This blog is written by Mr. Muhammad Kaleem Majeed. Please read this blog and provide your valued comments




We live on a mote of dust suspended in a sunbeam

 The purpose of this blog is to explain the lacuna of over-stretched powers given in Rule 12 of Sales Tax Rules, 2006 as compared to scope of the provisions of Section 21(2) of the Sales Tax Act, 1990.

Section 21(2) provides only two grounds (mentioned below) for blacklisting or suspension of taxpayers’ registration whereas Rule 12 is considered as a host of other situations on account of which taxpayers’ STRN may be blacklisted or suspended.

This can be exemplified as “If taxpayer doesn’t respond to a notice as per Rule 12(a)(vi)(A), his STRN could be suspended. Such engineered elasticity of Rule 12 clearly exceeds the scope and endurance limits of Section 21(2) to the disadvantage of a registered sales tax payer. In the case of NEPRA vs. FESCO (2016 SCMR 550) the Hon’ble Supreme Court has held “Rules framed under a statute were to remain within the precinct of the statute itself and could not transgress the limits and parameters of the parent statute itself”. [Emphasis Supplied]

Notwithstanding the above, by mere plain reading of section 21(2) one cannot fail to note that before exercising power under the aforesaid section, the Commissioner has to be satisfied (i.e. convince beyond a reasonable doubt” rather than having an “opinion” that RP is found to have issued fake invoices or has otherwise committed tax fraud. Here it is pertinent to keep in mind that in the tax jurisprudence the initial burden to prove tax fraud lies on the department coupled with fair trial process as enshrined in Article 10-A of the Constitution to be followed. It may kindly be noted that there is plethora of judgements preserving his fundamental right built around the legal maxim “Audi Alteram Partem”.

 The vires of Rule 12(a)(i) has been examined in a recent judgement (2019 PTD 1213) rendered by a divisional bench of Lahore High Court whereby it has ben held that Rule 12 conferred unbridled and unfettered powers to the concerned Commissioner to suspend taxpayers’ registration. Court observed that such drastic action of suspension/blacklisting of STRN could only be issued where the Commissioner had solid and tangible evidence and not on the basis of mere sweeping allegations.

Sindh High Court via C.P No. D-8101 of 2017 and others dated September 12, 2019 has decided the following:


  1. Rule 12(a)(i) of the STR, 2006, to the extent it gives authority to the Commissioner to suspend sales tax registration of a registered persons (RP) “without prior notice” is hereby declared ultra vires to the Constitution, violative of principles of natural justice and in excess of authority vested u/s 21(2) of the STA, 1990.
  2. All the orders of suspension of Sales Tax Registration issued to the petitioner in violation of express provision of Section 21(2), which requires the satisfaction of the Commissioner and only to be made where a registered person is found to have issued fake invoices, or has otherwise committed tax fraud, without confronting the RP with such reasons in writing, is declared to be without lawful authority and of no legal effect; and
  • All the order(s) of suspension of Sales Tax Registration, wherein SCN under section 21(2) has not been issued within seven days therefrom, and/or no order of blacklisting has been passed within ninety days of issuance of the notice of hearing, the suspension of Sales Tax Registration becomes void-ab-initio, accordingly their Sales Tax Registration stand restored.






MKM BLOG 04092020