Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2026 IHC 252478. In this matter between M/s Ajmal & Brothers and FOP through Secretary Revenue Division/Chairman FBR etc., 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

COURT: Islamabad High Court (Honourable Mr. Justice Muhammad Azam Khan) AUTHOR JUDGE: Honourable Mr. Justice Muhammad Azam Khan DECISION DATE: 24-FEB-2026 CASE NO: Writ Petition-3124-2023 CITATION: 2026 IHC 252478 PARTIES: M/s Ajmal & Brothers VS FOP through Secretary Revenue Division/Chairman FBR etc. LAW / SECTION: - SUBJECT: Miscelleneous, Other REMARKS: Customs: Challenging penalty imposed through First Schedule Under section 156 and also challenges the valuation ruling over imported used auto parts. ============================================================ JUDGMENT SHEET IN THE ISLAMABAD HIGH COURT, ISLAMABAD

WRIT PETITION NO. 3124 OF 2023 Ajmal & Brothers Versus Federation of Pakistan through Secretary, Revenue Division/Chairman FBR, and others.

Petitioners by : Mr. Adnan Haider, Advocate in W.P Nos. 3124 to 3137 of 2023. Mr. Tauqeer Akram, Advocate in W.P Nos.3828/2023, 3931/2023, 3932/2023, 4104/2023, 465/2024 and 472/2024. Mr. Shah Rukh Marwat, Advocate in W.P No.3573/2023. Mr. Shah Rukh Marwat, proxy counsel in W.P No.3858/2023. Respondents by : Raja Zubair Hussain Jarral, Advocate in W.P Nos.3124 to 3137 of 2023. Malik Nasir Abbas, Advocate in W.P Nos.3828/2023, 3858/2023, 3931/2023, 3932/2023, 4104/2023, 465/2024 and 472/2024. Mr. Ali Shahryar, proxy counsel on behalf of Customs in all writ petitions. Date of hearing : 12.02.2026

MUHAMMAD AZAM KHAN, J. This consolidated judgment shall dispose of Writ Petitions Nos. 3124, 3125, 3126, 3127, 3128, 3129, 3130, 3131, 3132, 3133, 3134, 3135, 3136, 3137, 3573, 3828, 3858, 3931, 3932 & 4104 of 2023, and 465 & 472 of 2024, as common questions of law and fact arise therein. The petitioners have assailed the vires of the amendment introduced through the Finance Act, 2023 to the Customs Act, 1969, whereby Section 156 was amended and the minimum quantum of penalty for release of certain goods was enhanced. For ready reference, the prayer clause contained in the instant writ petition is reproduced as under: - “It is, therefore, most respectfully prayed that an appropriate writ may graciously be issued: 2 | W.P No. 3124-2023

a. Declaring that the penalty provision of the Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 including the amendment inserted in it by the Finance Act, 2023 which has increased minimum penalty equal to the value of goods with respect to used auto parts to be ultra vires the Constitution and law to the extent of importers of used auto parts. b. In the alternative to prayer a., reading down the penalty provision of the Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 including the amendment inserted in it by the Finance Act, 2023 which has increased minimum penalty equal to the value of goods with respect to used auto parts to the extent of importers of used auto parts. c. In the alternative to prayers a. and b., declaring the penalty provision of the Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 including the amendment inserted in it by the Finance Act, 2023 which has increased minimum penalty equal to the value of goods with respect to used auto parts to be directory in nature to the extent of importer of used auto parts. d. Declaring that in view of CGO 11 of 2006 dated 19.09.2006, SRO 499(I)/2009 dated 13.06.2009 and Valuation Ruling 1714 of 2022 dated 21.12.2022, there is no mens rea on the part of importers of used auto parts which may warrant personal penalty of Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 especially the enhanced penalty equal to the value of goods as inserted by Finance Act, 2023. e. Declaring that amendment in Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 by Finance Act, 2023 will not apply retrospectively to the cases where vested interests had been created – Contracts/Performa Invoices were issued, Bills of Lading were prepared, L/Cs or Banking Contracts were made or GDs were filed – prior to 1st of July, 2023 which is the effective date of the Finance Act, 2023. f. Declaring that restriction under clause 11 of Appendix-C of the Import Policy Order 2016 on import of used auto parts is contrary to CGO 11 of 2006 dated 19.09.2006, SRO 499(I)/2009 dated 13.06.2009 and Valuation Ruling 1714 of 2022 dated 21.12.2022 and has been de facto relaxed/lifted by the Federal Government. 3 | W.P No. 3124-2023

