‘FBR has authority to conduct post-sanction audits of refund claims’

LAHORE: The Federal Board of Revenue (FBR) has the authority to conduct post-sanction audits of refund claims under Rule 36 of the Sales Tax Rules, 2006.

This clarification comes after several companies and taxpayers questioned the FBR’s authority to conduct audits of their refund claims. They argued that the audits were without lawful authority and jurisdiction.

Taxpayers had sought refund of Sales Tax in terms of various online facilities introduced by FBR from time to time i.e. STARR/ ERS/FASTER, through which the refunds were processed, sanctioned and paid through online portal of FBR. All such refund claims had never been audited prior to its sanction and payment thereof.

The Rule 36 of Sales Tax Rules provides a mechanism for post-sanction audit of such refund claims. The only argument which had been made on behalf of the taxpayers was to the effect that the second proviso of the said rule requires that the Commissioner Inland Revenue is the competent authority to initiate any audit of the refund claims in question.

According to the competent forum, the taxpayer had misconceived the process, as the said proviso reads that where the Commissioner Inland Revenue has reason to believe on the basis of some information, pre-determined criteria or otherwise, that a registered person whose refund claim was processed or sanctioned after a certain date has been paid refund which was not admissible, he may direct through order in writing to conduct manual post-refund scrutiny of such claim. This is to be done by the Commissioner Inland Revenue by way of an administrative order and it does not mean that the audit is also to be conducted by the Commissioner himself.

It only requires an order by him to direct manual post-audit and scrutiny of the claim and even if no such order for conducting manual audit has been issued by him, it can also be done post facto. Even otherwise, mere selection for audit does not cause an actionable injury to the taxpayer.

Accordingly, the relevant forum declared that the post-sanction audit by FBR is a necessary check on the accuracy and truthfulness of refund claims, which is conducted to ensure that refunds are paid correctly and in accordance with the law.