IN THE SUPREME COURT OF PAKISTAN 
(Appellate Jurisdiction) 
 
Present: 
Mr. Justice Umar Ata Bandial 
Mr. Justice Syed Mansoor Ali Shah 
Mr. Justice Munib Akhtar 
 
CIVIL PETITION NO.846-L OF 2017 AND 
CIVIL PETITION NO.2074-L OF 2017  
(Against the order of Lahore High Court, Multan Bench 
dated 23.01.2017, passed in W.P. No.570 /2017 and 
order of Lahore High Court, Lahore dated 08.12.2016 
passed in W.P. No.37508/2016) 
 
 
Commissioner Inland Revenue, Multan, 
etc. 
: 
(In CP 846-L/2017) 
The Federation of Pakistan through 
Chairman FBR, etc.  
: 
(In CP 2074-L/2017) 
 
... 
Petitioner(s) 
 
Versus 
 
M/s. Acro Spinning & Weaving Mills 
Ltd., Multan, etc. 
: 
(In CP 846-L/2017) 
M/S Al-Hamd Corp. (Pvt.) Ltd, etc. 
: 
(In CP 2074-L/2017) 
 
... 
Respondent(s) 
 
 
For the petitioner(s): 
Mr. Sarfraz Ahmad Cheema, ASC. 
      
 
(In both cases) 
     
 
       
For the respondent(s): 
Ex-parte 
(In CP 846-L/2017) 
 
 
 
Nemo 
(Iin CP 2074-L/2017) 
Date of hearing: 
27.05.2021 
 
ORDER 
UMAR ATA BANDIAL, J.- These leave petitions, filed by the 
department, are against various orders of the learned High Court 
whereby that Court, relying on its own earlier judgment dated 
09.11.2016, allowed the writ petitions that had been filed by the 
respondent taxpayers. The judgment last mentioned is reported as 
MKB Spinning Mills (Pvt) Ltd. v. Federation of Pakistan and others 
2018 PTD 2364 (“MKB Spinning Mills”). (We may note that the 
C.P.846-L of 2017, etc. 
2 
 
department had earlier sought leave to appeal against the 
judgment in MKB Spinning Mills but the same was refused by a 
learned two member Bench of this Court vide order dated 
01.08.2019.) The issues of law arising in these leave petitions are 
the same as those in the reported case.  
 
2.  
The matters arise under the Sales Tax Act, 1990 
(“Act”), and are concerned with taxable supplies made by the 
respondent taxpayers to persons not registered under the Act. At 
the relevant time subsections (1) and (1A) of section 3 had provided 
as follows (as presently material): 
“(1) Subject to the provisions of this Act, there shall be 
charged, levied and paid a tax known as sales tax at the rate 
of seventeen per cent of the value of–  
 
(a) taxable supplies made by a registered person in the 
course or furtherance of any taxable activity carried on by 
him; ….  
 
(1A) Subject to the provision of sub section (6) of section 8 or 
any notification issued thereunder, where taxable supplies 
are made to a person who has not obtained registration 
number, there shall be charged, levied and paid a further tax 
at the rate of two percent of the value in addition to the rate 
specified in sub sections (1), (1B), (2), (5), and (6) provided 
that the Federal Government may, by notification in the 
official Gazette, specify the taxable supplies in respect of 
which the further tax shall not be charged, levied and paid.” 
 
 
The combined effect of these two subsections was that 
sales tax was levied and payable on supplies made to persons not 
registered under the Act at the rate of 19%. The last portion of 
subsection (1A) empowered the Federal Government to exclude, by 
notification, such taxable supplies as it deemed fit from the 
applicability of the said subsection. In respect of such supplies it 
would (as presently relevant) be only subsection (1) that would 
apply, i.e., the rate of sales tax would be 17%. It is common ground 
C.P.846-L of 2017, etc. 
3 
 
that no such notification was in the field at any time relevant for 
present purposes. 
 
3.  
Section 4 of the Act provided that notwithstanding 
anything contained in section 3, the goods specified in the various 
clauses thereof were to be charged to tax at the rate of zero 
percent. Thus, clause (a) specifies, inter alia, that goods that are 
exported are to be so charged. Clause (c) empowers the Federal 
Government to notify other goods also for purposes of section 4, 
and those goods would then charged to tax at zero percent. In 
exercise of this power (and certain others as specified therein) the 
Federal Government issued SRO 1125(I)/2011 dated 31.12.2011. 
This notification was amended vide SRO 491(I)/2016 dated 
30.06.2016, and the present matters are concerned with the 
amended notification (“amended SRO 1125”). The amended SRO 
1125 provided, in sub-entry (iii) of entry No. 1 of Table II thereof 
that taxable supplies made by persons doing business in five 
specified sectors to “registered or unregistered persons” would be 
taxed at zero percent. It is common ground that each of the 
respondent taxpayers is a person who falls in one of the five 
sectors so specified. 
 
