The Appellate Tribunal Inland Revenue (ATIR), in a landmark decision, has declared the audit selection made by the Commissioner under Section 25 of the Sales Tax Act, 1990 as illegal and has set it aside.
According to tax experts, there is a common perception that appeals can only be filed before the Appellate Tribunal once a tax assessment has been made. However, in certain specific circumstances, a taxpayer also has the right to file a direct appeal against any order issued by the Commissioner Inland Revenue (CIR), provided that the order has been issued under any section of the Act.
In this case, the Commissioner Inland Revenue selected the taxpayer for audit under Section 25 and provided certain reasons for doing so, which appeared to be in line with higher court judgments and FBR instructions. The Commissioner directed the taxpayer to present the sales tax records before the concerned officer.
The taxpayer challenged the reasons for audit selection and first submitted a representation before the Commissioner, but received no response. Subsequently, the taxpayer filed a direct appeal under Section 46, which allows for a direct appeal not only against decisions of the Commissioner Appeals but also against any order issued by the Commissioner.
The two-member ATIR bench, comprising Syed Mahmood Ul Hassan and Muhammad Tahir, observed in the concluding part of the judgment that the taxpayer’s stance was correct based on the submitted sales tax returns. The data for the relevant months clearly corresponded to credit note adjustments of exempt supplies, not taxable supplies. Therefore, no value-added tax was legally applicable to these transactions.
The bench held that the reasons provided by the Commissioner for selecting the case for audit were based on a misunderstanding of the facts and a misinterpretation of the structure of the tax return. Consequently, the Tribunal accepted the appeal and declared the letter issued under Section 25 — and the resulting audit selection — null and void.
Tax experts commented that affected taxpayers across the country have expressed satisfaction with the appointment of new, competent and professional members at ATIR, who are delivering justice without being influenced by financial pressure or potential tax revenue. They added that court working hours have improved and decisions are being issued in a timely manner.