g. Suspending the operation of the Second Column of Serial No. 9 of the Table of section 156(1) of the Customs Act, 1969 including the amendment made by the Finance Act, 2023, which has imposed minimum penalty equal to the value of goods on used auto parts, till the decision of the instant Writ Petition. h. Directing, during the pendency of the instant Writ Petition, to provisionally release the Consignment of the Petitioner as an interim relief; and i. Granting any other better or appropriate relief which is fit to compensate the Petitioner.” 2. Learned counsel for the petitioners submits, with considerable emphasis, that the impugned action of the respondents is a violation of Article 4, 8, 10-A, 12, 18, 23, 25, and 77 of the Constitution of the Islamic Republic of Pakistan, 1973 (the Constitution). By the combined and consistent operation of Customs General Order No. 11 of 2006 dated 19.09.2006, SRO 499(I)/2009 dated 13.06.2009, and Valuation Ruling No. 1714 of 2022 dated 21.12.2022, the petitioners have, for many years, been engaged in the regular import of used auto parts. These imports were neither clandestine nor concealed; they were processed openly through customs channels, assessed by the authorities themselves, and released upon payment of applicable duties. Learned counsel further pointed out that the uniform departmental practice was to assess customs duty in accordance with the relevant valuation ruling, impose a redemption fine equivalent to 20% of the customs value, and levy a nominal penalty of a few thousand rupees. He further contends that the present controversy has arisen solely due to the amendment introduced through the Finance Act, 2023 (the Act), whereby Serial No. 9 of Section 156(1) of the Customs Act was modified to include the words “not less than the value of the goods,” in addition to “not exceeding twice the value of the goods.” According to counsel, the respondents have adopted an overly rigid and literal interpretation of this amendment, treating it as mandating, in every case, a penalty equal to 100% of the value of the goods. It is forcefully argued that such a reading is divorced from legislative intent and commercial reality. The petitioners’ imports were conducted transparently, through letters of credit, banking channels, and formal customs declarations. To treat these 4 | W.P No. 3124-2023

regulated transactions at par with clandestine smuggling operations is, counsel submits, legally unsustainable. When customs duty, redemption fine, and a penalty equal to the full value of the goods are cumulatively imposed, the result is confiscatory in effect. The trade becomes economically nonviable. Counsel argues that this amounts to a constructive prohibition, achieved indirectly through excessive penalization, without any express statutory declaration banning the trade outright. 3. Learned counsel further submits that, although the Import Policy Order, 2016 contains restrictions concerning used auto parts, the customs regime has historically operated in a manner that permitted release of such goods upon payment of redemption fine and penalty instead of outright confiscation. This practice reflects a deliberate and pragmatic reconciliation between import policy restrictions and the adjudicatory powers vested under the Customs Act. He asserted that SRO 499(I)/2009, when read in its entirety, supports this approach by contemplating regulated release rather than automatic forfeiture. The Import Policy Order, the SRO, the Customs General Order, and the Valuation Rulings are all forms of delegated legislation. In the event of any perceived inconsistency among them, the settled principle of interpretation requires harmonization in a manner that preserves, rather than destroys, the constitutional right to carry on lawful trade and business. 4. Lastly, learned counsel advances the position that even assuming arguendo that the amendment validly enhances penalties, it cannot be applied retrospectively. The petitioners had opened letters of credit with the approval of the State Bank of Pakistan and entered into binding contractual commitments prior to the enactment of the Finance Act, 2023. The goods were ordered and shipped on the basis of the legal regime then prevailing. To subject such transactions to an enhanced and mandatory penalty regime would offend settled principles governing retrospectively in fiscal legislation. Fiscal burdens cannot be imposed retrospectively in the absence of clear and unequivocal legislative intent. 5 | W.P No. 3124-2023

