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Official Citation: 2026 LHC 1787
Court / Jurisdiction: Lahore High Court (Honorable Mr. Justice Malik Javid Iqbal Wains)
Ruling Summary: This decision was rendered by the Lahore High Court (Honorable Mr. Justice Malik Javid Iqbal Wains), officially reported as 2026 LHC 1787. In this matter between the Petitioner and the Respondent, 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: Lahore High Court (Honorable Mr. Justice Malik Javid Iqbal Wains) DECISION DATE: 27-01-2026 TAGLINE: Accordingly, in response to answer the referral question to this Larger Bench, and in light of the aforementioned principle of law, which is binding upon the Appellate Tribunal as well as this Court and has been conclusively settled by the Hon'ble Supreme Court of Pakistan, we hold that the Appellate Tribunal had no jurisdiction, under the garb of rectification under section 57 of the Sales Tax Act, 1990, to adjudicate upon questions, which had remained unanswered while exercising its original jurisdiction under section 46 of the Act, vide order dated 23.11.2016. CASE DETAILS: STR (Sales Tax Reference) 71554/25 ============================================================ H C J D A 38 JUDGMENT SHEET LAHORE HIGH COURT, LAHORE JUDICIAL DEPARTMENT S.T.R.No. 71554 of 2025. (Commissioner Inland Revenue vs . M/s Northern Power Generation Company) J U D G M E N T Date of hearing. 27.01.2026. Applicant by Malik Muhammad Shahzad Awan, Advocate. Mr. Muhammad Sulaman Bhatti, Advocate for the applicant - Department in S.T.R.No.3681 of 2026. Mirza Nasr Ahmad, Additional Attorney-General for Pakistan. Respondent by M/s Muhammad Saeed Arain and Ch. Muhammad Abbas Majeed, Advocates for the respondent M/s Asad Zaman Tarar and Barrister Hamza Shehram Sarwar, Advocates for the respondent in S.T.R.No.3681 of 2026. MALIK JAVID IQBAL WAINS , J.:- This consolidated judgment shall decide instant reference application alongwith S.T.R.No.3681 of 2026 (The Commissioner Inland Revenue vs. M/S Fatima Fertilizer Company Limited, Lahore), as common question of law and facts are involved in both these reference applications. 2. These reference applications were heard and decided in favo ur of the applicant-Department and against the respondent -taxpayer on 27.01.2026. The decision was announced in open Court. The reasons for the decision on these reference applications are recorded hereunder. 3. This Larger Bench has been constituted to answer the questions referred by the learned Division Bench of this Court vide order dated 09.10.2025 due to the divergent views of two Division Benches of this Court in the following manners”:-- “The matter relates to scope of Section 57 of the Sales Tax Act, 1990 ("the Act") and the applicant-department is relying upon the case reported as Commissioner Inland Revenue v. M/s Lahore Rubber Store (2023 PTD 182) to contend that the Appellate 2 S.T.R.No. 71554 of 2025. Tribunal Inland Revenue cannot change its opinion while deciding rectification application, whereas the respondent - taxpayer has relied on case reported as Commissioner Inland Revenue v Messrs. Mehran Business International (Pvt.) Ltd. (2023 PTD 1687) to contend tha t Section 57 of the Act also visualizes the situation where failure to adjudicate upon a substantial plea taken or controversy raised but not dealt with as a ground of rectification. 2. After hearing learned counsel for the parties, we are of the considered view that the divergent views of two Division Benches of this Court necessitates constitution of a Larger Bench. Therefore, Office is directed to place the matter before the Hon'ble Chief Justice for appropriate orders. Both sides have pleaded urgency in the matter as the issue has far reaching implications for the exchequer on the one hand and the taxpayers on the other hand. This request of learned counsel for the parties be also placed before the Hon’ble Chief Justice.” 4. Through this reference application filed under Section 57 of the Sales Tax Act, 1990 (The Act), following questions of law, asserted to have arisen out of the impugned order dated 20.05.2022, passed by the Appellate Tribunal Inland Revenue, Multan (The Tribunal), have been proposed for opinion:- “II. Whether on the facts and in the circumstances of the case the Appellate Tribunal has erred in law to rehear the appeal of the registered person under the garb of rectification under section 57 of the Sales Tax Act, 1990? III. Whether the judgment of the Appellate Tribunal is contrary to the judgments of the Hon'ble Supreme Court reported as 1992 SCMR 687 and 2008 PTD 253 wherein it has been ruled that scope of rectification is restricted to mistakes which are fl oating on the surface of the order and must not involve elaborate discussion?" 