MARIS INTERNATIONAL (PRIVATE) LIMITED Versus COMMISSIONER INLAND REVENUE (ZONE-III) CTO, ISLAMABAD

INAAM AMEEN MINHAS, J.---- Through the instant writ petition, the petitioner has impugned the (i) Notice dated 23.01.2025 ( Impugned Notice-I ) issued by respondent No.1/Commissioner Inland Revenue (Zone-III) whereby investigation/inquiry under section 38 of the Sales Tax Act, 1990 ( STA, 1990 ) , was initiated and respondent No. 2/Deputy Commissioner Inland Revenue (Zone II) was authorized to conduct tax fraud inquiry, (ii) Notice dated 23.01.2025 ( Impugned Notice-II ) issued by respondent No. 1 whereby the petitioner was called to explain its position before initiating action under section 21(2) of STA, 1990 read with Rule 12(a) of the Sales Tax Rules, 2006, and (iii) Notice dated 23.01.2025 ( Impugned Notice-III ) issued by respondent No. 1 whereby physical stock taking was approved and a team was nominated to that effect. Additionally, the petitioner has sought a direction that the record of the petitioner be returned and respondents be restrained from taking any adverse action in pursuance of the Impugned Notices.

2.The brief facts of the instant petition are that a supply chain analysis was conducted by the respondents whereby the petitioners past transaction history revealed volume of purchases from registered suppliers which were never declared by the petitioner. Therefore, the respondent authority initiated an investigation/inquiry in exercise of powers conferred under Section 38 of the STA, 1990 and vide Impugned Notice-I, respondent No. 1 authorized respondent No. 2 to conduct tax fraud inquiry. Thereafter, the respondent No. 1 vide the Impugned Notice-II called upon the petitioner to explain its position before initiating action under section 21(2) of STA, 1990 read with Rule 12(a) of the Sales Tax Rules, 2006. During such time physical stock taking was approved and a team was nominated to that effect vide Impugned Notice-III and on 23.01.2025, the authorized team of the respondents entered the business premises of the petitioner.

3.The learned counsel for the petitioner contended that the Impugned Notices dated 23.01.2025 and the consequential actions of the respondents are wholly without lawful authority, jurisdiction, and of no legal effect, having been undertaken in purported exercise of powers under sections 38 and 21(2) of the STA, 1990, despite the fact that no proceedings were pending against the petitioner under any provision of the Act. Learned counsel submitted that the respondents, under the guise of section 38, conducted an unauthorized search and seizure operation so as to circumvent the mandatory safeguards contained in section 40 of the Act, which requires lawful process and warrant for such coercive measures. He argued that section 38 is merely an enabling provision intended to facilitate access to premises, stocks, accounts, and records in aid of pending proceedings, and does not authorize search, raid, seizure, or forcible taking into custody of the entire business record, particularly in the absence of prior notice or refusal on the part of the taxpayer to produce the same. It was further contended that the petitioner is a duly registered taxpayer regularly filing returns, and even in an earlier exercise of physical stock taking undertaken by the respondents pursuant to the notice dated 11.10.2024 under section 38, no discrepancy or illegality was found, where after the proceedings were closed and record returned. Lastly, the learned counsel submitted that the impugned action amounts to a fishing and roving inquiry, tainted with mala fide, arbitrariness, and abuse of authority, and the same is violative of Section 24-A of the General Clauses Act, 1897 ( GCA, 1897 ), as well as Articles 4 and 10-A of the Constitution, which guarantees lawful treatment, fairness, and due process. Thus, it was prayed that the Impugned Notices and all subsequent actions be declared illegal and set aside.

4.Conversely, the learned counsel for the respondents vehemently opposed the petition and contended that the same is misconceived, based on suppression of material facts, and liable to be dismissed with costs. He argued that the action taken on 23.01.2025 was a lawful inspection carried out strictly in accordance with section 38 of the STA, 1990, pursuant to a valid authorization issued by the competent authority after formation of satisfaction regarding suspected tax fraud and fake input tax claims by the petitioner. Learned counsel submitted that respondent No. 2, along with officials, merely visited the registered premises of the petitioner for stock examination, where the petitioner s Director / Principal Officer informed in writing that the entire stock had already been sold and no stock was available for inspection, whereupon the officials left the premises without undertaking any coercive action. Learned counsel also emphatically denied that any raid was conducted, that force was used, or that any record was seized or taken into custody. He contended that prior notice dated 23.01.2025 was duly served and acknowledged by the petitioner, followed by a formal notice dated 24.01.2025 for production of record, to which only partial record was furnished, necessitating issuance of a reminder notice dated 10.03.2025. He argued that the powers under section 38 are independent in nature and do not require pendency of proceedings under Section 11 or 25 of the Act, nor are they controlled by section 40, which applies only in cases of forcible entry and seizure. According to learned counsel, the respondents acted within lawful jurisdiction, observed due process, and committed no violation of Articles 4 or 10-A of the Constitution; rather, the petition has been filed merely to obstruct lawful inquiry proceedings presently underway against the petitioner.

5.We have given anxious consideration to the arguments of the learned counsel for the parties, carefully perused the precedents advanced on their behalf, and perused the record with their able assistance. The core grievance of the petitioner is that purportedly the respondent No.2 in exercise of powers conferred under section 38 of the STA, 1990, entered the business premises of the petitioner and took into custody the entire business record which they contend to be unlawful, arbitrary, and in excess of the jurisdiction vested in the respondents under the law. In this background the following questions arise for determination:-

6.This Court shall now address the first question i.e. whether the physical stock taking constituted lawful access and inspection under section 38, or amounted in substance to a search and seizure operation requiring prior magisterial warrant under Section 40 of the Act? This limb of the petitioner s challenge is founded upon the assertion that the respondents, while purporting to act under section 38 of the STA, 1990, in substance carried out a search and seizure operation so as to evade the procedural safeguard embodied in section 40 of the Act, namely, the requirement of obtaining a warrant from the Magistrate.

