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Business Recorder
24-06-2025
- Business
- Business Recorder
Sec 37A of STA: SC spells out conditions for initiating criminal proceedings
ISLAMABAD: The Supreme Court held that without investigative audit or issuance of show cause notice or providing opportunity to explain the matters, under Section 37A of the Sales Tax Act, 1990, registration of FIR, initiation of criminal proceeding and arrest of registered person is without jurisdiction and lawful authority. The 61-page judgment, authored by Justice Aqeel Ahmed Abbasi, further held that criminal prosecution follows adjudication and assessment of tax under Section 11 of the Act; therefore, pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayer is determined in accordance with law. A three-judge bench, headed by Justice Shahid Waheed and comprising Justice Irfan Saadat Khan, and Justice Aqeel upheld the Lahore High Court (LHC) verdict dated 19.09.2013, and through consolidated judgment uploaded on the Supreme Court's website decided all the listed matters as they involve common questions of law. The criminal prosecution was initiated under Sections 37A and 37B of the Sales Tax Act, 1990 for the alleged offence of tax fraud, issuance of fake sales tax invoices to claim inadmissible input adjustment/ refund of sales tax. The SC judgment said perusal of the provisions of Section 33 of the Act reveals that criminal penalties are linked with the 'tax loss' or 'amount of tax involved and tax due'. Therefore, instead of providing for imprisonment or fine (ordinarily a certain sum of money) or both as punishment, the 'fine' under the Act requires the taxpayer to pay the 'tax loss' or 'amount of tax involved and tax due,' thereby indirectly criminalising, the recovery of 'tax due.' Careful review of the penalties as provided, clearly shows that the measure of sentence is linked with the 'amount or loss of tax involved and tax due', and prima facie, cannot be imposed unless there is some determination or duly assessed tax liability of sales tax due through the processes of assessment for adjudication as per law. In fact, the linkage uses the tool of imposition of penalty as a mode of recovery of tax. Hence, criminalisation under the Act goes beyond the pale of retribution and deterrence and appears to be principally focused on recovery of tax. The said linkage between 'fine' and the 'amount of tax due' is missing. If we may examine the criminal provisions under the other tax laws; i.e., Income Tax Ordinance, 2001, in Part XI of Chapter X of the said Ordinance, it provides for criminal prosecution under Sections 191 to 200, which simply provide for imposition of 'fine' but does not link it with the 'tax loss or amount of tax' (except for compounding the offence under Section 202). In the case of Federal Excise Act, 2005, such a linkage is visible; however, it has been pointed out that no criminal proceedings can be initiated under the said law without prior assessment of tax. It reflects upon the clear intent of the legislature that primarily tax liability is a civil liability to be determined through process of assessment or adjudication as per law, whereas, in case of wilful default, miscalculation, concealment or fraud penal provisions can be invoked to ensure tax compliance, recovery of tax and payment of additional amount of tax and/ or penalty. It; therefore, appears that criminalisation under the Act while invoking the provisions of Section 37A, without recourse to the assessment proceedings, is being treated differently as compared with other tax laws, which is not only against the scope and application of taxing provisions of the Act but also, violates the settled principles of fairness and fair trial as guaranteed under Article 10-A of the Constitution of Islamic Republic of Pakistan, 1973. 'Imposition of additional tax, default surcharge, penalty or fine; etc., depends upon peculiar facts of each case whereas, such penal provisions are only attracted once the Revenue Authorities can establish that the default in payment of tax was wilful and there was element of mens-rea on the part of tax payer, while not making payment of such amount of tax due.' The judgment noted, in all the cases, the criminal proceedings and registration of FIRs are mainly based on the allegations of tax fraud by the registered persons while preparing fake sales tax invoices to claim false input adjustment/ refund of the amount of sales tax. 'Even if we assume that the Special Judge convicts the taxpayer, he cannot award the sentence, as 'fine' is dependent on the 'amount or loss of tax involved' and it is not within the competence or jurisdiction of the Special Judge to assess tax or determine the 'amount or loss of tax involved' which is not part of the offence but of the sentence. Further, the facility of compoundability under Section 37 (A) (4) is not available to the taxpayer, unless the amount of tax due and penalties as determined under the Act.' The judgment said if the provisions of Section 37A are allowed to be invoked independently without any reference to the other relevant provisions of Sales Tax Act, 1990 including Section 2 (37) 'tax fraud', Section 3 'Scope of Tax', Section 11 'Assessment of tax' and Section 33 'Offences and Penalties', the same will be in violation of the substantial provisions relating to Charge of Sales tax and Assessment of Sales Tax, as it