Peshawar High Court Rules Excise Duty on Green Leaves and Hand-Made Tobacco Illegal

The Peshawar High Court has struck down the imposition of Federal Excise Duty on green leaves and hand-made tobacco, ruling that the levy cannot apply to raw material that has not undergone full processing. The verdict, authored by Justice Syed Arshad Ali, was issued on Thursday and reported by ARY News.

At the centre of the case was a consignment of 3,375 kilograms of tobacco seized from the petitioner company. The court ordered the authorities to release the stock and return the company's vehicle, equipment and records. It further directed that the sealed building and machinery belonging to the firm be unsealed.

In its reasoning, the bench held that excise duty could only be applied once the green leaf had been processed through thrashing at a green leaf threshing (GLT) unit. The court observed that separating tobacco leaves from their stems does not amount to manufacturing, and therefore the raw material could not be treated as a taxable finished product.

The decision is significant for the tobacco and agriculture sectors, where the distinction between raw and processed material determines tax liability. By drawing a clear line between unprocessed leaf and manufactured tobacco, the ruling limits the scope for tax authorities to levy excise duty at the early stages of the supply chain.

The judgment also carries implications for similar businesses that have faced seizures or sealing of facilities over disputed duty assessments. The court's order to restore the petitioner's premises, equipment and records provides a legal precedent for challenging enforcement actions taken before processing is complete.

The ruling is expected to prompt tax authorities to review how they classify and tax unprocessed agricultural inputs, as the court has affirmed that the manufacturing stage must be reached before excise duty can lawfully apply.