ISLAMABAD: The Lahore High Court (LHC) has ruled that payment of a disputed amount under protest cannot, by itself, be treated as an admission of guilt before the Federal Board of Revenue (FBR).
It dismissed the Department’s Sales Tax Reference and confirmed the order passed by the Federal Tax Ombudsman (FTO) in favour of the taxpayer.
Tax lawyer Waheed Shahzad Butt, who had represented the taxpayer before the FTO, the president and the LHC, told Business Recorder that a divisional bench of the LHC decided both matters through a single judgement.
The case arose from an investigation by the FBR’s Directorate General of Intelligence and Investigation into an alleged scam involving misuse of the registration numbers of registered persons.
The taxpayer was summoned under Section 37 and deposited tax under protest.
An Order-in-Original then demanded the same amount along with 100 percent penalty and default surcharge.
The commissioner (Appeals) and the appellate tribunal inland revenue (ATIR) deleted the penalty and surcharge.
The FTO had recommended refund of the amount deposited under protest and cancellation of the order.
The court held that the payment under protest “cannot by itself be treated as an admission of guilt”.
It added that such a payment cannot, without supporting evidence, be treated as a confession or admission of the ingredients of an offence.
A taxpayer may pay to avoid coercive consequences while reserving the right to contest liability.
An inadmissible input tax claim and the commission of a penal offence are not synonymous.
The department must establish the ingredients independently.
No evidence showed the taxpayer knowingly or fraudulently participated in the alleged scheme.
The taxpayer had verified that its suppliers were active registered persons.
The court noted that liability cannot be fastened on assumptions, and that output tax is the supplier’s liability.
Default surcharge under Section 34 is mandatory and does not require mens rea. However, the department failed to establish the underlying statutory default or any computation so the surcharge could not be sustained, the LHC ordered.
Waheed Butt further added that the FTO’s order directing refund of the amount deposited under protest was a landmark achievement.
Copyright Business Recorder, 2026