Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2026 IHC 264261. In this matter between M/S Maris International Pvt Ltd and CIR 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 Inaam Ameen Minhas, Honourable Mr. Justice Muhammad Azam Khan) AUTHOR JUDGE: Honourable Mr. Justice Inaam Ameen Minhas DECISION DATE: 17-JUN-2026 CASE NO: Writ Petition-320-2025 CITATION: 2026 IHC 264261 PARTIES: M/S Maris International Pvt Ltd VS CIR etc LAW / SECTION: section 38 of the Sales Tax Act, 1990 || under section 21(2) of STA1990 || SUBJECT: Tax & Banking, Tax REMARKS: Tax: Petitioner is aggrieved of notice, raid, inspection and action U/s 38 of Sales Tax Act. ============================================================ JUDGMENT SHEET ISLAMABAD HIGH COURT, ISLAMABAD JUDICIAL DEPARTMENT WRIT PETITION NO. 320 OF 2025 M/S MARIS INTERNATIONAL (PRIVATE LIMITED) VERSUS COMMISSIONER INLAND REVENUE (ZONE-III) CTO, AND ANOTHER

Petitioner by: Syed Ishfaq Hussain Shah & Mr. Muhamamd Ali Haider, Advocates. Respondents by: Mr. Rehan Seerat, Advocate. ASSISTED BY: Muhammad Yahya Khan Niazi, Judicial Law Clerk. DATE OF HEARING: 28.04.2026

INAAM AMEEN MINHAS, J:- Through the instant writ petition, the petitioner has impugned the (i) Notice dated 23.01.2025 (“Impugned Notice-I”) issued by respondent No.1/Commissioner Inland Revenue (Zone-III) whereby investigation/inquiry under section 38 of the Sales Tax Act, 1990 (“STA 1990”), was initiated and respondent No. 2/Deputy Commissioner Inland Revenue (Zone –II) was authorized to conduct tax fraud inquiry, (ii) Notice dated 23.01.2025 (“Impugned Notice-II”) issued by respondent No. 1 whereby the petitioner was called to explain its position before initiating action under section 21(2) of STA1990 read with Rule 12(a) of the Sales Tax Rules, 2006, and (iii) Notice dated 23.01.2025 (“Impugned Notice-III”) issued by respondent No. 1 whereby physical stock taking was approved and a team was nominated to that effect. Additionally, the petitioner has sought a direction that the record of the petitioner be returned and respondents be restrained from taking any adverse action in pursuance of the Impugned Notices. 2. The brief facts of the instant petition are that a supply chain analysis was conducted by the respondents whereby the petitioners’ past transaction history revealed volume of purchases from registered suppliers 2 W.P. No. 320 of 2025

which were never declared by the petitioner. Therefore, the respondent authority initiated an investigation/inquiry in exercise of powers conferred under Section 38 of the STA 1990 and vide Impugned Notice-I, respondent No. 1 authorized respondent No. 2 to conduct tax fraud inquiry. Thereafter, the respondent No. 1 vide the Impugned Notice-II called upon the petitioner to explain its position before initiating action under section 21(2) of STA1990 read with Rule 12(a) of the Sales Tax Rules, 2006. During such time physical stock taking was approved and a team was nominated to that effect vide Impugned Notice-III and on 23.01.2025, the authorized team of the respondents entered the business premises of the petitioner. 3. The learned counsel for the petitioner contended that the Impugned Notices dated 23.01.2025 and the consequential actions of the respondents are wholly without lawful authority, jurisdiction, and of no legal effect, having been undertaken in purported exercise of powers under sections 38 and 21(2) of the STA 1990, despite the fact that no proceedings were pending against the petitioner under any provision of the Act. Learned counsel submitted that the respondents, under the guise of section 38, conducted an unauthorized search and seizure operation so as to circumvent the mandatory safeguards contained in section 40 of the Act, which requires lawful process and warrant for such coercive measures. He argued that section 38 is merely an enabling provision intended to facilitate access to premises, stocks, accounts, and records in aid of pending proceedings, and does not authorize search, raid, seizure, or forcible taking into custody of the entire business record, particularly in the absence of prior notice or refusal on the part of the taxpayer to produce the same. It was further contended that the petitioner is a duly registered taxpayer regularly filing returns, and even in an earlier exercise of physical stock taking undertaken by the respondents pursuant to the notice dated 11.10.2024 under section 38, no discrepancy or illegality was found, where after the proceedings were closed and record returned. Lastly, the learned counsel submitted that the impugned action amounts to 3 W.P. No. 320 of 2025

