IHC stays Levy on gas consumption by CPPs, sets date for hearing in April

ISLAMABAD: The Islamabad High Court (IHC) has suspended the notification imposing a levy under Section 3(1) of the Off the Grid (Captive Power Plants) Levy Ordinance, 2025, on the consumption of natural gas or RLNG by captive power plants until April 30, 2025.
A single bench of Justice Khadim Hussain Soomro, who heard the case, after considering the arguments of the petitioners’ counsel, noted that the submissions made are worth consideration. Therefore, he issued notices to the respondents for April 30, 2025. The exception sought has been allowed, subject to all just and legal exceptions.
The petitioners are a limited liability company engaged in diverse business activities, including electricity generation from natural gas or LNG through their captive power plants, which are used for their consumption or to supply surplus power to third parties.
The petitioners, through senior counsel Makhdoom Ali Khan, have challenged the notification of March 7, 2025, issued by the Secretary of the Ministry of Energy (Petroleum Division) under Section 3(1) of the Off the Grid (Captive Power Plants) Levy Ordinance, 2025, which imposed a levy on the consumption of natural gas or RLNG by captive power plants. They have requested the Court to declare the 2025 Ordinance unconstitutional and prohibit the respondents from taking any adverse or coercive actions for collecting and/or recovering the levy.
The Secretary of the Petroleum Division, the DG of the Oil and Gas Regulatory Authority (OGRA), the CEOs of Sui Southern Gas Company Limited, Sui Northern Gas Pipelines Limited, and the Punjab Industrial Estate Development and Management Company have been cited as respondents in the case.
Makhdoom submitted that as per Section 8 of the Oil & Gas Regulatory Authority Ordinance, 2002, the federal government shall, within 40 days of the advice referred to in sub-sections (i) & (ii), advise the authority on the maximum charges and sale prices for each category of retail consumer of natural gas, for notification in the official gazette by the authority of the prescribed price as determined in sub-sections (i) & (ii). The tariff is to be determined and notified by OGRA under the Ordinance of 2002, and the levy is charged in addition to the price notified by OGRA under Section 8 of the 2002 Ordinance.
The counsel further submitted that the petitioners are already paying sales tax on the supply of natural gas under the Sales Tax Act of 1990. Therefore, imposing a double tax violates the supreme law of the land, the Constitution.
Makhdoom argued that the levy in question does not constitute a tax. He contended that under the Constitution, the federation lacks the authority to impose a tax on the use of natural gas, except in cases involving nuclear energy generation. However, the petitioners utilize natural gas solely for electricity generation, either for self-consumption or for supplying surplus power to third parties. He further argued that the levy cannot be classified as a fee, as it is not imposed in exchange for any specific service rendered by the government.
The counsel also argued that the levy of tax for the purpose of the Federation is not permissible except by or under the authority of an Act of “Majlis-e-Shura.” In support of his contention, he relied on Engineer Iqbal Zafar Jhagra and another vs. Federation and Others [2013 SCMR 1337], and Cyanamid Pakistan Ltd. vs. Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislative powers cannot be delegated to the Executive Authorities. Further reliance was placed on the cases of Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176) and All Pakistan Textile Mills Association v. Province of Sindh (2004 YLR 192).
Makhdoom also argued that the fundamental rights, as enshrined in Articles 3, 4, and 9 of the Constitution, have been infringed, and that Article 77 provides that no tax shall be levied for the purpose of the Federation except by or under an Act of Parliament. In this case, Parliament has not passed any Act regarding this matter.
Ends