M/S Maidan Ghee & Oil Mills (Pvt) Ltd Vs Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others.

PESHAWAR HIGH COURT, PESHAWAR

(JUDICIAL DEPARTMENT)

WP No. 754-P/2026 with IR

M/s Maidan Ghee & Oil Mills (Pvt) Ltd.

...........................Petitioner.

V/s

Government of Pakistan Through Federal Secretary Finance and Revenue Division, Islamabad and others.

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

For the Petitioner: M/s Shumail Ahmad Butt, Isaac Ali Qazi & Qazi Shahzad Iqbal, Advocates.

For the Respondents: M/s Sanaullah Addl. Attorney General, Rahat Ali Khan Nahaqi Asstt. Attorney General, Amir Javed, Ishtiaq Ahmad Advocates along with Fauzia Iqbal Commissioner-IR, Haroon Khattak Deputy Director-IR, Muhammad Ashraf Khan Deputy Commissioner-CIR RTO, Sharifullah Assistant Director (Legal).

Date of hearing: 24.02.2026, 25.02.2026,

JUDGMENT

SYED ARSHAD ALI, J:- The petitioners in the instant petition, as well as in the connected petitions, are private limited companies and proprietorship concerns, who have established manufacturing units in the erstwhile Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA). Since the grievances of all the petitioners are common, this consolidated judgment is intended to decide the instant petition along with the connected petitions, the details of which are provided in Annexure ‘A’ to this judgment.

2.To effectively address the assertions of the petitioners as well as the pleas raised by the Revenue, we deem it appropriate to refer to the two legal instruments/laws, the

interpretation of which is the primary point of contention between the parties.

i. The Sixth Schedule to the Sales Tax Act, 1990 (“the Act of 1990”) enumerates exemptions from sales tax for various persons, with or without conditions. The relevant entry forming the subject matter of this lis is Entry No. 151, which is reproduced below:- “151. (a) Supplies; and

(b)imports of plant, machinery, equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas, as defined in the Constitution of Islamic Republic of Pakistan,- as may till 30th June, 2023, to which the provisions of the Act or the notifications issued thereunder, would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018):

Provided that, in case of imports, the same shall be allowed clearance by the Customs authorities on presentation of a post-dated cheque for the amount of sales tax payable under the Sales Tax Act, 1990, and the same shall be returned to the importer after presentation of a consumption or installation certificate, as the case may be, in respect of goods imported as issued by the Commissioner Inland Revenue having jurisdiction: Provided further that if plant, machinery and equipment, on which exemption is availed under this serial number, is transferred or supplied outside the tribal areas, the tax exempted shall be paid at applicable rate on residual value.”

ii. Since Entry No. 151, ibid, refers to the security instrument in lieu of the amount of sales tax to be returned upon production of a consumption certificate, the Revenue introduced Circular No. 05 of 2021, which prescribes the procedure for obtaining a consumption certificate and outlines the consequences thereof. Circular No. 05 of 2021 is reproduced below:- “Government of Pakistan Revenue Division Federal Board of Revenue Inland Revenue C.No.7(1)TIPU/IR/2020 Islamabad, March 26, 2021

Circular No. 05 of 2021 — Operations (Sales Tax/Federal Excise) Subject: Procedure for Issuance of Consumption Certificate for Import of Industrial Inputs by FATA/PATA-Domiciled Industries

In order to earnestly implement and enforce the tax-related incentives and benefits extended by the Parliament to residents of FATA/PATA, Circular No. 9 of 2021 dated March 1, 2021, has been issued. The Circular takes account of safe arrival of industrial inputs imported by FATA/PATA domiciled industries from the port to the intended manufacturing sites. Section 13(1) read with Serial No. 151 of Table I of Sixth Schedule to the Sales Tax Act, 1990, exempts import of "industrial inputs" to FATAJPATA-located industries "on presentation of a post-dated cheque for the amount of sales tax payable under..., and the same shall be returned to the importer after presentation of a consumption...certificate...in respect of goods imported as issued by the Commissioner Inland Revenue having jurisdiction." This particular benefit is subject to a further condition that if the goods produced from the exempted raw materials are "transferred or supplied outside the tribal areas, the tax exempted shall be paid at the applicable rate."

