LAHORE
A divisional bench of the Lahore High Court rejected decision of Appellate Tribunal Inland Revenue Lahore in a tax case saying the Tribunal failed to pass a speaking order in the matter as tax authorities have violated principle of natural justice while exceeding scope of allegation, specified in a show cause notice.
Fact of the case disclosed that a taxpayer has challenged a sales tax demand arising from discrepancies between income tax and sales tax returns for the tax year 2022. The adjudicating authority’s decision was upheld by the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal, leading to the filing of a Reference Application before the Lahore High Court (LHC).
Appearing before the divisional bench of Justice Rasaal Hasan Syed and Justice Muhammad Sajid Mehmood Sethi counsel for applicant-taxpayer submitted his client is an Association of Persons (AOP). He apprised the bench that during interim scrutiny of monthly sales tax record, on account of certain discrepancies found in the results, declared by the applicant, pertaining to tax year 2022, a show cause notice was issued to the applicant-taxpayer, which culminated in passing of order-in-original dated 11.09.2023 whereof an amount of Rs.3,632,281/- stood recoverable along with default surcharge and imposition of penalty under the relevant provisions of law.
The counsel further submitted saying the forums below have travelled beyond the allegation voiced and raised in the show cause notice in violation of the dictum of law laid down by the top court. He argued saying even otherwise, impugned Appellate Tribunal’s order is absolutely non-speaking within the contemplation of the provisions of Section 24-A of the General Clauses Act, 1897.
The counsel argued that the forums below have failed to consider that the sales declared in the Sales Tax Returns reflect sales transacted after the taxpayer’s sales tax registration, whereas the sales declared in the Income Tax Return reflect sales conducted prior to the registration. He contended that declarations made under the Income Tax Ordinance, 2001, alone cannot form the basis for determining taxable supplies under the Sales Tax Act, 1990, as the dynamics of the two fiscal laws are distinct from one another.
He informed the court that unless taxable supplies are identified and the onus of proof is discharged by the tax authorities, such sales cannot be presumed to be taxable supplies under the Sales Tax Act, nor can they be subjected to tax. The counsel for taxpayer added that the tax authorities should not take unilateral, arbitrary action or exceed the scope of the original show cause notice.
