I. EXECUTIVE SUMMARY

The SCP held that the applicability of a taxing statute to a transaction does not depend solely on the residence or place of business of the supplier, but rather on the place where the sale transaction occurs. In other words, FST WHT liability depends on Supply location and not on Supplier Residency.

“If the transaction takes place where the provisions of the STA, 1990 apply, the supplier cannot claim immunity from liability under the Act,” stated the judgment of a three-judge bench headed by Mr Yahya Afridi, the Chief Justice of Pakistan.

According to the facts, during the audit of -------------------- for the tax periods from ----- to ----- and -----, it was observed that the petitioner had made purchases of raw material from suppliers who were not registered under the provisions of the Act 1990, and that withholding tax had not been deducted from payments made to such suppliers.

The lawyer of the CIR, -----------, argued that the petitioner, as a withholding agent, in terms of rule 1 (d) read with rule 2 (6) of the Sales Tax Special Procedure (Withholding) Rules, 2007 (Rules 2007) was under an obligation to deduct withholding tax at the rate of 1 percent of the value of the taxable purchases from payments made to the suppliers of raw material, which he did not.

Therefore, on ------, the Deputy CIR issued a notice to the petitioner requiring it to show cause as to why Rs ------------ should not be recovered from it in addition to the default surcharge and penalty. It was alleged that the petitioner had made domestic purchases of taxable goods from unregistered persons without deducting and depositing 1 percent withholding sales tax on the value of taxable purchases.

The petitioner’s counsel contended that since purchases of raw material were made from suppliers in FATA, who were not liable to be registered under the provisions of the 1990 Act, withholding tax was not liable to be deducted from payments made to such suppliers. He explained that at the time, the suppliers in FATA were not liable to be registered under the 1990 Act as the provisions of the said Act had not been extended to FATA in terms of Article 247 (3) of the Constitution.

On 30.9.19, an assessment order was passed whereby sales tax demand of Rs ------------ was made against the petitioner. Additionally, a default surcharge and penalty were also imposed on the petitioner.

The petitioner assailed the order before the CIR (Appeals), which upheld the assessing officer’s order. The petitioner then challenged the assessment order before the Appellate Tribunal Inland Revenue, Peshawar, which passed in favour of the petitioner. The Department then approached the PHC, which held that the petitioner was liable to deduct sales tax at the rate of 1 percent of the value of taxable supplies made to it.

II. DETAILS

A. General and SCP Case reference

1 to 3

2. PHC Sets Aside ATIR Order in  ------------- Case

-------------------

3. Petitioner’s Business & Procurement from Tribal Areas FATA / PATA

------------------------

B. Case History

 1 to 6 in details

C. SCP Deliberations

1 to 16 in details

D. SCP Conclusion

1 to 2 with several sub-points 

3. Appeal Allowed; Matter Remanded to Assessing Officer; No Costs

In the result, leave to appeal is granted; the petition is converted into appeal and allowed in the above terms; the matter is remanded to the assessing officer. No costs.

III. LIST OF OTHER RELEVANT TLQCs

(a) 3384 of 9.12.25 about Azakhel Dry Port Compulsory for Ex FATA+PATA FST Concessional, etc imports

(b) 2983 of 23.12.24 about No Minimum Tax on FATA / PATA - ATIR 

(c) 2865 of 6.8.24 about Manufacturers in Merged Districts of FATA & PATA are IT & ST exempt – SCP 

(d) 2301 of 12.4.23 about FATA & PATA Tax Exemption - KPRA Clarification

(e) 598 of 10.10.18 about Amendments in IT 2nd Sch re former Tribal areas, etc - SRO-1213

(f) 595 of 6.10.18 about ST Exemption to FATA & PATA till 30.6.2023 - SRO 1212

(g) 555 of 26.7.18 about ST Exemptions to FATA & PATA - SRO 888 to 890

IV. FURTHER DETAILS & SERVICES

Should you require any clarification or explanations in respect of the above or otherwise, or require Advance on 4B or 4C, Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.

Best regards for Here & Hereafter
Asif S Kasbati (FCA, FCMA & LLB)

Managing Partner 

Kasbati & Co (1400+ Tax, Levies, Companies, Economy, Inflation, HR, Banking, Finance, etc Quick Commentary Service Provider and High Level 440+ Tax & Levies Laws Consultants)