I. DISTINCTION BETWEEN SECTION 38 AND SECTION 40 OF STA, 1990.

7.The learned counsel for the petitioner argued that the respondents employed section 38 as a mere pretext and exercised coercive powers which, in law, could only be invoked through recourse to section 40 which is mandatory to be invoked before section 38. Since considerable emphasis has been placed upon this submission, it would be appropriate to delineate the contours of both the sections of the Act. Section 38 reads as under:-

8.A careful reading of Section 38 of the STA, 1990 makes it evident that the provision is a comprehensive statutory mechanism enacted to facilitate inquiry, verification, and enforcement under the fiscal regime. It empowers any officer duly authorized by the Board or the Commissioner to have free access, including real-time electronic access, to business premises, manufacturing units, registered offices, or any other place where stocks, records, or documents relevant to the Act are kept. The authority extends to registered persons, persons liable to registration, persons carrying on activities covered under the Act, as well as matters requiring inquiry or investigation into any tax fraud. The provision further authorizes such officer, at any time, to inspect goods, stock, accounts, records, data, correspondence, statements, utility bills, bank statements, funding sources, and any other relevant documents maintained under federal, provincial, or local laws in any form or mode. Subsection (2) imposes a corresponding legal obligation upon the registered person, his agent, or any concerned person to answer lawful questions and furnish information or explanation sought by the authorized officer. This reflects that tax compliance under the statute is founded upon reciprocal duties of disclosure and cooperation. Subsection (3) further mandates that departments of direct and indirect taxes, government departments, local bodies, autonomous bodies, corporations, and other institutions shall provide requisite information and assistance to the authorized officer during the course of inquiry or investigation. This demonstrates the legislative intent to create an integrated enforcement framework so that tax inquiries are not frustrated by institutional barriers. Viewed as a whole, Section 38 is an enabling and preventive provision intended to secure transparency, timely verification, and protection of public revenue. Its scope is broad, its language deliberate, and its object is to equip revenue authorities with effective tools to examine compliance, detect irregularities, and investigate suspected tax fraud in accordance with law. We shall now advert to section 40 of the Act:-

9.It is manifest from a careful reading of the above provision that section 40 is a special power dealing with a distinct legal situation. The statutory requirement of obtaining a warrant from the Magistrate reflects the intrusive character of such power which is not required under section 38. The petitioner s contention that Section 38 was used to circumvent Section 40 overlooks an elementary principle of statutory construction i.e. where the legislature creates multiple enforcement provisions, each must be given independent operation within its own field. Section 38 is not rendered redundant because Section 40 exists, nor is Section 40 triggered every time Section 38 is invoked. If every access to premises or inspection of stock were treated as a search requiring a Magistrate s warrant, the phrase free access in section 38 would be stripped of practical meaning. Such an interpretation must be avoided which would reduce statutory language to futility or render it redundant. This distinction is critical and goes to the root of the interpretation. A search, in legal contemplation, ordinarily connotes forcible or compulsory examination of premises, drawers, lockers, concealed spaces, repositories, or areas not voluntarily opened, for the purpose of discovering material believed to be hidden or withheld. The petitioner s argument, however attractively framed, rests upon a false equivalence between the concept of free access under section 38 and the concept of search under section 40. The two expressions are neither synonymous nor interchangeable and belong to separate legal categories and are designed for different operational circumstances. Section 38 authorizes access, inspection, inquiry, verification, and examination of business premises, stocks, accounts, and records whereas section 40 authorizes compelled search pursuant to judicial warrant where circumstances justify such intrusive intervention such as where the officer has reason to believe that specified documents or things relevant to proceedings under the Act are concealed or kept at a place, and therefore a coercive judicially sanctioned search becomes necessary. To conflate these provisions would be to erase the deliberate distinctions drawn by the legislature.

10.The distinction when stated plainly essentially means that free access is to inspect what is available; search is to discover what is concealed. Free access is regulatory oversight; search is coercive intrusion. Free access proceeds through statutory authority for verification; search proceeds through judicial warrant upon reason to believe. These are different legal tools designed for different factual settings. The proper reconciliation of the two provisions is therefore clear. Section 38 governs ordinary revenue access, inspection, inquiry, verification, and examination. Section 40 governs compelled search where the officer has reason to believe relevant things are kept at a place and judicial warrant is required. They are complementary, not conflicting. One addresses administrative verification; the other addresses intrusive search. One does not eclipse the other. A similar controversy came up for consideration before the Lahore High Court, Bahawalpur Bench, in Khursheed & Sons v. Federation of Pakistan (2026 PTD 185) , wherein the Court, while examining the relationship between Sections 38 and 40 of the Sales Tax Act, 1990, lucidly expounded the distinction between the two provisions and observed that proceedings under Section 38 could validly be undertaken without first invoking Section 40. It was held that the scope, nature, and object of the two sections are materially different. The relevant portion is reproduced below:-

8. It is also relevant to underscore that Section 38 expressly authorizes Inland Revenue officers to access any business premises, manufacturing facility, registered office or any other place where stocks, business records or documents relevant under the Act, 1990 are kept. The authority extends not only to registered persons but also to persons liable for registration, and further, to any person whose business activities may be required to be examined for any inquiry or investigation in any tax fraud committed by him, his agent or any other person. This wide yet purpose linked statutory mandate enables revenue authorities to identify tax evasion, detect fraudulent input adjustments, uncover unreported supplies, and generally ensure that the flow of tax to the exchequer is not impeded through concealment or manipulation.