a fishing and roving inquiry, tainted with mala fide, arbitrariness, and abuse of authority, and the same is violative of Section 24-A of the General Clauses Act, 1897 (“GCA 1897”), as well as Articles 4 and 10-A of the Constitution, which guarantees lawful treatment, fairness, and due process. Thus, it was prayed that the Impugned Notices and all subsequent actions be declared illegal and set aside. 4. Conversely, the learned counsel for the respondents vehemently opposed the petition and contended that the same is misconceived, based on suppression of material facts, and liable to be dismissed with costs. He argued that the action taken on 23.01.2025 was a lawful inspection carried out strictly in accordance with section 38 of the STA 1990, pursuant to a valid authorization issued by the competent authority after formation of satisfaction regarding suspected tax fraud and fake input tax claims by the petitioner. Learned counsel submitted that respondent No. 2, along with officials, merely visited the registered premises of the petitioner for stock examination, where the petitioner’s Director/Principal Officer informed in writing that the entire stock had already been sold and no stock was available for inspection, whereupon the officials left the premises without undertaking any coercive action. Learned counsel also emphatically denied that any raid was conducted, that force was used, or that any record was seized or taken into custody. He contended that prior notice dated 23.01.2025 was duly served and acknowledged by the petitioner, followed by a formal notice dated 24.01.2025 for production of record, to which only partial record was furnished, necessitating issuance of a reminder notice dated 10.03.2025. He argued that the powers under section 38 are independent in nature and do not require pendency of proceedings under Sections 11 or 25 of the Act, nor are they controlled by section 40, which applies only in cases of forcible entry and seizure. According to learned counsel, the respondents acted within lawful jurisdiction, observed due process, and committed no violation of Articles 4 or 10-A of the Constitution; rather, the petition has been filed merely to 4 W.P. No. 320 of 2025

obstruct lawful inquiry proceedings presently underway against the petitioner. 5. We have given anxious consideration to the arguments of the learned counsel for the parties, carefully perused the precedents advanced on their behalf, and perused the record with their able assistance. The core grievance of the petitioner is that purportedly the respondent No.2 in exercise of powers conferred under section 38 of the STA 1990, entered the business premises of the petitioner and took into custody the entire business record which they contend to be unlawful, arbitrary, and in excess of the jurisdiction vested in the respondents under the law. In this background the following questions arise for determination:- i) Whether the action undertaken by the respondents on 23.01.2025 constituted lawful access and inspection under Section 38, or amounted in substance to a search and seizure operation requiring prior magisterial warrant under Section 40 of the Act? ii) Whether Section 25 of the Sales Tax Act, 1990 is a mandatory statutory prerequisite to the exercise of powers under Section 38 of the Act, or whether the two provisions operate as independent and parallel enforcement mechanisms? iii) Whether constitutional jurisdiction under Article 199 is available to a taxpayer at the stage of mere initiation of inquiry in the absence of any final order or crystallized civil consequence? 6. This Court shall now address the first question i.e. whether the physical stock taking constituted lawful access and inspection under section 38, or amounted in substance to a search and seizure operation requiring prior magisterial warrant under Section 40 of the Act? This limb of the petitioner’s challenge is founded upon the assertion that the respondents, while purporting to act under section 38 of the STA 1990, in substance carried out a search and seizure operation so as to evade the procedural safeguard embodied in section 40 of the Act, namely, the requirement of obtaining a warrant from the Magistrate. I. DISTINCTION BETWEEN SECTION 38 AND SECTION 40 OF STA, 1990. 5 W.P. No. 320 of 2025

