LAHORE – The Lahore High Court (LHC) has ruled that no criminal proceedings can be launched against a taxpayer for tax recovery unless the tax amount has been officially assessed by the authorities.
The decision came after a tobacco company and other petitioners challenged criminal complaints filed by revenue officials without any prior tax audit, assessment, or show-cause notice. The court declared these actions unconstitutional and against the principles of due process.
The bench clarified that under Section 48 of the Sales Tax Act, fines or penalties for tax fraud can only be imposed once a tax liability is confirmed and remains unpaid. Until then, courts cannot prosecute or impose any criminal penalties on taxpayers.
Moreover, the court emphasized that tax authorities do have the power to investigate suspected fraud. However, such investigations must respect procedural rules and allow the taxpayer to challenge the assessment through appeals and tribunals before any criminal action is considered.
Importantly, the court also noted that criminal cases depending on unresolved tax disputes should be delayed until the civil proceedings are settled. This protects taxpayers’ rights and prevents unjust prosecution based on unverified claims.
In its final remarks, the court annulled the complaints as illegal and in violation of the petitioners’ rights, reiterating that criminal enforcement must follow proper tax assessment—not precede it.