The Federal Tax Ombudsman (FTO) has ordered the Federal Board of Revenue (FBR) to correct a penalty order of Rs. 1 million issued by an Inland Revenue Audit Officer (IRAO) against a Tier-I Retailer. The FTO said the penalty order was illegal and unjust.

The Tier-I Retailer, who filed a complaint with the FTO, said he was fined for not integrating his point of sale (POS) system with the FBR. He said the IRAO had no authority to issue the penalty order because of two court rulings.

One ruling was by the Sindh High Court (SHC), which upheld an FBR decision that IRS officers of audit cadre cannot be posted as unit in charge or do assessment-related work in field formations. The other ruling was by the Lahore High Court (LHC), which said that Section 33 of the Sales Tax Act does not allow any Officer Inland Revenue (OIR) to issue show cause notices or adjudicate them without following Section 11 of the same Act.

The Tier-I Retailer said the IRAO also issued a recovery notice and sealed his business premises. He had to pay Rs. 500,000 to get his premises de-sealed. Later, the Commissioner-IR Appeals VII, Karachi confirmed the penalty order without listening to his arguments.

The FTO said the show cause notice and recovery notice issued by the IRAO were invalid and void because they violated the SHC ruling, which was still in effect. The FTO also said the FBR had not withdrawn its direction based on the SHC ruling.

The FTO also said the penalty order was illegal because it was based on clause 25A of Section 33 of the Sales Tax Act, which was introduced on 15.09.2021, after the show cause notice was issued on 26.08.2021. The FTO said this clause did not exist when the show cause notice was issued.

The FTO also cited a Supreme Court case that said the matter of jurisdiction is mandatory for courts to decide at first instance and can be raised at any stage.

The FTO said the order of IRAO dated 29-10-2023 was against the law, procedure, and natural justice and amounted to maladministration under Section 2(3)(i)(a)(b)© & (ii) of the FTO Ordinance.

Therefore, the FTO directed the FBR to instruct the Commissioner-IR Karachi to rectify the order on his own or upon an application by the Tier-I Retailer after giving him a fair hearing.