M/s Malakand Oil & Ghee Mills (Pvt) Ltd and others vs. Federation of Pakistan through Federal Secretary, Ministry of Finance, Finance Division, Islamabad and others.

JUDGMENT SHEET

PESHAWAR HIGH COURT, PESHAWAR

JUDICIAL DEPARTMENT

W.P No.4284-P/2025 with IR

M/s Malakand Oil & Ghee Mills (Pvt) Ltd. and others Vs Federation of Pakistan through Federal Secretary, Ministry of Finance, Finance Division, Islamabad and others

Dates of hearing: 05.11.2025, 11.11.2025, 12.11.2025, Petitioners (by): M/S Isaac Ali Qazi and Shumail Ahmad Butt, Advocates.

Respondents (by): M/S Sanaullah, Additional Attorney General, Amir Javed, and Ehtesham-ud- Din, Advocates alongwith Bahader Sher Afridi, Additional Commissioner-IR, Sharifullah, Assistant Director (Legal), Inland Revenue.

Research by: Ghazi Abdullah Shah, Judicial Assistant

JUDGMENT

SYED ARSHAD ALI, J.- The petitioners, through the instant as well as the connected writ petitions (the detail whereof has been provided in “Annexure-A” to this judgment), seek the following reliefs:

i. Declaration that Section 23 of the Sales Tax Act, 1990 (“Act of 1990”), authorizing the Federal Board of Revenue (“FBR”) to specify a class of registered persons for issuance of electronic invoices and integration of their electronic invoicing system with the Board’s Computerized System for real time reporting of sales, is optional and not mandatory.

ii. Declaration that Section 40C of the Act of 1990, requiring purchase of electronic equipment from Board-appointed licensed persons, is ultra vires the Constitution.

iii. Declaration that Sections 50A and 76 of the Act of 1990 are ultra vires, as the cost of sales tax administration and collection ought to be borne by the Government, but under the guise of “fee” is being shifted to taxpayers.

iv. The validity of SRO 69(I)/2025, dated 29.01.2025, SRO 709(I)/2025 dated 22.04.2025, SRO 1413(I)/2025, dated 01.08.2025, and SRO 1852(I)/2025, dated 24.09.2025, whereby registered persons have been directed to electronically integrate their hardware and software with the Board’s computerized system, through licensed integrators or PRAL, and to generate and transmit electronic invoices within the timelines prescribed therein for different categories of taxpayers.

v. Sales Tax Circular No.1 of 2025 dated 10.04.2025, notifying the names of approved licenced integrators for the purpose of integration in terms of SRO 69(I)/2025, dated 29.01.2025.

vi. Letters F.No.2(3) /TTS /Tobacc /2021 /103449-R dated 18.08.2025, F.No.2(3) /T&Ts /Tobacc /2021 /104849-R, dated 21.08.2025, F.No.2(3) /T&Ts /Tobacc /2021 /10588-R, dated 21.08.2025, and F.No.6(12) /TTS /Tiles /2025 /126878-R dated 03.10.2025, requiring certain cigarette manufacturing units to install IP CCTV cameras at their manufacturing sites for monitoring operations/functionality, with access to be provided to the FBR.

vii. The vires of Chapter XIV-BA of the Sales Tax Rules, 2006, inserted by SRO 889(I)/2020 dated 21.09.2020 and amended by SRO 364(I)/2025 dated 14.03.2025, which obliges manufacturers to install costly surveillance systems, transmit real-time data to the FBR, and face penalties including sealing of premises and suspension of registration upon non-compliance, irrespective of compliance history or audit triggers.

2.Beside vires of section 40C and section 23 of the Act of 1990, we have before us two categories of cases. The first concerns the challenge brought by the petitioners-company against SRO 69(1)/2025, dated 29.01.2025, which inserted Chapter XIV into the Sales Tax Rules, 2006 (“Rules 2006”). This amendment requires certain classes of industries, including the petitioners, to electronically integrate their hardware and software used for the generation and transmission of electronic invoices through a licensed integrator or otherwise, as provided in the Rules 2006.

3.It is alleged that the petitioners, private limited companies with manufacturing units in tribal areas, are authorized representatives challenging the respondents’ unlawful actions. The respondents, including the FBR and related ministries, are pushing for mandatory acquisition, integration, and electronic issuance of sales tax invoices without legal authority. Legal provisions, notably Sections 23 and 40C of the Act of 1990, only permit optional electronic invoicing and do not empower the respondents to make it mandatory. Despite amendments and notifications, including S.R.O. 1525(1)/2023, 28(1)/2024, and 709(1)/2025, these lack proper statutory authority, procedural compliance, and valid delegation of power. The respondents have issued regulations, circulars, and notices, such as the Sales Tax Circular No. 01/2025, that are not legally binding or authorized, and impose costly compliance measures on petitioners. These actions violate the law, overreach statutory limits, and infringe on constitutional rights. The petitioners seek judicial intervention to declare these

measures unlawful and protect their lawful business activities.

4.Respondents No. 1 to 7 have filed their parawise comments wherein it is contended that the petitioner, being a non-citizen company/person, cannot invoke constitutional rights. Amendments to the Act of 1990, and Rules promote transparency and public revenue, as similar e-invoicing mechanisms are used in other sectors. These measures are within legal authority, proportionate, and in the public interest, without violating fundamental rights. The FBR is authorized under Section 50 of the Act of 1990 and Rule 150Q of the Rules 2006, to notify and enforce electronic integration, which does not impose undue financial burdens, as free or low-cost software solutions are available. The issuance of notifications and delegation of powers under the Federal Board of Revenue Act, 2007 (“Act of 2007”), are lawful and properly exercised. The petition's claim of legal invalidity, undue burdens, or lack of authority is unfounded. Additionally, the petitioner lacks locus standi to file the petition, as no vested rights have been infringed. Therefore, the petition should be dismissed.