2.This makes CONSUMPTION CERTIFICATE issued by Commissioner Inland Revenue (CIR) the centrepiece of the tax-exempt cycle of importation of industrial inputs, production of finished goods by FATA/PATA-domiciled industries and their ultimate consumption within the FATANATA regions. It is therefore that a standardized procedure for the issuance of Consumption Certificate is being rolled out so as to ensure fair operationalization of the exemptions enshrined in the law.

3.A FATA/PATA based manufacturer/Registered Person (RP), who is also an "active taxpayer" in terms of section 2(1) of the Sales Tax Act, 1990 (hereinafter "the STA, 1990"), and intending to import raw materials for consumption at his own manufacturing site would make a written application to the CIR concerned providing therein: -

i. Production capacity of the manufacturing unit, and if the same has increased over time, the month from which the enhanced production capacity was

installed along with particulars of the additional manufacturing capacity;

ii. Month-wise quantity of (a) raw material imported, and (b) purchased locally since July, 2020 (or 1st month of the tax year);

iii. Quantity of stock available from earlier imports;

iv. Month-wise details of Gas and Electricity consumed since July, 2020 (or 1st month of the tax year);

v. Month-wise particulars of goods produced;

vi. Month-wise details of post-dated cheques (PDCs) deposited with Customs authorities, if any;

vii. List of buyers of the goods produced; viii. Bank statement for the relevant periods;

ix. Electricity & Gas bills for the relevant period; & x. Month-wise proof of Federal Excise paid — only in case of goods covered under the Federal Excise Act, 2005.

3.The CIR would ensure that particulars supplied by the RP are verified before the issuance of Consumption Certificate. In case any data are not verified, the RP would be given an opportunity to complete the application, provide the required information, and make up the deficiency. The Consumption Certificate issued will be directly mailed to the Collector Customs concerned with a copy thereof being duly marked to Member (IR Operations) and Member (Customs Operations), and under no circumstances will be handed over to the taxpayer. If the CIR decides to reject the application for a Consumption Certificate, the previous PDCs deposited would be encashed.”

3.In the present case, as well as in some of the connected matters, the petitioners imported raw material and, against the applicable sales tax, furnished a security instrument/pay order in favour of the Collector of Customs. The petitioners applied for the issuance of a consumption certificate, which was declined by the relevant Commissioner. Therefore, the Commissioner of Inland Revenue recommended to the concerned Collector of Customs the encashment of the pay order. In certain cases, the Commissioner of Inland Revenue even recommended encashment of the pay order without

adjudicating upon the petitioners’ request for the issuance of a consumption certificate.

4.The seminal question raised by the petitioners for adjudication by this Court concerns the interpretation of Entry No. 151, ibid, the legality of Circular No. 05 of 2021, and the actions of the respondents in directing the encashment of pay orders upon the petitioners’ failure to satisfy the Revenue for issuance of a consumption certificate, which was accordingly declined. The issue for determination is whether such rejection or denial of the consumption certificate authorizes the Revenue to encash the pay order?

5.M/s Shumail Ahmad Butt, Isaac Ali Qazi & Qazi Shahzad Iqbal, Advocates, the learned counsels representing the petitioners have contended that a close perusal of Entry No. 151 clearly demonstrates that failure to obtain a consumption certificate does not attract any penal consequences warranting the encashment of a pay order. They argue that Circular No. 05 of 2021, issued by the Federal Board of Revenue (“FBR”) under its administrative authority, transcends the mandate and scheme of exemption provided under Entry No. 151. It has further been contended that the consumption certificate was denied arbitrarily, without properly associating the petitioners with the process, and that even the order of refusal was not furnished to them, thereby depriving them of the opportunity to challenge it before the appropriate forum. The learned counsels have maintained that either an independent forum should resolve the issue of the consumption certificate, or otherwise the Revenue has no jurisdiction to encash the petitioners’ security instruments unless such a forum adjudicates their tax dispute.

