FCC Grants Relief to KEPZ Companies in Tax Dispute

The Federal Constitutional Court (FCC) has provided temporary relief to companies operating in the Karachi Export Processing Zone (KEPZ) in a legal dispute concerning the imposition of sales tax on electricity supplied to export-focused businesses.

A two-member FCC bench, headed by Chief Justice Amin-ud-Din Khan, heard a petition filed by Midas Clothing Ltd and other companies challenging the sales tax imposed on their electricity consumption.

Counsel representing the petitioners maintained that the companies are legally exempt from sales tax on electricity supplied to their units under the relevant statutory framework.

The court was informed that an earlier Supreme Court ruling had required sales tax to be recovered initially, with affected companies subsequently seeking refunds. According to the petitioners, following this arrangement resulted in significant tax liabilities being imposed on them, effectively transforming a tax intended to operate as a temporary pass-through into a permanent financial burden for the companies.

The petitioners’ lawyer further submitted that the companies had not been parties to the earlier Supreme Court proceedings and, therefore, should not be subjected to directions issued in that matter without being provided an opportunity to present their case.

He also argued that the existing refund procedure was effectively inaccessible to the petitioners in practical terms. As a result, the continued collection of sales tax was allegedly creating an excessive financial burden and causing serious monetary difficulties for the affected businesses.

After considering the arguments presented by both sides, the FCC granted interim protection to the petitioners and ordered that no coercive action be taken against them until the matter is taken up at the next hearing.