7. The learned counsel for the petitioner argued that the respondents employed section 38 as a mere pretext and exercised coercive powers which, in law, could only be invoked through recourse to section 40 which is mandatory to be invoked before section 38. Since considerable emphasis has been placed upon this submission, it would be appropriate to delineate the contours of both the sections of the Act. Section 38 reads as under:- “38. Authorized officers to have access to premises, stocks, accounts and records – (1) Any officer authorized in this behalf by the Board [or the Commissioner] shall have free access [including real-time electronic access] to business or manufacturing premises, registered office or any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to any registered person or a person liable for registration or whose business activities are covered under this Act or who may be required for any inquiry or investigation in any tax fraud committed by him or his agent or any other person; and such officer may, at any time, inspect the goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds or assets with which his business is financed, and any other records or documents, including those which are required under any of the Federal, Provincial or local laws maintained in any form or mode and may take into his custody such records, statements, diskettes, documents or any part thereof, in original or copies thereof in such form as the authorized officer may deem fit against a signed receipt. (2) The registered person, his agent or any other person specified in sub-section (1) shall be bound to answer any question or furnish such information or explanation as may be asked by the authorized officer. (3) The department of' direct and indirect taxes or any other Government department, local bodies, autonomous bodies, corporations or such other institutions shall supply requisite information and render necessary assistance to the authorized officer in the course of inquiry or investigation under this section.]” 8. A careful reading of Section 38 of the STA, 1990 makes it evident that the provision is a comprehensive statutory mechanism enacted to facilitate inquiry, verification, and enforcement under the fiscal regime. It 6 W.P. No. 320 of 2025

empowers any officer duly authorized by the Board or the Commissioner to have free access, including real-time electronic access, to business premises, manufacturing units, registered offices, or any other place where stocks, records, or documents relevant to the Act are kept. The authority extends to registered persons, persons liable to registration, persons carrying on activities covered under the Act, as well as matters requiring inquiry or investigation into any tax fraud. The provision further authorizes such officer, at any time, to inspect goods, stock, accounts, records, data, correspondence, statements, utility bills, bank statements, funding sources, and any other relevant documents maintained under federal, provincial, or local laws in any form or mode. Subsection (2) imposes a corresponding legal obligation upon the registered person, his agent, or any concerned person to answer lawful questions and furnish information or explanation sought by the authorized officer. This reflects that tax compliance under the statute is founded upon reciprocal duties of disclosure and cooperation. Subsection (3) further mandates that departments of direct and indirect taxes, government departments, local bodies, autonomous bodies, corporations, and other institutions shall provide requisite information and assistance to the authorized officer during the course of inquiry or investigation. This demonstrates the legislative intent to create an integrated enforcement framework so that tax inquiries are not frustrated by institutional barriers. Viewed as a whole, Section 38 is an enabling and preventive provision intended to secure transparency, timely verification, and protection of public revenue. Its scope is broad, its language deliberate, and its object is to equip revenue authorities with effective tools to examine compliance, detect irregularities, and investigate suspected tax fraud in accordance with law. We shall now advert to section 40 of the Act:- “40. Searches under warrant.– (1) Where any officer of [Inland Revenue] has reason to believe that any documents or things which in his opinion, may be useful for, or relevant to, any proceedings under this Act are kept in any place, he may after obtaining a warrant from the magistrate, enter that place and cause a search to be made at any time.” 7 W.P. No. 320 of 2025