5. The brief facts of the case as gathered from the record of this reference application ( S.T.R.No.71554 of 2025 ) are that the respondent -registered person during the period 201 2-2013 sold scrap for a consideration of Rs.1,411,062/-, however, did not pay sales tax amounting to Rs.239,881/ - in violation of Section 3(1) read with Sections 2(35), 6, 7, 23 and 26 of the Act. On the basis thereof, the respondent was called upon to sho w cause as to why the evaded amount of sales tax along with penalty and default surcharge be not recovered for violating the aforesaid provisions of law. The record further revealed that the respondent responded to the show cause notice. The Deputy 3 S.T.R.No. 71554 of 2025. Commissioner Inland Revenue, being not satisfied with the respondent’s reply, finalized the proceedings while passing the sales tax order in original dated 25.04.2016, whereby the respondent was directed to deposit sales tax amounting to Rs.239,881/ - along with d efault surcharge under Section 34 of the Act and penalty amounting to Rs.11,994/- under Section 33 of the Act. 6. Dissatisfied with the afore -mentioned order -in-original, the respondent preferred an appeal before the Commissioner Inland Revenue (Appeals), but the same was dismissed vide order dated 10.11.2016. This order was assailed by the respondent before the Tribunal through Appeal (S.T.A.No.1326/LB/2016), which was also dismissed by the Tribunal in terms of order dated 10.02.2022. 7. It is pertinent to mention here that the respondent filed a miscellaneous application MA (Rectification) No.28/MB/2022 seeking rectification of Tribunal’s order dated 10.02.2022, which after contest, was allowed in terms of order dated 20.05.2022. 8. In S.T.R.No.3681 of 202 6, facts of the case are that the concerned authorities noted that the respondent during the period June 2014 to September 2014 had suppressed the supplies of taxable goods i.e. Urea, Calcium Ammonium Nitrate, Nitro Phosphate and concealed the production, as such, the respondent was charged with the violation of Sections 2(9), 2(27), 2(29), 2(37), 2(39), 2(40), 2(41), 2(44), 2(46), 3(2)(a), 6, 7, 23 and 26 of the Act and on the basis of above violation, show cause notice in terms of Section 11(3) and Sectio n 11(2) of the Act was issued. Consequently, adjudication proceedings were culminated in passing order -in-original dated 03.01.2015, whereby the registered person/respondent was directed to deposit the sales tax amounting to Rs.628,715,343/- along with default surcharge under Sections 34 and penalty under Section 33 of the Act. The respondent being aggrieved of aforesaid order, preferred an appeal before Commissioner Inland Revenue (Appeals), Multan, but the same could not succeed and resultantly was dismissed vide order dated 08.04.2015. 4 S.T.R.No. 71554 of 2025. 9. Dissatisfied with the afore -mentioned order, the respondent filed appeal (S.T.A.No.491/LB/2015) before the Appellate Tribunal Inland Revenue which was also dismissed by the Tribunal in terms of order dated 23.11.2016. 10. The respondent filed a miscellaneous application (M.A.No.199/LB/2019) seeking rectification of Tribunal’s order dated 23.11.2016, which was allowed by way of order dated 11.02.2020 with the observation that the tax demand created in this regard is deleted and consequential orders passed by the authorities below are cancelled. Being aggrieved, the applicant -Department challenged the said order before this Court through S.T.R.No.04 of 2020, which was allowed vide order dated 17.11.2022 with the result that order dated 11.02.2020 is set -aside and respondent’s rectification application shall be deemed pending before the tribunal. 11. In post-remand proceedings, the Tribunal proceeded to again accept the rectification application and resultantly orders of the authorities below were cancelled and the tax demand raised was deleted by way of order dated 20.01.2025., hence the applicant-Department has now challenged the vires of order dated 20.05.2022 and 20.01.2025 through these reference applications. 12. We have heard learned counsel for the applicant -Department as well as learned counsel for the respondent and have carefully examined the record. 13. Since the controversy in the present matter pertains to the exercise of jurisdiction by the learned Appellate Tribunal under Section 57 of the Sales Tax Act, 1990 (The Act), it would be appropriate, for the sake of convenience and ready reference, to reproduce the relevant statutory provision hereunder:-- “57. Rectification of Mistake. – (1) The officer of Inland Revenue, Commissioner, the Commissioner (Appeals) or the Appella te Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner. 5 S.T.R.No. 71554 of 2025. (2) No order under sub section (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard. (3) Where a mistake apparent on the record is brought to the notice of the officer of Inland Revenue, Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under sub section (1), before the expiration of the Financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Act shall have effect accordingly. (4) No order under sub -section (1) shall be made after five years from the date of the order sought to be rectified. From perusal of Section 57(1) of the Act, it is revealed that the same confers upon the Appellate Tribunal the authority to rectify mistakes in its orders , where such mistakes are apparent on the face of the record. This power may be exercised either suo motu by the Learned Tribunal itself or upon the application of a taxpayer, or also at the instance of the Commissioner. 