IN THE HIGH COURT OF SINDH AT KARACHI

Spl. S.T.R.A. No.104 of 2016

[M/s. Jamshoro Power Company Limited v. Commissioner Inland Revenue]

PRESENT:

Mr. Justice Arshad Hussain Khan

Mr. Justice Amjad Ali Sahito

*****

Applicant : Through Mr. Aqeel Ahmed Khan, Advocate

Respondent : Through Mr. Faheem Ali Memon, Advocate

Date of hearing : 13.10.2026

Date of order : 20.10.2026

JUDGMENT

ARSHAD HUSSAIN KHAN J; Through the instant Special Sales Tax Reference Application, filed under Section 47(1) of the Sales Tax Act, 1990 (“the Act”), the Applicant has assailed the order dated 03.08.2016 passed by the learned Appellate Tribunal Inland Revenue, Karachi (“the Tribunal”), in STA No.182/KB/2012, whereby the Tribunal set aside Order-in-Appeal No.110 dated 27.08.2012 passed by the Commissioner Inland Revenue (Appeals-III), Karachi, Camp at Hyderabad, and restored Order-in-Original No.19 of 2012.

2. Briefly stated, the facts giving rise to the instant Reference Application are that the Applicant is a public limited company engaged in power generation. During the tax periods July 2011 to October 2011, the Applicant claimed adjustment of input sales tax, including tax paid on natural gas purchased from Sui Southern Gas Company Limited (SSGC). The Department disputed the admissibility of such adjustment under Sections 7 and 8(1)(ca) of the Act on the ground that the corresponding supplies had not been declared by the supplier and the output tax had not been deposited. Consequently, a show-cause notice dated 28.02.2012 was issued by the Deputy Commissioner Inland Revenue, Audit-VII, RTO Hyderabad, proposing recovery of Rs.82,265,740/-, besides default surcharge and penalty. The proceedings culminated in Order-in-Original No.19 of 2012, whereby a reduced demand of Rs.60,188,961/-, including Rs.58,636,586/- relating to SSGC gas bills, was confirmed, along with default surcharge and penalty. The Applicant challenged the said order before the Commissioner Inland Revenue (Appeals), who, vide order dated 27.08.2012, allowed the appeal on the grounds that the Deputy Commissioner lacked pecuniary jurisdiction under S.R.O. 555(I)/96 to adjudicate a demand exceeding Rs.1 million and that the disputed SSGC invoices had not been properly verified. The Department preferred an appeal before the Tribunal, which, vide the impugned order dated 03.08.2016, reversed the finding concerning pecuniary jurisdiction and restored the Order-in-Original. Hence, the instant Reference Application.

3. Learned counsel for the Applicant, while assailing the impugned order, submitted that the Deputy Commissioner Inland Revenue lacked pecuniary jurisdiction to issue the show-cause notice and adjudicate the disputed demand under S.R.O. 555(I)/96, which remained operative until its express rescission through S.R.O. 594(I)/2012 with effect from 02.06.2012. He contended that the Tribunal erroneously presumed that the notification had stood superseded following the omission of Section 11(3) and insertion of Section 45 of the Act in 2000, without examining the legal effect of the intervening statutory amendments. He further submitted that the objection regarding jurisdiction had been raised before the adjudicating officer but was not considered. Learned counsel also questioned the validity of the show-cause notice on the ground that it simultaneously invoked Sections 11(2) and 36(1) of the Act and contained discrepancies in the amounts allegedly claimed as input tax. He particularly referred to the figure of Rs.43,338,336/- attributed to SSGC for August 2011, against the Applicant's asserted claim of Rs.23,163,052/-. He further submitted that, pursuant to the Tribunal's direction dated 10.09.2015, the Department submitted a reconciliation report which, according to him, reflected a recoverable amount of only Rs.16,566/- and acknowledged payment of the corresponding output tax by SSGC. He maintained that the Tribunal, being the final fact-finding authority, could not have restored the Order-in-Original without examining the reconciliation report and the independent findings recorded by the Commissioner (Appeals). In support of his submissions, learned counsel relied upon Caltex Oil (Pakistan) Ltd. v. Collector, Central Excise and Sales Tax and others (2005 PTD 480) and Collector of Customs, Model Customs Collectorate of PaCCS, Karachi v. Messrs Kapron Overseas Supplies Co. (Pvt.) Ltd., Karachi (2010 PTD 465).