9. It is manifest from a careful reading of the above provision that section 40 is a special power dealing with a distinct legal situation. The statutory requirement of obtaining a warrant from the Magistrate reflects the intrusive character of such power which is not required under section 38. The petitioner’s contention that Section 38 was used to circumvent Section 40 overlooks an elementary principle of statutory construction i.e. where the legislature creates multiple enforcement provisions, each must be given independent operation within its own field. Section 38 is not rendered redundant because Section 40 exists, nor is Section 40 triggered every time Section 38 is invoked. If every access to premises or inspection of stock were treated as a search requiring a Magistrate’s warrant, the phrase “free access” in section 38 would be stripped of practical meaning. Such an interpretation must be avoided which would reduce statutory language to futility or render it redundant. This distinction is critical and goes to the root of the interpretation. A search, in legal contemplation, ordinarily connotes forcible or compulsory examination of premises, drawers, lockers, concealed spaces, repositories, or areas not voluntarily opened, for the purpose of discovering material believed to be hidden or withheld. The petitioner’s argument, however attractively framed, rests upon a false equivalence between the concept of “free access” under section 38 and the concept of “search” under section 40. The two expressions are neither synonymous nor interchangeable and belong to separate legal categories and are designed for different operational circumstances. Section 38 authorizes access, inspection, inquiry, verification, and examination of business premises, stocks, accounts, and records whereas section 40 authorizes compelled search pursuant to judicial warrant where circumstances justify such intrusive intervention such as where the officer has reason to believe that specified documents or things relevant to proceedings under the Act are concealed or kept at a place, and therefore a coercive judicially sanctioned search becomes necessary. To conflate these provisions would be to erase the deliberate distinctions drawn by the legislature. 8 W.P. No. 320 of 2025

10. The distinction when stated plainly essentially means that free access is to inspect what is available; search is to discover what is concealed. Free access is regulatory oversight; search is coercive intrusion. Free access proceeds through statutory authority for verification; search proceeds through judicial warrant upon reason to believe. These are different legal tools designed for different factual settings. The proper reconciliation of the two provisions is therefore clear. Section 38 governs ordinary revenue access, inspection, inquiry, verification, and examination. Section 40 governs compelled search where the officer has reason to believe relevant things are kept at a place and judicial warrant is required. They are complementary, not conflicting. One addresses administrative verification; the other addresses intrusive search. One does not eclipse the other. A similar controversy came up for consideration before the Lahore High Court, Bahawalpur Bench, in Khursheed & Sons vs. Federation of Pakistan (2026 PTD 185), wherein the Court, while examining the relationship between Sections 38 and 40 of the Sales Tax Act, 1990, lucidly expounded the distinction between the two provisions and observed that proceedings under Section 38 could validly be undertaken without first invoking Section 40. It was held that the scope, nature, and object of the two sections are materially different. The relevant portion is reproduced below:- “7. The foremost question that arises in the instant case is whether proceedings under Section 38 could have been undertaken without first invoking Section 40 of the Act, 1990. The answer is in the affirmative. The scope, nature, and purpose of the two provisions are distinct. Section 38 empowers the authorized officer to access business premises, registered offices, stocks, accounts, and records of registered persons or those liable for registration. This power is exercisable even when no adjudicatory or penal proceedings are pending, and is intended to verify declarations, ascertain factual positions, examine stock levels, and review records maintained under federal, provincial, or local laws. In contrast, Section 40 contemplates search and seizure, but only where the officer has reason to believe that documents or things relevant to proceedings exist at a place, and then only after obtaining a magistrate’s warrant. The two provisions thus operate independently: Section 38 allows 9 W.P. No. 320 of 2025

