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Petitioner: REHMAT ULLAH TABBASUM VS Respondent: SECRETARY, REVENUE DIVISION, ISLAMABAD
Court Name: Federal Tax Ombudsman Judge(s): Dr. Muhammad Shoaib Suddle Title: REHMAT ULLAH TABBASUM vs SECRETARY, REVENUE DIVISION, ISLAMABAD Case No.: Complaint No.281/LHR/IT(209)548 of 2012 Date of Judgment:2012-04-26 Reported As: 2012 PTD 1412 Result: Appeal allowed
Judgment ORDER JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).--Through this appeal the appellant has objected against the Order-inOriginal No. 643 of 2005 dated 15-6-2005 on the following grounds:-- "(a) That respondent No. 1 was not competent to conduct raid carry out search and make seizure of record without fulfilling the mandatory requirement of section 40 of the Sales Tax Act, 1990. Even otherwise respondent No.1 was neither authorized by respondent No. 3 nor Central Board of Revenue nor he obtained search warrant for carrying out search of the business premises of the appL'1ant. (b) That no search warrant was obtained by respondent No. 1 for carrying out ,earch from Magistrate having territorial jurisdiction over the business premises of the appellant nor he complied with the relevant provisions of code of criminal procedure nor associated independent witnesses in the raid proceedings. The contention of the respondent department that the raid was conducted under sections 38 and 40-A of the Sales Tax Act, 1990 was baseless and frivolous. (c) That the requirement of section 38 and 40-A of Sales Tax Act, 1990 cannot be fulfilled merely ti' mentioning that the raid was conducted under these provision 'f law. For the ease of this hon'ble Court, subsections (1) an,' 2) of section 40-A are reproduced below:- "40-A (1) Search without warrant-- ) Notwithstanding the provisions of section 40, where any officer of Sales Tax not below the ran!: of an Assistant Collector of Sales Tax has reasons to believe that any documents or things which, in his opinion, may useful for or relevant to, any proceeding under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 40, be may, after preparing a statement in writing of
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the grounds of his belief for which search is to be made, search or cause search to be made for such documents or things in that place. (2) Any officer or person who makes a search or causes a search made under subsection (1) shall leave a signed copy of the statement referred to in that section in or about the place searched and shall, at the time the search is made or as soon as is practicable thereafter, deliver a signed copy of such statement to the occupier of the place at his last known address. (d) That it is condition precedent under section 40-A of the Sales Tax Act, 1990 that where any officer of Sales Tax not below the, rank of Assistant Collector has reasons to believe that any documents or things are concealed or kept in any place and there-is a danger that they may be removed before a search can be effected under section 40, he may after preparing a statement in writing, of the ground of his belief for which search is to be made , search or cause search to be made for such documents or things. It is submitted that neither search warrant under section 40 was obtained nor statement under section 40-A showing grounds of belief that there was any danger of removal of record by the petitioner if raid is conducted under section 40 of the Sales Tax Act, 1990. No such statement was prepared and served upon the appellant . (e) That provisions of section 38 of Sales Tax Act, 1990 are not by itself enabling provisions for carrying out search and seizure and as such these, therefore, must give way to the two specific provisions of sections 40 and 40-A of Sales Tax Act, 1990. For carrying out search under section 40- A it is condition precedent, that grounds of belief prepared for conducting search must* contained reasons for belief that information has been received that party, concerned had taken steps or was about to take steps for removal of goods and if search warrant was obtained, same would consume time or Magistrate was not available and as such there was no such other way but to go for search without warrant. These are the safe guards provided by legislature against India fide interference with the rights of citizens in respect of property and against violation of rights of property and privacy: Since the requirement of section 40-A of the Sales Tax Act, 1990 was not met, thus, the raid, search and seizure would be illegal void, without lawful authority and of no legal effect as held by Hon'ble Supreme Court of Pakistan in case Collector of Customs (Preventive) and 2 others v. Muhammad Mehfooz (PLD 1991 SC 630), it was held by their lordship that:-- "Perusal of the statement of grounds reproduced above clearly shows that grounds for belief in support of danger as such were not mentioned specifically as is required under section 163 of the Customs Act. This is a statutory requirement and