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Petitioner: Directorate of Intelligence & Investigation-FBR, through its Director & others VS Respondent: Taj International (Pvt) Ltd & others
Court Name: Supreme Court of Pakistan Judge(s): Shahid Waheed, Irfan Saadat Khan, Aqeel Ahmed Abbasi Title:Directorate of Intelligence & Investigation-FBR, through its Director & others
vs Taj International (Pvt) Ltd & others Case No.:Civil Appeals No.350 To 698 Of 2016, 424, 511, 512, 673, 1183 And 1184 Of 2020, Civil Petition No.1066 Of 2018, Criminal Appeal No.177 Of 2019 And C.M.A. No.12231 Of 2021 In Civil Appeal No.673 Of 2020. Date of Judgment:2024-12-04 Reported As: 2025 SCP 235 Result: Petition Dismissed Judgment
JUDGEMENT AQEEL AHMED ABBASI, J.- Through this consolidated judgment, we intend to decide all the listed matters as they involve common questions of law. 2. In the above bunch of cases, the judgment dated 19.09.2013, passed by the Divisional Bench of Lahore High Court, is the first judgment, wherein, after detailed scrutiny of the facts and the examination of the relevant legal provisions, particularly, the scope and the application of Section 37A of the Sales Tax Act, 1990 (the "Act"), as well as legality of pre-trial steps including arrest and detention of a person pursuant to registration of FIR on the charges of tax fraud, has been decided. Whereas, in nutshell, it has been held by the Lahore High Court that unless the sales tax liability of the taxpayers is determined in accordance with Section 11 of the Act, above penal provisions, cannot be invoked, therefore, the criminal proceedings initiated by the sales tax department, the registration of FIRs and arrest made pursuant to FIRs, is illegal and without lawful authority. Accordingly, the same were quashed for being unconstitutional, violative of fundamental right, ultra vires to the Sales Tax Act, 1990. The reasoning of the above conclusion by the Division Bench of the Lahore High Court will be discussed in detail in later part of the judgment for being more elaborate and exhaustive on the legal issue to be decided by us. In Civil Appeal No.511/2020 arising out of judgment dated 07.04.2015 passed by the Peshawar High Court in Writ Petition No.1076- P/2012 titled Pakistan Accumulator (Pvt) Ltd. Vs. Federation of Pakistan, under similar facts and
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circumstances, registration of FIR was declared to be, without jurisdiction and of no legal effect, consequently, the same was quashed while placing reliance in the judgment of the Lahore High Court in the case of Taj International (Pvt) Ltd. vs. F.B.R. (2014 PTD 1807) as referred to hereinabove. Whereas, in Criminal Appeal No.177/2019 titled as Directorate of Intelligence & Investigation, F.B.R. Vs. Naeem Ahmed Siddiqui filed against the order dated 11.12.2018 passed by the learned Single Judge of Islamabad High Court in Criminal Appeal No.134/2017, similar FIR has been quashed and the SRO 116/2015 has been declared to be ultra vires vide judgment dated 06.07.2018 in the case of M/s. F. M. Textile and others vs. F.B.R (2017 PTD 1875 Lahore), whereas, reliance has also been placed in the case of Taj International (Pvt) Ltd. vs. F.B.R. etc. (2014 PTD 1807). In the aforesaid judgment, in addition to determination of scope, and application and initiation of proceedings under the provisions of Section 37A of the Act before assessment or determination of sales tax liability, the provisions of Section 74A incorporated through amendment dated 31.10.2018 made in the Sales Tax Act, 1990, have also been examined, and it has been held that validation provision does not cover Section 30 (E), rather it only provides protection to the extent of appointment in terms of Section 30(A), whereas, since the Notification SRO 116(1)/2015 was issued by the FBR and not by the Director General (Intelligence & Investigation) as referred in Section 30(A), therefore, powers conferred under aforesaid SRO were not available to the complainant of FIR No.08/2015, hence, registration of criminal cases, which was not validly authorized, is of no legal effect, which otherwise could not be given retrospective effect. 3. In Civil Appeal No.600/2016 filed against the judgment of Sindh High Court in C.P.No.D-2273/2011 and others in the case of Waseem Ahmed and another vs. Federation of Pakistan (2014 PTD 1734), whereby, 485 Constitutional Petitions were filed against registration of FIRs and submission of interim challan by the Directorate of Intelligence & Investigation, FBR, on the allegations of tax fraud, issuance of fake sales tax invoices to claim inadmissible input adjustment/refund of sales tax, however, before determination or assessment of tax liability under the Sales Tax Act, 1990. The Divisional Bench of the High Court of Sindh, after having examined the relevant facts and law applicable here to, decided the same in the following terms:- "62. Accordingly, in light of the foregoing discussion and analysis, and subject to the last preceding paragraph, we