5.The second category of cases relates to the real- time monitoring of goods through video surveillance, which was initially introduced through SRO 889(1)/2020 dated 21.09.2020, inserting Chapter-XIV-BA in the Rules 2006. The SRO envisages the video surveillance for electronic monitoring of production on real-time basis of the goods specified in the Third Schedule or any other goods notified by the FBR through a specific order. Chapter-XIV-BA remained amended and substituted

through various instruments including SRO 364(1)2025 dated 14.03.2025, SRO 2082(1)/2024 dated 31.12.2024 and more particularly SRO 2082(1)/2024 dated 31.12.2024 there was a proviso added to para-150ZQR (Chapter-XIV-BA) envisaging that for any or all of the categories specified above shall be monitored through video surveillance, video analytics (solution and digital eye) and digital eye from the date as notified by the FBR through a specific order. It is further provided by para- 150ZQT which was inserted through SRO 364(1)/2025 dated 14.03.2025 envisaging that production of specified goods, manufactured in Pakistan, shall be monitored through video surveillance, video analytics solution and digital eye by installation of production monitoring equipment at production lines as are approved by the FBR for real-time capture or production process and real time collection of data that shows production through object detection and object counting.

6.It is alleged that the petitioners, private limited tobacco manufacturers incorporated under the Companies Act, 2017, challenge the respondents’ unlawful actions in forcing it to install IP CCTV cameras and provide live feed without legal authority. Despite amendments to the Sales Tax Rules and the introduction of a Track and Trace System (TTS) for monitoring production and supply of certain goods, the petitioners allege that the respondents bypassed legal procedures, failed to properly approve vendors, and issued arbitrary directives lacking statutory backing. The letter demanding CCTV installation was issued without legal mandate and with threats of production shutdown, violating constitutional rights, rule of law, and procedural safeguards. The

petitioners contend that these actions are illegal, capricious, and violate its constitutional rights to conduct lawful business, seeking court intervention to declare such measures null and unlawful.

7.Respondents have filed their comment wherein it is asserted that Chapter XIV-BA of the Rules 2006 lawfully authorizes electronic monitoring of specified goods, including CCTV installation, under Sections 40C(1) and 50(2) of the Act of 1990. The directions issued on 18.08.2025 were based on competent authority approvals and are consistent with similar mandates across sectors, including sugar. These measures, supported by judicial precedents and SROs 889(1)/2021, 968(1)/2021, and 364(1)/2025, aim to enhance transparency and compliance in high-risk industries like tobacco. They are procedural, non-punitive, and uniformly applied, with penalties for non-compliance under Sections 33, 40B, and 40C of the Act of 1990. The CCTV directive does not impose new taxes or violate the self-assessment framework. All actions are lawful, authorized, and implemented without coercion. The petition lacks legal merit and is liable to dismissal.

8.During the course of the hearing, an objection was raised regarding the authority of the FBR to issue Sales Tax General Order No. 07 of 2025, which required tobacco manufacturing companies to install electronic video surveillance. This directive was communicated through letter F. No. 2(3)/ Tobacco/ 2021/103449-R dated 18.08.2025, letter F. No. 2(3)/ T&Ts/ Tobacco/ 2021/ 104849-R dated 21.08.2025, and letter F. No. 2(3)/ T&Ts/ Tobacco/ 2021/10588-R dated 21.08.2025. The

approval was granted by the Member (Operations) on 18.08.2025, under the delegated authority and accordingly, a notification of the same date was issued requiring certain specified industries to install CCTV cameras for real-time monitoring. An objection was also raised that only the industrial units located in the province of Khyber Pakhtunkhwa were singled out, and no other industries were directed to install CCTV cameras. However, the respondents produced letters requiring certain industries in the province of Punjab to undertake real-time monitoring through electronic devices, as well as other industries such as sugar and ceramic tile manufacturers.

9.The learned counsels representing the petitioners have mainly argued that the digital invoicing and real- time monitoring system will have a negative and destructive impact on the rights of individuals/taxpayers enshrined in the Constitution of the Islamic Republic of Pakistan, 1973 (“the Constitution”). They contend that the Constitution envisages the dignity of man and the privacy of the home as inviolable rights; therefore, real- time surveillance offends these constitutional guarantees. In support of their contention, they have placed reliance on “Muhammad Nawaz vs. Additional District & Sessions Judge and others” (PLD 2023 SC 461) and case law from foreign jurisdiction. He further contended that real-time monitoring through electronic integration and CCTV camera surveillance is contrary to the scheme of self-assessment. His main contention, however, was that the impugned SROs were issued by the FBR under delegated powers, which is illegal, as the scope of the

charging section cannot be extended through rule-making powers.

10.Conversely, the learned AAG and Mr. Aamir Javed Advocate, representing the respondents, argued that the installation of digital integration is now a worldwide phenomenon, introduced to strengthen and ensure transparency in tax collection, and that it has not adversely affected the petitioners. The learned counsel also relied upon the judgment of the worthy Lahore High Court in Jameel Sweets vs. Federation of Pakistan and others (2020 PTD 752), as well as Islamabad High Court in Messrs Khyber Tobacco Company Limited vs. The Federal Board of Revenue and others (2025 PTD 297), and Universal Tobacco Company Pvt. Ltd and another vs. Federation of Pakistan through Federal Secretary, Ministry of Finance, Islamabad etc (WP No. 2911/2022 decided 10.04.2023).

11.Arguments heard and record perused.