9. Learned counsel for the petitioner has placed reliance upon Ghulam Hassan s case (supra), contending that Section 38 of the Act, 1990 cannot be exercised independently without recourse to Section 40. The reliance is, however, misconceived. In Ghulam Hassan s case, this Court held that an inspection under Section 38 must be confined to records in plain sight or voluntarily produced, and officers cannot compel production of hidden documents or take custody of records through coercion; any material obtained by compulsion would be legally unusable. In the present case, the petitioner s own averments in the petition confirm that the record in question was not obtained by searching hidden locations but was presented by the petitioner s Manager himself voluntarily. In the absence of any evidence to suggest use of force or coercion by the tax officials, and the fact that the petitioner s manager voluntarily produced the records, the inspection clearly falls within the scope of Section 38, as interpreted in Ghulam Hassan s case (supra). Thus, the observations in Ghulam Hassan s case regarding unlawful search and seizure are factually and legally inapplicable here.

10. It is further necessary to clarify that although Sections 38 and 40 of the Act, 1990 serve closely related purposes e.g., inspection, verification, and retrieval of material relevant to the administration of sales tax, the Legislature has consciously delineated the scope and intensity of the powers exercisable under each provision. The coercive power of search and seizure available under Section 40, once a warrant has been obtained, is not available when an officer enters premises under Section 38, a position also supported by Ghulam Hassan s case (supra), relied upon by the petitioner. Under Section 38, the officer may access the premises, inspect records, and obtain material voluntarily produced or found in plain sight, but cannot compel production of concealed documents or seize property by force. These distinctions do not detract from the functional utility of either provision; rather, they affirm a calibrated statutory design in which both provisions operate in parallel, each addressing different facets of the verification framework. Redundancy cannot be attached to either provision. Accepting the petitioner s argument that a magistrate s warrant under Section 40 is a mandatory precondition for every visit would, in effect, deprive Section 38 of any operative field and render it redundant, an outcome that is impermissible under settled principles of statutory interpretation, which require that each provision be given meaningful effect. The Legislature s intent is clear: Section 38 facilitates routine, non-coercive inspections, whereas Section 40 governs intrusive searches justified by the statutory threshold of reason to believe and relevant to any proceedings. The statutory scheme therefore does not support the view that Section 38 is subordinated to Section 40; both provisions coexist to serve distinct yet complementary purposes within the broader tax administration regime.

11.Although the sales tax is an indirect tax collected from end-consumers but deposited by the registered person, the taxpayer acts in the capacity of a collection agent of the State. This fiduciary role entails an obligation of full transparency and cooperation with lawful verification proceedings. A person holding funds belonging to the public exchequer cannot, in equity or in law, justifiably object to routine inspection proceedings meant to verify the correctness of declarations made by him. Rather, such proceedings serve the larger public interest by ensuring that the tax collected from the public reaches the Treasury without leakage, suppression or misappropriation.

II. LEGALITY OF THE INSPECTION

11. We are cognizant of the fact that the provision of section 38 is susceptible to systematic abuse if not carried out strictly in accordance with its requirements. Thus, it is imperative to examine whether the physical stock taking was in fact carried out as inspection under Section 38 or search under section 40. The resolution of this petition hinges upon this and in such like cases the substance of the act, not the rhetoric used to describe it must be examined. It is manifest from the material placed before this Court that the powers exercised by the respondents are not the ones of section 40. It is evident from the record that an authorized team of the respondent department visited the petitioner s registered premises for physical stock taking and inquiry under section 38 and the representative of the petitioner informed them in writing that the stock had already been sold, where after the officials departed. There is no demonstrated allegation, supported by contemporaneous material, of forced breaking open of premises, unauthorized opening of concealed compartments, rummaging through private repositories, physical overpowering of occupants, or recovery of hidden material through compulsion. In absence of such indicators, the mere visit of officials to business premises for verification cannot automatically be elevated to the status of a statutory search under section 40. Even otherwise, every inspection or demand for cooperation by a regulatory authority cannot be judicially recast as a raid. Commercial enterprises engaged in taxable activity operate within a regulated statutory environment and the law may legitimately require production of stock, records, invoices, and explanations. Compliance visits, stock verification, or inspection of records may be inconvenient to the taxpayer, but inconvenience is not equivalent to illegality, nor does regulatory presence become a search merely because the taxpayer labels it so. In this backdrop it becomes necessary to revert back to the language free access employed in section 38 which is of material significance. It denotes lawful entry and unobstructed access to premises for purposes of inspection, verification, and examination contemplated by the statute. It presupposes a regulatory visit in the ordinary course of tax administration which enables officers to enter business or manufacturing premises, view stock, inspect records, seek explanations, and verify compliance. It does not, by its ordinary meaning, imply breaking open locks, rummaging through concealed areas, searching private repositories, or exercising force associated with criminal search powers. Thus, free access is regulatory in character and it is not penal or coercive in the strict sense. By contrast, a search and seizure operation ordinarily implies a more invasive exercise which connotes an active hunt for concealed articles or documents, entry backed by compulsion, examination of hidden spaces, and recovery of material which the person concerned has not voluntarily produced. Where seizure occurs, possession is taken by authority against the will or without voluntary cooperation of the person concerned. Such powers, because of their intrusive consequences, are often hedged with higher procedural safeguards, including judicial authorization. It is precisely this field that Section 40 addresses.