dispose off these petitions in the following terms: A. As to the jurisdictional point: a. SRO 48/2008 is declared to have been validly issued and effective accordingly. b. SRO 56/2010 is declared to be invalid, but its invalidity merely meant that SRO 48/2008 continued to effectively hold the field. c. SRO 775/2011 is declared to be ultra vires the Sales Tax Act. d. SRO 776/2011 is declared to be invalid, but its invalidity merely meant that, as before, SRO 48/2008 continued to effectively hold the field. e. Notwithstanding the changes in Sections 30 and 30A, SRO 48/2008 continued to remain effective for all purposes and it is declared that for the reasons as stated (i) the reference therein to officers of Sales Tax subsequently became a reference to officers of Inland Revenue, and (ii) the reference to the DG (I&I)-FBR subsequently became a reference to the DG (I&I)- IR. f. Notwithstanding sub-paragraph (e), it would be appropriate if FBR, in supersession of previous notifications, issues a fresh notification under Sections 30 and 30E that complies with both the required conditions, i.e., declares the officers of the DG (I&I)-IR "to be" officers of Inland Revenue (Section 30) and establishes their jurisdiction, etc. in relation to specified provisions (Section 30E). B. As to registration of FIRs, submissions of challans and notices under Section 37 in relation to the criminal cases: g. The FIRs, and the challans submitted and notices issued on or before 30.06.2011 and any investigation carried out by or before that date were validly issued and undertaken by the officers
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of the DG(I&I)-FBR and within jurisdiction. h. The challans submitted and notices issued on or after 01.07.2011 by officers of the DG(I&I)-FBR were irregular as this Directorate General had ceased to be of relevance for the Sales Tax Act on and after that date, but for reasons stated such irregularity does not vitiate their validity nor invalidate any investigation or inquiry nor render defective or invalid any proceedings taken before the Special Judge by such officers. i. All acts and proceedings with regard to the criminal cases (including by way of any further investigation) can now be done and/or continued only by officers of the DG(I&I)-IR, duly authorized and empowered under SRO 48/2008 or any subsequent validly issued notification. References herein below to "prosecution" shall thus mean and be references to the officers of the DG(I&I)-IR. j. If at any time the Federal Government validly exercises its powers under Section 37B (13), this paragraph 62 shall apply, mutatis mutandis, to the officers so notified. C. As to proceedings before the Special Judge: k. The Special Judge has jurisdiction only in relation to those clauses of Section 33 as create criminal offences. l. The proceedings pending before the Special Judge shall be taken and continued only in the manner as herein after stated, except bail applications and proceedings in the nature of Section 265-K, CrPC, which may be taken up at any time in accordance with law. However, the listing and/or hearing of the applications under Section 265-K shall be subject to such case management directions as the Special Judge may deem appropriate. m. The prosecution shall, within eight weeks, or such further time as may be granted by the Special Judge distinguish, identify, isolate and establish the relevant supply chains in respect of the transactions in relation to which challans have been submitted, in the first instance limiting the exercise only to those persons nominated in the challans, clearly showing the various suppliers along each supply chain and identifying the other persons (if any) who are accused of tax fraud as abettors, or connivers or are otherwise alleged to be involved in respect of any transaction along any supply chain amounting to any criminal offence under the clauses of Section 33. n. Once the supply chains have been established as above (or as each supply is so established, as the Special Judge may deem appropriate) the prosecution shall in respect of each such chain satisfy the Special Judge, "link" by "link", "block" by "block" in the manner as stated herein above, as to the alleged culpability of each person appearing on the supply chain and every other person (if any) alleged to be an abettor, conniver or otherwise involved in the tax fraud or any other criminal offence under the clauses of Section 33. o. The person whose matter is being so considered by the Special Judge shall be entitled to be present or represented at such consideration. p. If the Special Judge is satisfied that, on applying the law, inter alia, in terms as stated and explained in this judgment, there is no probability of the person under consideration being convicted of the criminal offence of tax fraud or any other criminal offence under any clause of Section 33, such person shall be discharged forthwith, whether by way of acquittal or otherwise as appropriate. q. In considering the case of any person, the Special Judge shall, inter alia, take into consideration the acquittal (if any) of any person antecedent or subsequent (as the case may be) on the relevant supply chain for the reasons as explained herein above (see in particular para 50). r. Once the supply chains have been considered as above, the Special Judge shall then proceed to consider the challans in respect of the persons not discharged or acquitted in terms as above and shall then (without prejudice to the next succeeding subparagraph (s)) if he is satisfied with regard to the challans proceed to try such persons in accordance with law. It is clarified that
