No additional sales tax for Poultry: FCC

June 02, 2026 (MLN): Pakistan's Federal Constitutional Court (FCC) has handed the country's poultry sector a decisive legal victory, ruling that feed manufacturers cannot be charged a 4% further tax for supplying farmers who are exempt from sales tax registration.

This effectively closes a bureaucratic trap that had exposed an entire supply chain to penalties for a status it could not change.

The judgment, delivered May 4 by a two-judge bench comprising Justice Aamer Farooq and Justice Muhammad Karim Khan Agha, consolidated five petitions filed by poultry feed producers including Shahzor Feeds, Lahore Feeds Limited, and S.S. Feed Mills against a 2024 order by the Commissioner of Inland Revenue in Lahore.

The court allowed all petitions and set aside the tax authority's demands in full.

At the center of the dispute was Section 3(1A) of the Sales Tax Act, 1990, which imposes a 4% surcharge on taxable supplies made to unregistered or inactive taxpayers.

Tax authorities had applied that provision to feed manufacturers because poultry farmers and their buyers lack sales tax registration numbers.

The court found the application of the additional levy deeply anomalous. Poultry farmers are explicitly exempt from sales tax under Serial Nos. 40 and 48 in Table II of the Sixth Schedule to the Act, and Section 14 of the same statute requires registration only from persons making taxable supplies.

An exempt person, the bench reasoned, cannot be compelled to register, and if non-registration is mandated by law rather than chosen, no penalty can flow from it.

The court described the interaction between Section 3(1A) and the exemption framework as an "anomaly" and applied the mischief rule of statutory interpretation, asking what ill the legislature sought to cure.

Its answer: the further tax was designed to prod unregistered businesses into compliance, not to punish a supply chain legally precluded from registration.

Reading Sections 3(1A), 13, 14, and 2(41) together, the bench concluded that no additional tax liability could arise in these circumstances.

The Lahore High Court had dismissed the manufacturers' writ petitions in a consolidated judgment on December 4, 2025, siding with the tax authorities. That ruling is now set aside.

The bench drew support from Muhammad Arif Ice Factory and others v. Federation of Pakistan, 2021 PTD 1608, in which the Lahore High Court, and subsequently the Supreme Court similarly struck down further tax levied on ice manufacturers who supplied exempt buyers.

The parallel, the court held, was controlling.

Pakistan's poultry sector is one of the country's largest agricultural industries, with farm-gate output running into hundreds of billions of rupees annually.

The additional levy, if sustained, would compress already thin margins at the feed manufacturing level and ultimately raise the cost of chicken and eggs for consumers.

The Federal Government retains power under the proviso to Section 3(1A) to issue notifications exempting specific categories of taxable supplies from the further tax.

The court noted that no such notification covering poultry had been issued, but held that the statutory interpretation it applied rendered one unnecessary for the petitioners.

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