III. WHETHER AUDIT IS A PREREQUISITE FOR INVOKING SECTION 38

12.We shall now address the second question framed. In this regard the core contention advanced by the learned counsel for the petitioner was that the action of the respondents is devoid of lawful authority on the ground that no proceedings were pending against the petitioner under section 25 of the STA, 1990, which, according the learned counsel, is a necessary precondition for invocation of powers under section 38 of the Act. Since the argument rests upon the asserted interdependence of these two provisions, it would be appropriate, at the outset, to reproduce section 25 of the Act for proper appreciation of the controversy:-

13.Section 38 of the Act is reproduced as under:-

14.A comparative analysis of sections 25 and 38 of the STA, 1990 leaves no room for doubt that both provisions occupy separate statutory domains, pursue distinct legislative purposes, and operate as independent enforcement mechanisms. To collapse one into the other, or to hold that one is a mandatory precondition for invocation of the other, would be contrary to the text, structure, and scheme of the statute. The legislature, by employing separate headings, separate triggering conditions, separate procedures, and separate consequences, has unmistakably promulgated the two provisions as distinct yet parallel tools within the larger architecture of tax administration. The distinction begins with the very subject matter of the two provisions as section 25 concerns the Audit of sales tax affairs whereas section 38 concerns Authorized officers to have access to premises, stocks, accounts and records. These are not interchangeable concepts since audit is an organized examination of tax affairs for purposes of verifying declared liabilities and compliance whereas access to premises, stocks, and records, by contrast, is an investigative and verification power directed toward factual ascertainment. Where the legislature has consciously adopted different statutory titles and measures, the only inference that can be drawn by the Court is that different legal functions were intended. Similarly, the triggering mechanisms under the two sections are materially different since section 25 commences with the Commissioner recording reasons in writing and directing an officer to conduct an audit whereas section 38 commences with authorization of an officer by the Board or the Commissioner to exercise powers of access, inspection, inquiry, and examination. This distinction is legally significant as section 25 requires formal initiation of audit proceedings based upon recorded reasons because it sets in motion a structured adjudicatory process. However, section 38 is framed to enable timely regulatory intervention through authorized inspection and inquiry whenever circumstances warrant verification. Had the legislature intended section 38 to be contingent upon prior audit proceedings under section 25, it would have been expressly provided, however, no such language appears in the statute. Moreover, the scope of persons covered by each provision further demonstrates their independence. Section 25 is confined to the audit of a registered person. In contrast, section 38 extends not only to a registered person, but also to a person liable to registration, a person whose business activities are covered under the Act, and persons relevant to inquiry or investigation in tax fraud. This broader reach is deliberate since it recognizes that tax evasion and fraudulent transactions are not always confined to formally registered entities. If section 38 were made dependent upon section 25, much of the wider class of persons expressly brought within section 38 would be rendered beyond practical scrutiny. Thus, an interpretation that nullifies express statutory inclusion must be avoided.

15.Moreover, the nature of powers conferred under each section is also fundamentally different. Section 25 authorizes calling for records, attendance of the taxpayer, and examination of accounts, third-party inquiries, and verification of declared tax liabilities through audit. By contrast, section 38 authorizes free access to premises, physical inspection of goods and stocks, examination of records, correspondence, utility bills, bank statements, sources of funds, and regulated custody of relevant material. Section 25 is primarily document-centric and assessment-oriented while section 38 is field-oriented and fact-verification based. The former scrutinizes declarations already made while the latter enables verification of realities on ground and their temporal orientation likewise differs. Furthermore, section 25 is predominantly retrospective in character, examining past returns, past liabilities, and prior compliance. Conversely, section 38 is preventive and immediate in character, permitting present-time verification of stocks, business activity, records, and suspicious circumstances. Audit also ordinarily reviews what has been declared whereas inspection under section 38 may be necessary to determine what presently exists, what is being concealed, or whether documentary claims correspond with physical and financial realities and this distinction is essential in revenue enforcement. Furthermore, the statutory outcomes contemplated under each section are equally separate. Section 25 may culminate in assessment, best judgment proceedings, or orders having fiscal consequences. In contrast, section 38 is essentially a fact-finding and inquiry mechanism designed to gather information, preserve evidence, and ensure compliance. It is not, in itself, an assessment provision. It creates the evidentiary and investigative foundation upon which subsequent lawful proceedings, if warranted, may rest. To hold that section 25 must invariably precede section 38 would essentially impair the efficacy of the latter provision since in many cases, unexplained inventories, mismatched declarations, suspicious input claims, intelligence reports, or risk indicators may require immediate inspection before any formal audit can be initiated. If the department were compelled first to initiate a full audit in every such case, stock may disappear, records may be altered, electronic data may be deleted, and evidence may be dissipated. The preventive purpose of section 38 would thus be defeated.

16.In continuation of the above the learned counsel for the petitioner advanced another contention i.e. the scrutiny of declarations and returns undertaken by the department is essentially an audit which requires prior notice. At this juncture, an important legal question arises for determination namely whether the scrutiny of declarations and returns undertaken by the respondents can be equated with a formal audit under Section 25 of the STA, 1990, thereby attracting the statutory requirement of prior notice to the petitioner; or whether such scrutiny constitutes a distinct preliminary administrative exercise, lawfully undertaken on the basis of material already available on record, capable of leading to further inquiry, inspection, or verification under other enabling provisions of the Act, including section 38. Before addressing this question it would be appropriate to reproduce the Impugned Notice as under:-

3rd Floor, RDT Complex, Mauve Area, G-9/1, Islamabad.

C. No. CTO/ISB/Zone-III/ Date: 23-01-2025

M/s. Maris International (Private) Limited

NTN: 3668019-2

STRN: 2300366801911

Office No. 05, Zeraj Centre, 2nd Floor, Gulraiz II, Rawalpindi.