routine inspections for verification and transparency, while Section 40 regulates coercive searches linked to pending or contemplated proceedings. The petitioner’s argument erroneously conflates the two provisions and overlooks this legislative design. 8. It is also relevant to underscore that Section 38 expressly authorizes Inland Revenue officers to access any business premises, manufacturing facility, registered office or any other place where stocks, business records or documents relevant under the Act, 1990 are kept. The authority extends not only to registered persons but also to persons liable for registration, and further, to any person whose business activities may be required to be examined for any inquiry or investigation in any tax fraud committed by him, his agent or any other person. This wide yet purpose- linked statutory mandate enables revenue authorities to identify tax evasion, detect fraudulent input adjustments, uncover unreported supplies, and generally ensure that the flow of tax to the exchequer is not impeded through concealment or manipulation. 9. Learned counsel for the petitioner has placed reliance upon Ghulam Hassan’s case (supra), contending that Section 38 of the Act, 1990 cannot be exercised independently without recourse to Section 40. The reliance is, however, misconceived. In Ghulam Hassan’s case, this Court held that an inspection under Section 38 must be confined to records in plain sight or voluntarily produced, and officers cannot compel production of hidden documents or take custody of records through coercion; any material obtained by compulsion would be legally unusable. In the present case, the petitioner’s own averments in the petition confirm that the record in question was not obtained by searching hidden locations but was presented by the petitioner’s Manager himself voluntarily. In the absence of any evidence to suggest use of force or coercion by the tax officials, and the fact that the petitioner’s manager voluntarily produced the records, the inspection clearly falls within the scope of Section 38, as interpreted in Ghulam Hassan’s case (supra). Thus, the observations in Ghulam Hassan’s case regarding unlawful search and seizure are factually and legally inapplicable here. 10. It is further necessary to clarify that although Sections 38 and 40 of the Act, 1990 serve closely related purposes e.g., inspection, verification, and retrieval of material relevant to the administration of sales tax, the Legislature has consciously delineated the scope and intensity of the 10 W.P. No. 320 of 2025

powers exercisable under each provision. The coercive power of search and seizure available under Section 40, once a warrant has been obtained, is not available when an officer enters premises under Section 38, a position also supported by Ghulam Hassan’s case (supra), relied upon by the petitioner. Under Section 38, the officer may access the premises, inspect records, and obtain material voluntarily produced or found in plain sight, but cannot compel production of concealed documents or seize property by force. These distinctions do not detract from the functional utility of either provision; rather, they affirm a calibrated statutory design in which both provisions operate in parallel, each addressing different facets of the verification framework. Redundancy cannot be attached to either provision. Accepting the petitioner’s argument that a magistrate’s warrant under Section 40 is a mandatory precondition for every visit would, in effect, deprive Section 38 of any operative field and render it redundant, an outcome that is impermissible under settled principles of statutory interpretation, which require that each provision be given meaningful effect. The Legislature’s intent is clear: Section 38 facilitates routine, non-coercive inspections, whereas Section 40 governs intrusive searches justified by the statutory threshold of reason to believe and relevant to any proceedings. The statutory scheme therefore does not support the view that Section 38 is subordinated to Section 40; both provisions coexist to serve distinct yet complementary purposes within the broader tax administration regime. 11. Although the sales tax is an indirect tax collected from end-consumers but deposited by the registered person, the taxpayer acts in the capacity of a collection agent of the State. This fiduciary role entails an obligation of full transparency and cooperation with lawful verification proceedings. A person holding funds belonging to the public exchequer cannot, in equity or in law, justifiably object to routine inspection proceedings meant to verify the correctness of declarations made by him. Rather, such proceedings serve the larger public interest by ensuring that the tax collected from the public reaches the Treasury without leakage, suppression or misappropriation.” II. LEGALITY OF THE INSPECTION 11. We are cognizant of the fact that the provision of section 38 is susceptible to systematic abuse if not carried out strictly in accordance with its requirements. Thus, it is imperative to examine whether the 11 W.P. No. 320 of 2025

physical stock taking was in fact carried out as “inspection” under Section 38 or “search” under section 40. The resolution of this petition hinges upon this and in such like cases the substance of the act, not the rhetoric used to describe it must be examined. It is manifest from the material placed before this Court that the powers exercised by the respondents are not the ones of section 40. It is evident from the record that an authorized team of the respondent department visited the petitioner’s registered premises for physical stock taking and inquiry under section 38 and the representative of the petitioner informed them in writing that the stock had already been sold, where after the officials departed. There is no demonstrated allegation, supported by contemporaneous material, of forced breaking open of premises, unauthorized opening of concealed compartments, rummaging through private repositories,…

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