14. From the perusal of the impugned order dated 20 .05.2022, passed by the learned Appellate Tribunal in the case of M/s Northern Power Generation Co. (the respondent), it transpires that the appeal filed by the respondent before the learned Tribunal was dismissed on merits vide order dated 10.02.2022 . Thereafter, instead of filing a Reference Application under Section 47 of the Sales Tax Act, 1990 (the Act) before this Court against the said order, the respondent preferred a Rectification Application under Section 57 of the Act before the learned Appellate Tribunal. While deciding the said rectification application, the learned Tribunal observed that paragraph 5 of the order dated 10.02.2022 lacked coherence and correlation with the preceding paragraphs and, therefore, held that the application for rectification was maintainable on the ground that the mistake had occurred due to omission or inadvertent skipping of the arguments of the appellant, which, according to the Tribunal, were available on the record. Consequently, the learned Tribunal ordered that certain paragraphs be read in place of paragraph 5 of the original order dated 10.02.2022, and proceeded to insert paragraphs 4, 5, 6, 7, and 8 in substitution thereof. By doing so, the learned Tribunal ultimately allowed the appeal and 6 S.T.R.No. 71554 of 2025. annulled the orders passed by t he authorities below . While deciding the rectification application, the Tribunal held that the proceedings were initiated by the Assessing Officer on the basis of a report issued by the Director General Revenue Receipt Audit (DGRRA). The Tribunal observed that an officer of the DGRRA is not defined as an officer under the Sales Tax Act, 1990; therefore, the audit conducted by the officer of DGRRA was without lawful authority and was void ab initio. In reaching this conclusion, reliance was placed upon the judgment of the Peshawar High Court reported as Collector of Sales Tax & Central Excise , Peshawar vs. M/s. Makk B everages (Pvt.) Ltd., Peshawar (PTCL 2010 CL. 393). The Tribunal further held that the sale of standing trees is exempted from the levy of sales tax under Serial No. 20 of Table -I of the Sixth Schedule to the Sales Tax Act, 1990 . Upon examining the documentary evidence produced by the respondent-taxpayer, the Tribunal concluded that the Department had illegally levied sales tax on the amount received from the sale of trees, which is exempt ed from the charge of sales tax under the aforesaid provision of the Act. The Tribunal also observed that the Department has failed to bring on record any evidence regarding the alleged sale of scrap and was unable to establish, through legally admissible evidence. Consequently, it was held that the amount referred to in the Order -in-Original as well as in the appellate order for the tax period 2012-2013 pertains to the sale of trees, on which no sales tax is chargeable. Accordingly, both the orders passed by the authorities below were annulled. 15. From perusal of the impugned order dated 20.05.2022, it reveals that the learned Appellate Tribunal, while deciding the rectification application, has in fact re-adjudicated the matter on merits and substantially altered the findings recorded in the final order dated 10.02.2022 . Such an exercise clearly travels beyond the limited scope of rectification as contemplated under Section 57 of the Act and is in violation of the settled principles laid down by the Hon ’ble Apex Court of the country , which restrict the rectification jurisdiction to correction of mistakes apparent on the face of the record and do not permit review or reappraisal of the case on merits. 7 S.T.R.No. 71554 of 2025. 