SUBJECT: PHYSICAL STOCK TAKING / INQUIRY UNDER SECTION 38 OF THE SALES TAX ACT, 1990 IN RESPECT OF M/S. MARIS INTERNATIONAL (PRIVATE) LIMITED

Please refer to the above subject.

2. Scrutiny of your declarations filed under section 26 of Sales Tax Act, 1990 indicated retention of huge inventories, which seems beyond your assets and equity fund declared in your profile and income tax returns. Therefore, in pursuance of Section 38 of Sales Tax Act, 1990 Inquiry along with physical stock taking is hereby approved and following team is deputed to carry physical stock taking.

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3. You are directed to cooperate with the FBR officers/officials to perform official work in amicable manner. You are further directed to provide relevant record to inspecting team on their demand for aforementioned exercise. It is further informed that obstruction to the authorized officer in the performance of his/her official duties is punishable offence and liable to penalty under section 33 of Sales Tax Act, 1990.

(AMIR REHMAN)

Commissioner (IR)

17.A careful reading of the aforesaid notice demonstrates that the competent revenue authority, upon scrutiny of the declarations submitted by the petitioner under section 26 of the STA, 1990, formed a tentative view that the petitioner had reported retention of substantial inventories which appeared disproportionate to the assets and equity funds disclosed in its profile and income tax returns. In consequence thereof, the Commissioner Inland Revenue, in exercise of powers under section 38 of the Act, approved initiation of an inquiry coupled with physical stock verification and constituted a departmental team comprising designated officers to carry out the said exercise. The notice further required the petitioner to extend cooperation to the authorized officials, facilitate performance of official functions in an orderly manner, and produce relevant record as may be demanded during the course of inspection. A bare perusal of the Impugned Notice reveals that the action undertaken by the respondents proceeded through a discernible and sequential administrative process. The first stage consisted of declarations filed by the petitioner under the STA, 1990. The second stage involved departmental scrutiny of those declarations, which necessarily implies examination, comparison, and evaluation of the information voluntarily disclosed by the petitioner. The third stage arose when such scrutiny disclosed prima facie anomalies, namely the reported retention of substantial inventories appearing disproportionate to the assets and equity funds declared in the petitioner s profile and income tax returns. It was only upon emergence of these apparent discrepancies that the fourth stage was set in motion, whereby the competent authority approved initiation of inquiry coupled with physical stock verification under section 38 of the Act.

18.We shall now address the issue framed. It is necessary to examine the statutory distinction between scrutiny, audit, inquiry, inspection, and search within the overall scheme of the Act. A careful examination of the statutory scheme of the STA, 1990 makes it evident that a clear conceptual distinction between the expressions scrutiny, audit, inquiry, inspection, and search exists. Each of these measures occupy a separate legal field, serve different administrative purposes, and operate at different stages of the revenue enforcement. By conflating these measures misplaced jurisdictional objections often arise and thus, each expression be understood in its proper statutory context.

19.At the threshold lies the concept of scrutiny which is the preliminary administrative examination of declarations, returns, profiles, statements, and data already filed by a registered person under the Act. It ordinarily involves comparison of disclosed turnover, inventories, input tax claims, assets position, income tax declarations, and other available information for purposes of identifying anomalies, inconsistencies, risk indicators, or matters requiring further verification. Scrutiny is essentially desk-based and analytical in character and does not, by itself, amount to a formal proceeding against the taxpayer, nor does it necessarily require prior notice. The power to require filing of returns and declarations would be rendered meaningless if the department lacked the incidental authority to examine and analyze the material so furnished. Thus, scrutiny is the first line of regulatory oversight and an inherent administrative function flowing from the statutory obligation to file declarations. Distinct from scrutiny is audit, which is specifically governed by section 25 of the Act and is a structured statutory process directed toward verification of the correctness of declared tax liability, input tax, output tax, refunds, stocks consumed or available, and overall compliance with the Act and Rules. Unlike scrutiny, audit is not merely internal examination of available data. It is a formal proceeding initiated by the Commissioner for reasons to be recorded in writing, followed by issuance of notice to the registered person, communication of reasons, calling of record, attendance of the taxpayer or representative, and eventual culmination in consequential proceedings where warranted by law. Audit is therefore adjudicatory verificatory in nature and carries procedural safeguards expressly embedded in section 25. It follows that every audit may involve scrutiny, but every scrutiny does not mature into audit. The next category is inquiry, which generally denotes a fact-finding process undertaken where available material discloses circumstances requiring explanation or verification. Inquiry is broader than audit and need not always be confined to correctness of filed returns alone. It may extend to suspicious transactions, unexplained inventories, and mismatch of declarations, questionable input claims, or matters suggestive of tax fraud. Inquiry is exploratory in the lawful sense since it seeks facts before conclusions are drawn. Under the statutory framework, inquiry may precede formal adjudication and may be undertaken through powers conferred by provisions such as section 38. Another important measure is inspection, which refers to physical or documentary examination of premises, goods, stocks, books, records, systems, or data for verification purposes. Inspection may include stock-taking, observation of business operations, examination of ledgers, review of electronic records, and checking whether declared stocks correspond with actual availability. Inspection is often the practical means through which inquiry or audit is carried out. It is not necessarily accusatory; rather, it is a verification mechanism. In the context of section 38, the statutory authority to have access to premises and inspect stocks, records, and documents clearly falls within this category. Finally, there is search, a more intrusive and coercive legal act distinct from ordinary inspection or access. Search ordinarily contemplates entry for discovery of concealed documents, goods, devices, or things believed to be hidden, withheld, or otherwise not likely to be voluntarily produced. It carries a higher threshold because it directly implicates privacy, possession, and freedom from unwarranted intrusion. For that reason, the legislature commonly subjects search powers to stricter safeguards, such as formation of reason to believe and prior judicial warrant, as reflected in section 40 of the Act. Search is therefore not synonymous with routine inspection, nor can every departmental visit be characterized as a search merely because officials entered premises pursuant to lawful authority.

