livelawpk.com - Exemption Applies only to Imported Raw Materials ---

Exemption Applies only to Imported Raw Materials and Locally Manufactured Oil and Gas Field Equipment supplied to E&P Companies, being as Finished Manufactured Goods, are not exempted from Sales Tax --- Islamabad High Court, Islamabad

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Islamabad 18-02-2025: The Islamabad High Court (IHC) has ruled against M/s ADOS Pakistan Limited, upholding the Commissioner Inland Revenue’s decision to impose sales tax on locally manufactured oil and gas field equipment supplied to Exploration and Production (E&P) Companies.

The judgment, authored by Mr. Justice Babar Sattar, dismissed the company’s claim for sales tax exemption under Clause (4) of SRO 678(I)/2004, ruling that the exemption applies only to imported raw materials and components not to finished goods manufactured in Pakistan.

The case stemmed from an order by the Appellate Tribunal Inland Revenue (dated 21.06.2022), which upheld the Deputy Commissioner Inland Revenue’s demand (dated 30.11.2020) for sales tax payment by ADOS Pakistan Limited. The company sought exemption on the supply of locally manufactured goods to Petroleum Sector Companies, arguing that the exemption extended beyond imported raw materials.

The Court ruled that tax exemptions must be explicitly stated in the law and cannot be implied.

The Court found that Clause (4) only exempts raw materials and components at the import stage not finished goods.

The Court affirmed that default surcharge is imposed regardless of intent (mens rea) under Section 3 of the Sales Tax Act, 1990.

The judgment reinforced that policy considerations cannot override the clear language of a tax statute.

The Court relied on landmark rulings from the Supreme Court of Pakistan, including:

M/s Pakistan Television Corporation Limited Vs. Commissioner Inland Revenue (2017 SCMR 1136, 2019 SCMR 282): Strict interpretation of tax laws.
M/s Warid Telecom (Pvt.) Ltd Vs. Appellate Tribunal Inland Revenue (2022 PTD 1220): Tax exemptions must be expressly stated.
M/s Attock Refinery Limited Vs. Collector Of Sales Tax (2021 PTD 1680) Default surcharge applies automatically.

The Islamabad High Court (IHC) ruled in favor of the Tax Department, holding that M/s ADOS Pakistan Limited is liable to pay sales tax on its supplies to Petroleum Sector Companies. The Court directed the Registrar of the Appellate Tribunal to be notified of the decision.