The Islamabad High Court (IHC) has reserved its judgment on a series of constitutional petitions challenging the Federal Board of Revenue’s (FBR) electronic production monitoring system at industrial sites.
A Division Bench of the IHC, consisting of Justice Khadim Hussain Soomro and Justice Umair Malik, heard the petitions filed by more than 300 industrial units from across the country. The units operate in various sectors, including food processing, packaged milk, beverages, spinning and textile, ghee and cooking oil, and other manufacturing sectors.
The petitioners challenged the implementation of the production monitoring mechanism under Section 40C of the Sales Tax Act, 1990, questioning its constitutional validity and legality. They specifically raised objections regarding the FBR’s authority to install electronic equipment at their premises, the financial burden of the equipment, and argued that the mechanism interferes with their business operations.
Hafiz Ehsaan Ahmad Khokhar, representing the Secretary Revenue Division and the FBR, defended the statutory authority of Section 40C. He submitted that the provision was introduced in 2013 to strengthen the tracking of industrial production, sales, clearances, and stocks to prevent the concealment of production and combat sales tax evasion. Khokhar explained that the provision has undergone amendments to accommodate technological advancements and to extend monitoring to more sectors.
Khokhar cited Section 40C (1) of the Sales Tax Act, 1990, which empowers the FBR to notify persons or goods for electronic monitoring. He also pointed to subsections (2), (3), and (4) regarding tax stamps, banderoles, stickers, labels, and monitoring equipment, as well as Section 40C (6), which allows for seizure and confiscation for non-compliance.
Referring to Chapter XIV-BA of the Sales Tax Rules, 2006, the FBR counsel explained that these rules provide a framework for video surveillance, video analytics, digital-eye technology, and real-time production capture.