12.The present case involves the following questions for adjudication by this Court.

i. Whether sections 40C and section 23 of the Act of 1990 envisaging for E-invoicing and real-time monitoring through electronic means offends any provision of the Constitution? Does the Act of 1990, provide sufficient legal authority to the FBR to mandate a compulsory E-invoicing and real- time reporting system?

ii. Whether the impugned SROs and Circulars constitute a valid exercise of delegated legislation and administrative power of the FBR?

iii. Is the shifting of compliance costs (fees to licensed integrators, cost of surveillance) onto taxpayers constitutionally permissible, or does it amount to an unauthorized tax?

13.The Act of 1990 operates both as a charging provision and as a machinery provision. Section 3 of the Act of 1990 is a charging provision, which envisages that the tax under the Act shall be charged, levied and paid at the rate of 18% of the value of taxable supplies by a registered person in the course or furtherance of any taxable activity carried on by him and the goods imported to Pakistan. Section 3 also provides a different rate of tax for different categories of goods provided in various schedules to the Act. In the present case, the petitioners do not question the charging provision and their attack is on the machinery provision more specifically, section 40C of the Act of 1990, which falls within Chapter-VII of the Act of 1990 as well as the electronic tax invoicing as envisaged by section 23 of the Act of 1990. It is golden rule of statutory interpretation in fiscal law that charging provisions in tax statutes must be construed strictly, as they impose financial burdens on the citizen. In contrast, machinery and collection provisions must be construed more liberally and are not subject to rigorous construction, so long as they do not contradict the plain language of the statute.1

14.Similarly, the law is by now settled that the vires of any legislation are to be struck down on two grounds. Firstly, where the appropriate legislature did not have

1.Commissioner Inland Revenue Withholding, Regional Tax Office, Peshawar vs. Messrs Chashma Sugar Mills (Pvt.) Ltd. D.I.Khan (2023 PTD 1709).

competency to make law; and secondly, where its enactment abridges any of the fundamental rights annunciated in the Constitution or any other constitutional provision.2

15.Taxation law is no exception to the doctrine of equal protection.3 Therefore, the taxing statute will be also struck down if it is in violation of the fundamental rights enshrined in Article 25 of the Constitution. However, in the matter of the taxation laws, the court permits a greater latitude to discretion of legislature in the matter of classification “Ganga Sugar Corporation Ltd. vs. The State of U.P (AIR 1980 SC 286), the Commissioner Inland Revenue, Peshawar vs. Tariq Mehmood (2021 SCMR 440)” and in tax matters, the State is allowed to pick and choose, districts, objects, persons, methods and even the rates for taxation if it does so reasonably. Khyberbari Tea Co. Ltd Vs. State of Hassam (AIR 1964 SC 925).

16.Section 40C was inserted in the Act through the Finance Act, 2013. The provision has a long history of amendment. Similarly, section 23 of the Act of 1990 envisages that a registered person making a taxable supply shall issue serially numbered tax invoices at the time of supply of the goods containing the particulars mentioned in the petition. The Finance Act, 2025, has introduced a proviso to section 23 of the Act which envisages that where any goods are transported or supplied, the registered person shall ensure the

2.Mcdowell and Co. (AIR 1966 SC 1637), State M.P Vs. Rakesh Kohli and another

(2013 SCMR 34).

3.Ashwath Narayana Setty, P.M Vs. State of Karnataka (Air 1989 SC 100).

generation and linkage of the tax invoices with the e- Bilty generated under section 40C of this Act and section 83C of the Customs Act, 1969 and further envisages that no person other than a registered person or a person paying retail tax shall issue an invoice under this section. Subsection (5) of section 23, which was inserted through the Finance Act, 2025, envisages that the Board through notification in the official Gazette may require any person or class of persons to integrate their electronic invoicing system with the Board’s Computerized System for real time reporting of sales in such a mode and manner and from such date as may be specified therein. Subsection (6) of section 23 further provides that the licensed integrator shall integrate the electronic invoicing system of registered persons referred in subsection (5) in such mode and manner as may be prescribed.

17.The verbiage of sections 40C and 23 of the Act of 1990 is a legal foundation governing the electronic monitoring of production in Pakistan, which empowers the FBR to implement monitoring or tracking of production, sales, clearances, stocks or any other related activities through electronic or other prescribed means. The said provisions authorize the FBR to specify a registered person or class of goods subject to such monitoring and to prescribe the manner of implementation. Both the impugned provisions are intra vires the Constitution, as the learned counsel could not convince us that the said provisions of law are either enacted without legislative competence or in any manner offend the fundamental rights of the petitioners.

18.Sales tax is a type of Value Added Tax (VAT) levied on manufacture and supply of goods at multiple stages. The said tax is collected by suppliers on behalf of Government, while the incidence of tax is finally borne by the consumer of the goods. Similarly, the Act in very clear words delineate and facilitate the registered person that the value addition of goods made during the supply chain of production, and to ease the burden of tax on supplier, the concept of input tax has been introduced and acknowledged through section 7 of the Act of 1990. To facilitate the supplier, the legislature has provided a facility for the adjustment of the ‘input tax’ from the ‘output’ payable at the time of making the supply of the value-added goods. Thus, the ‘input tax’ paid by one supplier on receiving the goods would be the ‘output tax’ of the other, who is supplying the said goods, and the supplier on receiving the price of the goods supplied would after deducting the already paid ‘input tax’ from the ‘output tax’, deposit the balance in the treasury. This process would continue at each successive stage of the supply chain, until the final goods is purchased by the final consumer, who would be finally burdened with the entire incidence of sales tax.4 The new legal dispensation would ensure that the genuine adjustment of input tax is allowed without any delay beside the transaction would stand documented. Thus, the generation and integration of electronic invoices, as well as the electronic monitoring of such supply chain, is neither contrary to the scheme of law nor does it offend any fundamental rights of the petitioners. The assertions that such

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

electronic surveillance and monitoring would infringe privacy is thus ill-founded, because through the impugned system it is the production and supply chain of the registered person which is monitored, and not the activities of the individuals at the workplace.