6.Mr. Sanaullah, the worthy Additional Attorney General and Mr. Amir Javed Advocate, the learned counsel representing the Revenue, have argued that:

i. The petitions are not maintainable, as the petitioners have an alternate remedy available under Section 45A of the Act of 1990;

ii. In the first round of litigation, the petitioners approached this Court seeking directions that the respondents should decide their applications for a consumption certificate. Therefore, once the applications were decided pursuant to the directions of this Court, these petitions became barred under Order II, Rule 2 of the Code of Civil Procedure, 1908 (“the

CPC”).

iii. The exemption available to the petitioners is contingent upon the production of a consumption certificate. Therefore, in the event of failure to produce such a certificate, the only consequence is the encashment of the instrument/pay order, which constitutes an independent agreement between the bank, the drawer, and the drawee. Accordingly, once it is established that the petitioners’ applications for a consumption certificate have been rejected, the provisions of Circular No. 05 are triggered, and the instrument is liable to be encashed. In support of this contention, the Revenue has relied upon the judgment of the Hon’ble Sindh High Court in the case of Messrs Paramount Spinning Mills Ltd 1, which was subsequently affirmed by the Apex Court. 2 iv. The matter pertains to the assessment of tax liability at the import stage. Therefore, the Customs authority has jurisdiction to encash the pay order in the event the petitioners fail to obtain a consumption certificate, as Section 6 of the Act, read with Section 32 of the Customs Act, 1969 (“Act of 1969”), authorizes the Messrs Paramount Spinning Mills Ltd vs. Collector of Customs (Appraisement), Government of Pakistan Appraisement Collectorate, Lahore (2009 PTD 1575) Messrs Paramount Spinning Mills Ltd vs. Customs, Sales Tax and Central Excise Appellate Tribunal and another (2012 SCMR 1860).

Customs Officer to order the encashment of the instrument.

v. The rule of interpretation regarding exemptions is that when a taxpayer seeks an exemption, the burden lies upon the taxpayer to establish entitlement to such exemption. Furthermore, if two interpretations are possible, the one favoring the Revenue is to be adopted.3 Opinion of the Court

7.A perusal of Entry No. 151 shows that the import of plant, machinery, and equipment for installation in the tribal areas, as well as industrial inputs by industries located therein and the supplies made by such persons, are exempt from the imposition of sales tax. At the import stage, goods destined for consumption in the erstwhile tribal areas are subject to clearance upon presentation of a pay order equivalent to the amount of sales tax payable under the Act of 1990. This pay order shall be returned to the importer upon presentation of a consumption or installation certificate, which is to be issued by the Commissioner of Inland Revenue having jurisdiction in the matter.

8.The first proviso to Entry No. 151 clearly stipulates that the purpose of providing a pay order is to secure the payment of sales tax in the event that the person importing the goods does not consume them within the tribal area. We have intentionally used the term “consumed in the tribal area”, although it does not expressly appear in Entry No. 151, ibid. Therefore, to properly understand the concept, it is necessary to provide the historical background of the tax immunity granted to persons engaged in the supply or manufacture of goods, as well as those generating income, in the erstwhile tribal area.

Pakistan Cricket Board through Manager National Stadium Karachi and others vs. Director General Excise & Taxation and others (2011 CLC 1894).

th

9.Prior to the 25 Amendment in the Constitution, through Act No. XXXVII of 2018 dated 05.06.2018, there was a separate dispensation/mechanism for extension of laws to the erstwhile FATA. The relevant provision of the Constitution i.e. Article 247(3), for ease of reference is reproduced as under: - “247 (3). No Act of [Majlis-e-Shoora (Parliament0) shall apply to any Federally Administered Tribal Area or to any part thereof, unless the President so directs, and no Act of [Majlis-e- Shoora (Parliament)] or a Provincial Assembly shall apply to a Provincially Administered Tribal Area, or to any part thereof, unless the Governor of the Province in which the Tribal Area is situate, with the approval of the President, so directs; and in giving such a direction with respect to any law, the President or, as the case may be, the Governor, may direct that the law shall, in its application to a Tribal Area, or to a specified part thereof, have effect subject to such exceptions and modifications as may be specified in the direction”.