4. Conversely, learned counsel for the Respondent-Department, while supporting the impugned order, submitted that S.R.O. 555(I)/96, being subordinate legislation issued under Section 11(3) read with Section 36 of the Act, could not continue to operate independently of its enabling statutory provisions. He contended that, upon the omission of Section 11(3) and insertion of Section 45 in 2000, the notification ceased to have legal effect, and its subsequent formal rescission in 2012 did not establish that it remained operative until that date. Referring to Section 24 of the General Clauses Act, 1897, he argued that the protection available to subordinate legislation upon repeal and re-enactment was inapplicable, as Section 11(3) had been omitted without re-enactment. He further submitted that Section 45 itself stood omitted in 2010 and that the Deputy Commissioner was competent to initiate and adjudicate the proceedings under the statutory framework then applicable, including Sections 11(2), 30(3), 36(1) and 72A of the Act, read with the Board's jurisdiction order dated 11.11.2009. He maintained that no vested right had accrued to the Applicant to insist upon adjudication by an officer of a particular rank and that the objection regarding pecuniary jurisdiction, not having been raised before the adjudicating officer, could not subsequently be entertained. In support of his submissions, learned counsel relied upon Collector of Customs, Karachi v. Messrs New Electronics (Pvt.) Limited and others (PLD 1994 SC 363), A.G.E. Electric Co. v. Government of Pakistan and another (1994 CLC 420), Muhammad Tariq Badr and another v. National Bank of Pakistan and others (2013 SCMR 314), Ahmad Khan Niazi v. Town Municipal Administration, Lahore and others (PLD 2009 Lahore 657), and Rupali Polyester Ltd. v. Commissioner Inland Revenue, LTU, Lahore (2014 PTD 353). He, therefore, prayed for dismissal of the Reference Application.

5. We have heard learned counsel for the parties, examined the impugned order and considered the material available on record. Having regard to the controversy involved, the questions proposed by the Applicant are reformulated as follows:

(i) Whether, in the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified in holding that S.R.O. 555(I)/96 had ceased to operate upon the omission of Section 11(3) and insertion of Section 45 of the Sales Tax Act, 1990, notwithstanding its express rescission with effect from 02.06.2012, and consequently holding that the Deputy Commissioner Inland Revenue possessed pecuniary jurisdiction to adjudicate the disputed tax demand?

(ii) Whether, in the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified in restoring the Order-in-Original solely upon reversing the finding concerning pecuniary jurisdiction, without examining the independent findings recorded by the Commissioner Inland Revenue (Appeals) regarding verification of the disputed input tax invoices and the admissibility of the claimed adjustment?

6. The first question concerns the continued operation of S.R.O. 555(I)/96 dated 01.07.1996, issued under Section 11(3) read with Section 36 of the Act, prescribing pecuniary limits for adjudication by different officers of the Sales Tax Department. Under the said notification, the Deputy Commissioner was authorized to adjudicate cases involving tax not exceeding Rs.1 million, whereas cases exceeding that amount fell within the jurisdiction of an officer of higher rank. It is not disputed that Section 11(3) was omitted and Section 45 was introduced in 2000, that Section 45 was subsequently omitted, and that S.R.O. 555(I)/96 was formally rescinded through S.R.O. 594(I)/2012 with effect from 02.06.2012. The controversy, therefore, is whether the notification continued to regulate the Deputy Commissioner's pecuniary jurisdiction notwithstanding the intervening legislative changes.

7. The legal principles governing the continued operation of subordinate legislation following repeal, omission or amendment of its enabling provision have been considered by the superior Courts. In Collector of Customs, Karachi v. Messrs New Electronics (Pvt.) Limited and others (PLD 1994 SC 363), the Hon'ble Supreme Court, while examining Section 24 of the General Clauses Act, 1897, held that a notification issued under an earlier enactment may continue to operate following its repeal and re-enactment, provided it is not inconsistent with the re-enacted provisions and has not been superseded. The judgment thus recognizes that the effect of repeal upon subordinate legislation depends upon the nature of the legislative change, the relevant saving provisions and the consistency of the earlier notification with the subsequent statutory framework. The earlier judgment of this Court in A.G.E. Electric Co. v. Government of Pakistan and another (1994 CLC 420), relied upon by the Department, arose from the same underlying controversy and must be read subject to the law subsequently declared by the Hon'ble Supreme Court in New Electronics (supra).

8. In Muhammad Tariq Badr and another v. National Bank of Pakistan and others (2013 SCMR 314), the Hon'ble Supreme Court held that omission or deletion of a statutory provision constitutes a form of repeal and that the consequences thereof are governed by the principles embodied in Section 6 of the General Clauses Act, subject to any contrary legislative intention. However, the said judgment concerned the preservation of accrued rights of appeal and does not independently determine whether a notification prescribing adjudicatory jurisdiction continues to operate following omission of its enabling provision. Likewise, in Ahmad Khan Niazi v. Town Municipal Administration, Lahore and others (PLD 2009 Lahore 657), the Lahore High Court recognized that subordinate legislation may continue to operate where preserved by law and not inconsistent with the subsequent statutory framework, but may stand superseded where later legislation introduces inconsistent provisions. These authorities establish that the continued operation of subordinate legislation must be determined through examination of the statutory changes rather than upon any general presumption either in favour of its survival or extinction.

