The Peshawar High Court (PHC) has issued a landmark ruling declaring that Audit Officers of the Directorate General of Intelligence and Investigation – Inland Revenue (DG I&I-IR) do not possess independent statutory authority to assess, adjudicate, or recover sales tax liabilities from registered taxpayers.
The judgement came in response to a sales tax reference filed by a taxpayer based in Abbottabad, challenging the jurisdiction of a DG I&I-IR Audit Officer from Peshawar. The case was argued by tax lawyer Waheed Shahzad Butt. The PHC Division Bench agreed with the taxpayer’s stance, highlighting that the actions taken by the DG I&I-IR officer were beyond the limits of their legal mandate.
In its detailed order, the PHC stated that Audit Officers of DG I&I-IR are only empowered to detect, investigate, and report cases involving tax evasion, fraud, or non-compliance. Their role includes preparing contravention reports, conducting audits, and seeking information—but not independently determining tax liabilities.
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The court noted that the officer from DG I&I-IR, Peshawar, unlawfully assumed jurisdiction by assessing the sales tax liability of a business located in Abbottabad without conducting a proper audit under Section 25 or reviewing records under Section 38 of the Sales Tax Act. The entire liability assessment and the resulting contravention report were deemed outside the scope of the officer’s legal powers.
Furthermore, the PHC criticized the Adjudicating Officer for endorsing the findings of the Audit Officer without conducting an independent inquiry or applying his own judgment. Similarly, the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal failed to recognize and address the jurisdictional and procedural flaws in the proceedings.
The court ultimately concluded that the entire process—from the initial contravention report to the appellate decisions—was conducted without jurisdiction and legal authority, rendering all related actions void ab initio and of no legal effect.