19.The first instrument relating to the video analytics for electronic monitoring of production of specified goods was notified through SRO 889(1)/2020 dated 21.09.2020, establishing a comprehensive regulatory framework for real-time electronic surveillance of manufacturing activities. The salient feature of the video surveillance notified through SRO 889(1)/2020 dated 21.09.2020 can be summarized as under:-

i. The Video Analytics Rules (“Rules”) establish a precisely defined scope of application that operationalizes the board authority granted under Section 40C. The Rules apply specifically to "specified goods" as defined in Rule 150 ZQR5, encompassing goods listed in the Third Schedule to the Act of 1990 and any other goods subsequently notified by the FBR through specific orders. The Rules mandate that no person engaged in manufacturing specified goods shall remove production from business premises without undergoing the process of intelligent video surveillance, creating a statutory prohibition that carries significant legal consequences for non-compliance.

5.150 ZQR. Application.- The provisions of this Chapter shall apply to video surveillance for electronic monitoring of production on real time basis, hereinafter referred to as the specified goods meant, namely:-

(a)goods specified in Third Schedule appended to the Sales Tax Act, 1990; or (b) any other goods notified by the Board through a specific order: Provided that for any or all of the goods specified above shall be monitored through video surveillance and video analytics from the date as notified by the Board through a specific order.

ii. The Rules establish a sophisticated technological framework that transforms the general mandate of Section 40C into a functional monitoring system. Rule 150 ZQT6 mandates monitoring through intelligent video surveillance and video analytics using approved equipment including video cameras, sensors, and related apparatus. The system requirements, as detailed in Rules 150 ZQX7 and 150 ZQY8, encompass high-definition video capture, object detection and counting capabilities,

6.150 ZQT. Goods to be monitored electronically through video cameras etc- (1) Production of specified goods, manufactured in Pakistan, shall be monitored through intelligent video surveillance, and video analytics by installation of equipments including video cameras, sensors, etc., at production lines, as are approved by the Board for,-

(a)real time collection of data that shows production through object detection and object counting;

(b)transmission of data to central control room at FBR on real time basis, storage and archiving of data;

(c)detection of unexpected stops;

(d)quantitative analyses of productions; and

(e)data analytics for required legal actions.

(2)No person engaged in manufacturing of specified goods shall remove the production from its business premises unless it has undergone the process of intelligent video surveillance.

7.150 ZQX. Criteria for grant of an authorization.- (1) The vendor shall be required to have and demonstrate ability to provide equipment with high security and efficiency for electronic monitoring of production and video analytics on real time basis.

(2)The equipment offered by the vendor must have the following features, namely:-

(a)the equipment shall have high definition video camera and sensor that can record and count the production;

(b)the equipment shall have ability to weigh the product contained in bags;

(c)the equipment shall have ability to integrate with the software recommended by FBR which will be used for transmission of data to central control room;

(d)the equipment will conduct video analytics and communicate results thereof to

CCR;

(e)the equipment will report any unauthorized stoppages production through generation of appropriate alarm;

(f)the system should have sixty days remotely retrievable local, on-site, and at place, specified by the Board, off-site, data storage at each site;

(g)the CCR should have a central data storage capacity capable of storing and retrieving data on long term basis up to five years; and

(h)the equipment must be stable, fault-tolerant, secure and accessible only by username and password as authorized by the Board.

8.150 ZQY. Functions and responsibilities of IT team of FBR.-(1) IT team shall develop a software to run and operate the system, as per requirements of the Board. The equipment provided by the vendor after integration with FBR software shall be able to perform the following functions, namely:-

(a)monitoring capability on real-time basis at factory premises or production lines;

(b)the ability to configure the production unit remotely;

(c)the system must be capable of sending alert messages and trigger alarms, visible and audible, in case of occurrence of abnormal events such as unauthorized stoppages of production, tempering with equipments and camera etc;

(d)the system reporting should be capable to filter and process the production data for statistical and analytical purposes; and

(e)the system should ensure secure data storage and archiving of data for five years from its generation or recording;

(2)The team shall submit a complete list of operations, software and maintenance required to operate the equipment.

weighing functionality for bagged products, real-time data transmission to the Central Control Room (CCR), automated alarm generation for unauthorized production stoppages, and comprehensive data storage architectures with both local (60-day) and central (5-year) retention capabilities. This technological specification represents a deliberate implementation of the "electronic or other means" contemplated by Section 40C, creating an integrated system that provides the FBR with unprecedented real-time visibility into production activities while establishing clear technical standards for system implementation and operation.

iii. The Rules establish a detailed governance framework for the implementation of the electronic monitoring system, creating multiple layers of administrative oversight. Rule 150 ZQV9 establishes an Approval Committee headed by a Project Director with headquarters at FBR House, Islamabad, responsible for evaluating and authorizing vendors of monitoring equipment. The vendor approval process, outlined in Rules 150 ZQW10 through 150 ZQZ11, incorporates

9.150 ZQV. Functioning of approval committee.- (1) The approval committee shall function in accordance with the provisions of these rules.

(2)Project Director shall be the convener of the approval committee and its headquarters shall be located at FBR House, Islamabad. The Board shall provide secretarial and other allied support required for functioning of the approval committee.

(3)The approval committee shall devise procedures for its functioning, which shall be in accordance with these rules.

10.150 ZQW. Application for approval .- (1) An application to get approval as authorized vendor for video monitoring of production of specified goods mentioned in these rules shall be made in duplicate to the Board.

