PESHAWAR: In a significant relief for the tobacco industry, the Peshawar High Court (PHC) has ruled that Federal Excise Duty (FED) cannot be levied on green leaf or hand-stemmed tobacco unless it has undergone processing and conversion through a Green Leaf Threshing (GLT) unit.
The court also ordered the immediate release of 3,375 kilograms of seized hand-stemmed tobacco and a vehicle belonging to a tobacco company, setting aside the Federal Excise Duty demand against the consignment.
A division bench comprising Justice Syed Arshad Ali and Justice Muhammad Faheem Wali announced the decision while disposing of a writ petition filed by M/s Pak Hills Tobacco Company Pvt Ltd against the Federation of Pakistan and other respondents.
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Advocate Ishtiaq Ahmad Senior appeared on behalf of the petitioner.
In its detailed judgment, the bench observed 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(24 A) of the Federal Excise Act, 2005. Therefore, such tobacco could not be subjected to Federal Excise Duty under Section 3 of the Act.
The court further clarified that hand-stemming, even when performed with tools or machinery, could not independently be treated as a manufacturing process warranting the imposition of federal excise duty.
Setting aside the relevant show-cause notices and orders, the bench directed the authorities to release the seized tobacco, vehicle, equipment and records and immediately de-seal the premises and machinery.
However, the court allowed the authorities to retain any specifically identified stock for a maximum period of 15 days if they had grounds to believe that it had been processed through a GLT unit. In such cases, the authorities must issue a reasoned order after providing the affected party an opportunity of hearing.
The judgment also struck down compulsory registration notices issued on the premise that hand-stemming amounted to manufacturing.
Nevertheless, the court clarified that the authorities would remain free to initiate fresh proceedings if evidence established that an individual or company was operating a GLT unit.
The bench further observed that the setting aside of the FED-related proceedings would not automatically extinguish any separate liability concerning sales tax, penalties or confiscation, which would have to be determined independently in accordance with the law.
Granting specific relief to Pak Hills Tobacco Company, the court ordered the release of the 3,375 kilograms of hand-stemmed tobacco and the vehicle, while setting aside the FED demand. The question of any applicable sales tax liability on the consignment was left open for determination under the relevant law.
The ruling provides important judicial clarification on the distinction between hand-stemming and industrial tobacco processing, reaffirming that the levy of federal excise duty must strictly comply with the definitions and requirements prescribed under the law.
Copyright Business Recorder, 2026
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