KARACHI — The Sindh High Court (SHC) has granted interim relief to multiple taxpayers by staying the recovery of alleged default surcharge linked to super tax liabilities, in a development that could have significant implications for tax enforcement and litigation in Pakistan.
The order was issued on Tuesday in response to a series of constitutional petitions challenging show-cause notices issued under the Income Tax Ordinance, 2001. The notices alleged that the petitioners had failed to pay super tax under Section 4C of the law and were therefore liable to pay default surcharge under Section 205.
According to court filings, the Federal Board of Revenue (FBR) had initiated proceedings under Sections 205(1), 205(7), and 137(1) of the Ordinance, asserting that the taxpayers had defaulted on their obligations by not depositing the super tax alongside their income tax returns for the relevant tax years.
The petitioners, represented by senior counsel including Barrister Asad Ashfaq Tola, M. Amayed Ashfaq Tola, Shaheer Memon, Jawad Qureshi, and Yousuf Khalid Anwer, argued that the recovery proceedings were premature and unlawful. They contended that no default surcharge could be imposed without a formal assessment determining the liability through an Order-in-Original issued by the competent tax authority.
Legal counsel further submitted that under Section 205 of the Ordinance, the existence of a default must first be established through due process before any surcharge can be levied. They emphasized that Section 137(2) clearly mandates that once a tax liability is determined, the taxpayer must be served with a notice specifying the amount payable and granted a statutory period of 30 days to settle the dues.
The petitioners maintained that this mandatory procedure had not been followed in their cases, rendering the show-cause notices and subsequent recovery attempts legally flawed. They also argued that for the period in question, taxpayers were operating under judicial protection granted by superior courts, including the Islamabad High Court, with no suspension of relevant judgments such as those in the Fauji Fertilizer and Pakistan Oilfields cases.
In support of their arguments, the petitioners cited recent Supreme Court jurisprudence, including the ruling in Commissioner Inland Revenue (Legal), Islamabad v. Pakistan LNG Limited and others (2026 PTD 192), which reaffirmed the necessity of granting taxpayers a 30-day compliance window following the issuance of a valid assessment order.
The SHC, after a preliminary hearing, issued notices to the respondents, including tax authorities, and directed the Deputy Attorney General to submit a response. The court further ordered that no coercive action be taken against the petitioners in connection with the disputed surcharge demands until the legal requirements under Section 137(2) are fully complied with.
Tax experts said the ruling underscores the judiciary’s continued emphasis on procedural fairness and due process in tax administration. They noted that the decision could affect similar cases where recovery actions have been initiated without completing statutory assessment procedures.
The development comes amid heightened scrutiny of super tax enforcement, a levy that has been a subject of ongoing legal debate since its introduction. Businesses and legal practitioners have frequently challenged its retrospective application and the manner of its implementation.
The SHC is expected to take up the matter for further hearing in the coming weeks, as both sides prepare detailed arguments on the interpretation and application of the relevant provisions of the Income Tax Ordinance, 2001.