LHC disposes of sales tax reference filed by IR commissioner

The Lahore High Court (LHC) on Monday dismissed a sales tax reference that was filed by the Commissioner Inland Revenue (IR) eight years ago, reported 24NewsHD TV channel.

The Lahore High Court ruled that issuance of a show-cause notice before registration is illegal.  The LHC stated that post-registration proceedings cannot validate an illegal action initiated earlier.

The verdict was authored by Justice Mohammad Ajmal Khan Zahid, who was member of two-member bench of the Lahore High Court.

Tax experts termed the judgement a landmark. The verdict stated that process of sales tax registration was completed on September 27 while the show-cause issued on September 23, 2016.

The Lahore High Court stated that the basic law of an action commenced on an illegal basis cannot be sustained merely by subsequent action tax tribunal was not challenged. The court observed that an unchallenged point of law cannot be reopened indirectly by reference.

The Court stated that the Inland Revenue Department failed to prove its allegations. The answers to questions on bank credit, AOPs, and tax evasion are illegal.

Due to a fundamental legal point, the department's other questions do not affect the outcome.

The court does not adjudicate on a question in a reference if it would not alter the case's outcome. The Lahore High Court upheld the Tax Tribunal's decision dated December 19, 2017.

No further ruling was made regarding the department's stance on tax fraud and concealed information.

The verdict stated that subsequent proceedings were compromised because a legal flaw existed at the very inception of the tax action.