5. Conversely, learned A.A.G. has submitted that the vires of a statutory provision can only be successfully assailed on limited constitutional grounds, namely, where it is demonstrated that the legislature lacked competence to enact or amend the law, or where the impugned provision is repugnant to, inconsistent with, or in direct conflict with any express provision of the Constitution. He contends that, absent such constitutional infirmity, a duly enacted statute enjoys a presumption of validity that cannot be displaced merely on grounds of perceived harshness or economic inconvenience. It is further urged that, in the present case, the petitioners’ grievance is confined to the enhancement in the quantum of fine/penalty introduced through the Finance Act, 2023. According to learned A.A.G., such enhancement falls squarely within the legislative domain, particularly in matters of fiscal policy and regulatory enforcement. The determination of the extent, severity, or deterrent effect of penalties is a matter of legislative wisdom and policy, which lies exclusively within the province of Parliament. By seeking to question the quantum of the penalty, the petitioners have, in substance, invited this Court to reassess the wisdom and propriety of legislative judgment, an exercise which is impermissible within the scope of constitutional jurisdiction under Article 199. The Court cannot substitute its own view as to what constitutes an appropriate or proportionate penalty in fiscal matters. Unless it is shown that the amendment is constitutionally incompetent, discriminatory, manifestly arbitrary, or violative of a fundamental right, judicial interference is unwarranted. The mere fact that the amended provision imposes a higher financial burden does not render it unconstitutional. It is, therefore, contended that the petition is misconceived, as it challenges legislative policy rather than demonstrating any constitutional transgression. 6. Learned A.A.G further contended that the petitioners cannot claim any vested right on the basis of an alleged past departmental practice, as release of goods upon payment of redemption fine was always discretionary and subject to the statutory framework in force at the relevant time. An administrative practice, even if consistently followed, cannot override or restrict the effect of an express amendment enacted by Parliament. Once Section 156(1) was amended through 6 | W.P No. 3124-2023

the Finance Act, 2023, the Department became legally bound to implement the revised penalty structure. No principle of legitimate expectation or estoppel can operate against a clear legislative mandate, and commercial arrangements undertaken by the petitioners remain subject to the law as applicable at the time of import and assessment. 7. I have heard the learned counsel for the parties at length and have carefully considered the petition in light of the para-wise comments filed by the respondents. 8. Apparently, the facts giving rise to the instant constitutional petitions are that the petitioner is engaged in the import of old and used auto parts. Certain consignments imported by the petitioner arrived at the Dry Port, Islamabad; however, the same have not been cleared by the concerned authorities. The reason conveyed to the petitioner for non-clearance is that, pursuant to the amendment introduced through the Finance Act, 2023, in Serial No. 9 of Section 156(1) of the Customs Act, the minimum penalty has been enhanced to an amount not less than 100% of the value of the goods. Aggrieved by the enhancement in the quantum of penalty/fine and the consequent action of the respondents, the petitioner has invoked the constitutional jurisdiction of this Court, seeking a declaration that the amendment brought about through the Finance Act, 2023, is ultra vires the Constitution and, therefore, of no legal effect. 9. In light of the submissions advanced by the parties, the foremost question that arises for determination in the present case is whether Parliament, in exercise of its constitutional authority, possesses the competence to enact and amend statutory provisions imposing general or special taxes and allied penalties, as has been done through the Finance Act, 2023. 10. The question of legislative competence in fiscal matters must be examined within the constitutional framework that governs the distribution and exercise of taxing powers in Pakistan. The Constitution does not treat taxation as an incidental authority; rather, it recognizes it as an essential attribute of sovereignty, subject 7 | W.P No. 3124-2023