there is legislative wisdom behind it which is to the effect that ordinarily a place is to be searched only after search-warrant is obtained from the Magistrate as is contemplated under the preceding section of the Customs Act and only in extraordinary cases this section can be dispensed with as is permissible under section 163 of the Customs Act but then grounds are to be stated by the Customs Officer who is allowed this facility for his belief and decision in not obtaining the search warrant. He must state the grounds which justify apprehension of danger of removal of goods. For example information is received from such and such person that the party concerned has taken steps or is about to take steps for removal of goods and if search warrant is obtained the same will consume time or the Magistrate is not available hence there is no other way but to go for the such without warrant. By providing such statutory requirement the intention legislature is to provide safeguard against mala fide interference with rights of citizens in respect of property and against violation of right of privacy. In the instant case in the statement of grounds reproduced above, reasons are not stated as to why and what danger was apprehended for removal of goods and it is not enough simply to say that "it is not expedient to obtain search warrant". We are therefore, in agreement with the finding of the High Court on the, ground that search and seizure were defective and improper on account of non-compliance with the provisions of sections 162 and 163 of the Customs Act.
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That neither independent witnesses were associated in raid proceedings nor signed copy of any statement containing grounds of belief referred to in subsection (1) of section 40-A ibid nor signed copy of recovery memo./Inventory were delivered to the appellant nor same were sent subsequently to the appellant at his last known address and as such raid, search and seizure were patently illegal and void. (g) That this Hon'able Lahore High Court Lahore in identical case "Messrs Ehsan Yousaf Textile Mills (Pvt.) Ltd. Faisalabad v. Federation of Pakistan through Ministry of Finance Islamabad and 4 others" (2003 PTD 2037) .Declared similar raid, search and seizure illegal and without lawful authority, it was held by his Lordship that:-- "Provision of S. 38 of Sales Tax Act, 1990 were mere enabling provisions and had nothing to do with regular search and seizure which could only be done under S. 40 and in emergent case under S.40A of Sales Tax Act, 1990. General provisions of S.38 of Sales Tax Act, 1990 could not be made to circumvent or override Constitutional guarantees of an individual particularly under Art. 14(1) of the Constitution Provisions of Ss. 40 and 40-A of Sales Tax Act, 1990 gave specific procedure and contained specific conditions for conduct of search and seizure, while S.38 thereof contained no such limitations Amendments made in Ss.38 & 40-A of Sales Tax Act, 1990 did allow extraordinary powers to Sales Tax Officers, but same were 'definitely subject to Constitutional guarantees and their interpretation must conform to limits prescribed therein only possible and practical conclusion after reading all such three provisions together would be that provisions of S. 38 were not by itself search and seizure provisions, which must give way to two specific provisions of Ss. 40 & 40-A of Sales Tax Act, 1990. (h) That while declaring raid, search and seizure illegal in the aforesaid case his lordship was further kind enough to direct that none of the material records, books of accounts and articles, directly or in-directly be used in adjudication proceedings against respondents or for creating demand based upon in any other manner vide para-19 of the aforesaid judgment. It was held by his Lordship as under:-- "19. Accordingly for the aforesaid reasons both raids are declared to be against the provisions of section 38 and therefore, illegal and void ab initio. All evidence, material, documents records or accounts taken into custody in the process shall be returned to the petitioners. Also none of these materials, records, books of accounts and articles etc. Shall directly or indirectly be used in adjudication proceedings against the respondents or to create demand based thereupon in any other manner. In case of second petitioner, the impugned notice dated 30-9-2002 admittedly having been issued on the basis of the material collected in the said illegal raid, dated 26-6-2002 also suffers from another illegality inasmuch as no exceptional circumstances were brought home to order conduct of re-audit as contemplated in STGO No.9 of 1999, dated 2nd September, 1999." (i) That in similar situation Hon'ble Lahore High Court, Lahore was kind enough to declare the raid, search and seizure and subsequent acts and actions including show-cause notice, F.I.R., prosecution illegal and direct return of record to the owners of places searched in cases Messrs Food Consults (Pvt.) Ltd. Lahore