SC rules FBR tax orders void If issued after 120 days

The Supreme Court has declared that tax orders issued by the Federal Board of Revenue after the expiry of the prescribed legal timeframe are unlawful, holding that under the Sales Tax Act 1990 an adjudication order must be passed within 120 days of the issuance of a show cause notice.

The ruling was issued while dismissing a petition filed by the Assistant Commissioner Inland Revenue, Rawalpindi, challenging a March 10, 2025 decision of the Lahore High Court Rawalpindi Bench. The three member bench comprised Justice Mian Gul Hasan Aurangzeb, Justice Naeem Akhtar Afghan and Justice Muhammad Shafi Siddiqui.

According to the judgment, the Regional Tax Office Rawalpindi had issued a show cause notice on November 15, 2023 to taxpayer Umar Tariq Khan, alleging recovery of over four million rupees in inadmissible input tax. However, the Order in Original was passed on March 20, 2024, beyond the statutory 120 day period, rendering the proceedings legally unsustainable.

The Supreme Court observed that the issue stands conclusively settled through earlier judgments, including Collector Sales Tax vs Super Asia, WAK Limited and Abbasi Enterprises, which hold that failure to pass an order within the prescribed period automatically nullifies the proceedings.

Referring to Article 189 of the Constitution, the court held that such judgments are binding on all state institutions, including the FBR, and expressed concern over repeated attempts by the revenue authority to challenge well settled legal principles.

The court criticized the growing practice of filing unjustified appeals by government departments, noting that it places an unnecessary burden on the judiciary and results in wastage of public resources. It emphasized that the state must act as a responsible litigant and avoid pursuing litigation without due application of mind.

Warning of stricter treatment in similar cases, the Supreme Court said future appeals on settled legal questions may be dismissed at the threshold, with courts empowered to impose costs and fix responsibility on concerned officials.

The judgment also advised the Chairman FBR to establish independent and empowered review committees comprising retired judges, senior tax experts and experienced officers to vet cases before filing appeals.

The Supreme Court ultimately refused to grant leave to appeal and dismissed the FBR’s petition.