PESHAWAR, May 21: The Peshawar High Court has declared a sub-section of the Sales Tax Act, 1990, ultra vires to the Constitution and has ruled as unconstitutional the levy of additional three per cent tax on manufacturers for supply to non-registered persons of such items which are chargeable to sales tax on retail price.

A two-member bench of the high court comprising Justice Nasirul Mulk and Justice Tallat Qayyum Qureshi ruled that the said additional tax amounted to imposition of penalty in the garb of taxation.

The bench has allowed three writ petitions filed by Northern Bottling Co, (Pvt) Ltd, Souvenir Tobacco Company (Pvt) and Imperial Cigarette Industries, and has observed that the levy of additional three per cent tax on the manufacturers for supply to non-registered persons, including retailers of such items which are mentioned in schedule three of the Sales Tax Act, is illegal. These items included aerated water, cigarettes, medicines, ice creams, etc.

The bench had pronounced its short order on May 13 and has now released its detailed judgment, which is authored by Justice Tallat Qayyum Qureshi. The amendment made in the impugned sub-section 3(1-A) through the Finance Act, 1999, was aimed at discouraging supply of goods to unregistered persons, as the then government had, in addition to manufacturers, started registration of three other categories of suppliers namely wholesalers/distributors/dealers, importers and retailers.

Advocates Issac Ali Qazi and Yahya Afridi had appeared for the petitioners and argued that under section 3(1) of the Act, sales tax was charged on value of the supply whereas under section 3(2) (c) items mentioned in the third schedule were chargeable on retail price.

They argued that the scope and applicability of the provisions of sub-section (1-A), through which additional three per cent tax was imposed for supply to non-registered persons, were confined to sub-section (1) only and its effect could not travel beyond to override the provisions of sub-section (2)(c).

The bench ruled: "...the insertion of the said section has restricted the choice of the buyers. The petitioners have been, with impugned insertion, restricted to make supplies only to registered person and in case they choose to make supplies to unregistered person, they will be subjected to a further 3 per cent tax.

To avoid further tax the petitioners would not have the universal market. Its market would be limited to registered person only which would hardly constitute a meagre percentage of the market, as, on the one hand, the law does not require compulsory registration of all and, on the other hand, with the recent amendment for the retailers who supply during the last 12 months does not exceed 20 million rupees are not required to be registered under the Act."

The high court ruled that if the goods were supplied to other than registered person, it would in no case injure the government treasury because the tax was charged on the retail price meaning thereby that the government collected the ultimate tax well in advance at the time of removal of goods from the factory premises of petitioners.

The petitioners being collecting agents of sales tax of the government treasury pay in advance the tax, therefore, if goods are supplied to other than registered person, it would not make any difference so far as sales tax collection is concerned.