Staff Reporter
Peshawar: The Peshawar High Court has declared the show-cause notices issued to Khyber Pakhtunkhwa textile mills for the payment of sales (withholding) tax on services invalid and has stopped the collection of the tax. The court disposed of the petitions in light of its earlier judgment delivered on June 1, 2023, in a similar case.
A two-member bench comprising Justice Ijaz Anwar and Justice Waqar Ahmed heard the petitions filed through Advocate Qazi Ghulam Dastgir. The court was informed that the Khyber Pakhtunkhwa Textile Mills Association and other firms are duly registered with the Federal Board of Revenue and regularly pay income and sales taxes.
Advocate Qazi Ghulam Dastgir contended that the petitioners are manufacturers under the Khyber Pakhtunkhwa Finance Act 2013, not service providers, while the Act clearly defines service providers. Despite this, show-cause notices for payment of sales tax on services were issued, which is illegal and beyond the authority of the tax authorities.
He further stated that the Withholding Regulations 2020 have not yet been published in the official gazette, and therefore, their enforcement has no legal validity. The petitioners had challenged the Khyber Pakhtunkhwa Sales Tax Rules and Withholding Regulations 2015 and 2020.
The legal team argued that after the 18th Amendment, the authority to levy tax on services lies with the provinces. However, no gazette notification has been issued for the establishment of the provincial revenue authority, making the enforcement of this tax legally invalid.
After hearing the arguments, the court approved the petitions and disposed of them in light of its earlier judgment delivered on June 1, 2023.
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