PHC rules FED cannot be imposed on unprocessed tobacco

Court orders release of 3,375kg of seized tobacco, sets aside tax demand and compulsory registration notices The Peshawar High Court (PHC) has ruled that Federal Excise Duty (FED) cannot be imposed on green leaf or hand-stemmed tobacco unless it has undergone processing through a Green Leaf Threshing (GLT) unit. According to a news report, a division bench comprising Justice Syed Arshad Ali and Justice Muhammad Faheem Wali issued the ruling while deciding a petition filed by Pak Hills Tobacco Company Pvt Ltd against the federal government and other respondents. The court ordered the immediate release of 3,375 kilograms of seized hand-stemmed tobacco and the company's vehicle, setting aside the FED demand against the consignment. In its detailed judgment, the bench held that green leaf and hand-stemmed tobacco that had not undergone processing and conversion through a GLT unit did not fall within the definition of un-manufactured tobacco under Section 2(24A) of the Federal Excise Act, 2005, and therefore could not attract FED under Section 3. The court clarified that hand-stemming, whether performed manually or with machinery, did not independently constitute manufacturing for the purpose of imposing excise duty. It also set aside the related show-cause notices and orders, directing authorities to release seized tobacco, vehicles, equipment and records, and immediately de-seal the affected premises and machinery. However, tax authorities may retain specifically identified tobacco stock for up to 15 days if they have grounds to believe it was processed through a GLT unit. A reasoned order must support any such action after providing the affected party an opportunity to be heard. The bench also struck down compulsory registration notices based solely on hand-stemming being classified as manufacturing, while allowing fresh proceedings where evidence establishes that a company or individual operates a GLT unit. The court clarified that its decision did not automatically eliminate separate liabilities relating to sales tax, penalties or confiscation, which must be determined independently under the relevant laws. In the case of Pak Hills Tobacco Company, the FED demand was set aside, while any applicable sales tax liability on the seized consignment was left for separate determination.