Paying ST without any adjudication proceedings: FBR officials accused of pressuring ST registrants

ISLAMABAD: Field formations of the Federal Board of Revenue (FBR) have adopted an ‘illegal’ technique to pressurise sales tax registered persons to pay sales tax without any adjudication proceedings and without due process of law.

This is contrary to the binding principle laid down by the Supreme Court of Pakistan whereby any proceeding of tax fraud ought to be initiated only after assessment of tax under section 11 of the Sales Tax Act, 1990, according to leading tax experts.

A leading taxpayer contributing more than Rs.12 billion annually towards duties and taxes and presently being assessed at Zone-IV, LTO, Lahore has filed an application for change of jurisdiction wherein the new method of extortion of tax without due process of law has been explained and agitated.

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As per facts of the case, the Commissioner on 15.09.2025 issued an opportunity notice confronting suspension of sales tax registration on two basis of committing tax fraud. Firstly, claiming inadmissible input tax of Rs.11,097,347 during the tax period 07/2024 to 06/2025.

Secondly, claiming exempt supplies of Rs.872,792,811 made in FATA/ PATA which were in fact taxable and attracts sales tax liability of Rs.157,102,705 besides default surcharge and 100 percent penalty.

The AR of the registered person through his reply dated 20.09.2025 contested both the allegations. In respect of inadmissible input tax, it was pleaded that out of the confronted amount of Rs.11,097,347 the major portion of Rs.10,260,681 has voluntarily been made inadmissible by the registered person in the respective monthly sales tax return whereas the remaining input tax of Rs.836,666 has rightly been claimed as per precedent of superior appellate courts including the Supreme Court. Whereas, in respect of second allegation, it was pleaded that the exemption from sales tax was rightly claimed under Sr. No. 151 (A) of the Table I of the Sixth Schedule as it stood at the material time.

It was further explained that the concerned DCIR has already issued a show cause notice No.23648 dated 03.06.2025 confronting that on the exempt supplies made in FATA/ PATA apportionment should have been made which attracts sales tax liability of Rs.95773191.

In response to said notice, output tax of Rs.136,020,935 has been deposited through CPR dated 18.09.2025 which is over and above the output tax confronted by the DCIR at Rs.95,773,191. Request was made to drop the proceedings.

The person dealing with taxes of the registered person was called for and meetings were held with the Commissioner who confronted that unless and until upfront payment of Rs.500 million is made the sales tax registration would be suspended. The Representative responded that he will apprise the management.

The management decided not to scum to the aforesaid pressure tactics and did not deposit the tax within the ultimatum period of 48 hours given by the Commissioner. On 24.09.2025 the Commissioner has passed the suspension order and has implemented the same in the IRIS including showing the registered person as non-active.

In the arbitrarily passed suspension order in respect of reply of the registered person only following observation has been made: “The registered person submitted reply dated 22.09.2025 through AR which was not found unsatisfactory and contrary to the charges confronted vide show cause notice number CIR/Z-IV/ United Ind/ Sus/2025-2317 dated 15.09.2025, hence rejected.”

The aforesaid order is non-speaking and contrary to all the norms of justice and propriety. The Commissioner has not reproduced the reply and adjudicated the contention raised therein.

The inadmissible input tax involved was Rs.836,666 only as against confronted figure of Rs.11,097,347 whereas the allegation of taxable supplies within FATA/PATA was contrary to the show cause notice dated 03.06.2025 issued by the concerned DICR wherein exemption was accepted and the issue of merely apportionment was raised.

The said notice by the DCIR has not been withdrawn and two contradictory allegations by the Department cannot hold the field. Even otherwise, after tax payment of Rs.136,020,935 on account of apportionment the balance tax involved in case of taxability was merely Rs.21,081,770 (157,102,705 - 136,020,935) .

Against the aforesaid suspension order, appeal was filed before the Appellate Tribunal Inland Revenue and following interim order in MA (Stay) No.3751/LB/2025 dated 30.09.2025 was passed: Heard, we have given due consideration to the arguments of both the parties and feel that the request of stay against suspension order dated supra is justified in the circumstances of the case.

Accordingly, the operation of the order no.2871 dated 24.09.2025 passed u/s 21(2) of the Sales Tax Act, 1990 is suspended for a period of 30 days from the date of this order and the respondent is directed to restore the sales tax registration of the applicant.

The AR of the registered person met the Commissioner with application for restoration of registration due to order of the Appellate Tribunal and explained that the bald allegation of tax fraud for suspension of sales tax registration without issuing show cause notice and before passing assessment order under section 11E on the issue of inadmissible input tax of Rs.11,097,347 and taxability of supplies made in the FATA/PATA involving sales tax of Rs.157,102,705 is contrary to the principle laid down by the Supreme Court of Pakistan in its recent judgment reported as 2025 PTD 1270– 132 TAX 151. It was held by the apex court that the proceedings of tax fraud require a prior adjudication under Section 11 of the Sales Tax Act, 1990.

The official did not bother to read the application and the interim order and observed that the Representative of the registered person had committed to deposit sales tax of Rs.500 million and the said figure stood reported to the FBR and there is embarrassment to him for breach of commitment by the registered person. On the application, he observed that he will study and do the needful in due course of time.

Since on suspension of sales tax registration every working day is adversely affecting the business operations hence the AR of the registered person met the Commissioner on 04.10.2025 in respect of pending application of the registered person. The Commissioner has reiterated his demand that if upfront tax payment of Rs.500 Million is made, which now actually ought to be enhanced to Rs.700 Million, the Department would file rectification application against the interim order of the Tribunal.

The aforesaid delaying tactics by the Commissioner and insistence to deposit upfront tax without issuing any show cause notice on both the allegations and assessment thereof is extortion and that too from a taxpayer who has exemplary history of voluntary compliance of over fifty years.

Sales in the FATA/ PATA are merely 0.44 percent of the total sales made by the registered person and these were actually made in those areas and there is elaborate documentation to substantiate the same once the proper show cause notice is issued on the subject. It is beyond comprehension that for merely 0.44 percent of the supplies the registered person would make any false claim.

When contacted for comments, Shahid Jami, Tax Consultant explained that show-cause notice for suspension of sales tax registration has become a normal practice within the Department across the country as it is a short cut for deposit of tax as business operation of the taxpayers comes to stand still with the suspension.

He observed that FBR should carry an audit of all such notices and initiate disciplinary proceedings against the officers who issued such blatant notices and later on if the taxpayer compromised the proceedings were dropped or the registration was suspended on flimsy grounds for which there is no show cause notice under section 11E of the Sales Tax Act, 1990 to first assess the tax liability before starting any ancillary proceedings for tax fraud.

He observed that by suspending sales tax registration the registration of such a compliant taxpayer it would be the department who would be the loser at the end as no revenue would be forthcoming due to suspension of business operations.

Copyright Business Recorder, 2025