16. From perusal of record in the case of the respondent, M/s Fatima Fertilizer Company Limited, has filed an appeal before the Appellate Tribunal against the order dated 08.04.2015 passed by the Commissioner (Appeals). The said appeal was dismiss ed by the learned Appellate Tribunal vide order dated 23.11.2016. Subsequently, the respondent filed an application for rectification under section 57 of the Sales Tax Act, 1990 before the learned Appellate Tribunal, which was allowed vide order dated 11.0 2.2020 on the ground that grounds of appeal Nos.4, 5 and 6 were allegedly not considered and that the verbal submissions made by the appellant were neither addressed nor adjudicated upon. While allowing the rectification application, the learned Tribunal deleted the tax demand created by the department and consequently set aside the orders passed by the authorities below. The said order was challenged by the applicant-Department before this Court through a Reference Application under section 47 of the Act. The Reference Application was allowed vide judgment dated 17.11.2022 and the matter was decided against the respondent. While deciding the reference, reliance was placed upon the judgment of this Court reported as COMMISSIONER INLAND REVEUE vs. Messrs LAHORE RUBBER STORE (2023 PTD 182), which in turn relied upon the judgment of the Hon’ble Supreme Court of Pakistan reported as COMMISSIONER OF INCOME -TAX Company’s II, Karachi vs. Messrs NATIONAL FOOD LABORTORIES (1992 PTD 570 ). Consequently, the matter was remanded to the learned Appellate Tribunal and the rectification application filed by the respondent was deemed to be pending before the Tribunal with directions to decide the same strictly in accordance with the guidelines lai d down by the Hon’ble Supreme Court in National Food Laboratory case regarding the exercise of rectification jurisdiction. However, after remand, the learned Appellate Tribunal, while passing the impugned order dated 20.01.2025, again allowed the rectification application filed by the respondent. The said order has now been challenged before this Court by the applicant department through the instant Reference Application. 17. From perusal of the impugned order , it reveals that despite clear directions issued by this Court to decide the rectification application strictly in 8 S.T.R.No. 71554 of 2025. accordance with the principles laid down in Messrs NATIONAL FOOD LABORTORIES (referred supra), learned Tribunal instead relied upon another judgment of this Court reported as COMMISSIONER INLAND REVENUE vs. Messrs MEHRAN BUSINESS INTERNATIONAL (PVT.) LTD. (PTCL 2024 CL 406/2023 PTD 1687 ) and concluded that there existed mistakes of fact in its earlier order. The Tribunal observed that certain grounds of appeal relating to alleged under -declaration of production of “Nitrogen Phosphate” had not been adjudicated upon and that there was also an incorrect observation in the earlier order to the effect that no record had been submitted by the registe red person before the assessing officer, whereas , the proceedings had allegedly been initiated and concluded on the basis of data submitted by the registered person. On the basis of these observations, the learned Tribunal held that mistakes of fact existe d, which could be rectified under section 57 of the Act and, after re -adjudicating the matter on the aforesaid grounds, set aside the orders passed by the authorities below and deleted the tax demand. 18. The Hon’ble Supreme Court of Pakistan, in a recent judgment reported as Messrs CHAUDHARY STEEL FURNACE vs. COMMISSIONER INLAND REVENUE, SIALKOT ZONE, REGIONAL TAX OFFICE, SIALKOT (2025 SCMR 1505 ), has conclusively held that the Appellate Tribunal has no jurisdiction under section 57 of the Sales Tax Act, 1990, to re -adjudicate issues, which were left undecided while exercising its original jurisdiction under section 46 of the Act. The scope of section 57 of the Act is confined only to the rectification of mistakes apparent on the face of the record and cannot be invoked to reopen or re -decide substantive issues already determined or omitted in the original order. The relevant paragraph from the aforesaid judgment is reproduced hereunder. “6. We have heard the learned counsel and perused the material available on record. We do not find any ambiguity in the order of the Division Bench of the High Court passed in S.T.R. No. 11/2014 as it is not a remand order nor did it revive the appeal decided by the Tribunal in the first round of litigation. One of the quest ions remained unanswered by Tribunal which consequently was not answered by the court exercising reference jurisdiction. Neither any request was made in a reference filed by the respondent -department nor at the time of 9 S.T.R.No. 71554 of 2025. withdrawal of the C.P.L.A. No. 3717/2 017 before this Court. The petitioner on its own moved an application for fixation of the appeal which appeal was never in existence, as it was disposed of vide order dated 28.05.2018 in its totality. When the application for fixation of appeal was filed w e failed to understand that there was no lis pending and nothing could have been fixed for any leftover issue and hence the only way the Tribunal conceived it is by way of rectification application. Even the newly inserted (June, 2013) section 57 of the Sa les Tax Act, 1990 ('the Act') has its limitation in terms of the rectification sought. It is to be noticed that its retrospective effect was not questioned before the Tribunal and hence we would not comment. Indeed, a rectification of mistake could be amended/ rectified by an order passed by the Tribunal which mistake is apparent on the face of the record, however, it does not enlarge the scope of the Tribunal to render a complete and altogether different decision, independent of the earlier "view" as expre ssed. For the sake of convenience, section 57 of the Act is reproduced as under: '[57. Rectification of Mistake.