PESHAWAR: A Peshawar High Court bench has declared illegal the imposition of different taxes on electricity bills of industrial units in the erstwhile Fata, ruling that the industries are not liable to any tax, which was not there prior to the enactment of Constitution (Twenty-Fifth Amendment) Act.

Justice Roohul Amin Khan and Justice Nasir Mahfooz accepted around 25 petitions filed by steel mills from tribal districts and declared them immune to taxes, including advanced income tax, sales tax, extra tax, further tax, additional tax and several other duties in electricity bills issued to them after the merger of tribal areas with Khyber Pakhtunkhwa.

The bench ruled that to avail tax immunity, the petitioner were not required to obtain any tax exemption certificate as provided under Section 159 of the Income Tax Ordinance.

Rules residents not liable to any tax that didn’t exist before 25th Constitutional Amendment

The court had heard petitions in April.

Shumail Ahmad Butt, lawyer for the petitioners, said the Tribal Areas Electric Supply Company (Tesco), under supervision and control of the Federal Ministry of Energy and Peshawar Electric Supply Company (Pesco) provided electricity in the erstwhile Fata, whereas petitioners being its consumers were regularly paying electricity bills of their industrial units.

He said for January 2019, the Tesco had sent electricity bills of the petitioners wherein unprecedented heavy and exorbitant amount under the heads of income tax, sale tax, FC surcharge, extra tax and further tax, had been charged without legal justification.

The lawyer said after the enactment of the Constitution (Twenty-Fifth Amendment) Act, 2018, Article 247 of the Constitution was omitted and relevant changes to Article 246 of the Constitution were made and Fata and Pata were merged with KP.

He said the Economic Coordination Committee of the federal government had approved tax exemptions and incentives for the residents of former Fata and Pata for a period of five years to facilitate the general consumers and domestic consumers of electricity.

The lawyer said different SROs were issued by the federal government whereby profits and gains derived by individuals, association of persons and companies of former Fata were exempted from different taxes for five years with effect from Jun 1, 2018, to Jun 30, 2023.

The bench ruled that undisputedly, SROs under discussion had been issued under section 53(2) of Income Tax Ordinance, which not only empowered the Federal Board of Revenue (with the approval of Federal Minister-in-charge) to exempt any class or classes of persons specified in the 2nd Schedule from payment of tax, but also empowered the Federal Government to exempt any person from the operation of any provision of the Ordinance.

It added that the provision of Income Tax Ordinance manifested that exemption from tax or exemption from the operation of any provision of the Income Tax Ordinance, might be granted to any person who falls within the domain of FBR and liable to pay tax.

“Needless to mention that Section 235 of the Income Tax Ordinance, whereby advance tax may be collected on account of electricity consumption, has been made not applicable by the SRO No1213 to the merged areas. Likewise, vide SRO No1212, all types of sales tax recoverable under Sale Tax Act, 1990, have not been made applicable and the residents of the merged areas have been exempted from whole of the sales tax on supply made until June 30, 2023,” the court ruled.

“Looking fairly at the preamble of the SROs and language used therein, one can arrive at an irresistible conclusion that the Federal Government, after merger of Fata into the settled area, had decided that tax laws shall be applied phase-wise to the defunct Fata within a transition period of five years,” it observed adding that instead of tax exemption, the inhabitants of the defunct Fata were given ‘exemption from applicability of provision of payment of tax’.

The court ruled that the petitioners had not been exempted from tax payable under the relevant provisions rather they had been exempted from applicability of the said provisions.

It observed that ‘exemption from payment of tax’ was a concession, while ‘exemption from applicability of provision of Ordinance’ was an absolute immunity.

“In case of exemption, the tax-payer shall require an ‘Exemption Certificate’ while in case of immunity from provision of Ordinance, it shall be deemed that the Ordinance is not applicable to tax-payer,” it observed.

Published in Dawn, June 19th, 2019