Cir Sahiwal vs Shahbaz Ahmad

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

ITR No.23 of 2026 Commissioner Inland Revenue, Sahiwal Zone, Regional Tax Office, Sahiwal Versus Shahbaz Ahmad, Prop: Shahbaz Auto Store, Sahiwal

JUDGMENT

Date of hearing: 06.10.2026.

Applicant by: Mr. Abdul Razzaq Raja, Advocate. Respondent by: Mr. Aoun Ameer Ali, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- Through instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance of 2001”), following question of law, asserted to have arisen out of the impugned order dated 22.01.2026, passed by the learned Appellate Tribunal Inland Revenue of Pakistan, Division Bench, Multan (“Appellate Tribunal”), has been pressed and argued for our opinion:-

“Whether the learned Appellate Tribunal Inland Revenue committed a material error of law by relying upon the Lahore High Court, Multan Bench order in Tax Reference No.13/2020 without adequately examining whether the Supreme Court’s subsequent pronouncement in The Commissioner of Inland Revenue, Peshawar v. Messrs Sufi Tahir Nadeem (2025 SCMR 1687) has altered the legal landscape governing the classification of goods as FMCG under Section 2(22A) read with Section 2(13AB) of the Ordinance?”

FACTUAL BACKGROUND

2.The respondent is an individual proprietor carrying on business under the name and style of M/s Shahbaz Auto Store, Chichawatni. According to the order of the learned Commissioner Inland Revenue (Appeals), his sole activity was sale of Exide batteries. For Tax Year 2015, he filed his income tax return declaring turnover of Rs.100,203,326/-, which was deemed assessed under Section 120(1) of the Ordinance. The respondent did not discharge minimum tax

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under Section 113 at the rate considered applicable by the Department. Upon examination of the record, the Additional Commissioner Inland Revenue, Sahiwal Range, found the deemed assessment erroneous and prejudicial to the interests of revenue and initiated proceedings under Sections 122(5A) and 122(9) of the Ordinance through show-cause notice dated 23.02.2018. Thereafter, amended assessment dated 04.05.2018 was passed, whereby minimum tax was levied at the rate of 1% under Section 113, creating a demand of Rs.994,471/-. The respondent's appeal was dismissed by the learned Commissioner Inland Revenue (Appeals-IV), Lahore, vide order dated 19.08.2020. The respondent preferred second appeal before the learned Appellate Tribunal. Despite service, he did not appear and the appeal was decided on the basis of the available record and submissions of the learned Departmental Representative. Vide impugned order dated 22.01.2026, the learned Appellate Tribunal allowed the appeal, annulled the amended assessment and the first appellate order and directed levy of minimum tax at 0.2%, holding that batteries constituted FMCG.

SUBMISSIONS

3.Learned counsel for the Applicant-Department contends that the learned Appellate Tribunal committed a material error of law by treating batteries as FMCG on the basis of considerations such as their limited useful life, frequency of replacement, turnover, distribution network and manufacturer-fixed margins, none of which constitutes the statutory test under Sections 2(13AB) and 2(22A) of the Ordinance. He submits that the Tribunal relied upon this Court's earlier judgment in Tax Reference No.13 of 2020 without examining the subsequent binding pronouncement of the Hon’ble Supreme Court in The Commissioner of Inland Revenue, Peshawar v. Messrs Sufi Tahir Nadeem (2025 SCMR 1687). He further contends that although the words “excluding durable goods”, introduced subsequently through the Finance Act, 2017, cannot retrospectively be applied to

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Tax Year 2015, the respondent's entitlement must nevertheless be determined according to the statutory language applicable to that year.

4.Conversely, learned counsel for the respondent has opposed the Reference Application and supported the impugned order passed by the learned Appellate Tribunal. He submits that batteries are purchased by end consumers, are sold through retail channels, have a limited useful life and require periodic replacement and, therefore, possess the essential characteristics of fast moving consumer goods. He further contends that the learned Appellate Tribunal rightly followed the judgment dated 16.06.2021, passed by this Court in Tax Reference No.13 of 2020 and that the subsequent judgment in The Commissioner of Inland Revenue, Peshawar v. Messrs Sufi Tahir Nadeem (2025 SCMR 1687) does not render the earlier view inapplicable to batteries or retrospectively introduce the exclusion of durable goods into the statutory definition applicable to Tax Year

DISCUSSION

5.Arguments heard. Available record examined.

6.The controversy is essentially one of statutory classification. The respondent seeks the benefit of the concessional minimum tax rate prescribed under Serial No.2(a) of Division IX of Part I of the First Schedule to the Ordinance. Such benefit is not available merely because a taxpayer trades in a commodity which is commonly sold to consumers. The statutory provision contemplates a particular class of taxpayer dealing in specified goods. Consequently, the respondent was required to establish that the batteries in which he dealt answered the statutory description of “consumer goods” and, in turn, “fast moving consumer goods” within the meaning of Sections 2(13AB) and 2(22A), respectively.

