Supreme Court stresses taxpayer dignity in recovery process

ISLAMABAD:

The Supreme Court has ruled that the Federal Board of Revenue (FBR) must preserve the dignity of taxpayers while undertaking tax recovery measures.

A nine-page judgment authored by Justice Ayesha Malik, dismissing FBR's petition against a high court order, noted that a notice that seeks recovery on the same date as its issuance would defeat the very objective of setting out a date and would render the legal safeguard meaningless.

"Yet another aspect that is of significance is the constitutional underpinning of Section 140 of the Ordinance."

The ruling observed that the requirement of notice before recovery is not merely statutory but reflects the broader guarantees of due process and fair trial under Article 10A of the Constitution, as well as the right to dignity under Article 14.

Courts have consistently upheld that even in fiscal matters, recovery must be carried out in a manner that respects the individual's dignity and legal safeguards. Consequently, even where the law allows coercive recovery, it must be carried out in a way that preserves the dignity of the taxpayer,

The judgment was delivered by a three-judge bench of the apex court, led by Justice Munib Akhtar, which examined two core questions: whether an FBR commissioner can demand immediate payment on the same day a notice is issued under Section 140 of the Income Tax Ordinance, or whether the ordinance requires a future date for compliance.

FBR's position was that immediate recovery is permissible under Section 140, with no obligation to issue a subsequent notice or provide a specific payment date.

However, the judgment held that Section 140 does not permit immediate coercive recovery in the absence of a due date. When interpreted in context, the provision requires that any party holding money on behalf of the taxpayer be issued a notice that clearly specifies a deadline for discharging liability.

In his additional note, Justice Shahid Waheed said that a substantial question before the bench was the intersection of tax law and the rights of taxpayers.

"In a legal framework that espouses fundamental rights—such as the right to a fair trial, access to justice, right to dignity, and due process," he noted.

He posed a critical question: whether there is any justifiable reason to uphold a culture of authoritative dominance in tax collection?

"This inquiry challenges existing norms that often prioritise tax recovery above the rights and protections guaranteed to taxpayers, potentially undermining the very essence of justice. It also invites a thorough examination of the delicate balance that must be upheld between the efficient recovery of tax debts, as mandated by law, and the imperative to protect the rights of those being taxed."

Justice Waheed further reflected on the spirit of Sections 137, 138 and 140, likening the ideal recovery process to that of a honeybee: "When delving into the provisions of Sections 137, 138, and 140, it becomes evident that the law prescribes a recovery process that, much like a honey bee gathering nectar from flowers without causing pain to the plant, mandates that taxation officers conduct tax collection and recovery in a manner that ensures: (a) the treatment of taxpayer with dignity and respect, (b) strict adherence to established legal protocols and procedures, and (c) the provision of transparent guidance and explanations to taxpayers."

Outlining the procedural journey, he noted: "How is it so? This becomes clearer when we break down the stages involved in the imposition of tax, which consist of three phases. The first phase involves the declaration of tax liability, stating the taxpayer's financial obligations."

Subsequently, the second phase encompasses the assessment process, detailing the exact sum that the taxpayer is legally obligated to pay. "Finally, if the taxpayer fails to fulfil this obligation voluntarily, the third phase introduces the recovery methods to be employed."

Underscoring the primacy of dignity, he stressed: "The right to dignity is the most central of all fundamental rights, as it is the source from which all other rights are derived. The Ordinance aims to strike a balance between ensuring tax recovery and upholding taxpayer dignity. The recovery process executed in these cases disregarded this balance."