ISLAMABAD(National Times)- Days before the announcement of the budget, the Federal Constitutional Court (FCC) has affirmed that poultry feed manufacturers and poultry farmers were not liable to pay additional tax under Section 3(1A) of the Sales Tax Act, 1990.
A two-judge FCC bench, headed by Justice Aamer Farooq and also including Justice Muhammad Karim Khan Agha, set aside a Dec 24, 2025, Lahore High Court (LHC) judgement and ruled that imposing a 4 per cent tax on supplies made to non-registered entities would be unjust and against the sales tax regime.
The bench had taken up a set of appeals moved by Shahzor Feeds (Pvt) Ltd, Lahore Feeds Ltd and S.S. Feed Mills Pvt Ltd.
The petitioners were aggrieved by an order of the Commissioner (Inland) Revenue, LTU, Lahore, issued on Sept 11, 2024, whereby it was held that manufacturers of poultry feed supplying products to farmers were liable to pay an additional tax under section 3(1A) of the 1990 Sales Tax Act since recipients of the supply were not registered.
Court overturns LHC ruling that manufacturers must pay 4pc tax on sales to unregistered entities
For redress of the grievance, the petitioners approached the Lahore High Court, which dismissed their appeal.
Advocate Saad Mumtaz Hashmi, who represented the petitioners at the FCC, contended that his clients fell into two categories: (i) manufacturer of poultry feed and (ii) poultry farmers.
Saad Hashmi contended the latter category was exempted from payment of tax under ITO by virtue of section 13, read with Serial Nos 40 and 48 in Table-II of the Sixth Schedule to the act.
It is an admitted position, the FCC said, that poultry industry has not been exempted from payment of additional tax by the federal government, though the court was informed that different notifications have been issued by the government from time to time.
Since a plain reading of Section 3(1A) of ITO was leading to an anomaly, the judgement said, the court decided to look into the mischief that was sought to be cured by the legislature to encourage and promote registration with the sales tax authority to become active taxpayers.
The law does not require the exempted person from registration of the sales tax. Therefore, the petitioners who are poultry farmers, are not required to be registered, but to make poultry feed manufacturers liable to payment of further tax (which eventually would be passed to poultry farmers), would not only be unjust but also against the system of payment of sales tax under the Act.
Synchronising the provisions including sections 3(1A), 13, 14 and 2(41) of ITO, it would only be fair to come to the conclusion that in the present case, poultry farmers are exempted from payment of sale tax on account of exemption under the law. They are not required to be registered, the judgement said.
“Since the requirement of non-registration is mandated by law (section 14 of the Act), no penal consequences would fall upon either of the categories of petitioners before us by way of payment of additional tax.”
Precedent
In somewhat similar circumstances, the FCC recalled, the LHC had ruled in favour of taxpayers in 2021. The LHC determined that Muhammad Arif Ice Factory was not liable to pay a further tax under section 3(1A) since they were ice manufacturers. Later the Supreme Court had upheld the judgement, the FCC bench said.
“In view of above position of law, the judgement impugned before us is not sustainable as it does not reflect the correct interpretation of law and the High Court erred in upholding the order passed by the tax authorities,” the FCC observed.
The FCC allowed the appeals and set aside the orders passed by the tax authorities.
