Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Lahore High Court, officially reported as 2026 PTD 991. In this matter between COMMISSIONER INLAND REVENUE, (WITHHOLDING) ZONE, REGIONAL TAX OFFICE-II, LAHORE and SHAHZAIB BROTHERS PAPER CONE (PVT.) LTD. FAISALABADShahzad Ahmad Cheema,Khubaib Ahmad, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.

Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.

Full Judgment Text & Judicial Ruling

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2026 P T D 991 [Lahore High Court] Before Khalid Ishaq and Hassan Nawaz Makhdoom, JJ COMMISSIONER INLAND REVENUE, (WITHHOLDING) ZONE, REGIONAL TAX OFFICE-II, LAHORE Versus Messrs SHAHZAIB BROTHERS PAPER CONE (PVT.) LTD. FAISALABAD S.T.R. No.190531 of 2018, decided on 20th October, 2025. Sales Tax Act (VII of 1990)--- ----Ss. 11(4) & 11(4A) [as inserted by the Finance Act, 2016]---Non-deduction/depositing of withholding sales tax for tax periods prior to 2016, allegation of---Provisions of S.11(4A) of the Sales Tax Act, 1990---Retrospectively applicability, absence of---The very issue involved in the instant reference has been conclusively settled by the Supreme Court in Civil Petition No. 4579 of 2023 titled Messrs Allama Iqbal Open University v. Commissioner Inland Revenue, Withholding Tax Zone, Regional Tax Office, Islamabad, decided on 01.10.2025, vide which it was held that the recovery of tax from a withholding agent does not fall under S. 11(4) of the Sales Tax Act, which pertains only to short-payment or erroneous refund due to inadvertence, error or misconstruction, and that withholding-related recovery is governed by S.11(4A) inserted by the Finance Act, 2016, which has no retrospective operation---Applicant /Department could not controvert the said legal position nor point out any statutory provision existing before 2016 enabling recovery of withholding sales tax under S.11(4) of the Sales Tax Act---Therefore, the controversy involved herein stood squarely covered by the binding precedent of the Supreme Court under Art. 189 of the Constitution---Hence, prior to the introduction of S.11(4A), no proceedings could be initiated for recovery of withholding sales tax under S.11(4) of Sales Tax Act, 1990---Thus, the view taken by the Appellate Tribunal Inland Revenue suffered from no legal infirmity warranting interference---The proposed question of law was answered in the negative---Special Sales Tax Reference, filed by Department, was dismissed. Messrs Allama Iqbal Open University v. Commissioner Inland Revenue, Withholding Tax Zone, Regional Tax Office, Islamabad (Civil Petition No.4579 of 2023) ref. Shahzad Ahmad Cheema for Applicant. Khubaib Ahmad for Respondent. ORDER Through this reference filed under Section 47 of the Sales Tax Act, 1990 ("the Act"), the applicant-department has impugned order dated 10.07.2017 passed by the learned Appellate Tribunal Inland Revenue, Lahore in S.T.A. No. 330/LB/2017, whereby the appeal of the present respondent was allowed and the order-in-appeal dated 17.10.2016 passed by the Commissioner Inland Revenue (Appeals), Faisalabad, as well as Order-in-Original No. 04/2016 dated 09.08.2016, were set aside. 2. Briefly the facts are that the respondent, engaged in manufacture of paper cones, was issued Show-Cause Notice No. 13 dated 12.07.2016 for alleged non-deduction and non-deposit of withholding sales tax amounting to Rs.4,815,462/- for the tax periods 01/2015 to 02/2016, under Sections 11(2), 11(4) and 26 of the Act read with the Sales Tax Special Procedure (Withholding) Rules, 2007. The proceedings culminated in an order-in-original dated 09.08.2016 creating liability of Rs.1,334,256/- with surcharge and penalty. The departmental appeal was dismissed; however, the learned Appellate Tribunal accepted the second appeal holding that the proceedings lacked lawful basis. 3. Through order dated 04.04.2018, this Court framed the following question of law for consideration:- "Whether the learned Appellate Tribunal IR has failed to appreciate the law settled by this Honourable Court in W.Ps. Nos. 24795/2016 and 21761/2016, wherein it has been observed that provisions of Section 11(4A) of the Act would apply retrospectively for the recovery of tax?" 4. Learned counsel for the respondent contends that the very issue involved in the instant reference has been conclusively settled by the Hon'ble Supreme Court in Civil Petition No. 4579 of 2023 titled M/s Allama Iqbal Open University v. Commissioner Inland Revenue, Withholding Tax Zone, Regional Tax Office, Islamabad, decided on 01.10.2025. The Apex Court held that the recovery of tax from a withholding agent does not fat under Section 11(4) of the Act, which pertains only to short-payment or erroneous refund due to inadvertence, error or misconstruction, and that withholding-related recovery is governed by Section 11(4A) inserted by the Finance Act, 2016, which has no retrospective operation. 5. Learned counsel for the applicant could not controvert the above legal position nor point out any statutory provision existing before 2016 enabling recovery of withholding sales tax under Section 11(4) of the Act. 6. Having heard learned counsel for the parties and examined the record with their able assistance, we find that the controversy involved herein stands squarely covered by the binding precedent of the Hon'ble Supreme Court cited above, under Article 189 of the Constitution. It has authoritatively been laid down that prior to the introduction of Section 11(4A), no proceedings could be initiated for recovery of withholding sales tax under Section 11(4). Accordingly, the view taken by the learned Appellate Tribunal suffers from no legal infirmity warranting interference. The question of law framed in this Reference is answered in the negative. Consequently, this Sales Tax Reference is accordingly dismissed. 7. Let a copy of this order be sent to the Tribunal in terms of Section 47(5) of the Act. MQ/C-3/L Reference dismissed.

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