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nothing in this paragraph 62 shall preclude the Special Judge from considering in accordance with law an application moved by an accused under Section 265-K CrPC at or during such trial. s. The prosecution may at any stage, but with the prior permission of the Special Judge to be given in writing, continue investigation in respect of any supply chain identified and established in terms of sub-paragraph (m), but any person nominated on the basis of such further investigation shall, before he is put to trial, be dealt with in the first instance, mutatis mutandis, in the manner as herein before stated. It is clarified that the investigation referred to in this sub-paragraph includes proceedings in respect of or under any notice already issued under Section 37. t. Without prejudice to the next succeeding subparagraph (u), the accused on each supply chain shall be tried together but separately from the accused of another supply chain unless the Special Judge, for reasons to be recorded in writing, concludes that it would be appropriate to hold one trial in respect of more than one supply chain. Thus, it is expected that there will be more than one trial and it may be that one person, if he is an accused on more than one supply chain, will be tried in like manner. For purposes of proper case management of the trial(s) or for any other direction or guidance consistently with this judgment that may be deemed necessary, the Special Judge (but only he) may apply, either himself or on the request of the prosecution or any accused, for directions from the High Court. Any such application shall be placed before the Hon'ble Chief Justice for such orders, directions or disposal as are deemed appropriate. u. Nothing in sub-paragraph (t) shall prevent the Special Judge, for reasons to be recorded in writing, for ordering the trial of any person or persons in a manner other than that specified in the said sub-paragraph (t) if the offence(s) of which the said person or persons are to be charged do not include the offence of tax fraud. It is however clarified that no such trial shall prevent the subsequent trial, if so warranted in accordance with law, of any such person or persons for the offence of tax fraud. v. Any person who has given (or may at any stage be required to give) post dated cheque(s) or other security may be required by the Special Judge to keep the cheque(s) from going stale in such manner as the latter may deem appropriate, but any such cheque(s) shall not be ordered to be encashed nor any such security forfeited except (i) on account of violation of any bail granted should such person be on bail; or (ii) on the conviction of the said person for any criminal offence and then only in relation to payment of any fine that may be imposed by the Special Judge. D. As to proceedings in respect of Section 37 notices already issued in relation to the FIRs and further investigations in respect of the FIRs/criminal cases: w. These matters shall be dealt with in terms as stated in subparagraph (s) above. E. As to proceedings in respect of Section 37 notices issued in relation to tax fraud or any other act by way of departmental proceedings (i.e., not for a criminal offence): x. These proceedings may be continued in accordance with law. However, if such proceedings terminate (either at the show cause or any appellate or subsequent stage) in favor of the person against whom they were initiated, and such person is also nominated in terms as herein before stated and proceedings against him are continuing before the Special Judge, the relevant order may be placed before the latter and he shall, after giving notice to the prosecution, and treating the matter before him as being under Section 265-K, CrPC or of such nature, consider the person's case, mutatis mutandis, in terms of sub-paragraph (p). In the present context, the Special Judge shall, in particular, keep in mind para 59 of this judgment. 63. The petitions stand disposed of in the above terms. The office is directed to immediately send a copy of this judgment to the Special Judge for implementation. There will be no order as to costs." 4. Since the judgment of Lahore High Court being the first judgment on the legal issues involved in the above cases, therefore, we will examine the relevant facts giving rise to filing of large number of
