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KARACHI: Sindh High Court (SCH) has disposed of/ abated all proceedings initiated by the Sindh Board of Revenue (SRB) under sales tax on services against toll manufacturers observing that if at all the Sindh government intends to get any share out of the sales tax already collected by Federal Board of Revenue (FBR) under this head, it may approach the federation for its amicable settlement.

The court observed that tax which has already been paid by the petitioners to the federation through FBR, in respect of toll manufacturing, is their final discharge of liability in respect of sales tax, (either under the Sales Tax Act, 1990 or under the Sindh Sales Tax on Service Act, 2011 Act), and they will not be obliged to pay any further sales tax on such activity.

Additional advocate general opposed the petitions and submitted that Sindh government’s consent recorded in the meeting of the National Tax Council was not binding on the Sindh government.

He questioned constitution and formation of the National Tax Council and submitted that same was constituted without any support of law; therefore, the minutes of the said meeting are not an impediment against the stance of the province as already reiterated earlier, including in the comments, that sales tax is to be paid on toll manufacturing to the Province, being a service.

The court took exception over statement of the provincial law officer and observed that such response on the part of the officers of the province of Sindh including the one who had attended the meeting of National Tax Council that were Finance Secretary, Chairman SRB and its advisors, was not only without any justification but reflects badly on the part of the province as to their conduct before the Court.

The court observed that there was no denial of the fact that such meeting was attended by these gentlemen on behalf of the province of Sindh, whereas, not even the contents of the minutes of the said meeting have been denied.

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The court observed that despite court order no response has been filed in writing on behalf of SBR but mere oral statement by provincial law officer on their behalf to this effect or contrary to what has been agreed upon in the said meeting does not suffice.

The court observed that it has been noted by the court in previous order that once it has been agreed by the province that such collection of sales tax on toll manufacturing will rest with FBR, then admittedly, it is no more a service.

The court had observed that there was no legal ground to justify that toll manufacturing was though a service from the date of promulgation of the Sindh Sales Tax on Services Act, 2011 up to June 30, 2002 and from July 1, 2022 it was not.

The court observed that prior to the 18th amendment and since inception of the Sales Tax Act, 1990, the definition of manufacture has always been such or has been interpreted in a manner, that toll manufacturing is in essence manufacturing of goods, under the Sales Tax Act, 1990.

The court observed that if it had been strictly a case that toll manufacturing is a service, then the province would not have agreed that FBR may collect sales tax on toll manufacturing.

The court observed that argument that toll manufacturing is still a service under the Sindh Sales Tax on Services Act, 2011 and has only been exempted from July 1, 2022 whereas, since promulgation of 2011 Act and up to June 30, 2022 the tax in question has to be paid to the province instead of FBR is not only misconceived but practically not enforceable.

The court observed that post 18th Amendment in a number of cases of like nature it is the taxpayers who were being dragged into unnecessary and protracted litigation and were being subjected to double taxation by the federation, as well as, the province in addition to a very heavy burden on the courts by way of petitions which perhaps, would have been better resolved amicably and with consultation between the federation and the province.

The court observed that in such matter in fact it has been resolved but now the province of Sindh wants that tax collected earlier by FBR on behalf of the federation on toll manufacturing has to be paid to them.

The court observed that it seems that perhaps it is their understanding that this court is a forum to recover the tax from federation and then pay it to the province. The court observed that stand taken by the province in the case cannot be appreciated rather must be deprecated.

The court observed that it is high time that courts start imposing costs upon such conduct of the province and its officers in their personal capacity, as such conduct, instead of resolving the issue, is to linger on with this litigation, and make an attempt to get the said amount in their kitty.

The court observed that at best, they ought to have approached the same forum or any other forum as may be available to resolve such disputes and claim their lien on such tax, which now onwards, has been exempted by them with further agreement that if at all sales tax is to be collected on toll manufacturing, it will be done by FBR.

Copyright Business Recorder, 2023

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