and another v. Collector Central Excise and Sales Tax Lahore and 2 others (2004 PTD 1731). It was concluded by his lordship:-- "In view of the above discussion, it is held that in both the cases the purported visit or access by the concerned officers were raids designed at search and seizure of the records and assets which for the above recorded reasons are declared to be without lawful authority and of no legal effect. The proceedings and actions taken in consequent of such raids, searches and seizure including the issuance of any show-cause notice, registration of an F.I.R., the complaint, prosecution or recovery proceedings, are also adjudged to be illegal, unlawful and without lawful authority. The respondents shall in both cases (Food Consults and Diplex) return to the petitioners within a period of 30 days, the records, accounts, papers or the other property seized during ' such raids and searches. The respondents
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are further restrained from using the seized material or records etc. In any manner whatsoever in any proceedings or actions against the petitioners." (j) That recently this Hon'ble Lahore High Court, Lahore while allowing Writ Petitions Nos.12309 of 2003, 13339 of 2003 and 10510 of 2003 vide un-reported judgment dated 12-7-2004 passed in Writ Petition No. 12309 of 2003 held identical raid, search and seizure illegal and direct return of record and not to use the same against the petitioners. It was held by his lordship in above cases as under:-- "Therefore, the first five petitions are accepted and following the ratio settled in re: Messrs Ihsan Yousaf Textile Mills (Pvt.) Ltd. (Supra) I will direct that all evidence, material documents, record and accounts books taken into custody in the aforesaid raids, which are found to be illegal and void ab-initio, shall be returned to the petitioners. Also none of these material, records books of account and articles etc. Shall directly or indirectly be used in adjudication proceedings against the respondents or to create a demand based there upon in any manner." That recently the learned Divisional Bench of Hon'ble High Court Sindh at Karachi in case N.P. Water Proof Textile (Pvt.) Limited v. Federation of Pakistan and others (2004 PTD 2952) declared identical raid search and seizure and all subsequent proceedings illegal and of no legal consequences because the sales tax authorities failed to fulfill mandatory requirement of sections 40 and 40-A of Sales Tax, 1990. It was held by their lordships in the said case as under "Failure of tax officials to place any material before the Court to establish that there were sufficient reasons and grounds for bypassing normal course of action specified in S.40, Sales Tax Act, 1990 and resorting to provisions contained in S. 40-A of the Act---Action under S. 40A, in circumstances was not sustainable in law and consequently, the search and seizure was illegal and of no legal consequence---All subsequent proceedings held in pursuance of such illegal search' were also void ab initio and all proceedings actions taken were ordered to be quashed--- Concerned officials were directed to return all the documents to the petitioner if they were still lying with the departments, as the documents illegally procured could not be used for any action against the petitioner being inadmissible in evidence." (1) That similarly Hon'ble Supreme Court of Pakistan in case of Federation of Pakistan through Secretary Ministry of Finance Islamabad and 4 others v. Master Enterprises (Pvt.) Ltd. (2003 PTD 1034) held that Sales Tax authorities can only scrutinize the record resumed through a notice under section 38 of Sales Tax Act, 1990 that they are not authorized to conduct raid and make seizure, of record. By conducting raid, making search and seizure Sales Tax Department shall be deemed to have travelled beyond its scope which was in clear violation of law. The raid, search and seizure were declared without lawful authority and of no legal effect. It was held by their Lordships as under.-- "6. We are in full agreement with the contentions raised at the bar by the learned counsel for the respondent. Admittedly, the provisions of sections 40 and 40-A of the Act have not been complied with by the petitioners while conducting raid and seizing the documents. It is expressly stipulated in the above provisions that all searches made under Act or the Rules shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898 (Act V of 1998) (hereinafter referred to as the Code). Procedure regarding search has been laid down in sections 96, 98, 99-A and 100 of the Code whereby firstly, a search warrant is to be obtained from the Illaqa Magistrate when search of the premises is to be made. In view of section 103 of the Code, it is mandatory to join two or more respectable inhabitants of the locality in which the place to be searched is situated to attend and witness the search and a list of all articles taken into possession shall be. Prepared and a copy thereof shall be delivered there and then. Tough repeatedly called upon learned counsel for the petitioners failed to show from record that the above provisions of law were strictly followed while seizing the record and sealing the premises of the respondent-company. As
