Supreme Court Rejects FBR Demand to Recover Sales Tax Benefits From Pharma Companies

The Supreme Court of Pakistan, while issuing a judgment in favor of pharmaceutical companies, declared that the demand of the Federal Board of Revenue (FBR) for repayment of benefits already availed by these companies would adversely affect their vested rights and undo past and closed transactions. According to a judgment of the SC issued on Friday,  the dispute between the parties pertains to the legal implications of giving retrospective effect to the exemption from the levy of sales tax on pharmaceutical supplies and its impact on input adjustments already made by suppliers of pharmaceutical products. The appellants-tax authorities maintained that SRO No. 555, as amended by SRO No. 869, effective from 1 July 2002, precluded the respondent taxpayers from adjusting input tax against output tax after the specified date. The respondents-taxpayers, however, strongly opposed this position, arguing that their adjustments were validly made during the period when sales tax was applicable to pharmaceutical products. They contended that the adjustments, having been completed during that period, constituted closed and past transactions, thereby creating vested rights in their favor. In essence, the respondents-taxpayers (pharmaceutical companies) have been issued show cause notices requiring the return of financial benefits already availed during the period in which they were obligated to pay sales tax on pharmaceutical products under the Sales Tax Act. Consequently, demanding repayment of these benefits already accrued to and availed of by the respondents-taxpayers, by virtue of the changes introduced through the SROs, would adversely affect their vested rights and undo transactions that are past and closed, which cannot be done through subordinate legislation without specific authorization by primary legislation. For the above reasons, we find no illegality in the impugned judgments passed by the Sindh High Court, warranting interference by this Court. Consequently, the said appeals and petition are dismissed, SC added.