ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has annulled a Rs1.5 billion sales tax demand raised by the Regional Tax Office (RTO) Peshawar against a vegetable ghee mill. The ruling also involves the cancellation of the penalty imposed on the mill.
The ATIR Peshawar Bench ruled in favor of the ghee mill, stating that the sales tax demand was based on an incorrect interpretation of Section 73(4) of the Sales Tax Act, which addresses supplies made to unregistered persons.
According to the judgment, the order issued by the RTO Peshawar on August 30, 2024, was invalid. The ATIR found that the tax department had relied on the outdated Section 11(2) of the Sales Tax Act instead of the revised Section 11E, which had been inserted through the Finance Act of 2024 for assessment purposes. Furthermore, the tribunal noted that the assessment order was time-barred under the First Proviso to Section 11(5) of the Sales Tax Act, 1990.
The appeal stemmed from discrepancies found during the review of the mill’s sales tax returns for the period from July 2020 to June 2023. The ghee mill was accused of making supplies to unregistered persons, which led to the disallowance of input tax adjustments.
In its ruling, ATIR pointed out that the Deputy Commissioner-IR had misinterpreted the facts and legal provisions, particularly concerning taxable supplies to unregistered persons. The tribunal clarified that the supplies in question did not exceed the threshold set by Section 73(4), and therefore the sales tax provisions should not have applied. The tribunal further emphasized that the Deputy Commissioner-IR had failed to follow the correct legal procedure for assessing the mill’s sales.
The ATIR concluded that the assessment order was unsustainable and vacated the Rs1.5 billion tax demand. As a result, the penalty under Section 33(5) of the Sales Tax Act was also lifted. The appeal was accepted, and the assessment order was annulled.
This decision highlights the importance of correctly interpreting tax laws and following proper legal procedures in assessments and audits.
