M/s Khyber Tobacco Company Ltd etc Vs Federation of Pakistan through Federal Secty. MOF Islamabad

PESHAWAR HIGH COURT, PESHAWAR

(JUDICIAL DEPARTMENT)

WP No. 9645-P/2025 with IR M/s Khyber Tobacco Company Ltd and another.

...........................Petitioners.

Versus

Federation of Pakistan Through Federal Secretary, Ministry of Finance, Islamabad and others.

......................Respondents.

For the Petitioners: M/s Saad Ali Qazi & Muhammad Tariq Qasim Khan, Advocates.

For the Respondent: M/s Sanaullah Addl. Attorney General, Amir Javed, Ehteshamuddin & Bahadar Sher Afridi, Advocates along with Sharifullah Assistant Director (Legal).

Date of Hearing: 17.12.2025

JUDGMENT

SYED ARSHAD ALI, J.- The petitioner, a limited company that has established a cigarette manufacturing unit at Nowshera Road, Mardan, has filed the instant constitutional petition, inter alia, challenging the notice and sealing of its plant and machinery purportedly under Rule 28-A(6) of the Federal Excise Rules, 2005 (“Rules 2005”), and has specifically prayed in this petition that: “Considering the above submissions, it is, therefore, humbly prayed that on acceptance of this Petition this Honourable Court may please to:

(i)DECLARE that the impugned sealing is void ab initio for being carried out without lawful cause and authority, hence, of no legal effect;

(ii)DECLARE that impugned sealing is mala fide and not carried out in accordance with law, hence, nullity in the eyes of law;

(iii)DIRECT the Respondents to release the seized duty paid unmanufactured tobacco de-seal the machinery etc of petitioner GLT and cigarette manufacturing unit.

(iv)DECLARE that alleged seizure is non-est and/or in alternatively to be declared without lawful cause and authority and subsequent proceedings i.e. show cause notice is nullity in the eyes of law.

(v)Issue a temporary, mandatory, perpetual and permanent injunction against the Respondents to proceed against the Petitioners on the basis of alleged seizure.

2.The learned counsel appearing on behalf of the petitioners argued that the petitioner is engaged in the lawful business of tobacco manufacturing and has been a registered taxpayer for many years. He further contended that the scheme of the Sales Tax Act, 1990 (“the Act”) envisages self- assessment of tax liability; however, the petitioners’ unit is being monitored under Section 40B of the Act as well as through the electronic monitoring track-and-trace system under Section 40C. In addition, a considerable number of Pakistan Rangers have been deployed at the petitioner’s unit to oversee its manufacturing process. The learned counsel produced a search warrant issued by the learned Special Judge, Customs, Taxation and Anti-Smuggling, KP Peshawar, on 12.12.2025, and argued that the warrant was obtained through misrepresentation. It was misreported before the Hon’ble Judge that the search was required for entry into the petitioners’ undeclared godown, whereas the notice issued by the Commissioner Inland Revenue pursuant to the search clearly shows that it was conducted in the petitioners’ declared godown. He submitted that the warrant was thus obtained through misrepresentation, and that a harsh action was taken by directing the sealing of the manufacturing plant and machinery merely on suspicion. The learned counsel emphasized that such sealing directly affects the petitioners’ manufacturing process, particularly when they have contractual commitments with cigarette purchasers. He argued

that the seizure would adversely impact timely production and cause serious harm to the petitioners’ business.

3.The learned counsels representing the respondents, as well as the worthy Additional Attorney General, while rebutting the arguments of the learned counsel for the petitioners, contended that only a show cause notice has so far been issued to the petitioners and the petitioners have an alternate remedy available to present their case before the Assessing Officer; therefore, the constitutional petition is not legally maintainable. In support of this contention, reliance has been placed on the case of Commissioner Inland Revenue vs. Jehangir Khan Tareen (2022 PTD 232).

4.Arguments heard and the record of the case was perused.

5.The admitted position is that the petitioners have established a cigarette manufacturing unit at Nowshera Road, Mardan. After obtaining a search warrant from the competent court of law, the premises of the petitioners were searched on 12.12.2025 by a team under the supervision of Mr. Shehroz Rashid Ahmad Khan, Assistant Commissioner. The search led to the recovery of 2.75 million kilograms of unmanufactured tobacco from five godowns located at Sang-e-Mar Mar Godown, Swabi Mardan Road, opposite Samson GLT. It is mentioned in the impugned notice dated 12.12.2025 that, when the authorized manager of the godown was confronted regarding the aforementioned tobacco, shifted from the GLT unit (M/s Samsons Re-Drying and Processing Company Pvt. Ltd., leased by KTC) to the godowns, he could not provide any reasonable proof of payment of taxes and duties. The search officer consequently formed the opinion that the goods were clandestinely stocked under the guise of the declared GLT unit. He further opined that the recovery of unreconciled and undeclared goods provided sufficient grounds to believe

that no duty had been paid on the recovered stock, and that the GLT machinery had been used for the production of other tobacco products without payment of duty, in contravention of the Federal Excise Act, 2005 and the Rules made thereunder. In view of the above, the Assistant Commissioner ordered the sealing of the GLT and the cigarette manufacturing unit owned by the petitioners. During the course of arguments, it was also highlighted that the godowns and the cigarette manufacturing unit are situated at a considerable distance from each other.