7.Section 2(13AB) defines “consumer goods” by reference to goods consumed by the end consumer rather than goods used in the production of another good, whereas Section 2(22A), as applicable to

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the relevant tax year, defines “fast moving consumer goods” as consumer goods supplied in retail marketing as per the daily demand of a consumer. The two provisions cannot be read in isolation. As held by this Court in the subsequent case of Commissioner Inland Revenue, Sahiwal v. Muhammad Rashid Javed [2026 LHC 6278 (LHC Website)], the expression “fast moving consumer goods” is a composite statutory concept, and its constituent requirements must be read together. Mere retail availability or non-durability of a commodity does not, by itself, bring it within Section 2(22A). The statutory inquiry must remain anchored in the nature, use and manner of supply of the goods.

8.The above approach is consistent with the authoritative pronouncement of the Hon’ble Supreme Court in The Commissioner of Inland Revenue, Peshawar v. Messrs Sufi Tahir Nadeem (2025 SCMR 1687), wherein the interrelationship between Sections 2(13AB) and 2(22A) was examined in determining whether the goods in question qualified as consumer goods and, consequently, FMCG. The emphasis was on the statutory character and actual use of the goods rather than merely upon the fact that the goods ultimately reached or were purchased by an end consumer. The significance of the judgment for the present case lies in the methodology of statutory interpretation: the requirements of Sections 2(13AB) and 2(22A) must be considered together and the concessional tax treatment cannot be founded upon a commercial description which does not satisfy the statutory test.

9.In the present case, however, the learned Appellate Tribunal approached the controversy principally on the basis that batteries are purchased by end-users, have a useful life of approximately six months to two years, gradually lose efficiency, are frequently replaced, have high turnover, are distributed through an extensive network and carry low manufacturer-fixed margins. These circumstances were treated as demonstrating the “essential characteristics” of FMCG. Such approach does not sufficiently engage with the statutory requirements.

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10.Most importantly, the expression “as per the daily demand of a consumer” cannot be equated with the frequency with which a product is used. The Tribunal itself found that a battery has a useful life ranging from six months to two years. A battery may be used every day, but it does not follow that a consumer has a daily demand for a new battery. The statutory expression concerns the character of demand and supply of the goods, not merely their daily utilization after purchase. Treating daily use as synonymous with daily demand effectively deprives the words “daily demand” of their statutory significance.

11.This aspect was specifically emphasized by this Court in Muhammad Rashid Javed (supra), where, while examining the claim of FMCG status in respect of cement, it was held that the expression “daily demand” conveys the character of recurring and routine consumer demand and cannot be rendered meaningless merely because a commodity is available through retail outlets. Although the commodity in that case was cement, the statutory principle is equally relevant here. The question is not whether batteries are available to consumers at retail outlets or whether consumers ultimately purchase them, but whether the goods, in their relevant commercial character, satisfy the statutory description of FMCG.

12.The Tribunal's reliance upon the limited useful life and eventual replacement of batteries is equally insufficient. The fact that a product loses utility with use and is eventually replaced does not, without more, establish its character as an FMCG. A battery remains an identifiable article in service throughout its operational life. Its gradual loss of capacity is a feature of its use and does not by itself answer the statutory question whether it is a consumer good supplied in retail marketing according to the daily demand of a consumer. Limited useful life cannot be substituted for the statutory test.

13.Likewise, high turnover, low profit margin, frequent replacement and an extensive distribution network are commercial characteristics and not statutory ingredients of Sections 2(13AB) or

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2(22A). They may be features commonly associated with certain FMCGs, but cannot create a statutory classification which the Legislature has not prescribed. The nature of the tax concession must be determined from the language of the statute rather than from the profitability, turnover or distribution model of the taxpayer.

14.The learned Appellate Tribunal principally relied upon the judgment dated 16.06.2021 passed by a learned Division Bench of this Court in Tax Reference No.13 of 2020 titled Commissioner Inland Revenue, Multan Zone, RTO, Multan v. M/s Siddique Battery Center, Chowk Dera Adda, Multan, wherein the business of distribution of batteries was held to fall within the category of FMCG. The learned Division Bench proceeded, inter alia, on the basis that frequent purchases, high turnover, low gross profit rate and an extensive sale network constituted the relevant characteristics of FMCG. In view of the subsequent authoritative pronouncement of the Hon’ble Supreme Court in The Commissioner of Inland Revenue, Peshawar v. Messrs Sufi Tahir Nadeem (2025 SCMR 1687), which requires the statutory expressions contained in Sections 2(13AB) and 2(22A) to be examined according to their own language and in their proper interrelationship. Accordingly, the view expressed in Siddique Battery Center, insofar as it treats such commercial characteristics as sufficient to bring battery distribution within the statutory definition of FMCG, no longer holds the field.

