ISLAMABAD: Lahore High Court (LHC) has directed the Federal Board of Revenue (FBR) to introduce sales tax legislation in the Sales Tax Act, 1990 to stop the FBR from delaying sales tax refund payments in the name of pre-refund audit proceedings.

The sales tax legislation would also safeguard the rights of the taxpayers for timely refund payments in cases of pre-refund audit proceedings, LHC order said.

In this regard, LHC has issued an order against the FBR.

“The FBR and its officials cannot sit over the rights of the taxpayers in relation to the tax refund claims for an indefinite period and must conclude the pre-refund audit proceedings by strictly following the mandate of Section 10(3) of the Sales

Tax Act (Act)”, LHC order added.

Through the petition, under Article 199 of the Constitution, a Public Limited Company engaged in manufacturing of fertilisers, challenged pre-refund audit proceedings and the consequent show-cause notice issued by the respondent, FBR, with the averments that the same be declared illegal, unlawful and violative of the provisions of section 10 of the Sales Tax Act, 1990.

Prayer has also been made that the department should refund the excess amount of input tax paid by the petitioner while dealing with delay in audit proceedings.

The company paid input tax applicable at 17% whereas the output tax was charged, on the goods (fertilizers), at the reduced rate of 2% by virtue of Eighth Schedule to the Act and hence, the petitioner was entitled to the referred amount of tax refund. However, refund claims remained pending for payment with the respondent-FBR despite timely filing of the same along with the requisite documents.

LHC was of the opinion that the section 10 of the Sales Tax Act is not a self-containing and self-executory provision rather the admissibility of the tax refund claim is required to be determined in a case where there is reason to believe that the refund claim is not admissible.

LHC further directed that in view of the facts and circumstances of the present case the scope of first proviso to Section 10(1) of the Act, the present petition is misconceived and pre-mature inasmuch as the impugned show-cause notice issued by the department has been premised on the pre-refund

audit proceedings and no adverse order has been passed against the petitioner.

The FBR is directed to proceed with the present matter, strictly in accordance with law, keeping in view the mandate of Section 10(3) of the Act and if in the instant case, there has been no approval obtained from the Board for the conclusion of pre-audit proceedings within nine months, ex-post facto approval must be obtained, before proceeding further.

LHC further ordered that the section 67 of the Act is only applicable and the additional amount is payable to the taxpayer when the refund is held due and is not made within the time specified in Section 10 of the Act but the said provision is to be applicable after the investigation of the claim, or so much of the claim as, is accepted and for the said purpose mandate of Section 10(3) is to be strictly adhered to.

LHC order added that the non-adherence by the respondent-FBR to the time-limit envisaged under Section 10(3) of the Act in concluding the refund claims amounts to concomitant violation of the fundamental rights of the taxpayers guaranteed under Articles 23 and 24 of the Constitution.

No consequences of such non-adherence have been envisaged under the Act.

This aspect of the matter is a policy issue and requires legislation, which is for the Federal Government to examine on a priority basis.

Therefore, the federal government is directed to consider the possibility of initiating necessary legislation on the subject by providing the consequences of non-adherence to the provision of Section 10 (3) so that the rights of the taxpayers can be safeguarded, LHC directed the federal government.

Copyright Business Recorder, 2024

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