SCP Upholds Validity of Sindh Sales Tax on Distribution Services

SCP Upholds Validity of Sindh Sales Tax on Distribution Services

Karachi, February 29, 2024 – In a significant decision, the Supreme Court of Pakistan (SCP) has affirmed the legitimacy of the Sindh Sales Tax on Supply Chain Management or Distribution (including Delivery) Services.

The ruling, issued on January 01, 2024, dismisses petitions challenging the collection of Sindh sales tax on these services, reinforcing the stance taken by the Sindh Revenue Board (SRB).

The judgement, circulated by the SRB through an official order, upholds that ‘supply chain management or distribution (including delivery) services’ fall under tariff heading 9845.0000 of the Second Schedule to the Sindh Sales Tax on Services Act, 2011, effective since July 1, 2016. The said services are subject to Sindh sales tax at a rate of 13 percent ad valorem under Section 8 of the Act.

The SRB, in its official order, noted that officers adjudicated cases against several distributors operating under contracts with their principals for compulsory registration under the Act. These distributors were providing the aforementioned services, and their appeals were dismissed by both Commissioner (Appeals), SRB, and the Appellate Tribunal SRB.

The Appellate Tribunal held that “the role of the Appellant is that of an intermediary/distributor. And for performing and acting as such, the Appellant is providing or rendering services to the manufacturer who is the consumer of services.” Subsequently, the distributors filed a special sales tax reference before the Sindh High Court.

After careful examination, the Sindh High Court, through its order dated September 10, 2021, held that the appellants (distributors) were liable to be registered under the 2011 Act. The nature of the transaction of sale/purchase of goods between the manufacturer and the applicant established through the agreement/appointment letter aimed to propel a service performed by the applicant, falling under the head of ‘supply chain management/distribution (including delivery) service.’

The SCP, in its order, observed that no jurisdictional error, illegality, or procedural irregularity in the impugned judgement had been pointed out. Consequently, the court concluded that the judgement does not warrant interference, declining leave and dismissing the petitions.

In light of these orders from appellate forums and superior courts, the SRB urged the business community, specifically service providers involved in supply chain management and distribution, to comply with the provisions of the Act 2011. The SRB advised these entities to get themselves registered, charge, and collect Sindh sales tax on supply chain management or distribution (including delivery) services, adhering to the prescribed time and manner under the Act 2011 and its associated rules. This development underscores the importance of legal compliance within the business community, providing clarity on the taxation of supply chain services in the region.