ISLAMABAD: The Federal Constitutional Court (FCC) has set aside a judgement delivered by the Lahore High Court (LHC) in a tax matter, ruling that the high court erred in upholding the order passed by tax authorities.
A two-member FCC bench, comprising Justice Aamer Farooq and Justice Muhammad Karim Khan Agha, announced the judgement in an appeal filed against the LHC judgement of December 24, 2025.
The court, after accepting the appeals of the petitioners, set aside the judgement that had upheld the orders passed by tax authorities. “In view of the 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,” says the seven-page FCC judgement authored by Justice Aamer Farooq.
The petitioners — Shahzor Feeds (Pvt) Ltd, Rai Mansab Ali, Lahore Feeds Limited & others, and S S Feed Mills Pvt Ltd — had challenged the LHC judgement. The constitutional court held that it is an admitted position that the poultry industry has not been exempted from payment of additional tax by the federal government, though they were informed that various notifications have been issued from time to time.
“Since the plain reading of the provision is leading to absurdity or anomaly, we, as mentioned hereinabove, in order to reconcile the position, have resorted to looking into the mischief that was sought to be cured by the legislature and, as already mentioned, it was to encourage and promote registration with the sales tax authority to become active taxpayers,” said the judgement.
The court held that the law does not require an exempted person to register for sales tax. “Therefore, the petitioners, who are poultry farmers, are not required to be registered. To make poultry feed manufacturers liable to payment of further tax (which would eventually be passed on to poultry farmers) would not only be unjust but also against the system of payment of sales tax under the Act,” it said. “Synchronising the provisions including sections 3(1A), 13, 14 and 2(41) of the Act, it would only be fair to come to the conclusion that in the present case, poultry farmers are exempted from payment of sales tax on account of exemption under the law; thus, they are not required to be registered,” the court further held.
The court noted that since the requirement of non-registration is mandated by law (Section 14 of the Act), no penal consequences would fall upon either category of petitioners before us by way of payment of additional tax.
“In somewhat similar circumstances, the question arose before the Lahore High Court, Lahore, which was resolved in favour of the taxpayers in the judgement reported as Muhammad Arif Ice Factory and others v. Federation of Pakistan and others, 2021 PTD 1608,” it said.
The court noted that the view expressed therein was upheld by the Supreme Court of Pakistan, and it was observed that further tax under section 3(1A) could not have been imposed on the taxpayers since they were ice manufacturers and were exempted.
According to the judgement, counsel for the petitioners argued that they fall into two groups: poultry feed manufacturers and poultry farmers. It was argued that poultry farmers are exempt from sales tax under Section 13 and Table-II of the Sixth Schedule, while poultry feed manufacturers became taxable after the Finance Act 2024 and have been paying sales tax accordingly. However, manufacturers were additionally required to pay tax under Section 3(1A) because they supply goods to unregistered entities.
Similarly, the court noted that counsel for the respondents (Federation of Pakistan) contended that the liability to pay additional tax falls on poultry feed manufacturers because they are making supplies to non-registered entities.
It was contended that under the law, no exception has been created; hence, under a plain reading of Section 3(1A) of the Act, it is abundantly clear that sales tax liability vests upon supplies of taxable goods to non-registered persons. “It was submitted that even under the proviso to Section 3(1A) of the Act, exceptions can be created; however, the poultry industry is not among those exceptions,” said the judgement.
The petitioners were aggrieved by the order dated September 11, 2024, passed by the Commissioner (Inland Revenue), LTU, Lahore, whereby it was held that manufacturers of poultry feed supplying products to farmers were liable to pay additional tax under Section 3(1A) of the Sales Tax Act, 1990, inasmuch as the recipients of the supply were not registered. For redressal of their grievance, the petitioners approached the LHC by way of petitions under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973, but the same were dismissed through the consolidated impugned judgement on December 4, 2025.