(2)An application under sub-rule (1) shall be accompanied by all the supportive and relevant documents including the following, namely:-

(a)a comprehensive profile of the company;

(b)brief about managerial and technical personnel indicating name, position, qualification and experience;

(c)total number of current employees;

(d)list of major clientele;

(e)documents showing relevant capacity of the video equipment;

(f)complete history of activities undertaken and synopsis of the projects done;

(g)current commitments and status of in-hand projects;

comprehensive eligibility criteria including company profiling, technical capacity documentation, financial stability evidence, and clean compliance history. The committee's evaluation process includes document review, hearings, physical inspections, and practical demonstrations, culminating in recommendations to the FBR for final authorization. This multi-stage approval mechanism ensures that only qualified and reliable vendors participate in the monitoring system implementation, reflecting the legislative concern for system integrity and reliability in the execution of Section 40C's mandate.

iv. The Rules impose extensive obligations on manufacturers of specified goods, creating a comprehensive compliance regime that gives practical

(h)incorporation certificate under the Companies Act, 2017, National Tax Number (NTN) certificate;

(i)audited accounts of the last three financial years;

(j)Income Tax returns for the last three years;

(k)registration with Sales Tax Department of FBR;

(1)computerized National Identity Cards (CNICs) of the Directors of the incorporated company; and

(m)undertaking that the company has never been blacklisted by any Government or private department or organization and has not been involved in confirmed cases of fiscal fraud.

11.150 ZQZ. Procedure for grant of authorization.-(1) On receipt of an application for grant of authorization, in the Board, the approval committee shall evaluate it.

(2)The approval committee may also fix a date for a hearing to be attended by the vendor for the purposes of evaluation of the application submitted under sub-rule

(3)The approval committee may also carry out visits and physical inspections to ascertain eligibility of the vendor for authorization under these rules.

(4)The vendor shall be required to give practical demonstration of the technological solution offered for approval.

(5)The approval committee shall send its recommendations to the Board, within thirty days, from the date of submission of the application. In case of recommendation for rejection of any application detail "causes", in writing, is required.

(6)In case a company meets the technical and financial criteria given in these rules, the licensing committee shall recommend to the Board for grant of authorization to such vendor.

(7)The Board may grant authorization to the recommended vendor(s).

(8)The qualified company shall be required to deposit bank guarantee for five percent of the value of the project cost or rupees five million, whichever is lower, to the approval committee, as financial security, at the time of issuance of the authorization. The bank guarantee shall be valid for whole duration of the authorization and shall be encashable in case of violation of these rules leading to loss of government revenue, in the manner as prescribed by the Board, after providing an opportunity of being heard.

effect to Section 40C's monitoring objectives. Rule 150 ZQZE12 mandates that manufacturers provide complete access for system installation and operation, route all production through the intelligent video analytics system, ensure system security and functionality, and immediately report any operational failures, damage, or tampering to the FBR. Manufacturers must provide advanced notification of production changes, brand introductions, or facility modifications, and must facilitate immediate sealing of inoperative production lines by FBR authorities. These obligations establish a continuous compliance relationship between manufacturers and the FBR, creating a legal framework that makes manufacturers active participants in the monitoring process while imposing significant responsibilities for system integrity and operational transparency.

20.The legal soundness of interpretation of the application of electronic surveillance was examined by 12 . 150 ZQZE. Functions and responsibilities of the manufacturer of specified goods.-(1) The manufacturer of specified goods shall –

(a)make all production facilities available for installation of the system and allow access to the vendor and FBR for routine operations, inspection and maintenance;

(b)not supply any goods without routing them through the intelligent video analytics,-

(c)be responsible to pay the fee as agreed with the vendor;

(d)be responsible for smooth functioning, protection and security of the intelligent video analytics;

(e)report to the Board and concerned Commissioner Inland Revenue, within twenty-four hours of any operational failure, damage, disruption or tampering of the intelligent video analytics:

Provided that any damage to the system found to be due to carelessness, negligence or deliberate action of the manufacturer will be repaired at the expense of the manufacturer, without prejudice to any legal action that may be taken for recovery of evaded tax and imposition of penalty;

(f)allow unhindered access to the FBR and any officer, authorized in this behalf;

(g)give a notice to the Board, at least thirty days in advance, from the date of start of production of new brands of goods, expansion, modification or any other changes in the production line;

(h)make available the damaged equipments, camera, etc., for inspection by the officer authorized by Commissioner Inland Revenue;

(i)report any inoperative production lines within twenty-four hours of occurrence to the concerned Commissioner Inland Revenue and the officer authorized by Commissioner Inland Revenue shall immediately proceed to secure such lines using a security seal and register the action in the intelligent video analytics; and

(j)production lines sealed as aforesaid shall not be de-sealed to resume operation except with the permission of the Commissioner Inland Revenue.

the worthy Lahore High Court in the case of Jameel Sweets (supra). The Court upheld the mandate, noting that Section 3(9A) of the Act of 1990, as amended, mandatorily requires all Tier-I retailers to integrate their retail outlets with the Board’s computerized system for real-time reporting of sales. The Court further held that the monitoring system was reasonably proportionate to the purpose sought to be achieved. Similarly, the worthy Sindh High Court in the case of M/s Gama Lux Oleochemicals Limited13 has also upheld that the said digital surveillance was intra vires of sub-section (3) of section 23 of the Act, 1990.

