Poultry feed firms: IHC upholds legality of monitoring orders under Section 40B of ST law

ISLAMABAD: The Islamabad High Court (IHC) has upheld the legality of monitoring orders issued under Section 40B of the Sales Tax Act, 1990, authorising the deployment of Inland Revenue officers at the business premises of poultry feed manufacturers to monitor production, sales, and stock.

In a judgment authored by Justice Inaam Ameen Minhas, the court dismissed two constitutional petitions challenging the monitoring exercise, holding that the impugned action was a lawful administrative measure that neither determined the taxpayers’ rights nor imposed any tax liability or other civil consequences.

The petitions arose after the FBR invoked Section 40B of the Sales Tax Act by posting Inland Revenue officers at the petitioners’ manufacturing premises for specified periods to monitor production, sales and stock.

The petitioners challenged the notices, contending that the power under Section 40B could only be exercised by the FBR Board itself and not by subordinate officers. They further argued that the deployment of officers without prior notice or an opportunity of hearing violated Article 10A of the Constitution, amounted to harassment and constituted an unlawful exercise of statutory powers.

Reliance was placed upon various Supreme Court judgments to argue that the discretionary powers under Section 40B could not be exercised arbitrarily or indefinitely.

The judgment held that the posting of officers under Section 40B constitutes a purely administrative monitoring measure and does not determine the rights or liabilities of taxpayers.

It ruled that the statute does not require a prior hearing before deployment because the monitoring exercise does not by itself result in any adverse civil consequences and that merely replacing monitoring officers did not extinguish the continuing cause of action, as the principal legal issue concerning the scope and legality of Section 40B remained alive for adjudication.

The Court further observed that the record clearly established that the officers were posted exclusively to monitor production, sales and stock in accordance with Section 40B.

No inquiry, investigation, assessment, seizure, recovery proceedings, penalty or prosecution had been initiated pursuant to the impugned notices.

It also noted that the petitioners continued their business operations without interference and failed to demonstrate any actual infringement of their legal or fundamental rights.

Holding that the impugned action suffered from no jurisdictional defect, illegality or procedural impropriety, the Islamabad High Court dismissed both constitutional petitions.

Hafiz Ehsaan Ahmad Khokhar, representing the federation, the Federal Board of Revenue (FBR) and the Large Tax Office (LTO), Islamabad vigorously defended the monitoring mechanism, submitting that Section 40B is a preventive, regulatory and revenue-protection provision enacted by Parliament to safeguard public revenue and prevent sales tax evasion in sectors vulnerable to suppression of production and under-reporting of taxable supplies.

He argued that the impugned orders had been issued with the approval and authority of the FBR in accordance with the statutory framework and that the monitoring exercise was purely administrative in nature. Its sole purpose, he submitted, was to collect authentic information regarding production, stock and sales to ensure tax compliance and maintain transparency in the tax system.

Khokhar further argued that the deployment of monitoring officers does not amount to an audit, investigation, inquiry or adjudication, nor does it determine any tax liability or expose a taxpayer to penal consequences.

Copyright Business Recorder, 2026