9. More directly relevant is Rupali Polyester Ltd. v. Commissioner Inland Revenue, LTU, Lahore (2014 PTD 353), wherein the Appellate Tribunal Inland Revenue examined the continued operation of S.R.O. 555(I)/96 following the omission of Section 11(3), insertion and subsequent omission of Section 45, and substitution of Section 30(3) of the Act. The Tribunal held that the notification had lost its legal efficacy following the statutory amendments and that the subsequent statutory framework governed the assignment of adjudicatory functions to officers of Inland Revenue. Although the said decision is not binding upon this Court, its reasoning is persuasive, particularly as it directly concerns the notification and legislative amendments involved in the present controversy.

10. Applying the foregoing principles, we find that S.R.O. 555(I)/96 was issued under the statutory framework then governing adjudication of sales tax disputes. With the omission of Section 11(3) and introduction of Section 45 in 2000, the Legislature introduced a different arrangement concerning adjudicatory jurisdiction. Section 45 was subsequently omitted, while Section 30(3), as substituted through the Finance Act, 2010, provided for assignment of functions to officers of Inland Revenue under the revised statutory framework. In these circumstances, the pecuniary limits prescribed under the earlier notification could not be treated as continuing independently of the statutory provisions governing the exercise and assignment of adjudicatory powers. The subsequent formal rescission of S.R.O. 555(I)/96 in June 2012 did not, by itself, revive or preserve restrictions which had ceased to operate under the intervening statutory framework. We are, therefore, inclined to agree with the Department's contention that the notification did not continue to impose the earlier pecuniary restriction during the tax periods in question.

11. The Applicant's reliance upon Collector of Customs, Model Customs Collectorate of PaCCS, Karachi v. Messrs Kapron Overseas Supplies Co. (Pvt.) Ltd., Karachi (2010 PTD 465) does not advance its case on this aspect. In that case, a Division Bench of this Court held that an adjudicating officer cannot exercise jurisdiction beyond the pecuniary limits expressly prescribed by law and that an order passed in excess of such jurisdiction is coram non judice. However, the said principle applies where the relevant pecuniary restriction is legally operative. In the present case, the earlier restriction prescribed under S.R.O. 555(I)/96 had ceased to govern adjudicatory jurisdiction following the statutory amendments. The question, therefore, is not whether an officer may exceed an existing pecuniary limit, but whether such a limit continued to apply at the relevant time.

12. As regards the competence of the Deputy Commissioner, the Department has relied upon Sections 11(2), 30(3) and 36(1) of the Act, read with the Board's jurisdiction order dated 11.11.2009. The statutory framework governing the assignment of functions to officers of Inland Revenue must be distinguished from the earlier pecuniary limits prescribed under S.R.O. 555(I)/96. Once the earlier notification ceased to operate, the Deputy Commissioner's competence was to be determined under the statutory provisions and jurisdictional arrangements applicable at the relevant time. The Applicant has not demonstrated that any pecuniary restriction equivalent to that prescribed under S.R.O. 555(I)/96 continued to apply to the Deputy Commissioner when the show-cause notice was issued. We, therefore, find no sufficient basis to hold that the proceedings were without jurisdiction merely because the disputed demand exceeded Rs.1 million. The Tribunal's ultimate conclusion on this aspect does not warrant interference, although its reasoning required fuller consideration of the intervening statutory amendments.

13. The contention that the Applicant had not raised the objection of jurisdiction before the adjudicating officer also does not materially affect the above conclusion. It is settled that jurisdiction which the law does not confer cannot ordinarily be created by consent, acquiescence or waiver. However, where the adjudicating officer possesses statutory authority and the objection rests upon a pecuniary restriction which is no longer operative, the proceedings cannot be declared without jurisdiction merely because the amount involved exceeds the limit prescribed under the earlier notification. Accordingly, the first reformulated question is answered in the affirmative, in favour of the Department and against the Applicant, holding that the Tribunal was justified in declining to apply the pecuniary restriction prescribed under S.R.O. 555(I)/96 to the proceedings in question.

14. Turning to the second question, we find that the Commissioner (Appeals) had not set aside the Order-in-Original exclusively on the ground of lack of pecuniary jurisdiction. He had also recorded an independent finding that the Applicant had produced the relevant SSGC gas bills in support of its claim for input tax adjustment and that, in case of any doubt concerning the supplies or payment of tax, the adjudicating officer ought to have verified the transactions by summoning the supplier under Section 37 of the Act and affording the Applicant an opportunity to meet the evidence so obtained. The Commissioner (Appeals) found that no such exercise had been undertaken and, on that ground as well, considered the Order-in-Original unsustainable. Significantly, the Tribunal did not examine or reverse this independent finding. Having disagreed with the Commissioner (Appeals) on the question of pecuniary jurisdiction, it proceeded straightaway to restore the Order-in-Original without determining whether the disputed input tax adjustment had been lawfully disallowed.

