PHC Bars FED on Tobacco Without GLT Processing

The Peshawar High Court (PHC) has determined that Federal Excise Duty (FED) cannot be charged on green leaf or hand-stemmed tobacco unless the material has first been processed at a Green Leaf Threshing (GLT) facility.

As reported by news sources, a two-member bench comprising Justice Syed Arshad Ali and Justice Muhammad Faheem Wali announced the decision while hearing a petition submitted by Pak Hills Tobacco Company Pvt Ltd against the federal government and other concerned authorities.

The judges directed officials to return 3,375 kilograms of confiscated hand-stemmed tobacco along with the company's vehicle, overturning the excise duty demand imposed on the seized shipment.

In its comprehensive ruling, the court explained that green leaf and hand-stemmed tobacco that has not undergone processing and transformation at a GLT facility cannot be treated as un-manufactured tobacco under Section 2(24A) of the Federal Excise Act, 2005. Consequently, such products are not liable to FED under Section 3 of the same legislation.

The bench further explained that removing tobacco stems, whether through manual labour or mechanical equipment, does not by itself qualify as manufacturing for excise duty purposes.

The judges also nullified the associated show-cause notices and administrative orders, instructing authorities to return confiscated tobacco, vehicles, machinery and documents. Officials were additionally ordered to remove seals from the affected facilities and equipment without delay.

Nevertheless, tax authorities retain the power to hold specifically identified tobacco inventories for a maximum of 15 days if there are reasonable grounds to suspect GLT-based processing. Any such retention must be supported by a properly reasoned order, following an opportunity for the affected party to present its position.

The ruling also invalidated mandatory registration notices issued solely on the assumption that hand-stemming amounted to manufacturing. However, authorities remain free to initiate fresh legal action where evidence demonstrates that an individual or business operates a GLT processing facility.

The court emphasised that its interpretation of FED provisions does not automatically cancel other potential obligations, including sales tax, penalties or confiscation proceedings, which must be assessed independently under the applicable laws.

Regarding Pak Hills Tobacco Company, the judges specifically cancelled the FED demand on the seized shipment, leaving the question of any applicable sales tax liability open for a separate assessment.