M/S Mehr Dastgir Leather And Footwear Industries Pvt. Ltd. vs Commissioner Ir And Others

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

STR No.61 of 2025

M/s Mehr Dastgir Leather & Footwear Industries (Pvt.) Limited, Water Works Road, Multan

Versus

The Commissioner IR, Corporate Zone, RTO, Multan & others

JUDGMENT

Date of hearing: 23.09.2026.

Applicant by: M/s. Muhammad Saeed Arain and Mirza Adil Baig, Advocates.

Respondents by: Mr. Muhammad Suleman Bhatti, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- This consolidated judgment shall decide instant Reference Application under Section 47 of the Sales Tax Act, 1990 (“the Act of 1990”), along with connected Reference Application i.e. STR No.62 of 2025 as common questions of law and facts are involved in these cases.

2.The following question of law, asserted to have arisen out of the impugned order dated 12.10.2023, passed by learned Appellate Tribunal Inland Revenue, Division Bench, Multan (“Appellate Tribunal”), has been pressed and argued for our opinion:- “Whether the learned Tribunal has erred in a legal error by failing to adjudicate the case on its merits, especially if it deemed that the legal objection regarding the audit conducted by DGRRA was not tenable in its view?”

3.Briefly stated, the applicant-taxpayer is engaged in the manufacture and export of leather and footwear products. In the main Reference Application , the dispute relates to refund of input tax amounting to Rs.9,965,679/-, whereas in the connected Reference Application the amount involved is Rs.5,676,858/-. In both cases, the

S.T.R. No.61 of 2025 & connected case

Department, on the basis of an audit conducted by the Directorate General of Revenue Receipt Audit (DGRRA), alleged that the registered person had claimed refund on the strength of invoices issued by blacklisted, suspected or suspended units. Show-cause notices were consequently issued under the relevant provisions of the Sales Tax Act, 1990, followed by Orders-in-Original whereby the alleged amounts of inadmissible refund were recovered along with default surcharge and penalty. The registered person challenged the respective Orders-in-Original before the learned Commissioner Inland Revenue (Appeals), who annulled the same principally on the ground that the DGRRA had no lawful authority to conduct audit of the registered persons. While doing so, the learned CIR(A) relied upon the judgment reported as Collector of Sales Tax & Central Excise, Peshawar v. M/s. Makk Beverages (Pvt.) Ltd., Peshawar [PTCL 2010 CL. 393] and the decision of the Appellate Tribunal reported as M/s. Yousaf Sugar Mills, Gulberg-III, Lahore v. Collector of Sales Tax & Federal Excise, LTU, Lahore [PTCL 2011 CL. 109], while observing that the department could conduct a fresh audit, if permissible under law, and proceed against the registered persons in accordance with law. The department carried the matter before the learned Appellate Tribunal. Its principal contention was that the DGRRA had not conducted a direct audit of the records of the registered persons but had audited the revenue-receipt records maintained by the Department. The learned Appellate Tribunal accepted this contention, distinguished the case law relied upon by the learned CIR(A), set aside the appellate orders and consequently restored the respective Orders-in-Original. Hence, these Reference Applications.

4.Learned counsel for the applicant-taxpayer contends that the learned Tribunal, after disagreeing with the legal basis adopted by the learned CIR(A), was required to adjudicate the remaining objections raised by the registered persons instead of straightaway restoring the Orders-in-Original. He points out that serious questions concerning the validity of the show-cause notices, limitation, applicability of Rule

S.T.R. No.61 of 2025 & connected case

12(5) of the Sales Tax Rules, 2006 to transactions relating to an earlier period, status of the suppliers at the relevant time, alleged blacklisting or suspension, admissibility of the input tax/refund and the effect of the refunds having already been sanctioned were specifically raised but remained undecided.

5.Conversely, learned counsel for the respondent-department defends the impugned orders.

6.Arguments have been heard and the available record examined.

7.The impugned orders demonstrate that the learned Tribunal confined its consideration principally to the threshold question whether the audit in question was conducted by the Directorate General of Revenue Receipt Audit (DGRRA) directly upon the records of the registered persons or upon the internal departmental revenue-receipt records. Having accepted the Department’s contention on this aspect, the learned Tribunal held that the preliminary basis upon which the learned CIR(A) had annulled the respective Orders-in- Original was no longer available and, consequently, restored the original adjudication. The difficulty with this approach, however, is that the learned CIR(A) had annulled the Orders-in-Original solely on a preliminary legal ground and had, therefore, expressly declined to enter into or examine the factual and substantive legal objections raised by the registered persons. Where an appellate forum disposes of a matter on a preliminary ground without examining the substantive controversy, reversal of that preliminary finding by a higher forum does not, by itself, extinguish the remaining objections or amount to their adjudication. Such objections continue to require determination by the competent forum, either by the higher forum itself where the record and jurisdiction so permit, or through appropriate remand. The distinction drawn by the learned Tribunal between an audit of departmental revenue-receipt records and a direct audit of the records of a registered person may have a bearing upon the applicability of the precedents relied upon by the learned CIR(A), but rejection of that particular objection did not dispense with determination of the other

S.T.R. No.61 of 2025 & connected case

material objections raised against the impugned adjudication. Once the preliminary basis adopted by the learned CIR(A) was found to be unsustainable, the learned Tribunal was required either to adjudicate the remaining material controversies within its jurisdiction or to adopt an appropriate course for their determination in accordance with law. Straightaway restoring the Orders-in-Original, without undertaking either exercise, left the substantive controversy unresolved.

