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Official Citation: 2026 IHC 264425
Court / Jurisdiction: Islamabad High Court
Parties: Fauji Fertilizer Company Ltd. vs FOP etc
Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2026 IHC 264425. In this matter between Fauji Fertilizer Company Ltd. and FOP 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.
COURT: Islamabad High Court (Honourable Mr. Justice Inaam Ameen Minhas, Honourable Mr. Justice Muhammad Azam Khan) AUTHOR JUDGE: Honourable Mr. Justice Muhammad Azam Khan DECISION DATE: 30-JUN-2026 CASE NO: Intra Court Appeal-284-2016 CITATION: 2026 IHC 264425 PARTIES: Fauji Fertilizer Company Ltd. VS FOP etc LAW / SECTION: - SUBJECT: Writ, REMARKS: Intra Court Appeal in WP 654-16 (Tax matter, against notice dated 17.02.16 for furnished goods stock, position, call for information u/s 38-B of Sales Tax Act) ============================================================ JUDGMENT SHEET IN THE ISLAMABAD HIGH COURT, ISLAMABAD
INTRA COURT APPEALS NO. 284 & 285 OF 2016 Fauji Fertilizer Company Limited Versus Federation of Pakistan & 2 others Appellant by : Sardar Ahmed Jamal Sukhera, Advocate in both I.C.As. Respondent by : Mr. Ali Nawaz Kharral, Mr. Jamal Farooq, and Barrister Shameel Saadat, advocates for respondents No. 2 and 3 in both I.C.As. Mr. Azmat Bashir Tarrar, learned A.A.G. Date of hearing : 08.06.2026 MUHAMMAD AZAM KHAN, J. Through the instant appeals, the Appellant has challenged the Judgment dated 14.04.2016 rendered by the learned Single Judge in Chamber, whereby the constitutional petitions No.653 and 654 of 2016 filed by the Appellant, assailing the Notice dated 18.02.2016 and 17.02.2016, issued by Respondent No. 2 and 3, respectively, whereby the latter intends to verify the stocks of finished goods available as on 15.02.2016 and intends to access the premises of the Appellant Company for the purpose of verification of its accounts and record, were dismissed. The appeals are accompanied by an application under Section 5 of the Limitation Act, 1908, to condone the delay in filing the appeals, supported by an affidavit. 2. Learned counsel for the appellant, while explaining the maintainability of the appeal and the question of limitation, submitted that the appellant came to know about the dismissal of the writ petition only on 18.05.2016 upon receipt of a notice issued by the Commissioner in that regard. He contended that arguments in the writ petition had been concluded and judgment had been reserved on 21.03.2016. Thereafter, the matter was relisted through a Supplementary Cause List issued on 13.04.2016 for hearing on the very next day, i.e., 14.04.2016. According to the learned counsel, the appellant, being represented by an outside counsel, had no knowledge of such relisting and was not afforded an opportunity of hearing on 14.04.2016, as no intimation regarding
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the said fixation was conveyed to him. It was further contended that the Court Register would show that the file of the writ petition had remained in the learned Judge’s chamber until approximately 10.05.2016 and had not been transmitted to the Writ Branch before that date. Learned counsel argued that there was, therefore, no reasonable means by which the appellant could have known that the judgment had been announced. He submitted that if the limitation is computed from the date on which the case file was transmitted from the learned Judge’s chamber to the Writ Branch, the present appeal would be well within the prescribed statutory period of twenty days. 3. To the extent of the merits, the learned counsel for the appellants vehemently contended that the impugned notice issued under Section 38 of the Sales Tax Act, 1990, was wholly without lawful authority and jurisdiction, as no valid inquiry, duly authorized under Section 25 of the Act, was pending at the relevant time. It was argued that the correspondence relied upon by the respondents in their para-wise comments neither related to nor had any nexus with the proposed stock verification of finished goods as on 15.02.2016 and, therefore, could not constitute a lawful inquiry for the purposes of invoking Section 38. It was further contended that even assuming the existence of a pending inquiry, the intended exercise was not a routine visit contemplated under Section 38 but, in substance, a search aimed at verifying a preconceived apprehension of the Department and, therefore, could not lawfully be undertaken without first obtaining a search warrant in accordance with Section 40 of the Act. Learned counsel maintained that these material legal submissions were neither addressed nor adjudicated in the impugned judgment, which proceeded solely on the assumption that an inquiry was pending, without examining whether such an inquiry was lawfully initiated or whether the proposed action conformed to the statutory safeguards prescribed by the Act. Consequently, it was prayed that the impugned judgment and the proceedings founded upon the impugned notice be declared illegal and set aside.
