Federal Tax Ombudsman (FTO) Dr Muhammad Shoaib Suddle has categorically ruled that Directorate of Intelligence & Investigation Inland Revenue (IR) has no legal authority to adjudicate tax demand against taxpayers, as the agency is empowered to conduct inquiry about the fake, fictitious invoices and other tax-related fraudulent practices.
In an order (complaint No 696/LHR/ST/(145)/1237/2012) issued here on Monday on powers of the directorate of intelligence IR, FTO observed that under the law, the Directorate of Intelligence & Investigation can conduct inquiry about the fake and fictitious invoices and any fraudulent practices, but it is beyond its jurisdiction to adjudicate the tax demand. It is to be adjudicated by the concerned authority, as per law, after providing opportunity to the taxpayer. "The taxpayer cannot be compelled to pay tax before completion of the adjudication process," FTO added.
According to the FTO order, the complaint is filed against unlawful recovery of Rs 1,000,000 through cheque dated 30.09.2012. Assistant Director/Investigation Officer, Directorate of Intelligence & Investigation vide notice dated 03.05.2012 requisitioned record for the period 11/2009 to 04/2011 for verification of input tax amounting to Rs 351,150 allegedly claimed on fake/flying invoices. A corrigendum was issued on 26.05.2012 wherein amount referred in the notice dated 03.05.2012 was enhanced to Rs 1,095,247. According to the Directorate, the Complainant could not produce reliable evidence in support of valid purchases.
He provided a post-dated cheque of Rs 1,000,000 for clearance on 30.09.2012 vide undertaking dated 28.08.2012. He also assured that he would pay further tax, if required. He would also provide record requisitioned by the Department for scrutiny. According to the authorised representative (AR), the Directorate of Intelligence & Investigation, IR, harassed the complainant for payment of tax, without determination of his liability under the law. No coercive measures could be taken prior to adjudication of liability by the relevant authority holding jurisdiction in the case.
When confronted, the Directorate contended that during the period 11/2009 to 04/2011 the Complainant claimed input tax against fake and fictitious invoices issued by the suppliers. During the investigation, the complainant could not provide record/documents in support of valid purchases, proof of physical transfer of goods or payment through bank in terms of Section 73 of the Sales Tax Act 1990.
The departmental representative (DR) reiterated the Department's written arguments. According to him, there was no maladministration involved in the case. However, he denied the allegations of coercion and harassment. He further contended that tax in the case of the supplier had already been assessed. No further tax was required to be assessed in this case.
The authorised representative said that the recovery of tax through cheque, without adjudication, being contrary to law tantamount to maladministration, which need to be addressed by the FTO. FTO has recommended to the FBR to direct the Chief Commissioner to determine the Complainant's tax liability, as per law, after observing due process; adjust the tax liability so determined against cheque and report compliance within 30 days.