15. In Caltex Oil (Pakistan) Ltd. v. Collector, Central Excise and Sales Tax and others (2005 PTD 480), the Hon'ble Supreme Court emphasized the necessity of examining material legal objections concerning the validity of a show-cause notice and the statutory basis of the proposed demand. The principle relevant to the present controversy is that material questions affecting the legality of tax proceedings must receive proper consideration by the competent forum. However, the mere simultaneous reference to Sections 11(2) and 36(1) in the present show-cause notice would not, by itself, establish its invalidity. The question is whether the notice, read as a whole and in the light of the statutory provisions then applicable, adequately disclosed the allegations, the legal basis of the proposed recovery and the material particulars necessary to enable the Applicant to respond. This aspect, together with the discrepancies alleged in the computation of the demand, required examination by the Tribunal.

16. The omission assumes further significance in view of the Applicant's contention that, during the pendency of the Department's appeal, the Tribunal had directed reconciliation of the disputed tax demand through order dated 10.09.2015. According to learned counsel for the Applicant, the reconciliation report submitted pursuant thereto reflected a recoverable amount of only Rs.16,566/- and acknowledged payment of the corresponding output tax by SSGC. Although the correctness and legal effect of the said report remain matters for determination by the competent fact-finding forum, the Tribunal was required to examine such material, if duly available on record, before restoring the Order-in-Original. The discrepancy alleged between the amount mentioned in the show-cause notice and the input tax actually claimed by the Applicant also required consideration. These matters directly concerned the existence and quantum of the disputed liability and could not be resolved merely by deciding the question of pecuniary jurisdiction.

17. The Appellate Tribunal, being the final fact-finding authority under the statutory appellate framework, is required to examine the material evidence and determine the controversies arising from the grounds urged before it. While it may affirm or reverse the findings of the appellate authority, its decision must disclose reasons demonstrating consideration of the material questions requiring adjudication. In the present case, the Tribunal restored a substantial tax demand without examining the independent factual and legal grounds upon which the Commissioner (Appeals) had set aside the Order-in-Original. Reversal of the finding concerning pecuniary jurisdiction did not automatically extinguish the independent findings regarding verification of the disputed invoices and admissibility of the claimed adjustment. The impugned order, therefore, cannot be sustained to the extent that it restores the Order-in-Original without determination of these material questions.

18. We are conscious that the controversy has remained pending for a considerable period and that the questions of law arising from the statutory amendments ought not to be left unresolved. Having determined the question concerning pecuniary jurisdiction, we find that the remaining controversy relates principally to the admissibility and quantum of the disputed input tax adjustment, which requires examination of the relevant invoices, supporting documents and reconciliation report. Such an exercise falls within the domain of the Tribunal as the final fact-finding authority and cannot appropriately be undertaken for the first time in reference jurisdiction. A limited remand, therefore, appears necessary to secure adjudication of the remaining controversy on merits.

19. In view of the foregoing discussion, the reformulated questions of law are answered as follows:

Question No. (i): Answered in the affirmative, in favour of the Department and against the Applicant, holding that the pecuniary restriction prescribed under S.R.O. 555(I)/96 did not continue to govern the adjudicatory jurisdiction of the Deputy Commissioner Inland Revenue during the relevant period following the intervening statutory amendments.

Question No. (ii): Answered in the negative, in favour of the Applicant and against the Department, holding that the learned Tribunal was not justified in restoring the Order-in-Original without examining the independent findings recorded by the Commissioner (Appeals) regarding verification of the disputed input tax invoices and the admissibility of the claimed adjustment.

20. Consequently, the instant Special Sales Tax Reference Application is disposed of in the above terms. The impugned order dated 03.08.2016 passed by the learned Appellate Tribunal Inland Revenue in STA No.182/KB/2012 is set aside to the extent that it restores the Order-in-Original without adjudication of the remaining controversy. The Department's appeal is remanded to the Tribunal for fresh decision on merits, confined to the admissibility and quantum of the disputed input tax adjustment, including consideration of the findings recorded by the Commissioner (Appeals), the relevant SSGC invoices, the reconciliation report, if available on record, and the objections concerning the validity of the show-cause notice. The Tribunal shall afford the parties an opportunity of hearing and decide the appeal through a reasoned order, preferably within ninety (90) days from receipt of this judgment.

21. It is clarified that the findings recorded herein concerning pecuniary jurisdiction shall govern the proceedings before the Tribunal, whereas the observations relating to the disputed tax liability shall not prejudice the rights and contentions of either party. The Registry shall transmit a copy of this judgment to the learned Appellate Tribunal Inland Revenue in accordance with Section 47 of the Act.

JUDGE

Naveed PA