ISLAMABAD: Appellate Tribunal (AT) in a landmark judgment has held that sales tax post-refund audit has limited scope pertaining only to the admissibility of the amount of refund which was sanctioned and issued electronically.
Tribunal has further declared that where manual post refund audit is authorized by the Commissioner then being an appealable order it should be served upon the taxpayer.
In this regard, a two-member bench of the Appellate Tribunal Inland Revenue Lahore has issued a judgement against the Commissioner IR Corporate Tax Office Lahore.
Background facts are that in the case of a manufacturer cum exporter of leather products sales tax refund of Rs.38,483,826 was issued for the tax period from July 2019 to October 2019 after electronic priority processing meant for exporters under the Sales Tax Rules. Thereafter, In-Charge, Post Refund Audit Division, Corporate Tax Office, Lahore initiated manual post refund audit proceedings under Rule 36 and ultimately raised sales tax liability of Rs.338,682,474 alleging that there are suppressed local sales on which sales tax has not been charged and paid. Sales tax levied was confirmed by the Commissioner Appeal and then the taxpayer filed second appeal before the Tribunal. Before the Tribunal the taxpayer raised three preliminary legal objections.
The Tribunal has accepted the legal arguments and has held that in Rule 27(3) there is no mention of the Corporate Tax Office where the post refund proceedings were initiated. The Tribunal has rejected the argument of the assessing officer regarding the re-designation of the Regional Tax Office (RTO) as Corporate Tax Office (CTO) by holding that said redesignation was under the FBR Act of 2007 and has not been legal backing in the Sales Tax Rules as amended through SRO issued in 2019 after re-designation under which post refund audit proceedings are mandated.
The Tribunal has further held that if under Second Proviso to Rule 36(1) if the Commissioner has reason to believe that refund issued was not admissible and orders manual post refund audit then there should be a speaking order and it should be served upon the taxpayer as a direct appeal to the Tribunal lies against such order as provided under section 46(1)(b) of the Sales Tax Act 1990. Regarding the scope of the audit, the Tribunal has held that post refund audit under Rule 36 is with reference to the admissibility of the amount of refund issued and nothing else and for a detailed all-inclusive audit, there is a separate specific provision contained in section 25 of the Sales Tax Act,1990. The Tribunal has annulled the order of the assessing officer due to multiple legal infirmities. The operative part of the order reads as under:
“9. In the light of the foregoing discussion, we conclude that post refund audit has a limited scope and in the case of registered person had no legal backing of rule 27(3) of the Sales Tax Rules,2006. Similarly, there is no legal backing of an order by the Commissioner under Second Proviso to rule 36(1) ordering manual post refund audits. It is an immutable principle of law that defective assumption/exercise of jurisdiction by the authorities is incurable. Reliance may be placed on Director General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director General Intelligence and Investigation and others Vs M/s AL-Faiz Industries (Pvt) Limited and others PTCL 2008 CL 337(5.C) and Collector, Sahiwal and 2 others Vs Muhammad Akhtar (1971 SCMR 681). In all these judgments it was held by the Hon’ble Supreme Court of Pakistan that:-
i) Where essential feature of assumption or jurisdiction is contravened or forum exercises power not vested in it, or exceed authority beyond limit prescribed by law the judgment is rendered coram non judice and inoperative (2002 SCMR122)
ii) If a mandatory condition for the exercise of jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffer from illegality and are without jurisdiction (2008 SCMR 240)”
When contacted for comments Shahid Jami, Chairman of the CPD Committee of the Institute of Taxation of Pakistan observed that it is heartening for the taxpayers and tax professionals that various benches of the Appellate Tribunal across the country are now frequently deciding the legal issues which were earlier left for the High Court to interpret. Jami however pointed out the FBR is still lagging behind and drafting errors continues like Regional Tax Office were re-designated way back in July 2016 as the Corporate Tax Office under the FBR Act of 2007 however while drafting SRO.918 (I)/2019 dated 07.08.2019 regarding refund rules the above change was not given legal cover under the sales Tax Refund Rules.
Copyright Business Recorder, 2022
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