LAHORE: The Lahore High Court has ruled that the recovery of tax arrears through utility bills is unlawful, terming this practice highly deprecated.

“The special procedure, ibid, is silent about recovery of a tax which is not charged by a distribution company against supply of natural gas,” Justice Shahid Jamil Khan observes in a decision on petitions of several industries.

The industries approached the court against charging tax arrears in utility bills for natural gas against a column titled “Aging/Arrears”.

The counsel for the petitioners argued that the recovery of arrears was illegal in the absence of any prescribed procedure and determination of tax.

In his verdict, Justice Khan observes that special procedure for collection and payment of sales tax on natural gas is provided in Chapter IV of Sales Tax Special Procedure Rules, 2007.

He says rule 20 enjoins responsibility of charging and paying sales tax on the person who supplies natural gas. Under its sub-rule (2)(c), gas transmission and distribution company is responsible for charging, collecting and depositing sales tax on supply of natural gas.

However, the judge notes, the column titled “Arrears/Aging” through which tax arrears are recovered is meant for arrears of supply of natural gas.

Even if, after the amendments in the special procedure, law authorises recovery of tax arrears through bills, the judge says, it has to be through an independent column showing that the arrears are of tax.

“The impugned practice, besides being without lawful authority, is a misrepresentation,” Justice Khan writes in the verdict.

He maintains that a full disclosure of the particulars and necessary information for the recovery is now a fundamental right under Article 19-A of the Constitution, therefore, the impugned practice is highly deprecated and declared illegal.

The judge says since there is no special procedure for the recovery of tax not charged by a distribution company, therefore, the impugned recovery of tax arrears through utility bills is declared without lawful authority.

He states that if tax is determined in accordance with law and instructions are issued, under the law for recovery of any tax through utility bill, the bill issuing authority must satisfy itself that the instruction is based on an order, determining tax, by the competent officer and that particulars of the recoverable tax are fully disclosed.

Justice Khan directed member (Policy), of the Federal Board of Revenue (FBR) to issue a clarification to all the utility providers that arrears of tax cannot be recovered, in utility bills, in a camouflaged manner, as is impugned in this case.

“The utility bill must contain an express entry, showing nature of tax arrears, determined by the commissioner under the prescribed special or normal procedure,” the judge observes directing an additional attorney general to ensure compliance of the order.

Published in Dawn, April 17th, 2022