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LHC sets aside suo-moto powers of FBR to collect sales tax

LHC sets aside suo-moto powers of FBR to collect sales tax

LAHORE: The Lahore High Court (LHC) on Wednesday set aside the suo moto powers of Federal Board of Revenue (FBR) to collect sales tax from the business community without registering them under Sale Tax Act 1990 and Sale Tax Rules 2006.

A two member bench comprising Justice Sajid Mahmood Seithi and Justice Muzammal Akhtar Shabir announced verdict by upholding the judgment of tax tribunal of LHC on the petitions moved by SK Steels mills and others.

The court held that the FBR could not collect the sales tax from any business person without registering him. The FBR will register the business community as taxpersons and then will proceed for collection of sale tax under section 3 of Sale Tax Act 1990.

Representing the petitions, Ajmal Khan Advocate argued that the business community of the country is fighting for the justice against this suo moto powers of the FBR for the last nine years. In order to achieve tax collection targets, the FBR was collecting the sales tax from the business community without registering them and without giving any notice of recovery to them, Ajmal Khan Advocate said, adding that this practice of the FBR is tantamount to harass the business sector which is already paying huge taxes and duties to the government.

He further argued that the FBR proceeded against the business community under Section 3 (charging section), 7 (determination of the tax liability) and under other sections Sales Tax Act 1990 without registering them under the act.

The FBR counsel argued that the department had the power to collect the sales tax from any business person where it feels necessary and there is no bar under the act which restrains the FBR from doing so. The FBR has powers to collect the sales tax from the registered persons and liable to be registered persons, he added.

Replying to the arguments of the FBR counsel, however, Ajmal Khan advocate pointed out that there was section 19 in the act which empowers the FBR for compulsory registration but this section was omitted and was inserted again in the Sales Tax Rules 2006. Under rule 6 sub rule 4 of the STR 2006, the FBR is bound firstly to register a business man compulsory and then it will proceed further under section 3 and 7 by granting the registered person an opportunity of raising objections on the FBR demand notices.

Ajmal Khan Advocate pointed out that registered persons and liable to be registered persons are two different things.

After hearing the arguments, the two member bench set aside the powers of the FBR to collect sales tax from the business community without registering them under Sale Tax Act 1990 and Sale Tax Rules 2006. “The FBR will firstly register a businessman and then will apply section 3 of Sale Tax Act for charging of sale tax act,” the verdict added.

It further added that all such collections of FBR from unregistered businessmen will be unlawful.