20.When these distinctions are properly maintained, the present controversy becomes clearer. The Impugned Notice states that scrutiny of declarations filed under section 26 indicated retention of inventories disproportionate to declared assets and equity. This language denotes that the department first undertook analytical review of returns and declarations already on record. Such scrutiny did not amount to commencement of audit under section 25, because no formal audit notice was issued, no reasons under section 25 were communicated, and no structured audit proceedings had been initiated. Instead, the anomalies detected during scrutiny furnished the basis for the next statutory step, namely inquiry along with physical stock verification under section 38. To insist that the department must invariably commence audit under section 25 before it may verify suspicious inventories or inspect stock under section 38 would collapse these distinct statutory stages/measures and unnecessarily disable preventive enforcement. It must also be remembered that statutes are to be construed so as to give effect to every provision. Section 25 serves the field of formal audit while section 38 serves the field of access, inspection, and inquiry and section 40 serves the field of search upon higher safeguards. Each provision has its own sphere and none should be interpreted in a manner that renders the others redundant.

21.Accordingly, the mere use of the word scrutiny in the impugned notice cannot be elevated into an admission that an audit under section 25 had commenced without notice. Properly understood, scrutiny was only the antecedent administrative examination of filed declarations, and upon disclosure of apparent discrepancies, the competent authority lawfully proceeded to invoke section 38 for verification through inquiry and physical stock taking. Such progression is consistent with both the text and the purpose of the Act. It is a settled principle of interpretation that where the legislature creates two separate remedies or mechanisms, each must be given independent meaning unless express words compel dependency. Courts are not at liberty to insert conditions that the legislature omitted. To read section 25 into section 38 as a mandatory prerequisite would amount to judicial legislation by adding words not found in the statute.

22.The discussion may be briefly recapitulated. Section 25 is a formal audit mechanism, whereas section 38 is an immediate verification and inquiry mechanism. Section 25 examines declared liabilities, whereas section 38 verifies actual business realities. Section 25 is records-review centric, whereas section 38 is enforcement-access centric. Section 25 looks backward to past compliance, whereas section 38 looks presently to ongoing facts and emerging risks. Accordingly, the legal position that emerges is that sections 25 and 38 are separate, parallel, and self-sustaining statutory provisions. Invocation of one is not conditioned upon prior resort to the other. Consequently, the contention that section 25 is a mandatory prerequisite to exercise powers under section 38 is contrary to the statutory text, inconsistent with legislative design, and unsustainable in law.

III. PREMATURE INVOCATION OF CONSTITUTIONAL JURISDICTION

23.This Court shall now address the third question framed. We deem it necessary to address an issue of wider institutional significance concerning the exercise of constitutional jurisdiction in fiscal matters, particularly where the subject involves substantial public revenue and complex questions of tax administration. It is a settled constitutional principle that writ jurisdiction is an extraordinary supervisory jurisdiction conferred upon the High Courts to ensure that public authorities act within the bounds of law, fairly, and in accordance with the Constitution. It is not an ordinary forum for correction of every administrative inconvenience or every interlocutory grievance. Rather, it is invoked where there exists a serious legal defect going to the root of the matter, such as illegality, jurisdictional excess, mala fide exercise of power, violation of fundamental rights, or a palpable breach of due process. These expressions carry distinct legal import and merit elaboration. Illegality means that the authority has acted contrary to law, ignored mandatory statutory provisions, relied upon considerations prohibited by law, or exercised power in a manner not sanctioned by the governing statute. Where the law prescribes a particular method for doing an act, and the authority acts otherwise, the resulting action may be amenable in constitutional review. Writ jurisdiction, in such circumstances, serves to restore the supremacy of law over administrative discretion. Jurisdictional excess arises where an authority assumes powers it does not possess, acts beyond territorial, subject-matter, or statutory limits, or proceeds against a person or matter not entrusted to it by law. Jurisdiction is the legal foundation of official action and where that foundation is absent, the superstructure cannot stand. Thus, if a statutory authority or its officer acts outside the sphere of authority granted by legislature, the High Court may intervene to prevent continuation of an unauthorized exercise. Similarly, mala fide exercise of power refers to use of lawful authority for an unlawful purpose. Even where power exists in the abstract, it must be exercised honestly, for the purpose for which it was conferred, and upon relevant considerations. If power is used out of personal animus, political pressure, collateral motives, harassment, retaliation, or colourable design, the action may be struck down. However, mala fide is a serious allegations and must be supported by credible material since it is not lightly presumed. Violation of fundamental rights concerns infringement of guarantees secured by the Constitution, such as equality before law, fair treatment, dignity, property rights subject to law, lawful trade, liberty, and access to justice. Where an executive or statutory action transgresses constitutional protections, the High Court may exercise writ jurisdiction because the Constitution stands above all ordinary law and all public power must conform to it. Moreover, breach of due process signifies an obvious and substantial denial of fairness in procedure. This may include condemning a person unheard where hearing is required, withholding material relied upon, acting with predetermined bias, denying opportunity to respond, proceeding in manifest arbitrariness, or making adverse determinations without observing minimum standards of justice. Due process does not always require identical procedures in every case, but it does require fairness appropriate to the nature of the action. Thus, constitutional jurisdiction is not ordinarily designed to arrest every statutory inquiry at inception merely because a person apprehends that an adverse outcome may eventually follow. Courts exercise constitutional review to correct unlawful action, not to substitute themselves for statutory authorities in matters still at the stage of fact-finding, verification, or preliminary examination.

