SHC dismisses pharma companies’ plea for exemption from sales tax

The Sindh High Court has dismissed a lawsuit filed by pharmaceutical companies seeking exemption from the sales tax on imports of packing material used in the manufacturing of pharmaceutical products/finished drugs.

Pharmaceutical companies had filed the lawsuit seeking exemption from the sales tax on imports of packing material used in the manufacturing of pharmaceutical products/finished drugs.

The plaintiffs’ counsel submitted that the list of raw materials for the manufacture of pharmaceutical packing products falls within the exemption available against entry No.105 to the 6th Schedule of the Sales Tax Act. They submitted that packaging material imported by the plaintiffs is to manufacture pharmaceutical products and falls within the ambit of raw materials which entitles it to exemption from the levy of the sales tax by virtue of Entry No.105 of the 6th schedule.

They stated that the packaging materials that are imported by the plaintiffs are used in the process of manufacturing finished pharmaceutical products and as a result should come within the ambit of “raw materials” and are entitled to exemption at the import stage.

They submitted that plaintiffs were not utilising the said packing material for its own independent use nor were they selling it in semi-manufactured state; rather, the same was being used into the final product that was sold under their own brand name.

They further said that even if it is conceded that the packaging materials are outside the scope of raw materials mentioned in Entry 105 and are in fact semi- manufacture goods even then the levy of the sales tax on such goods is not permissible as they are ultimately assimilated into a product whose sale is not recognised as a taxing event in the statute.

A customs counsel submitted that packing material is not a raw material for the basic manufacture of pharmaceutical active ingredients as well as pharmaceutical products and exemption is restricted to raw materials; therefore, it cannot be extended to any packing material. A single bench headed by Justice Mohammad Junaid Ghaffar, after hearing the arguments of the case, held that plaintiffs are not entitled to claiming exemption from sales tax in terms of Entry no.105 of the 6th schedule to the act on the imports of packing materials.

The court dismissed the lawsuit and observed that amount deposited, if any, with the Nazir of the court shall be paid to the respective collectorates who should approach the office of the Nazir for such purposes.

It further observed that if there were any bank guarantees or any other form of security, the Nazir shall encash the same and pay it in a similar manner to the respective collectorates.