Pakistan – High Court rules on sales tax payment made by unregistered taxpayer

The Peshawar High Court decided on Sales Tax Reference No. 15-P of 2014. Details of the decision are summarized below.

(a) Facts. The taxpayer had failed to pay sales tax on a taxable supply of coal on the grounds that it was not registered for the purpose of sales tax under the Sales Tax Act, 1990 (the Act). On 24 January 2013, the Inland Revenue department passed an assessment order for the recovery of sales tax plus default surcharge and penalties under sections 34 and 33 of the Act. Feeling aggrieved, the taxpayer filed appeals before the Commissioner (Appeals), who dismissed the appeals in favour of the department on 14 June 2013. The taxpayer filed a second appeal before the Appellate Tribunal, Inland Revenue, Peshawar Bench, which was also dismissed by passing order on 13 November 2013. Finally, the taxpayer brought the issue before the Peshawar High Court (the HC) by filing Sales Tax Reference No. 15-P of 2014.

(b) Issue. The issue was whether the judgment of the Appellate Tribunal upholding the decision of the Commissioner (Appeals) regarding recovery of sales tax from the taxpayer, despite the fact that it was not registered for the purpose of sales tax under the Act, was justified.

(c) Decision. The HC decided that the obligation to impose sales tax under the charging section 3 of the Act is on a "registered person" making taxable supplies during the course of its business. The term "registered person" includes a person registered or liable for registering under the Act. Thus, not only the person registered but also that which is liable to be registered under the Act falls within the purview of "registered person". Section 14 of the Act regulates the issue of registration of a person for the purpose of sales tax under the Act, while Rule 4 of the Sales Tax Rules 2006 (the Rules) provides requirements for a person to be registered under the Act. Accordingly, the persons, including the following, are required to be registered for the purpose of sales tax:

  • a manufacturer not carrying on cottage industry (a manufacturer whose annual turnover does not exceed PKR 10 million or whose annual utility bills do not exceed PKR 800,000);
  • a retailer having annual turnover of PKR 5 million;
  • a wholesaler, including dealer and distributor, engaged in making taxable supplies, including zero-rated supplies, in Pakistan.

The persons required to be registered under Rule 4 are also identified and set out in the definition of "taxable supplies", provided under subsection (41) of section 2 of the Act, which stipulates that "taxable supplies" means a supply of taxable goods made by an importer, manufacturer, wholesaler (including dealer), distributor or retailer. Thus, a supply which is not exempt from sales tax is always a taxable supply whether or not the person making it is registered for sales tax purposes.

The HC ruled that all persons expressly referred to in Rule 4 of the Rules making taxable supplies in furtherance of their business are liable to be registered under the Act and thus are bound to pay sales tax in accordance with the mandate provided therein.


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