Pakistan's tax collectors may keep watch from inside the factory gate. The Islamabad High Court (IHC) has upheld orders under Section 40B of the Sales Tax Act, 1990, that allowed Inland Revenue officers to be posted at the premises of poultry-feed manufacturers to monitor production, sales and stock. In a judgment written by Justice Inaam Ameen Minhas, the court dismissed two constitutional petitions, ruling that the monitoring was a lawful administrative step that imposed no tax liability and required no prior hearing.
The dispute began when the Federal Board of Revenue (FBR) invoked Section 40B and stationed officers at the petitioners' manufacturing sites for set periods. Their task was to observe how much feed was produced, sold and held in stock.
The manufacturers challenged the notices on several grounds. They argued that only the FBR's board itself, not subordinate officials, could exercise the power under Section 40B. They also contended that posting officers without notice or a hearing breached Article 10A of the constitution, which guarantees a fair trial and due process, and amounted to harassment. The petitioners leaned on several Supreme Court judgments. These, they argued, established that discretionary powers under Section 40B could not be used arbitrarily or for an indefinite period.
The court disagreed. It held that deploying officers under Section 40B is a purely administrative monitoring measure that determines neither the rights nor the liabilities of taxpayers. Because the exercise carries no adverse civil consequences in itself, the statute does not require a hearing beforehand.
The judges also dealt with a procedural point. Merely replacing the monitoring officers, they ruled, did not end the case, since the central legal question over the scope and legality of Section 40B remained live and needed to be decided. The record, the court found, showed that the officers were there solely to monitor production, sales and stock. No inquiry, investigation, assessment, seizure, recovery proceedings, penalty or prosecution had been launched on the basis of the notices.
Nor could the manufacturers show real harm. The court noted that they had continued trading without interference and had failed to demonstrate any actual infringement of their legal or fundamental rights. Finding no jurisdictional defect, illegality or procedural impropriety, it threw out both petitions.
Hafiz Ehsaan Ahmad Khokhar, representing the federal government, the FBR and the Large Tax Office in Islamabad, defended the mechanism robustly. He described Section 40B as a preventive, regulatory provision enacted by Parliament to protect revenue and curb sales-tax evasion in sectors prone to concealing output and under-reporting taxable supplies.
Mr Khokhar argued that the orders had been issued with the FBR's approval and authority, in line with the law. Their sole aim, he said, was to gather reliable information on production, stock and sales to ensure compliance and transparency. He stressed that stationing monitoring officers does not amount to an audit, investigation, inquiry or adjudication. Nor, he argued, does it fix any tax liability or expose a business to penalties.
The ruling strengthens the tax authority's hand in industries it suspects of understating output. For poultry-feed producers, and potentially other sectors, it means that the presence of tax officials on the factory floor is, in the court's view, an administrative inconvenience rather than a legal grievance.