FBR’s plea against LHC order in sales tax reference: Order void if matter is decided after prescribed time: SC

ISLAMABAD: The Supreme Court has declared that the timeframe set out in Section 45-B (2) of the Sales Tax Act, 1990 for deciding the appeal is mandatory and if decided beyond the given time, being 180 days, then it makes the order void.

A two-judge bench, headed by Chief Justice Umar Ata Bandial, and comprising Justice Ayesha A Malik, heard the Federal Board of Revenue’s appeal against the Lahore High Court’s order dated 01.06.2021 in the Sales Tax reference. The bench dismissed the appeal, being devoid of merits.

M/s Sarwaq Traders (Respondent No1), a taxpayer challenged Order in-Original dated 22.02.2011 before the Commissioner (Appeals). The Appeal was filed on 22.03.2011 and the matter was decided on 21.09.2011. The issue before us is that the appeal was decided beyond the prescribed period of limitation under Section 45-B (2) of the Sales Tax Act, 1990 (Act) being 180 days.

The Appellate Tribunal considered this issue and concluded that the Commissioner (Appeals) decided the matter after the prescribed time limit under Section 45-B (2) of the Act. Consequently, it declared the order as void being a nullity in law. The LHC upheld the Tribunal verdict.

The judgment, authored by Justice Ayesha, said that the Sales Tax Act, 1990, is a law related to the levy of sales tax on sale, import, export, production, manufacture and consumption of goods. Section 45-B (2) of the Act provides that an appeal is to be filed within 30 days against the order passed by an officer of Inland Revenue.

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Under this section, if the case cannot be decided in 120 days, Section 45-B (2) of the Act gives the Commissioner (Appeals), the authority to extend the 120 days by 60 days, if required, provided that the Commissioner (Appeals) records the reasons, in writing as to why the period of 120 days is being extended.

The judgment said that the legislature has prescribed a clear time frame of 180 days for deciding the appeal, by using negative and restrictive language. “The rationale, as we understand, for prescribing a time frame is to ensure that tax matters be resolved at the earliest, within the relevant tax year, so that the taxpayer satisfies its liability and the Department is able to collect revenue, within the relevant tax year.” This is important because taxes pay for public goods and services and are one of the main sources of revenue for the State.

The Court found that this obligation is mandatory as the first timeframe given under section 45-B(2) is 120 days, which is extendable, meaning that, the Commissioner can exercise discretion and extend the time where required. The only caveat is that reasons have to be given in writing so that the discretion is not misused and is not exercised arbitrarily. The second timeframe under Section 45-B(2) is for extending 120 days by 60 days and nothing beyond 60 days.

With the help of negative language, the legislature has created an obligation on the Commissioner (Appeals) to decide the appeal in a total of 180 days where the appeal is not decided within 120 days.

The judgment said if a decision is made beyond the 180 days as prescribed under Section 45-B (2) of the Act, then such a decision made beyond the prescribed period is an invalid decision. This is because the statute requires the appeal to be decided within 180 days, hence, it has to be decided in the prescribed period.

The court noted where the law regulates the manner in which public officials have to exercise power vested in them, then such provisions have to be interpreted in their legislative context. In this case, where the public authority is empowered to create a liability against a taxpayer, then such exercise of power must be performed within the prescribed time.

Copyright Business Recorder, 2022