10.There remained a judicial consensus that the Income Tax as well as Sales Tax Laws were never extended to the FATA/PATA, prior to the promulgation of the 25th amendment, thereby omitting Article 247 from the Constitution. However, there has been a long-standing dispute between the FBR and the trade community/business community of the erstwhile tribal area regarding the imposition of income tax as well as sales tax on the import of raw material for the manufacturing units, which were located in the erstwhile FATA. This Court, in its celebrated judgment authored by his Lordship Justice Yahya Afridi, as he then was in this Court, in the case of Messrs Taj Packages Company (Pvt) Ltd 4 has elaborately dealt with the issue of taxing the raw material/goods which were imported for the purpose of their consumption in the erstwhile FATA. The said judgment 4 Messrs Taj Packages Company (Pvt) Ltd through Manager vs. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 other

(2016 PTD 203)

was also approved by the august Supreme Court of Pakistan in Hazrat Hussain’s case 5, wherein it has been unequivocally held that the business concerns/manufacturing units located in the erstwhile PATA are immune from the impost of both the income tax as well as sales taxes, and that similarly, the goods or machinery, which they are importing for their home consumption, are equally immune from the impost of both taxes at the import stage. However, in order to ensure that the consumption of goods does not cross the limits of the non- tariff area, the importers have to provide security in the form of post-dated cheques equal to the value of leviable taxes against the imported goods.

11.After the 25th amendment in the Constitution, the trade community had demanded continuity of the said exemption from the imposition of income tax and sales tax, which was acceded to by the Federal Government by issuing SRO.1212 (1)/2018, and SRO. 1213(1)/2018, both dated 05.10.20218, allowing the said exemption to the residents and domiciled of the erstwhile FATA/PATA. The exemptions granted through the aforesaid SROs were, later, reflected through the insertion of entry No. 151 in the sixth schedule of the Act. Similarly, Section 40D was also inserted in the Act of 1990 through the Tax Laws (Amendment) Act, 2020 (“the Act of 2020”), relating to taxation of such goods which were imported for the tribal area, in terms of entry No. 151, and later sold in the tariff area.

12.The aforesaid legal dispensation reflects that an industrial unit, located in the erstwhile FATA, can import raw material for its consumption within such area without payment of taxes and duties. However, against the said leviable taxes and duties, security in the shape of a post-dated cheque equal to the amount of the leviable sales tax is to be provided. The importer is required to provide a consumption certificate issued by the relevant Commissioner of Inland Revenue/RTO 5 Pakistan through Chairman, FBR and others Vs. Hazrat Hussain (2018 SCMR 939)

and the said cheques would be returned when the said consumption certificate is produced. This does not, however, mean that the importer cannot sell the goods outside the tribal territory, as evident from the clear verbiage of Section 40-D and entry No.74 of the 8th Schedule, which states that in such an event, the importer has to pay the applicable duty.

13.The close perusal of first proviso to Entry No.151 would reveal that the goods imported for consumption at the erstwhile tribal area would be released against pay order for the amount of sales tax payable under the Act of 1990 and the same shall be returned to the importer after presentation of a consumption or installation certificate, as the case may be, in respect of goods imported as issued by the Commissioner of Inland Revenue having jurisdiction. The Act of 1990 is completely silent about the mechanism of issuance of a consumption certificate. Similarly, Entry No.151 does not envisage that on failure of the importer to provide a consumption certificate, the instrument/post-dated-cheque would be presented for encashment.

14.The FBR, through Circular No. 05 of 2021, has provided guidelines for the issuance of a consumption certificate, as reproduced above. Paragraph 3 of Circular No. 05, ibid, in our humble view, transcends the scheme of exemption provided under Entry No. 151. Had the legislature intended to make the encashment of a pay order contingent upon the rejection of an application for a consumption certificate, it would have expressly provided so in clear terms. Similarly, the learned counsel for the respondents could not refer to any provision of law authorizing the FBR to supply an intentional omission or to expand the statutory provisions of the law. The settled principle is that rules are subservient to the parent statute. Ordinances and rules, being subordinate or delegated legislation, are framed under the authority of the parent statute and are therefore subservient to the primary legislation. They cannot contradict, override, or add to the

clear provisions of the parent statute. Rules are meant to carry out the purpose of the parent statute and cannot be inconsistent with its provisions.6 This issue has already been settled by this Court in the case of M/s M.K. Steel Mills7 wherein it was held that “this Court is not convinced from the assertion of the respondents that the failure on the part of the petitioners to provide a consumption certificate, will lead to a presumption that the petitioners have evaded the relevant taxes and duties under the Act and the Ordinance”.