- (1). The officer of Inland Revenue, Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner. (2). No order under subsection (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard. (3. Where a mistake apparent on the record is brought to the notice of the officer of Inland Revenue, Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under subsection (1), before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Act shall have effect accordingly. (4). No order under subsection (1) shall be made after five years from the date of the order sought to be rectified.]' Although it was an application for fixation of the appeal, but essentially it seeks further adjudication in the shape of rectification of an unanswered question which is not even remotely within the contours of section 57 of the Act. The Tribunal acted as an appellate forum of its own order, which is not sustainable in law. (emphasis added) 10 S.T.R.No. 71554 of 2025. 19. Accordingly, in response to answer the referral question to this Larger Bench, and in light of the aforementioned pri nciple of law, which is binding upon the Appellate Tribunal as well as this Court and has been conclusively settled by the Hon’ble Supreme Court of Pakistan, we hold that the Appellate Tribunal had no jurisdiction, under the garb of rectification under sec tion 57 of the Sales Tax Act, 1990, to adjudicate upon questions , which had remained unanswered while exercising its original jurisdiction under section 46 of the Act, vide order dated 23.11.2016. 20. Furthermore, the learned Tribunal, while passing the impugned judgment, has violated the specific directions issued by this Court in the post - remand proceedings. Instead of following the principle enunciated by the Hon’ble Supreme Court of Pakistan in Messrs NATIONAL F OOD LABORTORIES case, the Tribunal chose to follow the judgment of this Court reported as Messrs Mehran Business case (referred supra), despite the fact that the Tribunal was bound to comply with the specific directions of this Court contained in order dated 17.11.2022. By doing so, the Tribunal clearly travelled beyond the scope of the remand order passed by this Court. 21. It is well settled that the scope of Section 57 of the Sales Tax Act, 1990 is confined to the rectification of mistakes , which are apparent on the face of the record. Although the Tribunal may amend or rectify an order to correct such mistakes, the said provision does not enlarge the jurisdiction of the Tribunal so as to enable it to render an altogether fresh or different decision independent of the earlier view expressed in the main order. The relevant paragraph from Messrs NATIONAL FOOD LABORTORIES case, is reproduced hereunder. “5. As regards the first question the learned Judges after referring to several authorities of our Supreme Court as well as from the Indian Jurisdiction concluded as follows:--- "Reference to these cases clearly indicates that the order subsequently passed by the ITO and upheld by the learned Assistant Commissioner of income -tax and then by the le arned income-tax Appellate Tribunal could not validly be passed as rebate had been clearly granted by the ITO who originally dealt 11 S.T.R.No. 71554 of 2025. with the case on the ground that processing of spices fell within the purview of the said provision introduced in the Finance Act, 1974, allowing 10% rebate on income derived from processing of spices was held to be the same as processing of food or vegetables etc. This interpretation was not accepted by the successor of the ITO who was clearly of the view that spices could not be bracketed with `Food' or `Vegetable'. This, in our opinion, amounted to clear revision of the earlier order because the ITO who, subsequently dealt with the case arrived at his conclusion by a different interpretation by application of the process of reasoning and argument. The original order passed by the ITO cannot be the result of an apparent mistake but the same was based on the opinion of the said ITO who found that spices were the same as `Food' or `Vegetable'. Consequently, we are unable to hold that the ITO who later dealt with the case could invoke the…
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