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Withholding Agents cannot be taxed like Regular Taxpayers without following Statutory Procedures --- Lahore High Court, Lahore quashed Show Cause Notice

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Withholding Agents cannot be taxed like Regular Taxpayers without following Statutory Procedures --- Lahore High Court, Lahore quashed Show Cause Notice

Islamabad 14-03-2025: In a landmark ruling, the Lahore High Court (LHC) has set aside a show cause notice issued to Fauji Cement Company Limited by the Punjab Revenue Authority (PRA), holding that the notice was issued without lawful authority and in violation of procedural safeguards.

The judgment, delivered by Mr. Justice Jawad Hassan in [W.P. No. 2838/2024], emphasized the critical distinction between a taxpayer and a withholding agent under the Punjab Sales Tax on Services Act, 2012. The Court ruled that the PRA erred in directly invoking Section 52 (Tax Recovery) without first applying Section 14 (Withholding Agent Responsibilities), thereby rendering the notice legally unsustainable.

Key Findings of the Judgment:

The Court reiterated that tax authorities must adhere to due process, as guaranteed under Article 10-A of the Constitution (Right to Fair Trial).
The PRA wrongly applied Section 52 instead of Section 14, which governs withholding agents, leading to the quashing of the notice.

The Court relied on past decisions, including:

Reliance Commodities (PLD 2020 Lahore 632 = 2020 PTD 1464), which established that unlawfully issued tax notices can be struck down.
Chenab Flour Mills (PLD 2021 Lahore 343), which emphasized that tax laws cannot override fundamental rights.
Federal Government Employees Housing Authority Vs. Ednan Syed (PLD 2025 SC 11), affirming that fair trial principles must be upheld in tax proceedings.
The Court strictly interpreted the tax statute, ruling that the PRA could not bypass explicit legal provisions for administrative convenience.

The Lahore High Court ordered the Punjab Revenue Authority to reconsider the case as a representation from the petitioner, ensuring compliance with Sections 14 and 14A of the Act. It also directed the PRA to issue a speaking order within four weeks, ensuring due process and legal compliance.