ISLAMABAD – The Supreme Court on Thursday remanded a tax dispute back to the original tax assessing officer, ruling that a fresh review is required in a case involving Tarbela Steel Re-Rolling Mills (Pvt) Ltd and the deduction of withholding tax (WHT) on purchases from suppliers in the former tribal areas.
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The dispute arose after the tax department claimed that the company should have deducted a one per cent WHT on payments to suppliers located in the Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata). The petitioner company argued that prior to the 25th Constitutional Amendment, the Sales Tax Act, 1990, did not apply to these areas. As a result, suppliers were not required to register under the Act, and the company had no obligation to deduct tax.
A three-judge bench of the Supreme Court, led by Justice Miangul Hassan Aurangzeb, overturned the Peshawar High Court’s October 19, 2023, ruling, which had held the company liable for failing to deduct WHT. The court observed that purchasers cannot be held responsible for withholding or deducting sales tax on transactions from tribal area suppliers unless the actual location of the transactions is first determined.
The case relates to audit proceedings for the periods 2014 to 2016 and 2018, during which the Inland Revenue department noted that Tarbela Steel Re-Rolling Mills had purchased raw materials from unregistered suppliers and failed to deduct one per cent WHT. A show-cause notice issued on April 10, 2019, demanded recovery of Rs1.1 million with penalties and surcharge.
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The Appellate Tribunal Inland Revenue (ATIR), Peshawar, had partly allowed the company’s appeal in January 2021, but the tax department later challenged the decision at the PHC, which ruled against the company. The Supreme Court’s ruling clarifies that prior to the 25th Constitutional Amendment, the Sales Tax Act did not extend to the tribal regions, and the company’s obligation to deduct tax depends on the final determination of where the actual transactions took place.