LHC Declares FBR’s Tax Audit Notices Illegal – Division Bench Annuls Arbitrary Notices

LAHORE / MULTAN : The Lahore High Court Multan Bench has declared the tax audit notices issued by the Federal Board of Revenue (FBR) illegal and annulled them.

A Division Bench comprising Justice Jawad Hassan and Justice Abid Hussain Chattha issued a 17-page written judgment in Writ Petition No. 3582 of 2017.

The petition was filed by M/s JK Sugar Mills (Pvt.) Limited, formerly M/s Shamim and Company (Pvt.) Limited, against the Federation of Pakistan and others. The company through counsel Malik Ahsan Mahmood, ASC, had challenged the notices dated 03.03.2017 and 06.03.2017 issued by the Commissioner and Deputy Commissioner Inland Revenue under Section 25 of the Sales Tax Act, 1990.

The respondents were represented by M/s Muhammad Sulaman Bhatti, ASC with Abdul Sattar Alvi, Saqib Aziz, Iftikhar Majid, Naveed Qadir and Furqan Salman, Advocates, and Rana Muhammad Javed Iqbal, Assistant Attorney General.

In its judgment, the court observed that tax officers cannot issue arbitrary audit notices without following legal procedure. A tax officer cannot be allowed to conduct inquiries of his own choice or to harass citizens.

The court held that deciding to conduct an audit first and calling for record afterwards is against the law. Government departments cannot issue legal notices to citizens without giving legal justification.

The judgment further states that selection of taxpayers for audit can only be done through a lawful computerized balloting process.

As per the facts of the case, the petitioner company had electronically filed its sales tax returns for all twelve tax periods of Tax Year 2016, from July 2015 to June 2016, within the prescribed time and duly discharged its liability after adjusting input tax. The company claimed it had paid approximately 91% more sales tax during the relevant year as compared to the preceding year.

The company had challenged the audit notices as arbitrary action taken without lawful balloting. The High Court, exercising its constitutional jurisdiction under Article 199 of the Constitution, declared the notices illegal and set them aside.