24.Similarly, the present petition has been brought at a stage where, on the face of the record, the department had merely initiated an inquiry after scrutiny of declarations filed by the petitioner and had issued notices requiring explanation, appearance, and cooperation in proceedings stated to be under section 38 of the STA, 1990. Impugned Notice-I expressly authorized a named officer to conduct tax fraud inquiry in accordance with law, the relevant part of the impugned notice is reproduced as under:-

25.Moreover, Impugned Notice-II called upon the petitioner to explain its position before any consequential action was taken. The immediate question that therefore arises is whether constitutional jurisdiction ought to be invoked at the threshold stage of initiation of inquiry itself . The department vide Impugned Notice-II issued the petitioner a notice with subject of Authorization to Conduct Inquiry/Investigation under Section 38 of the Sales Tax Act, 1990 Against M/s. Maris International (Private) Limited ; the operative part is reproduced as under:-

26.The Impugned Notices establish that the petitioner was called upon to explain its position and to attend hearing personally or through authorized representative or counsel. This is significant since it make evident that the statutory process had not reached finality; rather, an opportunity of participation and response was expressly afforded. Where the law itself provides a forum to explain discrepancies, furnish record, rebut allegations, and satisfy the department, constitutional intervention at the incipient stage is ordinarily disfavoured unless the notice is wholly without jurisdiction, ex facie mala fide, or impossible to sustain on any legal basis. A mere initiation of inquiry does not, without more, furnish cause for constitutional interference. Public authorities entrusted with safeguarding revenue must be allowed reasonable operational space to examine suspicious transactions, inconsistent declarations, or possible tax fraud. If the Court were to halt inquiries merely because they have begun, then no inquiry could ever mature into a lawful conclusion. The constitutional jurisdiction of this Court is supervisory, not obstructive and while it ensures legality of process, it does not extinguish process itself. If every notice of inquiry, every call for explanation, or every investigative step were to be routinely interdicted, the machinery of governance would be rendered ineffective and regulatory statutes would become substantially unenforceable. This principle acquires even greater force in fiscal jurisprudence. Tax administration necessarily proceeds in stages: scrutiny, inquiry, verification, hearing, determination, assessment, and appellate review. The initiation of inquiry is not synonymous with determination of liability. It does not, by itself, fasten civil consequences in the final sense. Rather, it is the process through which the authority seeks to ascertain facts, test declarations, and determine whether any further proceedings are warranted. To challenge such initiation as though it were a concluded adjudication is to confuse process with outcome. Courts have consistently maintained the distinction between a preliminary investigative step and a final order affecting rights.

27.There is also a compelling public law dimension. Fiscal statutes are enacted not for private contest alone but for collection of revenue necessary for discharge of constitutional functions of the State. Where matters involve substantial valuation and possible loss to the exchequer, the Court must remain careful that interim constitutional remedies are not converted into instruments for delaying or frustrating statutory proceedings. Judicial protection against abuse of authority must be preserved; equally, judicial process must not become a shield against lawful scrutiny. The august Supreme Court of Pakistan, in Commissioner Inland Revenue v. Jahangir Khan Tareen and others (2022 SCMR 92), authoritatively examined the maintainability of constitutional petitions directed against show-cause notices issued under fiscal statutes and conclusively settled the governing principle as under:-

Messrs Ocean Pakistan Ltd. v. Federal Board of Revenue, Islamabad and others (2012 PTD 1374). Show-cause notice dated 12.10.2011 issued under section 122(9) read with section 122(5A) of the Income Tax Ordinance, 2001 by the Additional Commissioner Inland Revenue, Islamabad is under challenge in this petition. In above view of the matter, irrespective of what has been argued before us by the learned counsel for the petitioner, we are of the considered opinion that since all the legal arguments referred to in the preceding paras, raised on behalf of the petitioner-company, are similarly raised before the competent forum, which has issued show-cause notice to the petitioner company, any finding on any of the legal objections by this Court is likely to cause prejudice to the case of the petitioner-company before the Income Tax hierarchy. Even the learned Single Judge in Chambers of the High Court has left it open for the Additional Commissioner Inland Revenue to decide the issues whether the sale of working interest falls outside the purview of agreement and consequent to the sale, the petitioner is to be governed by the Ordinance, 2001.

Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. Messrs Punjab Beverage Company (Pvt.) Ltd. (2007 PTD 1347 = 2008 SCMR 308). The tendency of by-passing the remedy provided under law, and resort to Constitutional jurisdiction of High court was deprecated. The petitioner instead of rushing to the High Court and consuming sufficient time should have submitted reply before invoking the jurisdiction of the High Court. Such practice is to be deprecated because if merely on the basis of show-cause notice proceedings are started then in such position department would never be in a position to proceed with the cases particularly the recovery of revenue etc. Thus keeping in view the circumstances of the case we are of the opinion that respondent, had wrongly availed remedy under Article 199 of the Constitution instead of availing appropriate remedy under Income Tax Ordinance, 1979.

Messrs Amin Textile Mills (Pvt.) Ltd. v. Commissioner of Income Tax and 2 others (2000 SCMR 201). There is no material on record to show that the competent Authority failed to apply its independent mind to the facts of the case before issuing notices. High Court was right to observe that the petitioner should in the first instance, approach the hierarchy of the forums provided for under the Ordinance instead of filing a Constitution petition. In the case of Al-Ahram Builders (Pvt.) Ltd. v. Income Tax Appellate Tribunal (1993 SCMR 29), this Court discouraged the tendency to bypass the remedy provided under the relevant statute to press into service Constitutional jurisdiction of the High Court.

