Row over GST on power: FCC grants interim relief to KEPZ units

ISLAMABAD: The Federal Constitutional Court (FCC) granted interim relief to companies operating in the Karachi Export Processing Zone (KEPZ) in a significant dispute concerning the levy of sales tax on electricity supplied to export-oriented units.

A two-member bench, headed by Chief Justice Amin-ud-Din Khan, on Thursday heard the petition of Midas Clothing Ltd and others against sales tax on electricity consumption.

The petitioners were represented by Senior Advocate Raashid Anwer, who argued that the companies are exempt from the payment of sales tax on electricity supplied to them under the applicable legal framework.

During the proceedings, it was submitted that an earlier judgment of the Supreme Court had directed that sales tax be collected in the first instance, with the affected companies pursuing refunds thereafter.

However, the implementation of that direction resulted in substantial sales tax demands being raised against the petitioners, effectively converting what was intended to be a pass-through tax into a final tax burden borne entirely by the companies.

The counsel further contended that the petitioners were not parties to the earlier proceedings before the Supreme Court; therefore, they could not be bound by directions issued therein without being afforded an opportunity of hearing. It was also argued that the prescribed refund mechanism was, in practical terms, unavailable to the petitioners, making the levy onerous and causing serious financial prejudice.

After hearing detailed submissions, the FCC granted interim relief to the petitioners and directed that no coercive measures be taken against them till the next date of hearing.

The matter raises important questions regarding the application of sales tax exemptions available to export-oriented industries operating in export processing zones, as well as the practical efficacy of the statutory refund mechanism where exempt supplies are subjected to tax collection in the first instance.

Copyright Business Recorder, 2026