6.We are mindful of our jurisdictional contour and the doctrine of ripeness, under which, in normal circumstances, when proceedings relating to tax assessment are pending before the appropriate forum, the Constitutional Court would be slow to interfere unless exceptional circumstances exist to warrant intervention. Since, in the present case, the sealing was ordered under sub-rule (6) of Rule 28-A of the Rules, 2005, it would be expedient to reproduce the said provision. 28A. Declaration regarding machinery used in the manufacture of cigarettes and other tobacco products.- (1)...........................

(6)A Federal Excise Officer, not below in rank of an Assistant or a Deputy Collector of Federal Excise having reasons to believe that certain machinery declared to be used in production of taxable goods is actually being used for production of non-duty paid cigarettes of any other tobacco products, may, subject to the approval of the Collector of Federal Excise, seal such machinery after serving upon the owner or his authorized representative a notice to this effect.

7.In the present case, when the search of the disputed godowns was conducted, 2.75 million kilograms of unmanufactured tobacco were recovered. On the basis of this recovery, the Assistant Commissioner formed the opinion that some quantity of the unmanufactured tobacco stored in the godowns might have been used in the manufacturing of cigarettes at the GLT unit as well as the cigarette

manufacturing unit. However, the respondents could not produce any document confirming whether this fact was verified by visiting the petitioners’ cigarette manufacturing unit, nor has any reconciliation report been produced to establish the consumption of unmanufactured tobacco vis-à- vis the sale record of the petitioners’ company. The verbiage of sub-rule (6) of Rule 28-A of the Rules, 2005, is clear that the Federal Excise Officer has reason to believe that certain machinery declared for the production of taxable goods is actually being used for the production of non-duty-paid cigarettes of any other tobacco products, may, subject to the approval of the Collector of Federal Excise, seal such machinery after serving a notice to this effect upon the owner or his authorized representative.

8.The expressions ‘reasonable grounds for believing’, ‘reasons to believe’ and ‘reasonable suspicion’ are distinct. The august Supreme Court in the case of Moulvi Fazlul-Qadar Choudhury1 has considered and interpreted the expression and has observed and held that it may be that a certain amount of suspicion is caused by the conduct of a person but the word “believe” is a much stronger word and, moreover, it would require that the belief must be a reasonable one. In the case of Ch. Abdul Malik2, the august Supreme Court has explained the expression as follows:- “Reasonable grounds” is an expression which connotes that the grounds be such as would appeal to a reasonable man for connecting the accused with the crime with which he is charged, “grounds” being a word of higher import than “suspicion”. However, strong a suspicion may be it would not take the place of reasonable grounds. Grounds will have to be tested by reason for their acceptance or rejection. The reasonableness of the grounds has to be shown by the prosecution by displaying its cards to the Court, as it may possess or is expecting to Moulvi Fazlul-Qadar Choudhury v. Crown (PLD 1952 Federal Court 19) Ch. Abdul Malik v. The State (PLD 1968 SC 349).

possess as demonstrating evidence available in the case both direct and circumstantial”.

The august Supreme Court in the case of Chaudhry Shujat Hussain3 has observed and held as follows:- “The term “reason to believe” can be classified at a higher pedestal than mere suspicion and allegation but not equivalent to proved evidence. Even the strongest suspicion cannot transform in “reason to believe”. In Nisar Ahmad’s case the criteria laid down seems to be that where some tangible evidence is available against the accused which, if left unrebutted, may lead to the inference of guilt”.

In the case of Shah Rukh Jamal4, it was observed that: “14. It is obvious from the above discussion precedent law that having ‘reasonable grounds to believe’ has reference to the required evidentiary threshold. It is a legal standard and it has to be met as a precondition before exercising the intrusive power under section 12 of the Ordinance of 1999. There must e ‘reasonable grounds’ which manifests existence of certain essential facts. It essentially refers to the existence of such facts and circumstances which would lead a reasonable prudent person to form a belief. In the context of section 12 such belief would be relatable to the property being, directly or indirectly, owned and controlled by an accused and the latter having committed one of the offences described under section 9 of the Ordinance of 1999. The requisite standard is higher than a reasonable suspicion but less than ‘on balance of probabilities’. It is distinct from conjecture, speculation or suspicion. The required standard is far less than proving something beyond a reasonable doubt. It is a threshold required for a reasonable person to conclude and be satisfied on the basis of sufficient material to conclude deprivation of or interference with the right to own, hold or control a property. The conclusion may be subjective but it must be based on some reliable material or evidence. The formation cannot be based on mere suspicion even if it may be reasonable. In a nutshell, forming an opinion on the basis of reasonable grounds to believe is distinct and a higher legal standard than ‘reasonable suspicion’.