4.  
In view of the amended SRO 1125, the respondent 
taxpayers charged sales tax in respect of supplies made to persons 
not registered under the Act at zero percent. This led to the 
issuance of show cause notices that were challenged by way of writ 
petitions filed in the High Court. Now earlier other such persons 
had also filed writ petitions which were allowed by the learned 
High Court by means of the judgment in MKB Spinning Mills. It was 
C.P.846-L of 2017, etc. 
4 
 
held there that the amended SRO 1125 applied, as it stated on the 
face of it, not only to supplies made to registered persons (who 
would otherwise be covered by subsection (1) of section 3) but also 
those made to unregistered persons, who would be covered by both 
subsections (1) and (1A) of the said section. As already noted, in 
the present matters, the learned High Court relied on the earlier 
decision to allow the writ petitions. Hence, these leave petitions 
filed by the department. 
 
5.  
Learned counsel for the department submitted that the 
power to exclude the levy of the further tax under section 3(1A) 
could only be exercised under the said sub-section, i.e., in terms of 
the last portion thereof, which has already been noticed. As noted, 
there was no relevant notification in the field under that provision. 
It was contended that the terms of section 4, allowing taxable 
supplies to be charged at zero percent, did not operate to relieve 
such taxable supplies from the further tax. It was contended that 
the charging of tax at zero percent on supplies made to 
unregistered persons was therefore a violation of section 3(1A) for 
which show cause notices had been validly issued. It was prayed 
that leave to appeal be granted.  
  
6.  
The relevant provision for zero rating under section 4, 
to which reference has already been made, may also be reproduced 
for ready reference: 
“4. Zero rating.- Notwithstanding the provisions of section 
3, the following goods shall be charged to tax at the rate of 
zero per cent:- … 
 
(c) such other goods as the Federal Government may by 
notification in the Gazette, specify….” 
 
C.P.846-L of 2017, etc. 
5 
 
It is clear from the aforesaid provision that zero rating 
of taxable supplies is an overriding provision on account of the 
non-obstante clause by which it starts. The provisions of section 
3(1A) pertaining to further tax are subservient to the effect of zero 
rating. Consequently, zero rated goods are not liable to any of the 
provisions under section 3 of the Act. It follows (subject to what is 
further said below) that the learned High Court correctly 
considered and decided the matter in the MKB Spinning Mills case. 
 
7.  
Notwithstanding what has just been said, there are 
unfortunately certain observations made by the learned High Court 
in the reported decision that are erroneous and cannot be 
sustained. It has been observed in para 5 of the judgment that “the 
Act visualizes two regimes of tax; one under section 3…. and the 
other under section 4 under which tax is to be charged at zero 
rate”. It has also been said, of section 4, in para 10 of the judgment 
that “the benefit of zero percent tax conferred by this provision was 
meant to support that component of local industry which was 
engaged in manufacturing export oriented products”. It must be 
clearly understood that these observations are incorrect. The Act 
does not impose two (or more) tax regimes. It creates and enforces 
one integrated tax regime, which operates as a single whole, 
namely the levy of tax in VAT (value added) mode. The manner in 
which the VAT mechanism works and the conceptual framework of 
the same including, in particular, the reason why exports are zero 
rated has been considered and explained in some detail by one of 
us (Munib Akhtar, J.) while in the High Court: see Pakistan 
Beverage Ltd. v. Large Taxpayer Unit 2010 PTD 2673 (paras 10-17; 
“Pakistan Beverage”). The cited observations of the learned High 
C.P.846-L of 2017, etc. 
6 
 
Court run contrary to the conceptual framework of a tax levied in 
the VAT mode, and, if not corrected, are liable to mislead. However, 
this error, which is hereby rectified in terms of what has been said 
in Pakistan Beverage, does not affect the overall reasoning and 
conclusions of the High Court insofar as the facts and 
circumstances of the present cases are concerned. We may note for 
completeness that the learned counsel for the department 
submitted that by the Finance Act, 2017, section 4 was specifically 
amended such that the opening words now read as follows: 
“Notwithstanding the provisions of Section 3 except those of sub-
section (1A)….” It may also be noted that the said Finance Act also 
amended section 3(1A), such that the various provisions listed 
therein now also include section 4. However, it is common ground 
that these amendments have no bearing on, or relevance for, the 
matters at hand. 
 
8. 
In view of what has been said above, but subject to the 
clarifications made with regard to the MKB Spinning Mills case, no 
exception can be taken to the impugned orders, and we are of the 
view that they do not warrant any interference. Leave is therefore 
declined and these petitions are dismissed. 
 
 
 
 
 
 
Islamabad, 
27th May, 2021. 
Approved for reporting 
Iqbal 
Judge 
 
 
Judge 
 
 
Judge 
 
