Sales tax notices issued to Jahangir Tareen sugar mills have been set aside by the Lahore High Court, which ruled that a tax commissioner cannot first decide that a business is due for audit and only then ask for its records. Justice Jawad Hassan led the bench that decided the case on Wednesday. The petition was filed in 2017 by JK Sugar Mills, a company earlier named Shamim and Company, against notices dated 3 March and 6 March 2017. Jahangir Khan Tareen is a former member of the National Assembly, Pakistan's lower house of parliament.
The mills' case and the tax department's response
The company's lawyer, Malik Ahsan Mahmood, told the court that it had submitted returns covering each of the 12 tax periods in 2016 and had paid a sales tax amount about 91 per cent higher than the year before. Even so, the Commissioner Inland Revenue, the tax department's officer for the case, informed the mills that their file had been chosen for an audit, citing Section 25 of the Sales Tax Act, 1990. Days later, a deputy commissioner asked the company to produce its sales tax records.
Mahmood argued that Section 25 only lets officers request documents and does not give them independent power to pick a taxpayer for audit. In his view, the FBR, the federal tax board, should choose cases by computer draw under Section 72B, and a broader provision cannot be used to get around that process. Sulaman Bhatti, who appeared for the tax authorities, opposed the petition and maintained that the notices were valid and within the officers' powers.
What the judgement says about the audit sequence
Justice Hassan's judgement read the two sub-sections together. Under Section 25(1), the Commissioner can call for records whenever needed, while Section 25(2) allows an audit based on records gathered under the first subsection. In this case, the court found, the Commissioner first marked the file for audit and asked for records afterwards, using the first subsection to justify a choice already made. The judgement said that approach did not match the order lawmakers had set out.
According to the bench, the phrase 'as and when required' gives officers some room on timing, but it does not widen their powers or allow a broad, open-ended fishing exercise. The judgement relied on earlier decisions, including those involving Dewan Sugar Mills and Indus Motor Company, which treated audit selection made without reasons as arbitrary. It also referred to a Supreme Court ruling in the Pakistan Beverages case that statutory discretion must be used reasonably and fairly. The court also held that any use of Section 25 to start an audit must be supported by a written, reasoned order explaining why it is necessary, particularly when a selection method already exists under Section 72B.
What happens next
In the end, the court granted the petition and voided both notices: the first issued by the commissioner and the second by the deputy commissioner of Inland Revenue. The ruling is a finding on process, and it does not by itself decide whether Jahangir Tareen sugar mills owed any sales tax. The sources do not say whether the tax department plans to appeal, and they do not describe any further steps in the case.
Aasan alfaaz mein
Lahore High Court ne Jahangir Tareen ki sugar mill se judi do sales tax notices khatam kar diye hain. Adaalat ne kaha ke tax afsar pehle kisi firm ko audit ke liye chun kar baad mein records nahi maang sakte. Aam log ke liye is ka matlab yeh hai ke tax ka amal qanoon ki tarteeb se hona zaroori hai. Yeh faisla process par hai, is se yeh tay nahi hota ke mill par tax banta tha ya nahi.
