IHC strikes down gas levy orders against UGDCL

The Islamabad High Court (IHC) has declared key government measures against Universal Gas Distribution Company (Private) Limited (UGDCL) unlawful, ruling that the federal government exceeded its legal authority by attempting to bring the company under the Off the Grid (Captive Power Plants) Levy Act, 2025 through executive actions.

 

In a detailed judgment, Justice Sardar Muhammad Sarfraz Dogar allowed Writ Petition Nos. 345 and 1421 of 2026, setting aside the January 9, 2026 notification that appointed UGDCL as a collection agent for the levy. The court also declared the Off the Grid (Captive Power Plants) Removal of Difficulties Order, 2026, issued on February 24, 2026, to be ultra vires the parent law and therefore without legal effect. Additionally, it quashed the March 11, 2026 directive issued by the Ministry of Energy (Petroleum Division), which had required the company to provide pricing and gas supply information for levy calculations.

 

The verdict was issued after the court reserved its decision on June 30, following hearings on constitutional petitions filed by UGDCL challenging the government's notifications and subsequent directives.

 

The court noted that UGDCL is a private company licensed by the Oil and Gas Regulatory Authority (OGRA) to supply indigenous natural gas to industrial consumers, including captive power plants. Unlike public gas utilities, UGDCL operates under a deregulated pricing system where gas prices are negotiated privately and are not notified by OGRA.

 

The federal government argued that UGDCL was only acting as a levy collection agent and therefore had no legal standing to challenge the government's actions. However, the court rejected this argument, observing that the notification imposed significant statutory responsibilities on the company, including billing, collecting, and depositing the levy, exposing it to legal consequences for non-compliance and requiring disclosure of confidential commercial information.

 

The judgment held that these obligations directly affected the company's legal rights and commercial interests, making it an aggrieved party under Article 199 of the Constitution with the right to seek judicial review.

 

Examining the Levy Act, the court concluded that Parliament had intentionally linked both the imposition and calculation of the levy to gas sale prices officially notified by OGRA. Since UGDCL's gas prices are privately negotiated and not notified by the regulator, the company falls outside the charging mechanism established under the law.

 

The court emphasized that executive authorities cannot expand the scope of a fiscal law through notifications or subordinate legislation. It ruled that merely adding UGDCL to the schedule of the Act could not extend the levy's application beyond what Parliament had expressly provided.

 

One of the judgment's key findings concerned the government's Removal of Difficulties Order, which the court said effectively replaced the statutory benchmark of OGRA-notified tariffs with a new formula based on privately negotiated gas prices. The court ruled that while such orders may help implement legislation, they cannot alter legislative policy, amend statutory provisions, or create new mechanisms for imposing taxes or levies. Such powers rest exclusively with Parliament.

 

The IHC also rejected the retrospective application of the Removal of Difficulties Order, holding that delegated legislation imposing fiscal liabilities cannot operate retrospectively unless expressly authorized by law.

 

In its final order, the court declared the January 9 notification, the February 24 Removal of Difficulties Order, and the March 11 letter issued by the Ministry of Energy to be without lawful authority and set them aside insofar as they applied to UGDCL. No order was made regarding legal costs.

 

However, the court clarified that its ruling does not question Parliament's constitutional authority to impose levies on private gas suppliers or captive power plants. Instead, it stressed that any expansion of the levy regime must be carried out through legislation enacted by Parliament rather than through executive notifications or subordinate legislation.

 

The judgment is expected to have significant implications for Pakistan's deregulated gas market and reinforces the constitutional principle that taxes and fiscal obligations can only be imposed through clear legislative authority.