Faulty procedure of issuing show-cause notice: Sales tax dept misses tax collection opportunity

LAHORE: The sales tax department missed the opportunity for tax collection because of a faulty procedure of issuing a show cause notice to a private sector firm from the food industries, said sources.

They said the department had issued a show cause notice without prior issuance of audit observations, distinct from the allegations mentioned in the already served show cause notice.

According to details, an audit was conducted by the officials of the sales tax department against one private firm from the food industries, and, pursuant to it, a show cause notice was served.

It was alleged that the respondent company had violated various provisions of the Act of 1990, and, as a result, the supplies it made were suppressed. The allegation regarding the suppression of supplies was based on a comparison of the declared production and the units of electricity consumed by the respondent company during the relevant period.

While the adjudication proceedings under the show cause notice were pending, the respondent company filed a complaint before the Federal Tax Ombudsman (FTO). The FTO, vide findings/decision, disposed of the complaint by making recommendations to the adjudicating authority for re-examination of the same. Accordingly, the Federal Board of Revenue set aside the first order.

The adjudication officer ordered a re-examination of the record, which led to fresh observations containing distinct allegations from the one mentioned in the earlier served show cause notice.

The taxpayer objected to the step on the principles of fairness and due process.

Accordingly, the appellate forums maintained that the issuance of a show cause notice is the most crucial in the context of a fair trial and due process, which enables a taxpayer to precisely know what allegations are to be met, explained and answered to the satisfaction of the adjudication officer.

Therefore, the department must ensure that a show cause notice is issued after a proper inquiry and investigation. It should be manifest from the contents of the show cause notice that it was issued after ascertaining the facts, and the allegations are not vague or ambiguous.

Also, the charges or allegations should be specific. Otherwise, the taxpayer would be prejudiced and denied the right to a fair trial. As a result, the adjudication authority has to confine the proceedings to the specific charges and allegations mentioned in a show cause notice. It cannot adjudicate any charge or allegation beyond it.

In addition, judging a charge or allegation not confronted in show cause notice would not be sustainable in law.

Copyright Business Recorder, 2023