LAHORE: A State-Owned Enterprise (SOE) has challenged a blatant disregard for the law by the tax department for adopting coercive measures against it, issuing recovery notices without following the mandatory procedure of constituting an Alternative Dispute Resolution Committee (ADRC).
The SOE had approached the relevant appellate forum, seeking a direction against the department to refrain from initiating or taking any coercive recovery measures in respect of default surcharge amount against it till the constitution of the ARDC.
The Income Tax Ordinance 2001 explicitly requires the tax authorities to constitute an ADRC to resolve disputes with state-owned enterprises. However, the tax department has been flouting this provision, resorting to strong-arm tactics to recover taxes.
The appellate forum maintained that it is not in dispute that pursuant to Section 134-A of the Income Tax Ordinance, 2001, read with Section 47A(2) of the Sales Tax Act, 1990, duly amended by Finance Act, 2024, a mechanism has been provided for SOE to approach FBR in respect of adverse orders passed by the Inland Revenue Department under both these fiscal laws. The most significant and the relevant amendment made, which is fully applicable to the dispute, is that now it is mandatory for SOE to go for ADR, whereas the limit of Rs50 million is also not applicable. Earlier, the management of an SOE was reluctant to go for mediation in any business transaction due to fear of prosecution, but through newly amended provisions, they have been protected from any suit, prosecution or other legal proceedings. Since referral to ADR is now mandatory for SOE, a right to appeal has also been provided to SOE when matter is not decided by ADRC within the stipulated period.
The affected state-owned enterprises have been left with no choice but to approach the courts, seeking relief against the unlawful actions of the tax department. The courts have taken a dim view of the tax department’s actions, directing them to withdraw the recovery notices and follow the due process of law.
Tax experts are of the view that it is imperative that the tax department respects the law and follows the established procedures to avoid such confrontations in the future.
Copyright Business Recorder, 2025
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