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4. Learned counsel for the Respondents, at the outset, raised a preliminary objection to the maintainability of the instant appeal on the ground of limitation, contending that the Appellant had failed to demonstrate, through any cogent or reliable material, that the judgment dated 14th April, 2016 came to its knowledge only on 18th May, 2016, and that the mere assertion of ignorance, unsupported by affirmative proof, could not constitute sufficient cause for condonation of delay within the meaning of Section 5 of the Limitation Act, 1908, particularly when the Appellant was a corporate entity represented by counsel who was duty-bound to maintain diligent watch over proceedings pending before the Court. On merits, learned counsel strenuously defended the impugned Notice dated 18th February, 2016, submitting that the same had been lawfully issued by Respondent No. 2 in the bona fide and legitimate exercise of the powers vested in officers of Inland Revenue under Section 38(2) of the Sales Tax Act 1990, which confers upon such officers a broad and unqualified authority to access the premises of a registered person and to examine its accounts, records, and stock for the purposes of audit, inquiry, or investigation, without any precondition of a formally pending inquiry as a jurisdictional prerequisite for the exercise of such power. He further submitted that a valid inquiry was indeed pending at the relevant time and that the correspondence on record, duly referred to in the parawise comments filed by the Respondents, clearly established a sufficient nexus between the ongoing departmental proceedings and the proposed verification exercise, which was neither a search nor an action requiring the issuance of a warrant under Section 40 of the Act, but rather a routine inspection and stock verification squarely falling within the ambit of Section 38 and entirely consistent with the statutory framework and enforcement mandate of the revenue administration. Learned counsel accordingly urged that the learned Single Judge had correctly dismissed the constitutional petitions, that the impugned judgments were well-reasoned and unassailable in law, and that the instant appeals, being both time-barred and devoid of merit, were liable to be dismissed with costs.
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5. This Court has heard, at considerable length, the learned counsel for both parties, carefully examined the available record, and given its anxious and deliberate consideration to all the legal submissions advanced on either side. Before proceeding to adjudicate upon the merits of the controversy, it is necessary to first dispose of the application filed by the Appellant under Section 5 of the Limitation Act, 1908, seeking condonation of the delay occasioned in the filing of the instant appeals. 6. The application for condonation of delay is supported by an affidavit duly sworn and signed by the learned counsel for the Appellant, wherein it has been deposed, on solemn affirmation, that the Appellant came to know of the pronouncement of the impugned judgment only upon receipt of the notice issued by the Commissioner on 18.05.2016, and that prior thereto, neither the Appellant nor its counsel had any knowledge or intimation of the announcement of the judgment, inasmuch as the matter had been re-listed through a Supplementary Cause List without any prior notice to the outstation counsel, and the case file had remained in the learned Single Judge's Chamber until approximately 10.05.2016, leaving no reasonable means by which the pronouncement could have come to the Appellant's knowledge at an earlier point in time. 7. This Court has considered the said application with the care and circumspection that it warrants. It is a well-settled principle of law, consistently affirmed by the Superior Courts of Pakistan, that procedural provisions relating to limitation are intended to serve the ends of justice and not to defeat them, and that the courts must not allow technicalities of procedure to become instruments of injustice where a party has acted in good faith and without any culpable negligence or deliberate default. The Supreme Court of Pakistan has, in a long and unbroken line of decisions, held that in matters of condonation of delay, the court must adopt a pragmatic and justice-oriented approach, and that where sufficient cause is shown, howsoever liberally that expression may fall to be construed, the application ought to be allowed, so that the matter may be
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decided on its substantive merits rather than foreclosed upon purely technical grounds. This Court is of the view that where the questions raised in an appeal are of such legal complexity and public importance as those arising in the present proceedings, it is invariably more conducive to the proper administration of justice to examine and adjudicate upon those questions on their merits, rather than to dispose of the matter upon a threshold technicality that leaves the substantive legal controversy unresolved. Accordingly, taking a liberal and justice-oriented view of the matter, as the courts are both entitled and indeed obliged to do in appropriate cases, this Court hereby allows the application for condonation of delay, condones the delay in the filing of the instant appeals, and proceeds to examine the appeals on their merits. 8. A perusal of the comments filed by the respondents during the pendency of the writ petition reveals that, upon scrutiny of the sales tax record of the appellant company, namely FFCL, certain discrepancies were detected in the value of supplies declared by the appellant. In order to ascertain the correctness of the declared sales and the corresponding payment of sales tax, the respondents initiated inquiry proceedings. The record further reflects that the first communication in this regard was issued by the Deputy Commissioner Inland Revenue vide letter No. 29 dated 12.11.2015, whereby the appellant was called upon to explain and reconcile the discrepancies noticed in its sales tax declarations for the period July to September, 2015. The principal objection raised by the learned counsel for the appellant is that the aforesaid communication did not expressly state that an “inquiry” or “investigation” under the Sales Tax Act, 1990 had been initiated against the appellant. According to the learned counsel, in the absence of such an express recital, the communication dated 12.11.2015 cannot be treated as the commencement of an inquiry or investigation and, consequently, cannot furnish the jurisdictional basis for any subsequent action purportedly taken under the Act. 9. Before addressing the substantive question whether the letter dated 12.11.2015 constituted a valid initiation of inquiry proceedings sufficient to