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Constitutional Petitions before the Lahore High Court. As per the facts recorded by the Lahore High Court, the criminal prosecution was initiated under Sections 37A and 37B of the Act for the alleged offence of tax fraud against 134 persons along with "other beneficiary being sale tax registered persons of the tax fraud" and "other persons due to whose criminal negligence/connivance, the tax fraud occurred/was committed." The Additional Director, Intelligence & Investigation, FBR, Regional Office, Lahore documented the said allegations in the shape of First Information Report (FIR No.4/2011) dated 26.3.2011, which reveals that on receipt of some credible information, a cartel of fraudsters was involved in the issuance of fake sales tax invoices for the purposes of generating illegal/inadmissible input tax adjustments. Accordingly, criminal prosecution was initiated against some persons, which further led to unearthing of a mega scam of sales tax evasion of Rs 7.5 billion involving 144 dummy suppliers who " issued fake sales tax invoices." As per the said FIR, this gang of fraudsters issued fake invoices to various registered persons who claimed input tax on the basis of the same causing a huge loss to the exchequer. It has, therefore, been alleged that respondents have committed the offence of tax fraud, therefore, liable to arrest and criminal prosecution. Similar allegations have been levelled in other FIRs in the connected matters. 5. Being aggrieved and dissatisfied with the registration of FIR and initiation of criminal proceedings on the allegation of tax fraud, a large number of aggrieved persons approached the Lahore High Court, by filing Writ Petitions under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, with the following prayers: "In view of the above, it is most respectfully prayed that this honorable Court may graciously declare and direct that the notification no. SRO 56(1)2010 dated 02-02-2010 and subsequent SROs Issued by. the respondent Federal Board of Revenue, the constitution of the Directorate of Intelligence and Investigation as well as lodgment of all proceedings/reports under unlawful exercise of powers with reference to Section 2(37) and Sections 37, 37A, 37B, 38, 38A, 38B, 40, 45B, 46 and 47, In absence of a valid notification under Section 30, 30A and 30E of the Sales Tax Act 1990, is without lawful authority and is of no legal effect; the same be struck down accordingly. It is further prayed that during pendency of proceedings before this honorable Court the Impugned SRO be suspended and the proceeding under the impugned actions may graciously be suspended and the respondent's authorities be restrained from proceeding further in any manner with Investigating and or arrest the petitioners/directors / officers till decision of the case herein; the encashment of the furnished cheques be also restrained." 6. The thrust of the arguments of the learned counsel representing the petitioners (respondents before this Court) before the Divisional Bench of the High Court in the aforesaid cases was that the criminal prosecution including arrest of a person under Section 37A of the Act can only be made after the tax liability of a person has been duly assessed under Section 11 of the Act. While referring to the list of offences under Section 33 of the Act, the learned counsel for the petitioners laid emphasis on, the term ""shall be further liable" appearing in the column of penalties to underline its chronological significance. They submitted that only after determination of the tax liability (i.e, civil liability) through assessm ent and adjudication, criminal prosecution can be initiated in case of tax fraud. It was further argued that under Section 37A (4), the Commissioner at any stage can compound the offence if the taxpayer pays the amount of tax due alongwith default surcharge and penalty as is determined after the assessment of tax liability under the Act. It was further argued that the fines available under Section 33 of the Act are dependent on the amount of "tax involved" hence no sentence can be awarded unless the amount of sales tax is first determined, which Authority is not vested in the Special Judge, especially, when civil adjudication system for determination of amount of sales tax is specifically provided for under the Act. In the present case and in many other cases, it has been additionally pointed out that, the learned Appellate Tribunal Inland Revenue under the civil adjudicatory system, has already held that the petitioner has not
