The Appellate Tribunal Inland Revenue (Karachi Bench) recently issued a significant judgment in favour of our client, a leading pharmaceutical multinational, concerning the applicability of a pharmaceutical tax exemption under SRO 551(I)/2008. The dispute centred on whether medicated shampoos and certain health salts qualified for tax exemptions reserved for registered drugs and medicaments.
Background and Dispute
The tax authorities had raised a substantial demand, arguing that the client’s products did not qualify for exemptions under Serial No. 7 of the SRO. The Revenue Department contended that the word “and” in the notification required a substance to be both a registered drug under the Drugs Act, 1976 and a medicament under the Customs Act, 1969 to qualify for the exemption. Additionally, authorities sought to classify medicated shampoos as “cosmetics and toilet preparations,” which are expressly excluded from tax-exempt status.
Legal Arguments
Our team advanced two principal arguments before the Tribunal. First, we demonstrated that the term “and” in the SRO must be read disjunctively (as “or”) to avoid legal absurdity and redundancy—a principle firmly supported by Supreme Court precedents. Second, we presented detailed clinical literature establishing that the medicated shampoos are specifically formulated to treat serious dermatological conditions including psoriasis and eczema. Consequently, their therapeutic purpose distinguishes them from ordinary cosmetic products.
Tribunal’s Decision
The Tribunal accepted our arguments and ruled that a product registered as a drug does not become a cosmetic simply because it can also be used for cleansing. It subsequently annulled the demand for sales tax, default surcharges, and penalties. This judgment will have wide-ranging implications for the consumer health industry, as many brands had previously accepted under regulatory pressure that this pharmaceutical tax exemption was unavailable to them.
“This judgment provides much-needed clarity on the interpretation of tax exemptions, ensuring that therapeutic products are not misclassified for revenue purposes,” said Shahbakht Pirzada (Partner – Pakistan).
For more information on navigating complex tax disputes or pharmaceutical regulations, contact Shahbakht Pirzada today.
This article is not legal advice; it provides information of general interest about current legal issues.
…
RIAA Barker Gillette is Pakistan’s premier law firm, with an on-the-ground presence in three major cities in Pakistan: Karachi, Islamabad and Lahore, and affiliated offices in Dubai (DIFC) and London.
The firm practices in all areas of corporate, commercial and dispute resolution law. Leading international legal directories consistently recognise the firm as a top-tier law firm in Pakistan.
RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with in-depth experience in over 125 countries worldwide.
