The Lahore High Court’s Bahawalpur Bench has dismissed a constitutional petition challenging the legality of an inspection conducted by Inland Revenue officials at a taxpayer’s business premises, holding that routine inspections under Section 38 of the Sales Tax Act, 1990 can be carried out independently and do not require prior permission from a magistrate.
The writ petition was filed by Khursheed & Sons, which had questioned the authority of Inland Revenue officers to enter and inspect its business premises without invoking the more stringent search-and-seizure provisions contained in Section 40 of the Act
The dispute arose from an inspection conducted on 10 April 2025 by officers of the Regional Tax Office (RTO), Bahawalpur. The petitioner argued that the inspection was unlawful, arbitrary, and carried out in a coercive manner. According to the petitioner, Section 38 of the Sales Tax Act was merely an enabling provision and could not be exercised without following Section 40, which mandates obtaining a warrant from a magistrate before entering business premises for search and seizure.
The petitioner further contended that no prior notice was issued, no magistrate’s authorization was obtained, and that the tax officials acted with mala fide intent. Allegations were also made that cash was taken from the premises without proper acknowledgment and that the inspection amounted to harassment rather than a lawful audit exercise
The Federal Board of Revenue (FBR) and other respondents defended the inspection, maintaining that it was conducted strictly under Section 38 of the Act, which allows authorized Inland Revenue officers to access business premises for inspection and verification of records. They argued that the requirement of a magistrate’s warrant applies only to coercive searches and seizures under Section 40, not to routine inspections.
The respondents explained that the inspection was triggered after FBR Headquarters flagged an unusually high carry-forward of input tax declared by the petitioner in its January 2025 sales tax return. Based on this information, a desk audit was conducted, following which the Commissioner Inland Revenue, Bahawalpur Zone, issued a formal authorization on 8 April 2025 directing verification of stock and records. The authorities emphasized that the action was part of a structured audit process aimed at safeguarding revenue and was neither abrupt nor arbitrary
After examining the statutory framework, the Court drew a clear distinction between Sections 38 and 40 of the Sales Tax Act, 1990. The judges observed that Section 38 empowers authorized officers to access business premises, inspect stocks, and examine records for verification and audit purposes, even in the absence of pending adjudicatory proceedings. In contrast, Section 40 deals with intrusive search and seizure operations, which can only be carried out after obtaining a warrant from a magistrate and upon forming a “reason to believe” that relevant documents are concealed at a particular place.
The Court categorically held that the two provisions operate independently and serve different purposes. It rejected the argument that Section 38 inspections are subordinate to Section 40 searches, noting that such an interpretation would render Section 38 redundant—an outcome impermissible under settled principles of statutory interpretation
The petitioner had relied on the earlier judgment in Ghulam Hassan v. Federation of Pakistan (2021 PTD 1379) to argue that Section 38 could not be used without complying with Section 40. However, the Court clarified that Ghulam Hassanonly restricts officers from using force or coercion to retrieve hidden documents during an inspection under Section 38. In the present case, the Court found no evidence of coercion, observing that the records were voluntarily produced by the petitioner’s manager.
As a result, the Court concluded that the principles laid down in Ghulam Hassan were not violated and, in fact, supported the respondents’ position that non-coercive inspections under Section 38 are legally permissible
The Bench noted that the authorization order issued by the Commissioner Inland Revenue clearly recorded objective reasons for inspection, including the declaration of a carry-forward input tax adjustment of over Rs. 185 crore against declared stock values exceeding Rs. 1,029 crore. Such discrepancies, the Court held, provided sufficient legal basis for verification by tax authorities.
The Court further observed that no seizure, deprivation of property, or coercive action had taken place and that the inspection remained within the lawful bounds of Section 38. Consequently, allegations of mala fides, arbitrariness, and lack of jurisdiction were found to be unsubstantiated
Concluding that the petitioner had failed to demonstrate any infringement of legal rights, the Lahore High Court dismissed the writ petition, affirming the legality of the inspection. The judgment reinforces the authority of Inland Revenue officials to conduct routine, non-coercive inspections under Section 38 of the Sales Tax Act without prior judicial approval, while also reiterating that more intrusive search-and-seizure actions must strictly comply with Section 40.
The decision is expected to have significant implications for sales tax administration, clarifying the scope of inspection powers and strengthening the hands of tax authorities in verifying compliance and protecting the public exchequer.
Case Details
Case Title: Khursheed & Sons Versus The Federation of Pakistan, Islamabad
Case No.: Writ Petition No.2343 of 2025
Date: 08.12.2025
Counsel For Petitioner: Tanveer Ahmad, Advocate
Counsel For Respondent: Mahmood Ahmad Bhatti, Advocate