Shagufta Begum v. The Income-Tax Officer, Circle-XI, Zone-B, Lahore (PLD 1989 SC 360). We consider it a fit case in which the petitioner would be well advised if he raises the pleas sought to be advanced before this court in the departmental forum in the first instance and also to pursue the normal channels of appeal/revision/reference. It is well known that a plea regarding the assumption of jurisdiction by a Tribunal or a court is available to a litigant even when appearing before the highest court in the country. It is therefore hoped and expected that when an objection in this behalf is raised before the learned officer concerned, he would dispassionately examine it on its own merits and render a decision which he believes bona fide to be correct.

Khalid Mahmood Ch. and others v. Government of the Punjab through Secretary, Livestock and Dairy Development (2002 SCMR 805). The disputed show-cause notice is still at preliminary stage and after considering the replies of the petitioners if the competent Authority comes to the conclusion that it was a case of taking further proceedings under the Ordinance, it will be required to constitute an Enquiry Committee or appoint an Enquiry Officer. The Constitutional petitions in the circumstances were rightly held to be premature and dismissed as such.

Union of India (UOI) and others v. Vicco Laboratories (Equivalent Citation: 2008 (3) ALLMR (SC) 453, 2008 (2) CTC 511, 2007 (123) ECC 278, 2007 (149) ECR 278 (SC), 2007 (218) ELT 647 (SC), (2008) 4 MLJ 1272 (SC), (2007) 13 SCC 270, [2007] 1 SCR 534). Normally, the writ court should not interfere at the stage of issuance of show-cause notice by the authorities. In such a case, the parties get ample opportunity to put forth their contentions before the concerned authorities and to satisfy the concerned authorities about the absence of case for proceeding against the person against whom the show-cause notices have been issued.

State of Uttar Pradesh v. Brahma Datt Sharma (Equivalent Citation: AIR 1987 SC 943, 1987 AWC 760 SC, [1987 (54) FLR 524], JT 1987 (1) SC 571, 1987 Lab IC 689, 1987 (1) SC ALE 457, (1987) 2 SCC 179, [1987] 2 SCR 444, 1987 (2) UJ 55). The purpose of issuing show-cause notice is to afford opportunity of hearing to the Govt. servant and once cause is shown it is open to the Govt. to consider the matter in the light of the facts and submissions placed by the Government servant and only thereafter a final decision in the matter could be taken. Interference by the court before that stage would be premature.

The Special Director and others v. Muhammad Ghulam Ghouse and others (Equivalent Citation: 2004 (2) ACR 1844 (SC), AIR 2004 SC 1467, 2004 (55) ALR 95, 2004 (106 (2) BOMLR 569, (2004) 3 CALLT 8 (SC), [2004] 120 Comp.Cas 467 (SC), 2004 (91) ECC 299, 2004 (112) ECR 501 (SC), 2004 (164) ELT 141 (SC), JT 2004 (1) SC 206, 2004 (2) PLJR 237, 2004 (1) SCALE 330, (2004) 3 SCC 440, [2004] 50 SCL 93 (SC), [2004] 2 SCR 399, 2004 (1) SCT 671 (SC), 2004 (1) UJ 744). This Court in a large number of cases has deprecated the practice of the High Court's entertaining writ petitions questioning legality of the how-cause notices . writ petitions should not be entertained for the mere asking and as a matter of routine . whether the show-cause notice was founded on any legal premises is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court.

Union of India and others v. Kunisetty Satyanarayana (Equivalent Citation: AIR 2007 SC 906, [2007 (112) FLR 325], 2007 (1) PLJR 121, 2006 (12) SCALE 262, (2006) 12 SCC 28, (2007) 2 SCC (LS) 304, [2006] Supp. (10) SCR 257, 2007 (1) SCT 452 (SC), 2007 (3) SLJ 338 (SC). The reason why ordinarily a writ petition should not be entertained against a mere showcause notice or charge-sheet is that at that stage the writ petition may be held to be premature... A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so.

28.Examined on the touchstone of the aforesaid settled principles and authoritative pronouncement of the august Supreme Court, the Impugned Notices in the present matter reveal that the respondents scrutinized declarations filed by the petitioner, formed a tentative view requiring examination, authorized inquiry under Section 38 of the STA, 1990, and called upon the petitioner to explain its position. At this stage, no final assessment had been framed, no conclusive penal liability had been imposed, and no irreversible civil consequence had crystallized. The process remained open, participatory, and subject to statutory safeguards, including opportunity of hearing and subsequent remedies as may be available in law. In these circumstances, the challenge mounted at the threshold suffers from prematurity. No case of patent lack of jurisdiction, demonstrated mala fide , or manifest illegality has been shown so as to justify immediate constitutional intervention. The respondents were still within the domain of statutory inquiry and we are disinclined to stop such proceedings merely at their inception, for constitutional jurisdiction is supervisory in nature; it ensures legality of process, but does not extinguish lawful process before it has run its course.

29.For the foregoing reasons, we are of the considered view that the Impugned Notices merely set in motion a statutory process of inquiry and afforded the petitioner an opportunity to explain its position before the competent authority. No final adjudication, assessment, or penal determination had yet been made so as to give rise to an enforceable cause for constitutional interference. The petition, therefore, is premature, misconceived, and not maintainable at this stage. The petitioner is at liberty to submit reply, produce all relevant material, and raise every factual as well as legal objection before the respondents, who shall consider the same strictly in accordance with law, uninfluenced by any tentative observations contained in the notices.

30.In view of the above discussion, this petition is dismissed , along with all pending applications, if any. No order as to cost.

MH/7/Isl Petition dismissed.