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committed any tax fraud and therefore, is not liable for any additional tax liability or penalties. However, according to learned counsel for appellants/petitioners, the respondents are still pursuing with the criminal prosecution, without any factual or legal justification against the petitioners. Reference in this regard has been made to an Order of the ATIR, Lahore dated 5-6-2012 passed in STA No. 478/LB/2012. It was also argued that the Additional Director, Intelligence and Investigation, FBR does not have the jurisdiction to initiate criminal prosecution, as the said Directorate exercises no jurisdiction under the Act.7. Conversely, the learned counsel representing the respondents (appellants/petitioners before this Court) in the Writ Petition before the Divisional Bench of Lahore High Court, argued that civil and criminal proceedings are not mutually exclusive, hence, can be initiated and proceed simultaneously, whereas, the department has been given the choice to opt for either of the two enforcement mechanisms. According to learned counsel for respondents, criminal prosecution can be triggered if material evidence is available and the concerned officer has reason to believe that the taxpayer has committed tax fraud or any offence warranting prosecution. According to learned counsel, the term "shall be further liable" appearing in the list of penalties under Section 33 of the Act does not have a chronological significance, but in fact provides for two different sets of penalties; one on the civil side and the other on the criminal side and both of them are, independent of each other. 8. It is also pertinent to note that during course of hearing before the Divisional Bench of Lahore High Court, learned counsel for the respondent department frankly volunteered to submit that recourse to recovery of tax under the civil regime of the Act has not proven effective over the years and, therefore, criminal prosecution is the preferred choice of the department in cases where there is material evidence attracting Section 37A. It was further argued that compoundability of the offence is on the basis of the amount of tax due according to the calculation of the respondent department, rather than on the basis of the amount determined through adjudicatory process under the Act. According to learned counsel assessment of tax due through civil adjudication under the Act has no bearing on the initiation of criminal proceedings against the person who is involved in tax fraud, whereas, criminal investigation and arrest supports the assessment and adjudication of tax liability of a registered person. Mr. Salman Akram Raja, learned ASC appearing on behalf of the appellants/petitioners in the above matters while re-iterating hereinabove submissions made before the Division Bench of the Lahore High Court has further submitted that as per scheme of the law the Inland Revenue Officer is empowered to proceed against the registered person only for the purposes of assessment of tax liability under Section 11 of the Act whereas, the provisions of Section 37A read with Section 37B can be invoked against the persons who were abettors and connivers in the commission of tax fraud who generate fake invoices in order to enable the registered tax payer to evade the tax. According to learned counsel, in order to ensure tax compliance and to create deterrence against the commission of tax fraud the criminal provisions i.e. Sections 37A and 37B have been provided under the Act which can be invoked independently irrespective of assessme nt proceedings under Section 11 of the Act. 9. Having taken into consideration the submissions of the parties both on factual as well as legal aspects of the matter, we may examine the relevant provisions of the Sales Tax Act, 1990 with particular reference to charge, scope and application thereof on the facts of the above cases. The Sales Tax Act, 1990 has been introduced through Act (VII) of 1990, while amending the Act No. (III) of 1951 to consolidate and amend the law relating to the levy of a tax on the sale [importation, exportation, production, manufacture or consumption] of goods. Sale tax is species of indirect tax the incidence of which falls on the registered person under the Act, who is engaged in the sales, importation, exportation, production and manufacture of goods, however, its burden is borne by the end consumer unlike in the case of any direct tax in which the incidence and the burden is upon the same person i.e. Tax Payer. It is also regarded as value addition tax levied at multiple
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stages i.e. imports, exports, manufacture and sales of goods in respect of any taxable activity by a registered person. The scope of sales tax has been defined in Chapter-II under the heading "SCOPE AND PAYMENT OF TAX" in terms of Section 3 of the Act which reads as follows: - 3. Scope of Tax. -- (1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of (eighteen) per cent of the value of - (a) taxable supplies made by a registered person in the course of furtherance of any [taxable activity] carried on by him; and (b) good imported into Pakistan [irrespective of their final destination in territories of Pakistan]. (1A) Subject to the provision of sub Section (6) of Section 8 or any notification issued thereunder, where taxable supplies are made to a person who has not obtained registration number 148[or he is not…
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