LHC curtails federal tax ombudsman, president’s jurisdiction in tax matters

The Lahore High Court has overturned the decisions of the Federal Tax Ombudsman (FTO) and the president, stating that neither had the authority to handle a complaint regarding delayed adjudication of seized goods. The matter pertained to a private cigarette dealer, who was targeted by the Directorate of Intelligence and Investigation (Inland Revenue), Multan, who seized 641 cartons of suspected illicit, unpaid duty and counterfeit cigarettes.

The dealer's lawyer could not provide invoices or records showing payment of duties, resulting in a show-cause notice being issued.

The dealer did not respond to the notice and thus filed a complaint with the Federal Tax Ombudsman (FTO) under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000. The FTO took up the complaint and directed that adjudication proceed before the appropriate forum. However, the tax department later contested this order, which was subsequently dismissed by the president. The dealer then sought recourse to the Lahore High Court (LHC).

Justice Jawad Hassan, the author of the judgement, emphasized that jurisdiction is fundamental and that any order passed without lawful authority is void from the start. Upon reviewing Section 9 of the FTO Ordinance, the bench noted that the ombudsman's power to investigate allegations of maladministration by the Revenue Division or its employees is not absolute.

Section 9(2)(b) explicitly restricts the FTO from investigating matters related to income or wealth assessment, determination of tax or duty liability, or goods classification and valuation, if the law already provides for an appeal, review or revision mechanism.

The bench concluded that the Federal Tax Ombudsman's role is to offer an impartial, speedy remedy against maladministration, without usurping the jurisdiction of statutory appellate or adjudicatory forums. Had the case been handled through the regular statutory route, the dealer would have had the right to appeal under Section 33 of the Federal Excise Act, 2005, with a further appeal to the appellate tribunal under Section 34.

These forums would have allowed the dealer to raise any questions regarding the seizure, the legality of the goods, or any duty or tax liability.

The court allowed the petition and set aside the orders passed by both the FTO and the president, dismissing the department's objection to the decision.