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ISLAMABAD: The Islamabad High Court (IHC) has restrained the Federal Board of Revenue (FBR) from affecting recovery of the Federal Excise Duty (FED) through a bank account attachment during pendency of the appeal before the Appellate Tribunal without prior notice.

The court has held that recovery should not be made until and unless the matter is decided against the taxpayer at least from one independent forum.

The IHC has also directed the FBR to wait for the outcome of the decision of the Appellate Tribunal Inland Revenue before adopting corrective measures like attachment of bank accounts for recovery of the FED.

According to a judgment of the IHC (writ petition number 3876 of 2021) against the Large Taxpayer Office (LTO) Islamabad issued here on Thursday, before affecting tax recovery there has to be adjudication by one independent forum and that being Appellate Tribunal Inland Revenue.

The petitioner company (Oracle Systems Pakistan (Private) Limited) has challenged notices issued by the tax department for recovery of the FED, as well as, surcharge and penalty from the company.

In this regard, proceedings were initiated against the company for recovery of the FED on account of franchise services royalty on technical services with respect to tax year 2016.

Attachment of bank accounts: FBR directs officials to avoid taking ‘coercive’ steps

The petitioner contended that no notice was sent to the petitioner before affecting recovery from the petitioner; that the order by the Commissioner Inland Revenue (Appeals-I) was received on November 1, 2021 by which time the pay order had already been prepared.

It was submitted that the matter has been further agitated by way of appeal before Appellate (Tribunal), Inland Revenue, Islamabad.

The petitioner is aggrieved of issuance of notices dated October 29, 2021 to its banks and/or attachment of the accounts maintained by it with referred banks for affecting recovery of the tax liability qua FED as well as default surcharge and penalty etc.

The means by which arrears of FED can be recovered is provided in Rule 60 of Federal Excise Rules, 2005.

The examination of the provision of law shows that various means are available to the authority-for recovery of its outstanding dues and any mode may be adopted without adhering to the sequence mentioned.

In order to recover the amount, the procedure that is to be followed by the authority is the one as provided in Sales Tax Rules, 2005.

Undoubtedly, the respondents (tax department/tribunal) have the power to recover the outstanding amount through modes provided in Rule 60 of the Federal Excise Rules, 2005 following the procedure as provided in Sales Tax Rules, 2006.

Rule 60 ibid or any other provision under the Federal Excise Rules, 2005 does not prescribe any expiry of period or issuance of notice, but Rule 71(1) provides for lapse of 30 days period after adjudication of the liability.

The liability was adjudged through order-in-original dated November 23, 2020, but was also subject matter of challenge.

The matter was pending for almost about 11 months, hence, the propriety demanded that before taking the penal measures for recovery of the liability notice should have been served through registered post or courier in the manner envisaged.

Attachment of bank account: FBR withdraws instructions issued by Shabbar

The IHC judgment further said that even otherwise, over a period of time, the courts have developed the jurisprudence that before affecting tax recovery there has to be adjudication by one independent forum and that being Appellate Tribunal Inland Revenue.

The order said that on the touchstone of the above case law, it was appropriate that respondents (tax department) ought to have waited for the outcome of the decision in the Appellate Tribunal before adopting coercive measures for recovery.

Needless to observe that the referred jurisprudence developed over a period of time is not to frustrate the mechanism provided under the law for affecting recovery prior to the decision by the Appellate (Tribunal) Inland Revenue, however, is to be followed only where the tax liability is not disputed but where the tax liability is disputed and is the subject matter of appeals in various fora up until the Appellate Tribunal.

For the above reasons, the instant petition is allowed and the impugned notice dated October 29, 2021 along with action of preparation of pay order in favour of respondents is set aside.

It is observed that the petitioner shall approach the Appellate Tribunal Inland Revenue for obtaining injunctive relief in its favour within a period of 45 days from the date of decision in the instant petition and in case of absence of any injunctive relief, respondents shall be at liberty to proceed for recovery of tax liability in accordance with the law, the IHC order added.

Copyright Business Recorder, 2021

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