Supreme Court remands tax dispute over purchases from former tribal areas

ISLAMABAD: The Supreme Court has sent a tax dispute involving Tarbela Steel Re-Rolling Mills (Pvt) Ltd back to the original tax assessing officer for a fresh review. The case centers on whether the company was required to deduct withholding tax (WHT) on purchases made from suppliers located in the former Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata).

The tax department had argued that Tarbela Steel Re-Rolling Mills should have deducted one percent tax from payments made to its suppliers. However, the company contended that, prior to the 25th Constitutional Amendment, the Sales Tax Act, 1990 did not apply to Fata and Pata. As a result, suppliers from these areas were not required to be registered, and the company maintained it had no obligation to deduct the tax.

A three-judge Supreme Court bench heard the appeal filed by Tarbela Steel Re-Rolling Mills against a previous ruling by the Peshawar High Court (PHC). The Supreme Court set aside the PHC's decision and clarified that the liability to deduct withholding tax depends on the location where the transaction took place.

The court's decision means the matter will now be re-examined by the original assessing officer, who will determine the tax liability based on the specific circumstances of the transactions in question.

This case highlights the complexities surrounding tax obligations for businesses operating in or dealing with suppliers from regions that were previously outside the scope of certain federal tax laws. The outcome of the fresh review could have implications for other companies with similar transactions involving the former tribal areas.