21.Similarly, SRO 69(1)/2025 dated 29.01.2025 envisages electronic sales tax invoices and integration of the registered person. According to para-150Q of Chapter-XIV of Rules 2006, the said Chapter was applicable to registered person for the electronic integration of their hardware and software used for generation and transmission of electronic invoices through license integrator or otherwise as provided in the Rules 2006 and the Board was authorized to notify such registered person or class of registered person through notification in the official gazette for the said application. Through SRO 1852 (1)/2025 dated 29.09.2025 and SRO 1413(1)/2025 dated 01.08.2025, various classes of companies were notified to complete the registration and testing for integration of their hardware and software with the Board's computerized system through a license integrator or PRAL, and shall issue electronic invoices

13.M/s Gama Lux Oleochemicals Limited vs. Federation of Pakistan and others (C.P. No. D-4583 of 2025 decided on 23.09.2025)

not later than the respective dates specified in the said Notifications.

22.The next question concerns the delegated authority of the FBR to issue the impugned SROs, as well as to classify goods and persons for digital integration and real-time surveillance under those SROs. The FBR has been established under the Act of 2007. Section 4 of the Act of 2007 delineates the powers and functions of the FBR which envisages that the FBR shall exercise powers and perform all such functions that are necessary to achieve the object and purpose of the Act which includes to implement the tax administration reforms; to adopt modern effective tax administration methods, information technology system and policies in order to consolidate assessments; to improve process; to organize registration of taxpayers; to widen the tax base and make departmental remedies more efficient including enforcement of, or reduction or remission in, duty, penalty or tax in accordance with the relevant law for the time being in force. It also envisages that the FBR is to implement the provisions of all fiscal laws for the time being in force and to exercise all powers provided under the provisions of the fiscal laws and to take any action, make policy, issue rules or guidelines for the purpose to make the implementation of the fiscal laws clearer, transparent, effective and convenient. Likewise, section 50 of the Act of 1990 clothes the FBR to make rules for carrying out the purposes of the Act, including rules for charging fee for processing of returns, claims and other documents and for preparation of the copies thereof through notification in the official Gazette. Section 50A of the Act of 1990 envisages that the FBR may prescribe

the use of computerized system for carrying out the purpose of the Act including the receipt of applications for registration, returns and such other declarations or information required to be provided under the Act and the Rules made thereunder. Section 50B of the Act of 1990 further envisages that the Board may implement a computerized system for the purpose of automated scrutiny, analysis and cross-matching of returns and other available data relating to registered persons and to electronically send intimation to such registered persons about any such issue detected by the system.

23.In our constitutional scheme, the validity of delegated legislation is firmly established under Article 77 of the Constitution which provides that “no tax shall be levied for the purpose of the Federation except by or under the authority of the Act majlis-e-shoora (Parliament)”. The phrase “under the authority of” is not merely permissive but constitutionally essential, as it acknowledges the practical reality that while Parliament must enact the substantive law creating the tax, the executive must be empowered to prescribe procedural, technical, and administrative details for its implementation. This constitutional accommodation has been consistently affirmed by the Supreme Court. In the case of Shahtaj Sugar Mills Ltd14, it was observed by the Apex Court that “The legislature merely delegates power to Federal Government so as to enable it to work out certain details and exercise its discretion in order to achieve object of the statute. Legislature, by no stretch of

14.Shahtaj Sugar Mills Ltd. vs. Government of Pakistan (2024 SCMR 1656).

imagination, abdicates its power and authority expressly provided under Article 77 of the Constitution.”

24.Section 50 of the Act of 1990 grants the FBR the power to “make rules for carrying out the purposes of this Act.” This is the general enabling provision for delegated legislation. More specifically, Section 40C of the Act of 1990 provides the particularized delegation for electronic monitoring, authoring the Board to “specify any registered person or class of registered persons or any good or class of goods” for monitoring through electronic means. Thus, the legal architecture is clear: Parliament (via Sections 50 and 40C) delegates the authority to the FBR. Similarly, section (8) of the Act of 2007 envisages that the FBR subject to certain conditions may delegate any of its functions and powers to any Government agency, Chairman or any member duly appointed under the Act. The FBR (via SRO 889(I)/2020) exercises that delegated power. In this regard, the worthy counsel representing the FBR has provided notification No.C.No.6(96)S(BIC)/Admn/2020 /23382-R, dated 16.02.2021. According to the said notification, the power of framing Rules under section 50(1) has been delegated to the Member Inland Revenue (Policy). The worthy counsel for the Revenue has also provided all the relevant record through detailed comments, showing that the proposed structure of installation of IP CCTV camera has been placed before the Member (Operations), who is the competent authority (delegated authority) under notification dated 16.02.2021 to issue the said directive. Nevertheless, such delegation does not amount to the essential legislative function of the Parliament; rather, it constitutes ancillary/incidental

functions relating to the machinery provisions of a taxing statute, and therefore, does not fall within the prohibited field of delegation. This was very aptly observed by the apex Court in the case of Messrs Sh. Abdur Rahim, Allah Ditta vs. Federation of Pakistan and others (PLD 1988 SC 670) in the following terms:

“What is prohibited by the Legislature is the delegation of its function to make the law; but not the authority exercised under and in pursuance of eth law itself to another agency in regard to the provision of details when by the very nature these are incapable of being laid down by the legislature itself.”

25.The impugned Rules are exclusively concerned with these ancillary functions. They create no new tax, alter no tax rate, and impose no new substantial liability. They are purely procedural and implementational in nature, designed to give practical effect to the policy already set/enacted by the Parliament through sections 23 and 40C of the Act of 1990.