8.The record further shows that, apart from the controversy relating to the nature and scope of the DGRRA audit, the registered persons had raised material questions concerning the validity and contents of the show-cause notices, limitation, applicability of the relevant provisions of the Sales Tax Act, 1990 and the Sales Tax Rules, the status of the suppliers at the relevant time, their alleged blacklisting or suspension, admissibility of the input tax/refund, the evidentiary basis of the alleged inadmissible refund and the legal effect of the refunds already sanctioned. These questions are not merely incidental, as their determination may have a direct bearing upon the liability sought to be fastened upon the registered persons. In fiscal adjudication, where a demand or recovery is sought to be sustained against a registered person, material objections going to the validity of the proceedings, limitation, statutory entitlement, evidentiary foundation and recoverability of the amount necessarily require consideration and determination. The learned CIR(A), having annulled the Orders-in-Original on the preliminary legal objection, did not examine these matters. The learned Tribunal, after reversing that preliminary finding, also did not adjudicate them and proceeded straightaway to restore the Orders-in-Original. Consequently, the substantive defences of the registered persons remained unexamined at the appellate level. Such omission is material because an adjudicatory determination is required to address the questions which are necessary for resolution of the lis and to disclose reasons for accepting or rejecting the material contentions of the parties.

S.T.R. No.61 of 2025 & connected case

9.The foregoing omission also assumes significance in the context of the requirement of a reasoned and speaking order. Section 24-A of the General Clauses Act, 1897 embodies, inter alia, the requirement that an authority exercising statutory powers act reasonably, fairly and in accordance with law and that its exercise of power be supported by lawful reasons. The requirement of reasons is particularly relevant where material objections raised by a person affected by the exercise of statutory power remain undecided. An order which merely restores the original adjudication after rejecting one preliminary objection, without dealing with the remaining material grounds upon which the liability is contested, does not disclose a complete adjudicatory process. In the present case, the learned Tribunal did not record findings upon the aforesaid objections, nor did it explain why their determination was unnecessary after its conclusion regarding the DGRRA audit. The impugned orders, therefore, do not constitute a complete and reasoned determination of the controversy brought before the learned Tribunal.

10.At the same time, this Court, while exercising reference jurisdiction under Section 47 of the Sales Tax Act, 1990, cannot appropriately undertake original factual adjudication of the disputed matters relating to the underlying invoices, status of the suppliers, alleged blacklisting or suspension, evidentiary material relied upon by the Department, applicability of the relevant statutory provisions and rules, or computation and recoverability of the alleged inadmissible refund. The reference jurisdiction is concerned with questions of law arising from the order of the learned Tribunal and is not intended to substitute this Court for the statutory authorities entrusted with primary examination of the record and determination of disputed facts. Such questions require examination of the complete record and appropriate findings by the competent adjudicatory authority. The issue before this Court is, therefore, not whether any particular objection raised by the registered persons is ultimately meritorious, but whether the controversy could legally be concluded by restoring

S.T.R. No.61 of 2025 & connected case

the Orders-in-Original without determination of the material issues which had remained undecided. In the circumstances noticed above, the answer must be in the negative. The impugned orders, therefore, cannot be sustained to the extent that they purport to finally dispose of the controversy without adjudication of the remaining material objections.

11.During consideration of the appropriate consequential course, learned counsel for the respondent-Department, who had initially defended the impugned orders, ultimately submitted that, if remand was considered unavoidable, the matters may be remanded to the Assessing Officer for fresh adjudication in accordance with law. This submission has also been taken into consideration in determining the appropriate course. Having regard to the nature of the controversy, the fact that material factual and legal questions have not been examined at the original adjudicatory stage, and the necessity of primary determination of those questions on the basis of the complete record, this Court considers it appropriate to remit the matters to the competent Assessing Officer rather than undertake such factual adjudication itself. Accordingly, the impugned orders dated 12.10.2023 passed by the learned Appellate Tribunal are set aside and the matters are remanded to the competent Assessing Officer for fresh adjudication in accordance with law. The Assessing Officer shall examine the matters afresh on the basis of the complete record and determine all material objections raised by the registered persons, including those relating to the validity and contents of the show-cause notices, limitation, applicability of the relevant statutory provisions and rules, status of the suppliers at the relevant time, alleged blacklisting or suspension, evidentiary basis of the alleged inadmissible refund and the legal effect of the refunds already sanctioned. The registered persons shall be afforded meaningful and reasonable opportunity of hearing and of placing their evidence and submissions on the record. The Assessing Officer shall thereafter pass reasoned and speaking orders in accordance with law, addressing the

S.T.R. No.61 of 2025 & connected case

material objections and the evidence relevant to the determination of liability. Nothing contained herein shall be construed as an expression of opinion on the merits of the rival claims, including the objection relating to the jurisdictional validity or scope of the DGRRA audit, which shall remain open for independent determination by the competent authority. The proceedings shall preferably be concluded within sixty (60) days from receipt of a certified copy of this judgment.

Both Reference Applications are accordingly disposed of in the above terms.

12.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal in terms of Section 47(5) of the Sales Tax Act, 1990.

(Sultan Tanvir Ahmad) (Muhammad Sajid Mehmood Sethi) Judge Judge

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*