15.However, the learned counsel for the Revenue contended that, since the exemption granted to the petitioners was contingent upon the production of a consumption certificate, once the Commissioner of Inland Revenue refused to issue the certificate through a speaking order, the consequence would be that the petitioners, having failed to fulfil the condition of producing the certificate, must face encashment of the security instrument. It was further argued that this requirement is essential to maintain administrative discipline in the consumption scheme and is not subject to adjudication or audit under the Act of 1990. These arguments, however, did not persuade us. To accept such assertions would be to elevate administrative convenience above statutory purpose, thereby undermining the very scheme and object of the Act of 1990. The Act of 1990 is intended to regulate taxation in a manner consistent with fairness, transparency, and the protection of taxpayers’ rights. If the Revenue’s position were accepted, it would effectively allow the denial of exemption solely on the basis of administrative refusal, without judicial scrutiny, which would run counter to the legislative intent. The requirement of a consumption certificate cannot be interpreted in isolation but must be read Farrukh Raza Sheikh v. The Appellate Tribunal Inland Revenue and others (2022 SCMR 1787); National Electric Power Regulatory Authority vs. Faisalabad Electric Supply Company Limited (2016 SCMR 550); Pakistan through Secretary Finance, Islamabad and 05 others vs. Aryan Petro Chemical Industries (Pvt) Ltd, Peshawar and others vs. (2003 SCMR 370).

M/s M.K. Steel Mills vs. Collector of Customs (2025 PTD 914)

harmoniously with the broader objectives of the Act, which emphasize substantive justice over rigid formalism.

16.It is by now established that there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay8.

17.Under the scheme of the Act of 1990, the charging section 3 of the Act of 1990 lays down the foundational parameters of the sales tax, which are: firstly, the quantum of the tax is based on the value of the goods imported into Pakistan or the taxable supplies made in Pakistan by a registered person; secondly, the incidence of the tax is triggered or made chargeable when the goods are imported into Pakistan or when the registered person makes taxable supplies in the course or furtherance of any taxable activity carried out by him; and finally, the liability to pay the tax is on the person importing the goods in respect of the imported goods, or on the person making the supplies in respect of taxable supplies made in Pakistan.9 The scheme of the Act of 1990 envisages that the sales tax regime in Pakistan is a value- added tax (“VAT”); therefore, when sales tax is levied in VAT mode, it is charged at each stage in the supply chain as the goods move from the point of origin (which may include the import stage) to the ultimate destination. At each stage, the sales tax is paid on the value added by the supplier concerned. This is done by the sales tax charged by the supplier for the goods sold by him and subtracting from it the sales tax paid by 8 H.M. Extraction Ghee and Oil Industries (Pvt) Ltd and another vs. Federal Board of Revenue and another (2019 SCMR 1081)

The Commissioner, Inland Revenue, Karachi vs. Messrs Attock Cement Pakistan Limited, Karachi (2023 SCMR 279)

him for the goods purchased or imported. (input tax). If the difference (that is output tax minus input tax) is positive over the relevant tax period, that is the output tax is more than the input tax, that means that the supplier has to pay the difference to the State; otherwise, he is entitled to a refund. Thus, the charging provision travelled with the goods from the import stage to the ultimate consumer.

18.The aforesaid scheme of the Act of 1990 places the burden on the Revenue to establish that the economic activities of a person fall within the charging section, and that the person is liable to pay any tax or charge which has not been levied, paid, or has been short-levied. The recovery provisions of any taxing statute can only be triggered once payability has been established through the scheme of adjudication provided under the statute. It is well settled that every word used by the legislature in a statute must be given its true meaning and the provisions construed together in a harmonious manner.10 If the arguments of the worthy counsel for the Revenue are accepted, that in the event the consumption certificate is denied to the person importing goods under the concessionary regime, the pay order would be payable, it would amount to something which we would read in statute which the lawmaker has never provided. Therefore, the entry No. 151 ibid would as far as relates to securing the payment of sales tax at import stage is to be harmoniously read along with the scheme of payment of tax when it becomes payable. Obviously, the payability of tax arises after the assessment of the tax liability.