26.Moving to the last limb of the arguments advanced by the learned counsel for the petitioners, it was contended that any fee, in whatever form, if imposed, can only be levied by the FBR with the approval of the Federal Minister In-charge, as envisaged by section 76 of the Act of 1990. We are afraid that this contention of the learned counsel for the petitioners is equally untenable and has already been answered by the Islamabad High Court in Universal Tobacco Company Pvt. Ltd. And another Vs. Federation of Pakistan through Federal Secretary, Ministry of Finance (W.P No.2911-2022). The relevant para is reproduced as under:

“19. In so far as section 40C(3) is concerned, it imposes a certain charge by way of payment for

acquisition of the machines and tax stamps, banderoles etc. In the referred subsection, tax stamps, banderoles, stickers, labels, barcodes etc. are to be acquired by a registered person from a licensee appointed by the Board for the purpose, against a price which again is approved by the Board, which include cost of equipment installed b such licensee in the premises of the registered person. To treat the acquisition cost as a fee or imposition of a new tax would be an erroneous interpretation to the statute. Section 40C(3) ibid is also only a regulatory measure incorporated in the statute to make the TTS as efficient as possible. The cost of course is a natural implication of regulatory measure and does not and would not amount to fee in any manner as there is no element of quid pro quo or the service to be rendered by the licensee/Federal Board of Revenue. On the touchstone of the interpretation handed down by the judgments of the Supreme court of Pakistan mentioned hereinabove, the levy of cost or acquisition expense is not a fee. It is not always the nomenclature or the words that are used which are to be seen as having literal meaning while interpreting the statute; the pith and substance of the same is to be considered. Though the legislature in this case has not regarded the cost as fee but the interpretation, that is being given to it by the petitioners, would be a misconceived argument as subsection (3) of section 40C ibid again is a regulatory measure and would fall under Article 73(2)(a) and (g) of the Constitution.”

27.We do not have any occasion to form a different opinion and accordingly reaffirm the law laid down by the Islamabad High Court in the judgment ibid. In view of what has been stated above, the instant as well as the connected petitions, having no merit, are accordingly dismissed.

JUDGE

JUDGE

Date of announcement ... 09.12.2025

D.B Hon’ble Mr. Justice Syed Arshad Ali and Hon’ble Mr. Justice Muhammad Faheem Wali Mahmood Shah, SSS

Annexure-A

S.No. Case Title W.P No.4284-P/2025, “M/s Malakand Oil & Ghee Mills etc vs.

Federation of Pakistan etc” W.P No.3383/2025 “M/s Gul Shahzada Enterprises etc. vs. Federal Board of Revenue etc.”

W.P No.3631/2025 “M/s Pamir Industries Ltd vs. Federal Board of Revenue etc.”

W.P No.4287/2025 “M/s Universal Tobacco Co Mardan vs.

Federation of Pakistan Ministry of Finance Islamabad etc.” W.P No.4336/2025 “M/s Bara Ghee Mills etc. vs. Federation of Pakistan etc.”

W.P No.4355/2025 “M/s HMB Oil & Ghee Mills et. vs. Federation of Pakistan etc.”

W.P No.4377/2025 “M/s Diamand Taste & Health vs. Federation of Pakistan etc.”

W.P No.4552/2025 “M/s Khaleej Steel Industries Unit I&II Malakand vs. Federation of Pakistan Ministry of Finance etc.” W.P No.4630/2025 “M/s Yousafzai Foods etc. vs. Federation of Pakistan Ministry of Finance etc.”

W.P No.4682/2025 “M/s Green Pak Oil Ghee & Allied Industry 10. Malakand vs. Federal Board of Revenue Chairman FBR Islamabad etc.”

W.P No.4772/2025 “M/s Miracle Minerals (SMC-PVT) Landy 11. Akhoon Ahmed Peshawar vs. The Federation of Pakistan Ministry of Finance Islamabad etc.

W.P No.4776/2025 “M/s H.Z.M Marmi e Pietre (SMC-pvt) 12. Mattani Peshawar vs. The Federation of Pakistan Ministry of Finance Islamabad etc.”

W.P No.4778/2025 “M/s Marvel Enterprise Landy Akhoon Ahmed 13. Peshawar vs. The Federation of Pakistan Ministry of Finance Islamabad etc.”

W.P No.4811/2025 “M/s Markhor Oil and Ghee Mills etc.

Federation of Pakistan Ministry of Finance etc.” W.P No.4862/2025 “M/s Star Tobacco Company Buner vs.

Federation of Pakistan Finance etc.”

W.P No.4895/2025 “M/s Northern Bottling Co. Pvt Ltd. Peshawar etc. vs. Federation of Pakistan Ministry of Finance Islamabad etc.” W.P No.4932/2025 “M/s Faizan Food Industry etc. vs. Federal Board of Revenue etc.”

W.P No.4940/2025 “M/s Sila Food Industries Khyber etc. vs.

Federation of Pakistan Ministry of Finance Islamabad etc.” W.P No.4985/2025 “M/s Pathan Oil & Ghee Industries etc. vs.

Federal Board of Revenue Islamabad etc.”

W.P No.4994/2025 “M/s Prime Steel Industry District Khyber vs.

Federal Board of Revenue FBR Islamabad & RTO Peshawar etc.”

21.W.P No.4995/2025 “M/s Kenya Leaf Tea Dargai Malakand etc. vs.

Federation of Pakistan Finance & FBR etc.” W.P No.4996/2025 “Hamza Hassan Detergents etc. vs. Federation of Pakistan etc.”

W.P No.5041/2025 “M/s A One Food Industries Khyber vs.

Federal Board of Revenue FBR Islamabad etc.” W.P No.5091/2025 “M/s New Mohmand Steel Mills Mohmand 24. Agency vs. Federal Board of Revenue through Chairman FBR Islamabad etc.”

W.P No.5149/2025 “M/s Leader Tea vs. Federation of Pakistan etc.”

W.P No.5236/2025 “M/s Dua Steel Furnace vs. Federation of Pakistan etc.”

W.P No.5257/2025 “M/s Cherat Packaging vs. Federation of Pakistan etc.”

W.P No.5258/2025 “M/s MB Dyes Chemical & Silk Industry vs.

