LAHORE: In a significant ruling, the Customs, Excise and Sales Tax appellate tribunal has annulled orders passed by the assessing officer and the first appellate forum, and cleared a taxpayer of sales tax evasion charges of Rs1.745 billion.

According to details, the matter stemmed from a sales tax audit conducted by the Director General Audit Inland Revenue Receipts (DGAIRR), Lahore, covering the tax period from July 2014 to June 2015. Auditors discovered suppressed supplies worth Rs10.267 billion, involving sales tax of Rs1.745 billion, in violation of section 3 of the Sales Tax Act.

Departmental sources said a show-cause notice was issued to the respondent on February 8, 2017. Unsatisfied with the respondent’s explanation, the assessing officer ordered recovery of the sales tax amount, along with default surcharge and penalty.

However, they added, the tribunal accepted the taxpayer’s appeal, annulling the lower forum’s orders. The department preferred to file a reference against this decision.

They said the key issue involved in the controversy was that the show-cause notice was based on an audit by DGAIRR, which doesn’t fall under the categories of officers specified in Section 30 of the Act. This issue was previously addressed by the highest appellate forum with a direction that the Federal Excise and Sales Tax department should conduct a fresh audit if advised and permissible under law.

When contacted leading tax practitioners, they pointed out that this verdict highlights the importance of adherence to legal procedures and proper auditing protocols in sales tax cases. The department must ensure that audits are conducted by authorized officers to avoid such setbacks.

According to them, the department avoids further audit in such cases and prefers to rely upon the proceedings carried out by the DGAIRR, which does not fall within categories of officers as prescribed in the law. Therefore, most of such notices end up on a defeat in the appellate forums, as no assessment order could be passed without verification/audit of the record of taxpayers. Also, they said, this case underscores the need for transparency and accountability in tax administration.

Copyright Business Recorder, 2024