Law: Sales Tax Act, 1990

Section: 2(27), 2(46)

Law: Federal Excise Act, 2005

Section: 12(4)

  Summary ; The Lahore High Court dismissed the constitutional petitions challenging the Show Cause Notices (SCNs) issued by the tax authorities for allegedly failing to include Federal Excise Duty (FED) in the retail price while calculating Sales Tax under the Sales Tax Act, 1990. The petitioners argued that the issue had already been conclusively decided by the Supreme Court in Naubahar Bottling Company (Pvt.) Ltd. v. Federation of Pakistan (2022 SCMR 765), where it was held that FED could not be included in the retail price because doing so would result in an impermissible circular computation of tax. They contended that the SCNs were contrary to the binding law declared by the Supreme Court and sought their quashment through constitutional jurisdiction. The High Court first reiterated the settled principle that constitutional petitions against show cause notices are generally not maintainable where an adequate statutory remedy exists. It then examined whether the Supreme Court's Naubahar judgment actually barred the issuance of the impugned SCNs. After an extensive discussion on the doctrine of ratio decidendi, the Court held that only the binding legal principle necessary for deciding a case constitutes precedent, whereas observations beyond that are merely obiter dicta. The Court concluded that the true ratio of Naubahar was confined to the methodology of calculating Federal Excise Duty under the Federal Excise Act, 2005, specifically that excise duty cannot be charged upon notional excise duty. The Court held that the present dispute concerns the levy of Sales Tax under the Sales Tax Act, 1990, which is a separate statutory regime with a different charging provision and taxable event. Although both statutes use the expression "retail price," the Supreme Court in Naubahar did not decide whether FED must be included in the retail price for Sales Tax purposes. Therefore, the judgment could not be extended to prohibit the issuance of the SCNs. Accordingly, the petitions were dismissed, while granting the petitioners liberty to file comprehensive replies before the tax authorities, who must decide the matter independently and in accordance…