will give unbridled powers to officials of sales tax to initiate criminal prosecution against a registered person or any person within the supply chain, including registration of FIR and arrest, even without creating a lawful demand under the law. If such an interpretation is made in respect of provisions of Section 37A the same will make the provisions of the Act as redundant, whereas, redundancy cannot be attributed to legislation. It noted that under the Sales Tax Act there is no provision of law which authorises the tax officials to presume any tax liability in the absence of assessment proceedings, and to proceed against a registered person or any person within the supply chain. The judgment also stated that the perusal of the provisions of Section 37A of the Act shows that unless these provisions are read in harmony with other corresponding provisions of the Act, and invoked as per scheme of the law after assessment/ adjudication of the amount of sales tax due, it can be abused by initiating criminal proceedings, including arrest of a registered person, on the mere allegation of tax fraud and default in payment of presumed tax liability which is yet to be determined through process of assessment or adjudication. Such interpretation of the provisions of Section 37A would bring uncertainty of taxation, which is against the very spirit and purpose of imposition of any tax. However, before invoking such provisions or adopting coercive measures for the recovery of the amount of tax due, the determination of tax liability through process of assessment or adjudication has to precede before initiating criminal proceedings, which otherwise depend upon wilful default, mens-rea and commission of an offence of tax fraud with an intent to cause loss of tax involved or due. The judgment observed; 'Admittedly in all the cases, without determination of sales tax liability and the amount of tax allegedly evaded or short paid, through process of assessment/ adjudication, recourse to initiation of criminal proceedings on the allegation of tax fraud, including registration of FIR and arrest of a registered person or any person within the supply chain, amounts to, pre-empting the assessment of tax liability, whereas, in the absence of lawful demand of Sales tax pursuant to assessment of tax due, the penal provisions including Section 33 read with Sections 37A and 37B cannot be invoked. Therefore, the penal provisions including registration of FIR and arrest of any person on the above allegations is without jurisdiction and lawful authority. It is settled principle of interpretation of taxing statute that any provision of statute cannot be read in isolation, particularly, when it is dependent upon or complimentary to other provision of the law. In case of any ambiguity or overlapping of the provisions of law, harmonious construction is to be made, so that such provision of law may not render the other provisions as redundant or nugatory. Copyright Business Recorder, 2025
Business Recorder
23-06-2025
- Business
- Business Recorder
Finance bill contains drafting errors: experts
ISLAMABAD: Finance Bill (2025-26) contains drafting errors and contradictions amongst taxing statues including Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005. Tax experts told Business Recorder that policymaker has been harmonizing the parallel provisions contained in the Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005 as all these are administered by the same officer of the field formations. But contrary to the established policy and past practice through Finance Bill 2025 certain contradictory amendments are proposed. The tax experts have pointed out that earlier all the three taxing statutes contained a provision that after issuance of show cause notice the assessment order was to be passed within a specified period and this provision was interpreted as mandatory in various judgments of the Supreme Court. Budget FY25-26: Finance bill still being discussed, says FBR However, through Finance Bill the provisions contained in Section 122(9) of the Income Tax Ordinance, 2001 is proposed to be omitted meaning thereby that there would be no time limit for passing the assessment order after issuance of show cause notice and practically the same can be passed within five years of the end of the Financial Year in which the relevant return of total income was filed. Contrary to this, the identical provision contained in Section 11G of the Sales Tax Act, 1990 and sections of the Federal Excise Act would be continued. This differential treatment in the taxing statute administered by the same assessing officer does not sound to reason and is contrary to the norms of justice and fair play. When contacted, Shahid Jami, a Lahore based tax lawyer, explained that though Anomalies Committees have been constituted by the Federal Government but such fine points are not likely to be addressed by them as this may not be considered anomaly by them. He pointed out a drafting error according to which sub-section (1) of Section 46 of the Sales Tax Act, 1990 pertaining to appeal to the Appellate Tribunal is intended to be substituted and the proposed amendment provide appeal only against the appeal order passed by the Commissioner (Appeals) and contrary to the earlier provision existing for decades no appeal has been provided against the order passed by the Zonal Commissioner and FBR under the Act or Rules. Jami stated that the wording appears to be erroneous in drafting and not intentional change in policy as the words 'under this Act and Rule made there under' exist in the proposed amendment but the authorities of Zonal Commissioner and FBR are missing. It is imperative that such drafting errors and contradictions are removed from the Finance Bill for uniformity of taxing statues and to protect the rights of the taxpayers. Copyright Business Recorder, 2025
