PESHAWAR: The Peshawar High Court on Thursday set aside the orders of the Federal Board of Revenue for the Pakhtunkhwa Energy Development Organisation to pay around Rs5 billion income and sales taxes imposed on its power generation units functioning in the erstwhile Pata.

A bench consisting of Chief Justice Waqar Ahmad Seth and Justice Syed Arshad Ali partially accepted seven petitions and sales tax references filed by Pedo and returned the cases to theFBR asking it to be ‘mindful of the fact that the power houses are situated in the erstwhile Provincially Administered Tribal Areas’.

It also directed the bureau to examine the matter in light of the Supreme Court ruling that income tax and sales tax aren’t applicable to Fata and Pata.

The Pedo had challenged several tax notices issued by the FBR to it and its regional tax office from time to time for the payment of taxes for assessment years 2011, 2012 and 2013.

Provincial advocate general Shumail Ahmad Butt appeared for Pedo and said the FBR was discriminating among Wapda and Pedo though both performed the same function of hydel power generation.Mr Butt said the organisation had been running various power projects owned by the provincial government mostly in Pata.

Asks FBR to look into matter in light of SC ruling

He said the Income Tax Ordinance and Sales tax Act were not applicable to the erstwhile Pata in terms of Article 247 of the Constitution.

The AG said the petitioner had earlier filed a case against levy of income tax on power generation units in Pata but it was rejected as the petitioner had the remedy available to file an appeal before the commissioner Inland Revenue (appeal) before approaching the high court.

He said the Pedo later filed appeals before the commissioner (appeal) but they were rejected promoting it to move the appellate tribunal (inland revenue), which too rejected the plea.

Mr Butt said against those decisions, the Pedo had filed the instant tax references over the question of law and Constitution.

He said the notices and tax assessment orders were issued by additional commissioner (inland revenue), Peshawar completely ignoring the constitutional position of non-applicability of the two tax laws in Pata.

The AG said the superior courts had already ruled that the two laws were not applicable to Pata, so taxes couldn’t be imposed under it.

He said the Malakand III power generation unit was situated in Dargai, Malakand, and Pedo sold the power generated by it to the National Transmission and Dispatch Company through an agreement signed on Nov 29, 2008.

Mr Butt said it was evident from the agreement that Pedo supplied electricity to NTDC in Pata and its activity ended there as the seller, whereas the buyer (NTDC) and the transfer of ownership of goods (electricity) all happened in Pata and therefore, no sales tax was applicable.

Lawyers for the FBR and inland revenue commissioner said the NTDC was located outside Pata in a non-taxable area.

They added that no sales tax was applicable if the economic activity initiated and culminated in the territorial limits of Pata, but in the current case, the economic activity didn’t culminate in Pata.

Published in Dawn, September 4th, 2020