The Supreme Court of Pakistan has ruled in favor of pharmaceuticals and has said that the FBR demand for repayment of the benefits already availed by these companies would, in time, affect their vested rights and undo all past and closed transactions. The matter concerning which this judgment has been delivered is the retrospective effect of sales tax exemption on supplies of pharmaceutical products and the extent of that exemption concerning input adjustments by suppliers of pharmaceutical goods.
The appellants-tax authorities argue that SRO No. 555-amended by SRO No. 869-will not allow taxpayers to adjust input tax against output tax beyond the date specified. This was contended by the respondents-taxpayers that the adjustments were valid for the period when the sales tax applied to pharmaceutical products. They maintained that these adjustments between them had been completed during the time specified and therefore were past and closed transactions having vested rights over them.
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Show cause notices were issued to pharmaceutical companies demanding the return of financial benefits granted to them for the period during which they were obliged to pay sales tax on pharmaceutical products. The Supreme Court ultimately declared that the demand to return payments so made would run against the vested rights of respondent taxpayers, aside from going in for undoing past and closed transactions, and this couldn’t be done without express authorization by primary legislation.
Consequently, the Supreme Court found no illegality in the judgments passed by the Sindh High Court and dismissed the appeals and petition filed by the tax authorities.