19.As stated above, Section 3 of the Act of 1990 is the charging provision, which is triggered upon the occurrence of a taxable event, namely the import of goods into Pakistan or the supply of goods within Pakistan. Therefore, it is evident that the charging section applies to any import or taxable Collector of Sales Tax and Central Excise (Enforcement) and another vs. Messrs Mega Tech (Pvt) Ltd (2005 SCMR 1166).

supply. In the present cases, since the petitioners enjoy exemption from imposition of the charging section through an exemption in terms of entry No. 151, ibid, therefore, the question of assessment may not arise. If this had been the position, simple, the assertions of the Revenue would carry weight. However, keeping in view the historical aspect of the exemption, i.e. the said exemption is not absolute but conditional, as the said exemption is available as long as the goods are consumed in the erstwhile tribal area. Nonetheless, the importer of raw material is not bound to consume the entire raw material after being converted into a finished product and he is free to sell the goods in a settled area/tariff area; however, in that event, he has to pay the tax at 16% in terms of insertion of section 40D11 and entry No. 7412 in the 8th Schedule through the Act of 2020.

20.We are mindful of the fact that after the ruling in Whitney’s case, the Sales Tax Laws as well as the Income Tax Laws have undergone sea changes relating to the voluntary S.40. Provisions relating to goods supplied from tax, exempt areas.- (1) The conveyances carrying goods supplied from the tax-exempt areas, shall be accompanied by such documents in respect of the goods carried as may be prescribed under rules.

(2)The Regional Tax Office having jurisdiction may establish check-posts on the routes originating from tax exempt areas for the purpose of examining the goods carried and the documents related thereto. An officer not below the rank of Inspector, Inland Revenue, as authorized by the Commissioner, Inland Revenue, and assigned to such check posts, may stop vehicles on such routes as coming from tax exempt areas and examine documents for ascertaining their validity and conformity to the goods carried.

(3)In the absence of the prescribed documents or any discrepancy in such documents, the goods so carried shall be seized along with the vehicle carrying the goods by the officer as aforesaid under proper acknowledgment.

(4)The notices to the owner of the goods and the vehicle to show cause against imposition of penalty shall be issued within fifteen days of the seizure as aforesaid.

(5)For the purposes of this section, the expression “tax exempt areas” means Azad Jammu and Kashmir, Gilgit Baltistan, Tribal Areas as defined in Article 246 of the Constitution of the Islamic Republic of Pakistan and such other areas as way be prescribed.

Entry No. 74 of the 8th Schedule

S. No. Description Heading Nos. of Rate of Sales Condition the First Schedule Tax to the Customs Act, 1969 (Iv of

74 Goods supplied from Respective 16% tax-exempt areas of headings erstwhile FATA/PATA to the taxable areas

payability of tax, even prior to adjudication at various stages of the transaction i.e. advance stages, withholding schemes and monthly returns. However, in the event of a dispute relating to the payability of the taxes, the scheme of the Act of 1990 provides a comprehensive mechanism for audit13 and adjudication14. Similarly, we are also mindful of the scheme of the exemption; when applicable, the question of adjudication does not arise; however, in the present cases, since the exemption is not absolute, as stated above, as in the case of the travelling of goods to a tariff area, it attracts imposition of sales tax in terms of section 40D, ibid. Therefore, while reading the entire statute of the Act of 1990 as a whole, mere failure to provide a consumption certificate would not attract the encashment of a security instrument/pay order unless the liability of the taxpayer is determined under the scheme of audit and adjudication.

21.In the present cases, the respondents have shown reluctance to produce the order and proceedings of the Commissioner concerned relating to the refusal of the consumption certificate. However, in para-3 of the comments, the said reasons have been reproduced as under:- “Scrutiny of the purchase and consumption record reveals that the applicant has imported RBD Palm Oil/Palm olien for manufacturing of ghee. However, inventory record of the applicant reveals that Vitamin A and Vitamin D, being basic and essential ingredients for the manufacture of ghee, were neither purchased nor consumed as reflected in the record. The absence of these essential inputs establishes that ghee was not manufactured in accordance with the prescribed standards, rendering the claimed production unverifiable and unreliable. The production record further reveals that no hydrogenation process was carried out during the relevant period. The production records and process record do not reflect any hydrogenation activity, which is a fundamental and mandatory step in the manufacture of ghee. This omission seriously undermines the authenticity of the claimed manufacturing process.

13 S. 25 of the Sales Tax Act, 1990

Ss. 11A, 11B, 11C, 11D, 11E, 11F of the Sales Tax Act, 1990.

