LHC says utility bill tax collection is unlawful

LAHORE: The Lahore High Court has decided that collecting tax arrears through power bills is illegal and exceedingly deplorable.

A distribution business does not levy a tax on the provision of natural gas, according to Justice Shahid Jamil Khan in a ruling on petitions from different companies.

The industries challenged the charge of tax arrears in utility bills for natural gas under the heading “Aging/Arrears”.

The petitioners’ attorney stated that the collection of arrears was unconstitutional without a regulated method and tax decision.

The Sales Tax Specific Mechanism Rules, 2007 allows for a special procedure for collecting and paying sales tax on natural gas.

He claims regulation 20 exempts natural gas suppliers from collecting and remitting sales tax. To charge, collect, and deposit sales tax on natural gas delivery is the responsibility of the gas transmission and distribution firm.

The judge points out that the “Arrears/Aging” column is supposed to recoup tax arrears, not natural gas supply arrears.

Even if the legislation allows for tax arrears to be recovered through invoices, the judge argues there must be an independent column proving that the arrears are tax.

“The challenged practise is a misrepresentation,” Justice Khan wrote in his ruling.

According to him, the complete disclosure of details and information required for recovery is now a basic right under Article 19-A of the Constitution, and so the practice is condemned and deemed unconstitutional.

Because there is no unique method for recovering tax not levied by a distribution firm, the judge declares the collection of tax arrears through utility bills illegal.

For example, the bill issuer must ensure that the instruction is based on a competent officer’s decision determining tax and that the recoverable tax is adequately stated.

Justice Khan urged the Federal Board of Revenue (FBR) member (Policy) to inform all utility suppliers that tax arrears cannot be recovered in utility bills, as alleged in this case.

According to the judgement, “the utility bill must contain an unambiguous entry stating the nature of tax arrears, decided by the commissioner under the specified special or standard procedure.”