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such, we do not find any cogent reason to interfere with the impugned judgment which is unexceptionable." (m) That respondent No. 1 and his staff on the basis of illegal raid, search and seizure are un- necessary creating harassm ent for the appellant on the basis of impugned order which was passed on the record seized in un-lawful manner. It is submitted that record or any thing else seized in illegal raid and search cannot be made basis for creating demand nor same can .Be used against appellant as held by the superior courts in the cases referred above . Respondent No. 1 and his staff have to return the record to appellant. The denial on their part of returning the record and passing impugned order by respondent No.4 are illegal and without lawful jurisdiction. (n) That besides above, the appellant was never made any supply without payment of sales tax. The only element of further tax was involved in the case of the appellant who is ready to pay the same as also decided by respondents Nos. 2 and 3 while closing the case against the appellant. (o) That it also not understood as to how and why the show-cause notice was issued to the appellant on the basis of audit report which was reconciled and the matter was decided by respondents Nos. 2 and 3 that the appellant was only liable to pay further tax. In fact respondent No. 1 and his staff by violating the orders of their senior officers got the show cause issued to the appellant from respondent No. 4 due to mala fide on their part. It is submitted that the show-cause notice and impugned order are even against the record of the department according to which the appellant was only liable to pay further tax." 2. Subsequently the appellant filed additional grounds which are reproduced here under:-- ADDITIONAL GROUNDS: "(1) That the proceedings by the department, the show-cause notice and the order-in-original being passed on the basis of record documents and articles taken into possession by the department officials during illegal raid under sections 38, 40-A are illegal and without lawful authority and of no legal effect whatsoever. (2) That the appellant is not liable to pay any further tax as section 3-A has already been omitted from the statute. (3) That the impugned order being passed in violation of the provisions of law is liable to be set aside. (4) That the appellant pray to modify to amend and to reframe the grounds of appeal at the time of hearing. (5) That the appellant craves permission to and, alter, amend or withdraw any ground before or at the time of hearing." 3. The brief facts of the case giving rise to this appeal as mentioned in the impugned order and contended by the Learned representatives of appellant and the respondent department are that the business premises of the appellant was raided on 28-2-2002 by a team of department headed by the Assistant Collector (I & P) Central Excise and Sales Tax Multan. According to the learned counsel of the appellant the entire premises was searched by breaking the locks of the almirahs, draws etc. And the record and certain other things were seized and taken away by the respondent. Subsequently, the appellant was informed vide letter dated 1-1-2003 by the department that the raid was conducted under sections 38 and 40-A of the Sales Tax Act, 1990. All of the record as per contention of the appellant was taken into custody and the appellant was asked to furnish more record as mentioned in the above said letter dated 11-1-2003. Subsequently audit report was formulated by the department in which it was alleged that the appellant supplied taxable goods without payment of Sales Tax during 1-1-2001 to 30-6-2001, 1-7-2001 to 30-6-2002 and 1-7-2002 to 28-12-2002 to 62 different buyers and, thus, evaded Sales Tax. The appellant furnished detailed reply vide his letter dated 15- 7-2003 wherein it was explained that the entire supply was made on payment of sales tax and that
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no tax was evaded. The appellant through another letter dated 22-7-2003 also complained all the facts of the case. According to the learned counsel after submission of the replies of the appellant the matter was resolved and it was specifically informed to the appellant by the department through Letter dated 13-9-2003, 16-9-2003 and 19-9-2003. It has been contended that the appellant again received Letter on 16-7-2004 regarding the approval accorded for carrying out investigative audit of the appellant for the period 7/99 to 12/2000 and 1/2003 to 6/2004. The appellant approached the Collector and inform him regarding the earlier decision and the approval in this respect was subsequently withdrawn vide order dated, 16-8-2004. It is