Business Recorder
31-05-2025
- Business
- Business Recorder
ST, Federal Excise Return: FBR extends date of submission upto June 5
ISLAMABAD: The Federal Board of Revenue (FBR) has extended date of submission of Sales Tax and Federal Excise Return for the tax period of April, 2025 upto June 5, 2025. This is subject to the condition that due sales tax liability has been deposited within due date. FBR to levy 18% sales tax in erstwhile tribal areas In this regard, the FBR has issued instructions to all Chief Commissioners Inland Revenue of Large Taxpayers Offices (LTOs), Medium Taxpayers Office (MTO), Corporate Tax Offices (CTOs) and Regional Tax Offices (RTOs) on extension in date of Submission of Sales Tax & Federal Excise Return for the Tax Period of April, 2025. In exercise of the powers conferred under section 74 of the Sales Tax Act, 1990 and section 43 of the Federal Excise Act, 2005, the FBR has directed that the date of submission of Sales Tax and Federal Excise Return for the tax period of April, 2025 which was due on May 18, 2025 is extended till June 5, 2025 subject to the condition that due sales tax liability has been deposited within due date, FBR added. Copyright Business Recorder, 2025
Business Recorder
14-05-2025
- Business
- Business Recorder
Tax laws termed ‘death warrants for industries'
KARACHI: Industrialists categorically rejected the recently introduced Tax Laws (Amendment) Ordinance, 2025, describing it as undemocratic, unconstitutional, and a death warrant to industries. They denounced the ordinance for granting disproportionate authority to the Federal Board of Revenue (FBR), especially regarding tax recovery. Signed into effect by the President of Pakistan Asif Ali Zardari, the ordinance amends Sections 138 and 140 of the Income Tax Ordinance, 2001, along with key portions of the Federal Excise Act, 2005. The changes permit the FBR to execute immediate enforcement measures—such as freezing accounts, confiscating property, and sealing business premises—once a final ruling is issued by the High Court or Supreme Court, with no requirement for additional notice. The ordinance also allows FBR personnel to be physically deployed within factories and commercial sites to oversee production, stock levels, and the movement of goods. President FBATI Sheikh Muhammad Tehseen has condemned this as a serious infringement on operational freedom and a new layer of bureaucratic intrusion. 'Having tax officers embedded in our workplaces is not only invasive but amounts to institutional harassment,' said the FBATI president. 'This legislation undermines constitutional rights, weakens the role of the judiciary, and creates a hostile environment for current and potential investors.' He criticized the move for bypassing legislative and judicial oversight, which he said is a clear violation of the country's constitutional framework. Calling the ordinance overstep of authority, he stated, 'This kind of enforcement leaves no room for voluntary compliance or appeals. It's coercive and strips businesses of basic legal protections.' President SITE Superhighway Association of Industries (SSHAI) Pervaiz Masood said that the government allowed tax authorities to recover taxes from industries at gunpoint, which is an unlawful and unconstitutional act. The ordinance will seriously hit the business confidence within the country, he said. Not only it will discourage investments at a local level, but industries may move to other countries to avoid harassment culture. Copyright Business Recorder, 2025
Business Recorder
12-05-2025
- Business
- Business Recorder
FBR deputes officers at 21 beverages cos
ISLAMABAD: The Federal Board of Revenue has deputed over 50 Inland Revenue officers at 21 beverage manufacturing companies for monitoring of production and sales of beverages cleared from the factories. In this regard, the FBR has issued instructions to the Chief Commissioner Inland Revenue, Large Taxpayers Office Lahore regarding monitoring of Beverages manufacturing units under section 40B of the Sales Tax Act 1990 and section 45(2) of the Federal Excise Act 2005. Under the said section of the Federal Excise Act, the Board may post officer of Inland Revenue to the premises of registered person to monitor production, removal or sale of goods and the stock position or the maintenance of records. Beverages, cotton bales: FBR decides to install production line counter system The FBR, in exercise of powers conferred under section 40B of the Sales Tax Act 1990 and section 45(2) of Federal Excise Act, 2005, is pleased to post the following officers/officials of Inland Revenue at the business premises of beverage manufacturing units mentioned against their names to monitor production, sales and stock position. A report on the outcome of the exercise may be furnished to the Board after completion of the exercise. The officers/officials are posted till June 2, 2025, the FBR's instructions added. Copyright Business Recorder, 2025