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sustain the subsequent notice issued under Section 38 of the Act, it is necessary to deal with the contention advanced on behalf of the Appellant that the absence of an express reference to a particular statutory provision, or the omission of the words “inquiry” or “investigation” from the said communication, is fatal to the respondents’ case. It is a settled proposition that the legal character of a document is determined not by the nomenclature assigned to it, nor by the statutory provisions expressly cited therein, but by its substance, purpose and legal effect. Courts have consistently looked beyond form to substance, for it is the substance of an act rather than the label attached to it that determines its true legal nature. To illustrate, if a notice issued by a tax authority calls upon a taxpayer to explain identified discrepancies in his declarations, produce relevant records and furnish clarification regarding transactions under scrutiny, the communication does not cease to be an inquiry merely because the word “inquiry” has not been expressly employed. By the same token, a written agreement containing all the essential elements of a contract does not lose its binding character merely because the document is not titled as a “contract.” Likewise, an order granting relief does not cease to be a judicial order simply because it omits to describe itself as such. In each case, the law looks to the substance of what has been done rather than the terminology employed by the author of the document. 10. Examined in this light, the communication dated 12.11.2015 bears all the essential characteristics of an inquiry proceeding. It was issued by the Deputy Commissioner Inland Revenue in the exercise of his official functions; it identified specific discrepancies in the Appellant’s sales tax declarations for the tax periods July to September 2015; it brought those discrepancies to the notice of the Appellant; and it required the Appellant to furnish an explanation and clarification regarding the same. A communication seeking explanation and verification of identified irregularities in tax declarations is, in its very nature, an investigative exercise undertaken to ascertain the correctness of the declarations made and to determine whether any further action is warranted. The essence of an inquiry lies not in the use of a particular expression but in the initiation of a
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process of examination, verification and information-gathering by a competent authority. 11. Equally untenable is the contention that the communication is rendered legally ineffective because it does not expressly cite any provision of the Sales Tax Act, 1990. The validity of an administrative act depends upon the existence of lawful authority and not upon the meticulous recitation of statutory provisions in every communication. Where the authority issuing the communication possesses the requisite jurisdiction, acts within the scope of that jurisdiction, and issues a communication which, in substance, seeks information and clarification regarding matters falling within its lawful competence, the omission to cite a specific statutory provision is at best a defect of form and not one of substance. Such an omission cannot be elevated into a jurisdictional infirmity so as to invalidate an otherwise lawful proceeding. The chronology of events further reinforces this conclusion. The communication dated 12.11.2015 preceded the impugned notice by several months and was plainly directed towards examining discrepancies noticed in the Appellant’s tax declarations. The subsequent notice, therefore, appears not as an isolated or independent action but as a natural progression of the process that had already been set in motion through the earlier communication. The suggestion that the characterization of the letter dated 12.11.2015 as an inquiry is a retrospective justification devised for purposes of litigation is, therefore, unsupported by the record and inconsistent with the sequence of events disclosed therein. 12. The true test is whether a competent officer, through a communication identifying specific matters requiring examination and calling for an explanation from the taxpayer, had commenced a process of institutional scrutiny of the taxpayer’s affairs. Applying that test, the communication dated 12.11.2015 clearly constituted the initiation of an inquiry, which remained pending at the time of issuance of the subsequent notice. 13. The second contention advanced on behalf of the Appellant is that the impugned notice issued under Section 38B of the Sales Tax Act, 1990, was
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without lawful authority and jurisdiction, on the ground that no inquiry validly initiated under Section 25 of the Act was pending at the relevant time. According to the learned counsel, the existence of such an inquiry constituted a mandatory jurisdictional precondition for the lawful exercise of powers under Section 38B. For the sake of reference, Section 25 of the Act is reproduced as under: - “Section 25: Audit of sales tax affairs.– (1) The Commissioner on the basis of reasons to be recorded in writing, may direct the officer of Inland Revenue not below the rank of Assistant Commissioner to conduct audit of sales tax affairs of any registered person and issue a notice to such registered person intimating him regarding audit of sales tax affairs. (2) The Commissioner shall communicate the reasons referred to in sub-section (1) to the registered person whose audit is to be conducted through the notice under sub-section (1). (3) The reasons referred to in sub-section (1) shall be based on scrutiny of the available records including sales tax and federal excise returns, income tax returns and withholding statements, financial statements or third party information: Provided that the reasons shall not include the mere verification of input tax, output tax, refund claim and compliance of legal provisions without identifying risk factors that require such verification. (4) Subsequent to the issuance of notice under sub-section (1), the officer of Inland Revenue, may call for any record or documents including record maintained under this Act, the rules made thereunder or any other law for the time being in force for conducting audit of the sales tax affairs of the person. Where such record or documents have been kept on electronic data, the registered person shall allow authorize officer of Inland Revenue access to the use of machine and software on which such data is kept and the officer of Inland Revenue may obtain duly attested hard copies of such information or data from the registered person: Provided that the officer of Inland Revenue shall not call for record or documents of the registered person after expiry of six years from the end of the financial year to which they relate. (5) The officer of Inland Revenue may require the registered person to attend his office in person or through an authorized representative. The
