Sales Tax Act Section 8 (1) (CA) 1990 is unconstitutional: Lahore High Court

Lahore: Mr. Justice Syed Mansoor Ali Shah of the Lahore High Court has struck down section 8(1)(ca) of the Sales Tax Act, 1990 declaring it unconstitutional and consequently set aside the notice issued to D.G.Khan Cement Company Limited by Assistant Commissioner and order of Deputy Commissioner Inland Revenue Lahore for recovery of Rs. 9.61 million.

The cement company had assailed the tax imposed by the Federal Board of Revenue being offensive to the fundamental rights. By a 17-page judgment the Court also disposed of about a dozen petitions having common questions of law and facts arising out of them. According to details, the petitioner company purchased raw materials from various suppliers and made payments to them through proper banking channel in accordance with law. Its suppliers were reputable companies like M/s. Karachi Port Trust and Rafhan Maize Products Co. Ltd. and the petitioner company was considered as defaulter of tax (although it was paid) because its suppliers had failed to deposit the same in the government treasury.

Counsel for the petitioner company submitted that the company has no control over the supplier and once the transaction has been completed at arm-length, cannot be burdened for the default of the supplier in failing to deposit the amount of sales tax in the government treasury.

Revenue officials argued that in case of fraud and collusion, supplier as well as the buyer are responsible while standing counsel representing the Attorney General as well as the Federation submitted that the impugned provision has been introduced in the law to address the issue of “tax fraud”. The Court held that the violation by the petitioner company is the non-deposit of tax in the government treasury by the supplier for no fault of the buyer and in the absence of any allegation of collusion between the buyer and the seller. Furthermore, supplier is not a puppet of the buyer and doest not dance to his tune. Therefore, the said Act is a clog on the right of the taxpayer to do the business or trade.

The Court observed that fundamental rights and their protection is essential in a democratic dispensation. In the absence of human rights, the democracy looses its soul. Human rights are the crown jewels of democracy. A democracy without human rights is like an empty vessel, judgment concluded.