It is further observed that the quota exemption regime, as envisaged under Circular No. 03 of 2022 dated 10.08.2021, is meant for the goods exclusively involving value addition. In the present case, the record does not demonstrates any meaningful value addition or completion of a proper manufacturing process, thereby defeating the very object and intent of the quota exemption facility. Examination of the sales and banking record also reveals that the sales proceeds were not realized through proper banking channels. The bank statements furnished by the applicant do not reflect the entire amount of declared sales proceeds, which constitutes a clear violation of the prescribed conditions and further casts doubt on the genuineness of the declared transactions. It was further observed that buyers of the applicant to whom supplies were made in bulk, are not verifiable. It is a settled principle of law that entitlement to any exemption or concession must be strictly proved by the applicant.

In view of the foregoing deficiencies and non- compliance with the mandatory requirements, the applicant has failed to establish actual manufacture of ghee, value addition, and realization of sales proceeds through banking channels. Accordingly, the application for issuance of a Consumption Certificate is hereby rejected. As a consequence, PDCs/Pay Orders submitted by the applicant at the time of import of goods in lieu of sales tax may kindly be encashed in favour of the RTO Peshawar in accordance with law under intimation to this office. Relevant Para of Circular No. 5 of 2021 dated 26.03.2021 is hereby reproduced for the sake of clarity and convenience:

“If the CIR decides to reject the application for a Consumption Certificate, the previous PDCs/Pay Orders deposited would be encashed”.

22.A perusal of the stated reasons clearly reveals that the opinion rendered by the Commissioner concerned was based not only on extraneous considerations but also failed to undertake any meaningful inquiry to establish whether the imported goods did not reach the manufacturing units of the petitioners or were instead sold in the tariff area without payment of taxes. Furthermore, the reasons do not demonstrate that the respondents were afforded an adequate opportunity to produce the relevant documents in support of their claim.

23.The essential dispute between the parties, whether the goods were consumed within the tribal area, cannot be

resolved merely on the basis of assumptions or administrative orders. It requires a proper audit of the tax affairs of the petitioners to determine the factual position. Without such an inquiry, the conclusion reached by the Commissioner lacks both evidentiary foundation and procedural fairness. The failure to provide the petitioners with an opportunity to substantiate their case further undermines the validity of the order. Thus, the matter hinges upon a thorough examination of consumption records and verification of whether the imported goods were utilized within the designated area in accordance with the exemption scheme. Only through such an audit can the dispute be resolved in a manner consistent with the scheme and object of the Act.

24.Moving on to the objection raised by the Revenue regarding the availability of an alternate remedy under Section 45A of the Act of 1990. It is pertinent to mention that Section 45A provides for suo motu action by the Commissioner as well as the FBR to examine the record of any proceedings in order to satisfy themselves as to the propriety of any decision or order passed by an officer of Inland Revenue subordinate to them. This alternate remedy appears to be illusory. Even if it is assumed that such a remedy was available to the petitioners to challenge the order of the respondents refusing the issuance of a consumption certificate, it must be noted that, through this remedy, the petitioners could not challenge the recommendation of the Commissioner for encashment of the pay order. In this background, paragraph 3 of Circular No. 5 of 2021 transcends the scheme of the Act of 1990 and, therefore, is liable to be read down in light of our findings in paragraph 14 above.

25.In view of the foregoing discussion, these petitions are hereby admitted and allowed in the following terms:- I. The imported raw material of the petitioners, intended for home consumption, is exempt from payment of sales tax

for the relevant period under Entry No. 151 of the Sixth Schedule to the Sales Tax Act, 1990.

II. The Revenue/respondents have the authority to conduct an audit and adjudicate the tax affairs of the petitioners in order to ascertain the consumption of raw material as well as finished goods within the erstwhile tribal area. In case of any violation, they are at liberty to pass an assessment order. If such an assessment order is passed against the petitioners determining their tax liability, the pay orders shall be encashed to recover the outstanding liability. III. The impugned recommendations, orders, and actions of the respondents/Revenue for encashment of the pay order are hereby declared illegal and without lawful authority.

Judge

Judge

Date of Announcement of Judgment........03.03.2026

Date of preparation & signing Of judgment....30.03.2026

Nawab Shah CS (DB) Justice Syed Arshad Ali & Justice Ms. Farah Jamshed