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registered person shall produce such accounts, documents or any evidence as the officer of Inland Revenue may consider necessary. (6) The officer of Inland Revenue not below the rank of Assistant Commissioner may conduct or cause to be conducted such enquiry and obtain such information from any third party as he considers appropriate. (7) The officer of Inland Revenue not below the rank of Assistant Commissioner shall conduct audit of the sales tax affairs to verify the correctness or otherwise of the declared tax liability, output tax, input tax claimed, tax paid, refund claimed, stocks consumed or available for ascertaining compliance or otherwise with the provisions of this Act and the rules made thereunder on the basis of the record and evidence obtained under sub-sections (5) or (6). (8) The officer of Inland Revenue may conduct audit proceedings electronically through video links, or any other facility as may be prescribed by the Board. (9) After completion of the audit, the officer of Inland Revenue may, if required pass an order under section 11E, after providing an opportunity of being heard to the registered person under sub-section (1) of section 11E. (10) Notwithstanding anything contained in sub-sections (7) and (9) where a registered person fails to produce before the officer of Inland Revenue, any accounts, documents or records required to be maintained under this Act or the rules made thereunder or any other relevant document electronically kept record, electronic machine or any other evidence that may be required by the officer of Inland Revenue for the purpose of audit. The officer of Inland Revenue may proceed to make best judgment assessment under section 11D of this Act. (11) Notwithstanding the penalties prescribed in section 33, if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge voluntarily, whenever it comes to his notice, before receipt of notice of audit, no penalty shall be recovered from him: Provided that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge during the audit, or at any time before issuance of show cause notice under section 11E, he may deposit the evaded amount of tax, default surcharge under section 34, and twenty five percent of the penalty payable under section 33:
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Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge after issuance of show cause notice under section 11E, he shall deposit the evaded amount of tax, default surcharge under section 34, and full amount of the penalty payable under section 33 and thereafter, the show cause notice, shall stand abated.]” 14. Before proceeding to examine the merits of the aforesaid contention and the statutory scheme governing the matter, it would be advantageous to reproduce Section 38B of the Sales Tax Act, 1990, which lies at the heart of the present controversy. The provision reads as follows:– “38-B. Obligation to produce documents and provide information: (1) Notwithstanding anything contained in this Act or any other law for the time being in force, any person required to maintain the record under the Act, on demand by an officer, not below the rank of an Assistant Commissioner Inland Revenue, by notice in writing, as and when specified in the notice, shall: (a) produce for examination, such documents or records which the officer of Inland Revenue considers necessary or relevant to the audit, inquiry or investigation under the Act; (b) allow the officer of Inland Revenue to take extracts from or make copies of such documents or records; and (c) appear before the officer of Inland Revenue and answer any question put to him concerning the documents and records relating to the audit or inquiry or investigation referred to in clause (a) above. (2) An officer of Inland Revenue conducting an audit, inquiry or, as the case may be, an investigation under the Act, may require in writing any person, department, company or organization to furnish such information as is held by that person, department, company or organization, which, in the opinion of the officer of Inland Revenue, is relevant to such audit, inquiry or investigation. (3) The Board may require, in writing, any person, department, company or organization, as the case may be, to provide any information or data held by that person, department, company or organization, which, in the opinion of the Board, is required for purposes of formulation of policy or administering the Customs, Sales Tax, Federal Excise or Income Tax.
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(4) Every person, department, company or organization shall furnish the information requisitioned by the Board or the officer of Inland Revenue under sub-section (2) or (3), within the time specified in the notice issued by the Board or, as the case may be, the officer of Inland Revenue.” 15. At the outset, it must be observed that the entire edifice of the Appellant’s argument rests upon an assumption that Section 25 occupies a controlling and foundational position within the statutory framework and that every exercise of power under Section 38B must necessarily trace its origin to an audit or inquiry commenced thereunder. Section 25 is a provision dealing principally with the audit of sales tax affairs of a registered person. It prescribes the circumstances in which the Commissioner may direct an audit, the procedure to be followed, the powers available to the audit officer, and the consequences that may ensue upon completion of the audit. The provision is thus concerned with a specific species of…
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