Mohsin Siddiqui (Chief Reporter)
The Lahore High Court (LHC) has issued a significant order suspending the operation of SRO 350(I)/2024 and has directed the Federal Board of Revenue (FBR) to accept sales tax returns from taxpayers without incorporating the controversial amendments introduced under the SRO. This decision has brought relief to many taxpayers who faced difficulties due to the new rules.
The FBR had issued clarifications and relaxed certain conditions following the SRO’s implementation, but the return filing process remained problematic, leading many taxpayers to seek judicial intervention. Consequently, a petition was filed before the LHC challenging the amendments.
In its interim order, the LHC has suspended the applicability of SRO 350(I)/2024 until the next hearing scheduled for October 8, 2024. The court has instructed the FBR to accept the sales tax returns of the aggrieved petitioners according to the previous rules, thus providing temporary relief to the affected taxpayers.
The petitioners’ counsel argued that the impugned notification could not be issued under section 50 of the Sales Tax Act, 1990, as this provision only grants the Board the authority to make rules for carrying out the purposes of the Act. The amendments under SRO 350(I)/2024 modified rule 18 of the Sales Tax Rules, 2006, thereby infringing on the petitioners’ rights under section 7 of the Sales Tax Act, which allows input tax adjustment to determine tax liability.
The counsel further contended that the amendment makes the filing of returns and the deduction of input tax contingent upon the respective seller filing their return for the same tax period. This condition, according to the petitioners, violates their rights to be treated in accordance with the law and the protections guaranteed under Article 18 of the Constitution.
The court has recognized the importance of the legal questions raised by the petition and admitted it for regular hearing. Notices have been issued to the respondents, and the Deputy Attorney General (D.A.G.) present in court has been instructed to ensure that the respondents file their written statements and make their legal representations at the next hearing. Additionally, a notice has been issued to the Attorney General for Pakistan.
Until the next hearing, the LHC has directed that the sales tax returns filed by the petitioners for May and June 2024, as well as subsequent returns, should be accepted by the FBR without being blocked. This directive aims to ensure that taxpayers are not penalized or treated as non-active due to the contested amendments.
In the meantime, the FBR Chairman has been notified of the ongoing case, particularly the “Ashiana Cotton Products Limited and others Vs. Federation of Pakistan” case, which challenges the validity of the new proviso inserted in Rule 18(3) of the Sales Tax Rules, 2006, via SRO 350(I)/2024.
The court was informed that the petitioners were unable to file their sales tax returns for June 2024 because the IRIS computerized system unlawfully blocked them. The court noted that the amendments did not envision such blocking and directed the petitioners to make an appropriate representation before the FBR Chairman to de-block their accounts and allow them to file their returns.
Following the court’s order, a formal request has been made to the FBR Chairman to de-block the petitioners’ accounts, enabling them to file their returns for June 2024 and subsequent months. The court emphasized that failure to comply with this directive would result in further judicial action.
