KARACHI: The Sindh High Court (SHC) has granted interim relief to multiple taxpayers by suspending the recovery of default surcharge linked to super tax liabilities, in a significant development 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 taxpayers had failed to pay super tax under Section 4C and were therefore liable for default surcharge under Section 205.
According to court filings, the Federal Board of Revenue (FBR) initiated proceedings under Sections 205(1), 205(7), and 137(1), claiming that the petitioners defaulted by not depositing super tax alongside their income tax returns for the relevant tax years.
The petitioners, represented by senior legal counsel including 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 liability through an Order-in-Original issued by the competent authority. The counsel emphasized that under Section 205, a default must first be legally established before any surcharge is levied.
The lawyers further argued that Section 137(2) mandates that once tax liability is determined, the taxpayer must be served with a notice specifying the payable amount and given a statutory 30-day period to comply. They maintained that this mandatory requirement was not fulfilled, rendering the show-cause notices and recovery actions legally defective.
The petitioners also highlighted that, during the relevant period, taxpayers were operating under judicial protection granted by superior courts, including the Islamabad High Court, with no suspension of key rulings in cases such as Fauji Fertilizer and Pakistan Oilfields.
In support, they 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 requirement of granting taxpayers a 30-day compliance window following a valid assessment order.
After a preliminary hearing, the SHC issued notices to the respondents and directed the Deputy Attorney General to submit a response. The court also ordered that no coercive action be taken against the petitioners regarding the disputed surcharge demands until legal requirements under Section 137(2) are fully complied with.
Tax experts say the ruling reinforces the judiciary’s emphasis on procedural fairness and due process in tax administration. The decision may impact similar cases where recovery actions were initiated without completing statutory assessment procedures.
The development comes amid continued scrutiny of super tax enforcement, a levy that has faced persistent legal challenges over its retrospective application and implementation.
The SHC is expected to hear the case further in the coming weeks as both sides prepare detailed arguments on the interpretation and application of the Income Tax Ordinance, 2001.