Federation of Pakistan etc.”

W.P No.5261/2025 “M/s Cherat Cement vs. Federation of Pakistan etc.”

W.P No.5316/2025 “M/s Top Line Packages vs. Federal Board of Revenue through its Chairman etc.”

W.P No.5317/2025 “M/s Maidan Ghee & Oil Mills vs. Federal Board of Revenue through its Chairman etc.” W.P No.5318/2025 “M/s United Ghee Industries vs. Federal Board of Revenue through its Chairman etc.”

W.P No.5319/2025 “M/s Unique Ghee and Allied Indsutry vs.

Federal Board of Revenue through its Chairman etc.” W.P No.5320/2025 “M/s Khisro Foods Company vs. Federal Boad of Revenue through its Chairman etc.”

W.P No.5365/2025 “M/s Swat Oil Mills vs. Federal Board of Revenue through its Chairman FBR etc.”

W.P No.5399/2025 “M/S WR Edible Oil Refinery vs. Federal of Pakistan etc.”

W.P No.5401/2025 “M/S A.K Tariq Foundry vs. Federation of Pakistan etc.”

W.P No.5528/2025 “M/s SS Steel Mills vs. Federation of Pakistan etc.”

W.P No.5781/2025 “M/s Dargai Polymer vs. Federation of Pakistan etc.”

W.P No.5903/2025 “M/s UAT Foods & Manufacturing Company etc. vs. Federation of Pakistan etc.”

W.P No.5941/2025 “M/s Malakand Oil & Ghee Mills etc. vs.

Federation of Pakistan etc.”

W.P No.6062/2025 “M/s Frontier Leaf Tobacco vs. Federation of Pakistan etc.”

W.P No.6063/2025 “M/s Rehman Medical Institute etc. vs.

43.Federation of Pakistan through Federal Secretary, Ministry of Finance etc.”

44.W.P No.6132/2025 “M/s Akbar Khan Oil & Ghee Mills vs.

Federal Board of Revenue etc.”

W.P No.6250/2025 “Greaves Pakistan vs. Federation of Pakistan etc.”

W.P No.6253/2025 “M/s Noor Industries vs. Federation of Pakistan etc.”

W.P No.6493/2025 “M/s SKF Collection Peshawar etc. vs.

Federation of Pakistan Ministry of Finance Islamabad etc.” W.P No.7059/2025 “M/s Sultani Foods Malakand vs. Federal Board of Revenue through its Chairman etc.” W.P No.7078/2025 “M/s Pearl White Packages etc. vs. Federation of Pakistan through Federal Secretary Ministry of Finance etc.” W.P No.7195/2025 “M/s Pathan Oil & Ghee Industries Malakand vs. Federation of Pakistan etc.”

W.P No.7232/2025 “M/s Drug Agencies Peshawar through Imdadullah vs. Federation of Pakistan etc.” W.P No.7240/2025 “M/s Pharmanet Peshawar through M. Ali Siddiqui vs. Federation of Pakistan etc.”

W.P No.7301/2025 “M/s Al-Mashood Oil & Ghee Industry etc. vs.

Federation of Pakistan etc.”

W.P No.7303/2025 “M/s Haroon Enterprises Peshawar through M.

Shakir Siddiqui vs. Federation of Pakistan etc.” W.P No.7304/2025 “M/s Al Noor Drug Agency Peshawar through Noor Zaman vs. Federation of Pakistan etc.” W.P No.8173/2025 “M/s Cherat Cement vs. Federation of Pakistan etc.”

W.P No.8174/2025 “M/s Dargai Polymer vs. Federation of Pakistan etc.”

W.P No.5577/2025 “M/s Universal Tobacco Co. vs. Federation of Pakistan etc.”

W.P No.5605/2025 “M/s Lancer Tobacco Company vs. Federation of Pakistan etc.”

W.P No.5607/2025 “M/s Regent Tobacco Industry vs. Federation of Pakistan etc.”

W.P No.5677/2025 “M/s Yar Hussain Tobacco Company vs.

Federation of Pakistan etc.”

W.P No.5678/2025 “M/s J Sons Tobacco SMC vs. Federation of Pakistan etc.”

W.P No.5679/2025 “M/s Star Tobacco Company vs. Federation of Pakistan etc.”

W.P No.5680/2025 “M/s International Cigarette Industries vs.

Federation of Pakistan etc.”

W.P No.5734/2025 “M/s Royal Tobacco Company etc. vs.

Federation of Pakistan etc.”

W.P No.5790/2025 “M/s Souvenir Tobacco Company vs.

Federation of Pakistan etc.”

W.P No.5830/2025 “M/s Superior Tobacco Company vs.

Federation of Pakistan etc.”

68.W.P No.5875/2025 “M/s Milan Tobacco Company vs. Federation

of Pakistan through Ministry of Finance etc.” W.P No.5984/2025 “Root Tobacco Company vs. Federation of Pakistan etc.”

W.P No.6042/2025 “M/s Wembley Tobacco Industry vs.

Federation of Pakistan etc.”

W.P No.6050/2025 “M/s Moon Tobacco vs. Federation of Pakistan etc.”

W.P No.6056/2025 “M/s Frontier Leaf Tobacco vs. Federation of Pakistan through Federal Secretary, Ministry of Finance etc.” W.P No.7815/2025 “M/s Universal Tobacco etc. vs. Federation of Pakistan etc.”

W.P No.7861/2025 “M/s International Cigarette Industries etc. vs.

Federation of Pakistan etc.”

W.P No.4350/2025 “M/S Swat Oil Mills (Pvt) Ltd, Dargai, 75. Malakand vs. Federal Board of Revenue through its Chairman, Islamabad and others”