Chaudhry Shujat Husain v. The State (1995 SCMR 1249).

Shah Rukh Jamal vs. National Accountability Bureau, Islamabad and others (PLD 2022 Islamabad 1)

9.It is evident from the notice dated 12.12.2025 that the Assistant Commissioner was merely suspecting that duty-paid unmanufactured tobacco might be used in the manufacturing of cigarettes. Such suspicion, however, cannot be equated with the statutory requirement of “reasons to believe” as provided under sub-rule (6) of Rule 28-A ibid, for sealing the manufacturing unit of the petitioner.

10.Article 18 of the Constitution of the Islamic Republic of Pakistan, 1973, recognizes the right to freedom of business and profession, subject to certain regulations. Such regulations, as well as any executive action or intervention in lawful trade, are obviously subject to judicial review by the superior courts. Any misuse or excess of authority by the executive can be corrected by a constitutional court through the issuance of appropriate directions, ensuring that the lawful trade conducted by citizens of Pakistan is not unnecessarily hindered.

11.Through the impugned notice/sealing, 2.75 million kilograms of unmanufactured tobacco were recovered, and it is yet to be determined by the Assessing Officer, who has issued a show cause notice to the petitioner, whether the said tobacco was duty-paid or otherwise. To this extent, the Court will not intervene in the matter, as the appropriate forum has already taken cognizance. However, the order of sealing the manufacturing unit as well as the GLT unit at this stage does not qualify the test provided under sub-rule (6) of Rule 28-A of the Rules 2005.

12.As far as the objection raised by the learned counsels for the respondents regarding the alternate remedy available to the petitioners is concerned, suffice it to say that it is well settled that the rule requiring exhaustion of other remedies before invoking constitutional jurisdiction is merely a rule of convenience and judicial discretion by which the Courts

regulate their proceedings. It is not a rule of law that limits or affects the jurisdiction of the Court. A constitutional petition is competent if an order is passed by a court or authority in excess of its jurisdiction, even where the remedy of appeal or revision against such order is available, depending upon the facts and circumstances of each case. Gatron (Industries) Ltd vs. Government of Pakistan and others (1999 SCMR 1072). Similarly, in the case of the Murree Brewery Co. Ltd vs. Pakistan through the Secretary to Government of Pakistan, Works Division and 02 others, the Hon’ble Apex Court has held, “the rule that the High Court will not entertain a writ petition when other appropriate remedy is available is not a rule of law barring jurisdiction but a rule by which the Court regulates its jurisdiction”. One of the well-recognized exception to the general rule is a case where an order is attacked on the ground that it was wholly without authority, whereas, statutory functionary acts malafide or in a partial, unjust and oppressive manner, the High Court in the exercise of its jurisdiction, has the power to grant relief to the aggrieved party. Similar view has been reaffirmed by the Apex Court in the case of Collector Customs (Valuation) and another vs. Karachi Bulk Storage and Terminal Ltd (2007 SCMR 1357), Muslimabad Cooperative Housing Society through Secretary vs. Mrs. Siddiqa Fiaz and others (PLD 2008 SC 135), Wattan Party through President vs. Federation of Pakistan through Cabinet Committee of Privatization, Islamabad and others (PLD 2006 SC 697). Even otherwise, the Superior Courts have repeatedly exercised constitutional jurisdiction in appropriate cases, involving fiscal rights and on the allegation of misapplication of law or abuse of power stepped into examine whether or not a public functionary concerned acted

in accordance with the powers conferred on him by the Statute. M/s Usmania Glass Sheet Factory Ltd., Chittagong v. Sales Tax Officer, Chittagong (PLD 1971 SC 205) and Messrs Julian Hoshang Dinshaw Trust and others vs. Income Tax Officer, Circle XVIII South Zone, Karachi and others (1992 SCMR 250). Therefore, in view of the facts, stated above, the availability of alternate remedy to the present petitioner at remote stage would not bar the jurisdiction of this Court to entertain the instant constitutional petition.

13.In view of the foregoing, this petition is partly allowed. The sealing of the cigarette manufacturing unit as well as the Green Leaf Tobacco (GLT) unit of the petitioners, is hereby declared illegal and without lawful authority. However, the respondent/Revenue shall be at liberty to take appropriate action under the Rules, 2005 against the petitioners after conducting inquiry and assessment, if it is established that the unit was involved in the manufacture of non-duty-paid tobacco, but strictly in accordance with law.

Judge

Judge

Date of hearing & announcement Of judgment.........17.12.2025

Date of preparation & signing Of judgment..........18.12.2025

Nawab Shah CS (DB) Justice Syed Arshad Ali & Justice Muhammad Faheem Wali