to sell their products outside the former tribal areas with payment of sales tax. However, the imposition of a pay order equivalent to the sales tax would convert the exemption into a tax payment regime, effectively nullifying the original exemption and instead introducing a mechanism similar to the payment of sales tax under Section 3 of the Sales Tax Act, 1990.
According to the PHC, the requirement for a pay order from businesses in the former tribal areas is unreasonable, as it deprives them of using their funds for business activities, and violates Articles 23 and 24 of the Constitution. The court emphasized that the intent of the exemption legislation was to regulate the exemption and not impose taxes.
Furthermore, the PHC reviewed the provisions of the Sales Tax Act, 1990, and found that no entry in the Sixth Schedule to the Act made the exemption contingent on the payment order. The exemption allows businesses to avoid sales tax under the Act, and the introduction of a pay order condition was deemed to be discriminatory and unreasonable.
The court concluded that the amendment to Entry No. 151 of the Sixth Schedule was unconstitutional, discriminatory, and violated the principles of reasonableness and fairness as outlined in Articles 18, 23, 24, and 25 of the Constitution. As a result, the petitioners are now required to provide post-dated cheques for sales tax, and any pay orders previously submitted will be returned. The PHC’s ruling protects the exemption regime for businesses in the former tribal areas.
