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

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

The court barred the FBR from collecting sales tax from the business community and ordered to register the business community as taxpayers to collect sales tax under Section 3 of the Sale Tax Act 1990.

Collection of sales tax from unregistered businesspersons termed unlawful

Representing the business community, Advocate Ajmal Khan argued that the businesses were fighting for justice against FBR’s suo motu powers for the last nine years.

He said the authority was collecting sales tax from the business community without registration. The FBR approaches without giving any notice of recovery to the businesses in order to achieve its tax collection targets, he added.

The counsel said FBR was harassing the business community which was already paying huge taxes and duties to the government.

The FBR proceeded against the business community under Sections 3 (charging section) and 7 (determination of the tax liability) of the Sales Tax Act 1990.

Meanwhile, the FBR’s counsel said the department had the power to collect the sales tax from any businessperson without registering them under the Sales Tax Act 1990.

He said the FBR had powers to collect the sales tax from the registered persons and liable to be registered persons.

The business community’s counsel pointed out that Section 19 in the act empowers the FBR for compulsory registration but this section was omitted and was inserted again in the Sales Tax Rules 2006.

He said under Rule 6 of the 2006 rules, the FBR is bound to register a businessperson and then proceed under Sections 3 and 7 by granting the registered person an opportunity of raising objections on the authority’s demand notices.

He further pointed out that registered persons and liable to be registered persons are two different things.

The bench after hearing the arguments set aside the powers of the FBR to collect sales tax from the business community without registering them under Sales Tax Act 1990 and Sales Tax Rules 2006.

The court directed the FBR to first register a businessperson and then apply Section 3 of the Sales Tax Act. It further termed collection of tax from unregistered members of the business community as unlawful.

Published in Dawn, April 25th, 2019