only to constitutional limitations. At the outset, Article 77 of the Constitution says: - “No tax shall be levied for the purposes of the Federation except by or under the authority of Act of [Majlis-e-Shoora (Parliament)].” 11. This provision embodies a constitutional command of the highest order. It is both a grant of authority and a restraint. In language plain yet profound, it vests the taxing power in the elected legislature and simultaneously prohibits its exercise by any other organ of the State except pursuant to legislative sanction. The clause reflects the foundational democratic principle that the power to tax, the power to compel contribution from the citizen for public purposes, must reside in the representatives of the people. The phrase “by or under the authority of” is of particular significance. It contemplates two modes of valid taxation. First, Parliament may itself impose a tax directly through primary legislation, specifying its nature, rate, and incidence. Second, Parliament may authorize the imposition or operationalization of tax through delegated legislation, provided such delegation is grounded in and circumscribed by statute. The Constitution thus recognizes the practical necessity of delegation in complex fiscal regimes, while ensuring that the ultimate source of authority remains legislative. 12. The scope and nature of this power were authoritatively expounded by the august Supreme Court in PLD 1997 SC 582. The Court held that the power of taxation is an inherent and indispensable attribute of sovereignty. It does not arise from a constitutional grant; rather, constitutional provisions relating to taxation operate as limitations upon legislative authority. The Court emphasized that the State’s power to tax is general, unlimited, and absolute within its jurisdiction, subject only to constitutional restraints. Importantly, the Supreme Court clarified that entries in the Legislative List are not restrictive in character but demarcate fields of legislation. Such entries must be given a broad and liberal interpretation to enable the State to effectively discharge its functions. The Court further recognized that modern fiscal policy may adopt diverse forms of taxation, including presumptive and minimum taxes, and that the Legislature enjoys plenary authority to structure liability, impose conditions, and determine the mode 8 | W.P No. 3124-2023

and extent of taxation, provided constitutional boundaries are not crossed. The Hon’ble Supreme Court held: - “The power of taxation rests on necessity, it is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent State or Government. Such power is an inherent one, and is not dependent upon any grant by the Constitution, or the consent of the owners of property subject to taxation; Constitutional provisions with respect to taxation constitute a limitation on the legislative power and not a grant of power. The power to tax rests primarily in the State, to be exercised by its legislature and the State may exercise the power directly or may delegate such power as political sub-divisions of the State. The exercise of the taxing power is a high Governmental function, in invitum in nature. Generally, the power of taxation is as extensive as the range of subjects over which the power of the Government extends. As to such subjects, and except in so far as it is limited or restrained by Constitutional provisions, a State’s power of taxation, if exercised for public purposes, is general, unlimited, and absolute, extending to all persons, property, and business within its jurisdiction. Since this power is contained in the Constitution, one’s approach while interpreting the same should be dynamic, progressive and oriented with the desire to meet the situation, which has arisen, effectively. The interpretation cannot be narrow and pedantic but the Court’s efforts should be to construe the same broadly, so that it may be able to meet the requirement of ever changing society. The general words cannot be construed in isolation but the same are to be construed in the context in which they are employed. In other words, their colour and contents are derived from their context. In a Federal Constitution like in Pakistan, the legislative power is distributed between the Provincial and the Federal Legislatures. With that view legislative lists are prepared. The entries contained therein indicate the subjects on which a particular Legislature is competent but they do not provide any restriction as to the power of the Legislature concerned. It can legislate on the subject mentioned in an entry so long as it does not transgress or encroach upon the power of the other Legislature and also does not violate any fundamental right as the legislative power is subject to constraints contained in the Constitution itself. It is also a well settled proposition of law that an entry in a legislative list cannot be construed narrowly or in a pedantic manner but it is to be given liberal construction.” 9 | W.P No. 3124-2023