15.The foregoing conclusion does not rest upon any retrospective application of the words “excluding durable goods” introduced through the Finance Act, 2017. Nor is it contrary to the judgment of this Court in Commissioner Inland Revenue v. Messrs Haier Pakistan (Pvt.) Ltd. (2018 PTD 1582). That case concerned the then-applicable Clause (8) of Part III of the Second Schedule, which expressly used the wider expression “consumer goods including fast moving consumer goods”. In that statutory context, this Court held that the definition of “fast moving consumer goods” under Section 2(22A) was not relevant to the interpretation of that provision. The present

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controversy, however, concerns the statutory classification of goods as “fast moving consumer goods” under Sections 2(13AB) and 2(22A), which have subsequently been authoritatively interpreted by the Hon’ble Supreme Court in Sufi Tahir Nadeem. The said binding interpretation, therefore, governs the present controversy. Likewise, to the extent Siddique Battery Center treated frequent purchases, high turnover, low gross profit rate and extensive sale network as sufficient to establish FMCG status, without giving independent effect to the statutory requirement of supply in retail marketing as per the daily demand of a consumer, its reasoning cannot prevail. Such commercial characteristics may be incidental features of FMCG, but cannot substitute the statutory test prescribed by the law.

16.Article 189 of the Constitution of the Islamic Republic of Pakistan, 1973 renders the law declared by the Hon’ble Supreme Court binding upon all other Courts. The learned Appellate Tribunal was, therefore, required to consider and apply the legal principles declared in Sufi Tahir Nadeem, particularly as the judgment had been rendered before the impugned order dated 22.01.2026. Its failure to reconcile the earlier judgment relied upon by it with the subsequent binding declaration of law assumes significance because the very statutory provisions governing the classification of goods as consumer goods and FMCG were central to the controversy before it.

17.The subsequent judgment of this Court in Muhammad Rashid Javed further reinforces the position. There, while dealing with the same concessional regime under Serial No.2(a) of Division IX of Part I of the First Schedule, this Court held that the statutory requirements concerning the status of the taxpayer, the character of the goods and the manner in which they are supplied must operate according to the language of the statute. The judgment also recognized, following Sufi Tahir Nadeem, that the absence or presence of durability cannot, by itself, determine FMCG status. The present case requires application of the same statutory discipline.

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18.The fact that the words “excluding durable goods” were subsequently introduced through the Finance Act, 2017 does not alter the above conclusion. Those words cannot be retrospectively read into Tax Year 2015. The department's case, however, does not depend upon such retrospective application. Even under the provision applicable to Tax Year 2015, the respondent had to establish that the batteries were “consumer goods” and were supplied in retail marketing as per the daily demand of a consumer. The absence of a later express exclusion cannot itself create an entitlement which did not otherwise arise under the statutory language then in force.

19.It is also noteworthy that the learned Appellate Tribunal described the limited life span and other characteristics of batteries as admitted facts, although the respondent did not appear before it and the impugned order does not identify any specific admission or evidentiary material supporting such characterization. Be that as it may, even if these findings are accepted, they do not establish the statutory requirement of daily consumer demand. The fundamental distinction between daily use of a product and daily demand for the product remains unanswered.

20.The impugned order also does not satisfactorily determine the precise nature of the respondent's commercial activity. While reference is made to a distribution network and manufacturer-fixed margins, the Tribunal also proceeds on the basis that batteries were distributed directly to end-users at retail. Since the concessional rate is attached to a specified class of taxpayer dealing in specified goods, the respondent's entitlement could not be assumed merely from the nature of the commodity. The statutory requirements concerning both the taxpayer and the goods had to be examined on the basis of the record.

21.It follows that the learned Appellate Tribunal did not merely arrive at a different appreciation of the facts from the tax authorities. The material defect lies in the legal yardstick employed. The Tribunal treated commercial characteristics as determinative, did not give

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independent effect to the statutory expression “daily demand of a consumer”, and failed to reconcile the earlier judgment relied upon by it with the subsequent authoritative pronouncement of the Hon’ble Supreme Court. Such failure gives rise to a question of law falling within the jurisdiction of this Court under Section 133 of the Ordinance.

22.The respondent, therefore, could not claim the concessional rate merely on the basis that batteries are purchased by end-users, sold through retail channels, have a finite useful life or are replaced periodically. Those circumstances do not, in themselves, satisfy the statutory requirements of Sections 2(13AB) and 2(22A). The learned Appellate Tribunal's conclusion that such characteristics constituted the “essential characteristics” of FMCG was consequently based upon an incomplete and legally insufficient test.

CONCLUSION

23.For the foregoing reasons, the question of law is answered in the affirmative, in favour of the applicant-department and against the respondent-taxpayer. Consequently, the impugned order dated 22.01.2026 passed by the learned Appellate Tribunal is set aside. The amended assessment dated 04.05.2018, as affirmed by the order dated 19.08.2020 passed by the learned Commissioner Inland Revenue (Appeals), is restored, insofar as levy of minimum tax at the rate of 1% under Section 113 for Tax Year 2015 is concerned. The Reference Application is accordingly allowed.

24.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal in terms of Section 133(8) of the Ordinance of 2001.

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

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*