contended by the learned counsel of the appellant that in spite of the above said withdrawal of approval it was astonished for the appellant that again a show-cause notice dated 26-8-2004 was issued on the same allegations as indicated in the earlier audit report. He has contended that once the matter was directed to be closed by the Collector on 16-8-2004 there was no justification for again issuing a show-cause notice however, the appellant submitted reply to show-cause notice praying therein that the show-cause notice may please be withdrawn. But the respondent without taking into consideration the decision taken at the earlier stage has passed the impugned order dated 16-6-2005 holding therein that the appellant has made supply without payment of Sales Tax and further tax and is liable to pay the same along with additional tax. The learned counsel has contended that the entire action of conducting raid, carrying out search seizure of record, using the same against the appellant and all subsequent proceedings were illegal and void and the impugned order has been passed without taking into account, the reconciliation carried out and closure of the case of the appellant. According to the leaned counsel the impugned order is liable to be struck down. 4. On the other hand the learned DR is supporting the impugned order of the officer below. He has contended that during the scrutiny Checking of the party ledger, purchase register and other relevant record of the case it has been established that the appellant sold/supplied taxable goods without payment of Sales Tax and has evaded Sales Tax, therefore, it has rightly been directed through the impugned order to pay the tax along with further tax and additional tax along with penalty in accordance with law. 5. I have heard the learned representatives from both the sides and have also perused the relevant provisions of law, the case-law referred, the impugned Order-in-Original No. 643 of 2003 passed by the Additional Collector (Adjudication) dated 15-6-2005, the show-cause notice dated 26-7-2004, reply to show-cause dated 17-3-2005 and various letters sent by the department officials and their replies by the appellant. The appeal has been filed by the appellant directly before this Tribunal in accordance- with provision of section 46 of the Sales Tax Act, 1990 (as were at the time of filing the appeal) and the Adjudicating authority has specifically mentioned in order-in-original that:-- "any person or an officer of Sales Tax aggrieved by this order may appeal against it before the Appellate Tribunal within sixty days of the receipt of this order as per provisions of section 46 of the Sales Tax Act, 1990." Likewise the matter has been fixed before this single bench in accordance with the honourable Chairperson Circular dated 22-2-2010 in partial modification of the office circular dated 12-12-2009 in exercise of powers vested under section 130 (8-AA) of the Income Tax Ordinance, 2001 authorizing all the single benches constituted in the Appellate Tribunal Inland Revenue to hear and dispose of the cases where assessed income does not exceed to Ten Million rupees. Now coming to the facts of the case it is contended on behalf of the appellant that the business premises was raided by the team of the department on 28-12-2002 and the record including personal records, files; books of account, registers diaries and other articles were seized without any prior notice as required under the law. It is contended that all these seized documents records
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and articles were taken away by the department team and as per the letter C. No.11/02/I&P/13 dated 16-4-2003 issued by the department the raid has been conducted under sections 38 and 40-A of the Sales Tax Act, 1990 but placing reliance on the decisions on the honourable Higher Courts, it has been contended that action of the department is not in accordant with law. In this respect the case of Messrs Ahsan Yousaf Textile Mills (Pvt.) Ltd. v. Assistant Commissioner in Writ Petition No. 19482 of 2002 order dated 21-5-2003 reported as GST 2003 CL 338 (Lahore HC) has been referred. Wherein it has been held that all evidence, material documents and record of accounts taken into custody in the process of raid under section 38 of the Sales Tax Act shall be returned and no case shall be made on the basis of the aforesaid material. It is further held that section 38 when read with these of the following provisions of sections 40. And 40A contemplate a routine visit by an officer in a jurisdiction. It is only on such visit, without previous planning or without having the intention of taking into custody any particular material or documents that the officer finds some books of accounts, stocks record, documents or other information which may be required for any "inquiry or investigation in any tax fraud committed by him or his agent or any other person...." that he may take them into his…
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