FTO has directed the Federal Board of Revenue (FBR) to bar the officers of Audit Cadre in Inland Revenue Service (IRS) from assigning assessment-related functions/duties and withdraw a penalty order against tier-1 retailers.
Briefly, the Complainant, an individual falling under Tier-I Retailer, is aggrieved against impugned 0I0 No.413 of 2021 passed by Inland Revenue Audit Officer (IRAO) Enforcement-II, CTO Karachi allegedly imposing penalty of Rs1,000,000 on account of non-integration with POS without lawful authority and beyond his jurisdiction. As per complaint, the said Officer did not have any authority to issue the impugned order of penalty in view of Sindh High Court decision wherein the High Court confirmed the administrative decision of the FBR that the Officers of Audit Cadre in IRS shall not be posted as Unit Incharge in field formations and shall not be assigned assessment related functions and duties.
In addition, Lahore High Court in case of Shahbaz Hussain Vs Federation of Pakistan in ICA No.50591 2021 also declared that Section 33 in general and entry at S.No.25. In particular does not empower any Officer Inland Revenue (OIR) to issue show cause notice or adjudication thereof under the said section without recourse to section 11 of the Sales Tax Act (the Act).
As per complaint, the IRAO on the basis of alleged illegal order, issued recovery notice for recovery of penalty amounting to Rs 1,000,000 and subsequently, the business premises was sealed. However, it was de-sealed on payment of 50% of penalty amounting to Rs 500,000. Later on, the Commissioner-IR Appeals VII, Karachi confirmed the imposition of penalty vide order without recording arguments of the complainant on the basis of illegally issued by IRAO without any jurisdiction.
Evidently, the show cause notice dated and recovery notice were issued by an IRAO without lawful authority and beyond his jurisdiction in view of decision of Honourable Sindh High Court decision (SHC) in CP No.D 1356/2022 as referred supra wherein the High Court confirmed the decision of the FBR that the Officers of Audit Cadre in IRS shall not be posted as Unit Incharge in field formations and shall not be assigned assessment related functions and duties. The decision of the SHC has been challenged by the aggrieved party but the Honourable Supreme Court has not suspended the order of SHC as yet meaning thereby that the judgment of the SHC is in the field. In addition, FBR till date has not withdrawn its direction Therefore, it can be concluded without any iota of doubt that the show cause notice dated and recovery notice issued by IRAO were illegal, coram non-judice and ab initio void.
In addition, the Commissioner confirmed the imposition of penalty of Rs1,000,000/ under clause 25A of Section 33 of the Act. The basic foundation i.e. the show cause notice to impose penalty under this clause was issued on 26.08.2021 by the IRAO whereas this clause was introduced into the Act on 15.09.2021. This clause was not in existence when show cause notice dated 26.08.2021 was issued to impose penalty. Hence, the show cause notice dated 26.08.2021 was patently illegal on this ground as well.
Further, it will not be out of context to mention here that the matter of jurisdiction is mandatory for court to decide at first instance and this can be raised at any stage as settled by the Honourable Supreme Court of Pakistan in the case reported as 2008 SCMR 240 Izhar Alam Farooqi Vs Sheikh Abdul Sattar Lasi and others in C.P.L.As nos. 488-K & 489-K of 2006 decided.
The order of IRAO dated 29-10-2023 is contrary to law and procedure and against the principle of natural justice hence unlawful per se and tantamount to maladministration in terms of Section 2(3)(i)(a)(b)(c) & (ii) of the FTO Ordinance.
Based on above, FTO has directed FBR to instruct Commissioner-IR Karachi to rectify the order on his own motion or upon application filed by complainant as per discussions after providing opportunity of hearing to the complainant on its merit and in accordance with law and to look into violation of Board’s circular despite confirmation from the SHC and issue fresh instructions to all Inland Revenue field formations accordingly and report compliance within 45 days of issuance of notice.
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