13. In addition, the Hon’ble Supreme Court further added that: - “34. Keeping in view the above case-law and the treatises and the aforesaid legal inferences drawn therefrom, we may now revert to the question of vires of the impugned sections. It may again be observed that the power to levy taxes is a sine qua non for a State. In fact it is an attribute of sovereignty of a State. It is mandatory requirement of a State as it generates financial resources which are needed for running a State and for achieving the cherished goal, namely, to establish a welfare State. In this view of the matter, the Legislature enjoys plenary power to impose taxes within the framework of the Constitution. It has prima facie power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses so long as they do not exceed the mandate of the Constitution. It is also apparent that the entries in the Legislative List of the Constitution are not powers of legislation but only fields of legislative heads. The allocation of the subjects in the lists is not by way of scientific or logical definition but by way of simple enumeration of broad catalogue. A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. It is needless to reiterate that it is a well-settled proposition of law that an entry in the Legislative List must be given a very wide and liberal interpretation. The word “income” is susceptible as to include not only what is in ordinary parlance it conveys or it is understood, but what is deemed to have arisen or accrued. It is also manifest that income-tax is not only levied in the conventional manner by working out the net income after adjusting admissible expenses and permissible deductions etc., but the same may also be levied on the basis of gross receipts or expenditure etc. There are new species of income-tax, namely, presumptive tax and minimum tax.” 14. This principle was further reinforced by the Lahore High Court in 2018 PTD 287 (M/s D.G. Khan Cement Company Limited vs. FBR and others). In that case, the competence of Parliament to impose a special tax under Section 4B of the Income Tax Ordinance, 2001, was challenged. The Court held that “taxation,” as defined in Article 260 of the Constitution, encompasses the imposition of any tax or duty, whether general, local, or special. It was categorically observed that Parliament possesses vast powers to impose special taxes for specific purposes, and that such levy squarely falls within its constitutional competence. Lahore High Court held that: - “Taxation which has a nexus with the powers to impose tax under Article 77 includes the imposition of any tax or duty whether general, local or 10 | W.P No. 3124-2023

special, and tax shall be construed accordingly. Therefore, the legislature has vast powers to impose tax or duty which can be special in nature. This clearly means that tax can be imposed for special purpose and which will include a specific purpose as sought to be canvassed by the learned counsel for the petitioners. This is a complete answer to the argument of the learned counsel for the petitioners with regard to the mention of a purpose in Section 4B of the Ordinance, 2001. It is not difficult to construe that Section 4B is a special tax and has been imposed for a special purpose and by virtue of the definition of taxation given in Article 260 the Parliament was well within its powers to impose such a tax. We will also take a glance at Entry 47 of the Fourth Schedule to the Constitution which reads as follows: - “47. Taxes on income other than agricultural income”. 34. It has been settled by respectable authorities that Entries in the Legislative List of the Constitution indicate the subject on which a particular legislature is competent to enact but they do not provide any restriction as to the power of the legislature concerned. It is also well settled that a Legislative List cannot be construed narrowly but has to be given a liberal construction. It will be noticed that Entry 47 uses the term ‘taxes on income’. This in my opinion is quite significant as it empowers the legislature to impose more than one tax on the income of a person. Once again, the term ‘tax on income’ used in Entry 47 effectively nullifies the arguments with regard to double taxation. Therefore, only that the legislature does not impose a prohibition on double taxation but in fact permits the levy of more than one tax on income.” “39. In a taxing statute, legislature enjoys much greater latitude for selection of subjects of taxation as also for classification and the legislative will is based on diverse, economic, social and policy considerations. The economic wisdom of a tax is within the exclusive province of the legislature and questioning the legislative policy is beyond the domain of the courts.” 15. In the landmark Supreme Court case McCulloch v. Maryland (1819), Chief Justice John Marshall handed down one of his most important decisions regarding the expansion of Federal power. “Before we proceed to examine this argument, and to subject it to the test of the constitution, we must be permitted to bestow a few considerations on the nature and extent of this original right of taxation, which is acknowledged to remain with the States. It is admitted that the power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to 11 | W.P No. 3124-2023

carry it. The only security against the abuse of this power, is found in the structure of the government itself. In imposing a tax the legislature acts upon its constituent.” 16. Furthermore,…

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