Taxable supply of locally-produced coal: LHC quashes SRO, declares it illegal

ISLAMABAD: The Lahore High Court (LHC) has declared SRO 549(I)/2006 of the Federal Board of Revenue (FBR) as illegal, which has denied input tax adjustment to registered persons making taxable supply of locally-produced coal.

According to the order of the LHC issued in the petitions WP No 26 of 2017, and WP No 862 of 2017, the impugned notification SRO 549 is held to be without lawful authority and of no legal effect.

The LHC stated that while issuing SRO 549 the federal government has traveled beyond the powers conferred on it which was restrictive in nature and merely allowed the federal government to specify the goods on which the input tax had already been paid, and in respect of which the adjustment was to be denied.

A notification under Section 8(1)(b) could not be issued merely to specify a class of persons making a certain taxable supply for, that would be tantamount to giving wide amplitude to a construction to be put on the powers conferred on the federal government.

To reiterate, the notification can only be in respect of goods on which the registered person has paid input tax and for which deduction is claimed.

The SRO 549 fails to meet that standard and is out with the authority of the federal government, the LHC maintained.

The challenge in these constitutional petitions is to the notification SRO 549(I)/2006 dated 05.06.2006 ("SRO 549") on the ground that it has been issued in excess of jurisdiction conferred on the federal government by virtue of Section 8(i)(b) of the Sales Tax Act, 1990 ("the Act, 1990"). As a consequence, show cause notice No 314 dated 17.01.2017 has also been attacked as having been issued ultra vires on the basis of SRO 549. The petitioners are engaged in the supply of locally-produced coal falling under PCT Heading 27.01, and are therefore, in the estimation of the respondents, caught by the provisions of SRO 549, and are not entitled to input tax adjustment having been ousted from the said regime by the federal government under the powers conferred by section 8(1)(b) of the Act, 1990.

It is the case of the petitioners that they have been supplying locally-produced coal chargeable to sales tax at the rate of 17 percent and the sales tax liability of the petitioners is determined for a tax period on the basis of input tax adjustment made under Section 7 of the Act, 1990.

The issue in these petitions relates to the period commencing from July, 2014 to January, 2016 for which input tax adjustment was duly claimed, according to the petitioners.

The show cause notice served on the petitioners is incompetent and illegal on the ground that the SRO 549, which is the source of the show cause notice, is itself without lawful authority and has been incompetently issued by exceeding the delegated authority conferred by the Legislature, the LHC order added.

Copyright Business Recorder, 2020