There can be no criminal proceedings against taxpayer for recovery of arrears: LHC

LAHORE: The Lahore High Court has held that no criminal proceedings can be initiated against a tax payer for recovery of tax arrears until the final determination of liability against him by a competent authority.

The court also observed that in the absence of assessment of tax or determination of tax involved, the special judge could not pass the sentence of fine which is the amount of tax involved and part of the penalty provided under the law.

The court said the mechanism for recovery of arrears of tax provided in Section 48 of the Sale Tax Act would come into play only once the tax was finally assessed and penalties imposed continued to be unpaid. The court passed this order in a petition of a tobacco company and others who approached against the revenue officials for registration of criminal reports against the petitioner for their involvement in tax evasion.

The court said no one is denying the competence of the complainant of carrying out criminal investigation in cases involving tax fraud, however, the dispute is the modus operandi in launching such investigation.

The court said a taxpayer can prefer a departmental appeal against the decision of revenue official and then knock the door of appellate tribunal of Inland Revenue by way of filing appeal and that of the high court in the shape of tax reference.

The court said civil and criminal proceedings can run side by side but it is a principle of law that where the criminal liability is dependent upon or connected with the result of civil adjudication, criminal proceedings can be stopped till the outcome of civil matter for safer administration of justice.

The court, however, said the provisions of the Act gave a privilege to the tax payer to compound the offence subject to payment of amount of tax due against him.

The court said if the amount of tax due against a tax payer was not assessed prior to launching of criminal proceedings, then it would amount to shut the window of compound ability for a tax payer, as without determination of amount of tax due, the commissioner would not be able to compound the offence.

The court said the petitioners have been regularly filing sales tax returns and prior to launching of impugned complaint neither any audit report, show-cause notice nor any assessment order was in the field against them.

The court, therefore, quashed the impugned complaint registered being unconstitutional, ultra vires of the Act and against the fundamental right of the petitioner.

Copyright Business Recorder, 2025