LHC spells out conditions for taxpayers prosecution The Lahore High Court (LHC) has declared that tax department cannot carry out criminal prosecution, including arrest and detention of the taxpayers unless the tax liability of the taxpayer is determined in accordance with section 11 of the Sales Tax Act, 1990. In a latest judgement, the LHC further observed setting in motion of the criminal prosecution cannot be left at the will of any officer of the Inland Revenue, especially when the said officer is under an obligation to recover the tax and meet tax targets before the close of the financial year set by the FBR. Sources told Business Recorder here on Friday that 340 writ petitions on common legal issue of criminal proceedings initiated by FBR through FIRs against different taxpayers have been decided by Justice Syed Mansoor Ali Shah, vide single order with the observation If prosecution degenerates into persecution, this court cannot sit as a helpless spectator. When contacted, Lahore-based tax lawyer Waheed Shahzad Butt informed BR about the brief facts of these writ petitions decided by LHC. Pre-trial steps including arrest and detention cannot be given effect unless the tax liability of the taxpayer is determined in accordance with section 11 of the Sales Tax Act, 1990 (Act). In this background, criminal proceeding initiated against the petitioners, and documented as the First Information Report in these cases is quashed as being unconstitutional, violative of fundamental rights, ultra vires to the Act and hence illegal and without lawful authority. The LHC announced, Tax crimes are white collar crimes that impose civil, as well as, criminal penalties for evasion of tax, etc. Even though the two sets of penalties are distinct and independent with separate objectives and consequences, yet this distinction is at times forgotten, resulting in over-criminalization. The constitutionality and legality of such distortion under the unique architecture of Sales Tax Act, 1990 marks the high point of this case. Criminal prosecution under sections 37A and 37B of the Act for the offence of tax fraud was initiated, against 134 persons. Additional Director, Intelligence & Investigation being the complainant documented this in the shape of FIR. The said document reveals that on receipt of credible information a cartel of fraudsters was involved in the issuance of fake sales tax invoices for the purposes of generating illegal/inadmissible input tax adjustments criminal prosecution was initiated against some persons, which further led to unearthing of a mega scam of sales tax evasion of Rs 7.5 billion involving 144 dummy suppliers who issued fake sales tax invoices. The gang of fraudsters issued fake invoices to various registered persons (including the petitioner) who claimed input tax on the same basis causing a huge loss to the exchequer. It has, therefore, been alleged that petitioners have committed the offence of tax fraud and are liable to arrest and criminal prosecution. Tax crimes can lead to criminal prosecution leading to conviction and punishment and yet simultaneously, for the same tax crime, civil proceedings for assessment of tax and its subsequent recovery can be initiated. The role and character of an adjudicator in assessing the tax liability and of a special judge in convicting the tax evader are distinct and entail different sets of procedures and evidentiary standards. The taxpayer is not a defaulter unless tax due is first assessed and determined under the provisions of the Act. Section 25(5) provides that before, during and after the audit proceedings the taxpayer has the option to deposit the tax along with default surcharge and penalties to avoid further proceedings. Recovery and collection of tax, therefore, remains the central focus of the Act. Even if the criminal prosecution under the present scheme of the Act is initiated after assessment of tax under section 11 as discussed above, the constitutionality of hurriedly invoking section 37A on the basis of material evidence requires consideration. Material evidence must be credible and definite if it is to deprive a citizen of his constitutional protection and safeguards under Articles 4 (due process), 9 (human liberty), 10A (fair trial) and 14 (human dignity). Setting in motion of the criminal prosecution cannot be left in the hands of any officer of the Inland Revenue, especially when the said Officers are under an obligation to recover the tax and meet tax targets before the close of the financial year set by the FBR. Anything short of this process will not only lead to persecution of the tax payers, it will also make a mockery of the fundamental right of fair trial. In view of the above, we hold that the pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayer is determined in accordance with section 11 of the Act. In this background, criminal proceeding initiated against the petitioners, and documented as the FIR in this case and cases mentioned in Schedule-A is quashed as being unconstitutional, violative of fundamental rights, ultra vires to the Act and hence illegal and without lawful authority, the High Court added.
Posted on: Sat, 12 Jul 2014 04:34:12 +0000
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