LAHORE: The Lahore High Court has ruled that section 33 (25) of the Sales Tax Act 1990 does not empower any officer of the Inland Revenue department to issue a show-cause notice or impose a penalty on a trader for not getting registered as a Tier-1 retailer without determining whether a taxpayer is liable to be so registered.

A division bench ruled this allowing an intra court appeal (ICA) of a trader, Shahbaz Hussain, challenging a single bench decision rejecting his plea against an order passed by the Inland Revenue Officer, Unit-09, Chiniot.

The inland revenue department imposed a penalty of Rs1 million on the appellant under section 33(25) for contravening sub-section (9A) of section 3 read with section 40C of the Sales Tax Act, 1990, for not integrating his business through installation of point of sales (POS) software with the computer system of the Federal Board of Revenue.

The single bench dismissed the petition of the appellant on the ground that he failed to establish that he complied with the legal requirements envisaged under the law, hence, the respondent department was justified in imposing penalty under section 33(25) of the Act.

Before the two-judge bench, a counsel for the appellant argued that the imposition of penalty was illegal and unlawful. He said the appellant was not obligated to integrate for the purposes of monitoring under the Act being not a Tier-1 retailer.

The counsel pointed out that registration had been compulsorily affected under the Act as Tier-1 retailer on March 4, 2021, in respect of which appeal of the appellant was pending before the appellate tribunal of the Inland Revenue, Lahore, and without waiting for the outcome, the show-cause notice for imposition of penalty was issued that culminated into passing of the order of penalty.

“Necessary proceedings as to registration of a taxpayer as Tier-1 retailer must be carried out before rendering any retailer liable to penal consequences in the garb of Tier-1 retailer,” observes Justice Anwar Hussain, the author of the division bench judgement. Justice Shahid Karim headed the bench.

Justice Hussain further observes that as a precondition, determination, as envisaged by the law is required whether a particular retailer squarely falls within the definition of Tier-1 retailer or not and only if he fulfills the conditions, he is liable to be so registered.

He says a straight jump onto penal consequences without resorting to adjudicatory mechanism for the determination of whether such taxpayer qualifies to be registered as Tier-1 retailer is unlawful.

The judge regrets that the appellant has been clearly hard done by deprivation of procedural safeguards for determination of whether he is liable to be registered and subsequent consequences.

“This is more so when the appeal against the compulsory registration as Tier-1 retailer filed by the appellant is admittedly pending which is yet to be decided,” he adds.

Setting aside the decisions of the single bench and the inland revenue, the division bench however, clarifies that the department may initiate proceedings strictly in accordance with law by issuing proper notice in terms of section 11 read with enabling provisions of the Act as well as the rules, against the appellant.

Published in Dawn, September 25th, 2022