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Petitioner: AGHA STEEL INDUSTRIES LTD. through Authorized Company Secretary and another VS Respondent: DIRECTORATE OF INTELLIGENCE AND INVESTIGATION through Director and 2 others
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:AGHA STEEL INDUSTRIES LTD. through Authorized Company Secretary and
another vs DIRECTORATE OF INTELLIGENCE AND INVESTIGATION through Director and 2 others Case No.:C.M.A. No.1668 of 2019 in Suit Nos. 200 of 2019 and C.M.A. No.1671 of 2019 in Suit No. 201 of 2019 Date of Judgment:2019-06-15 Reported As: 2020 P C T L R 641, 2019 PTD 2119 Result: Order accordingly. Judgment ORDER MUHAMMAD JUNAID GHAFF AR, J. Both these Suits are somewhat connected with each other . In Suit No. 200/2019, the Plaintif f has impugned three Notices and Authorizations dated 30.01 .2019 issued under Section 175 of the Income Tax Ordinance, 2001 (Ordinance 2001) and Sections 38 and 40B of the Sales Tax Act, 1990 (1990 Act). In Suit No. 201/2019, the Plaintif f has impugned two Letters/Notices and Authorizations issued under Section 175 of the Ordinance, 2001 and Section 38 of the 1990 Act. Listed applications in both Suits have been heard together and they are being decided through this common order . Plaintif fs' case in both these Suits is to the effect that these Notices and Authorizations were issued simultaneously on the same date and their offices and factories were raided; were harassed by a team of the department, whereafter , they have taken away the entire record and have threatened unlawful actions against the Plaintif fs; hence instant Suit(s). On 01.02.2019, by way of an ad- interim order , the Defendants were restra ined from taking any coercive action pursuant to the impugned notices and authorizations, raid conducted and impounding of records including any recovery proceedings. 2. Learned Counsel for the Plaintiff has contended that the Plaintiff in Suit No. 200/2019 has established a State of the Art Steel Factory based on an electric furnace; whereas, in terms of Sales Tax Special Procedure Rules, 2007 under Rule 58H, the Plaintiff is required to pay fixed sales tax on the basis of electricity consumed, and therefore the liability to pay sales tax is itself crystallized and there can be no question of alleged short payment or evasion of sales tax.' According to the learned Counsel, sales tax returns are being filed regularly and there was no occasion for the Defendants to take and initiate such an adverse action. Per learned Counsel, the Defendant No.1 i.e. Directorate of Intelligence and Investigation, Inland Revenue, has no lawful authority and
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jurisdiction to exercise any powers under Section 38 of the 1990 Act and Section 175 of the Ordinance, 2001, whereas, the attempt by FBR through issuance of S.R.O. 1301(1)/2018 and S.R.O.1302(I)/2018 both dated 28.10.2018 is an eyewash and no jurisdiction can be conferred upon the Directorate of Intelligence by implication. Learned Counsel has then referred to the conduct of raid and the photographs from the CCTV coverage, and has contended that the entire staff including female staff was held hostage, threatened and coerced in a very indecent manner, which has seriously prejudiced and tarnished the image of the Plaintiffs as well. Per learned Counsel such exercise was carried out without any female official and threats of arrest were also given. Per learned Counsel it is only the concerned Commissioner, who has been conferred jurisdiction under Section 175 of the Ordinance, 2001 and Section 38 of the 1990 Act, who could exercise such powers and not the Directorate of Intelligence under the garb of any notification. According to him, if the Act confers powers on a specific authority, then any other person or officer cannot be conferred any such powers. Insofar as the purported action under Section 40B of the 1990 Act against the Plaintiff in Suit No. 200/2019 by FBR is concerned, again learned Counsel submits that the said letter has been issued by some Second Secretary, who is not authorized to exercise jurisdiction under Section 40B of the 1990 Act; hence the same is also without lawful authority and jurisdiction. He has further argued that the monitoring of the factory in terms of Section 40B of the 1990 Act is also unlawful and illegal inasmuch no reason has been assigned as to why such powers are being exercised and such an extreme order is being passed, whereas, no inquiry or investigation was pending against the Plaintiffs at the relevant time. He has further argued that while exercising powers to carry out such a harsh action, the discretion must be exercised with restraint and only in exceptional circumstances; but not as a matter of routine. According to the learned Counsel it has been alleged that the Plaintiff in Suit No.200/2019 was using gas furnace for its production and thereby allegedly was evading sales tax, whereas, according to him Sui Southern Gas Company Ltd. has confirmed that there is no gas connection installed at the premises of the Plaintiff; hence the entire case setup on the basis of a vilification campaign through social media has been exposed. According to him the machinery installed at the factory of Plaintiff in Suit No.200/2019 works on an Electric Furnace and not on natural Gas as alleged. Learned Counsel has prayed that all these impugned notices be set aside and record resumed by the department/defendant be returned and they may be restrained from taking any action pursuant to the illegal raid and monitoring of the factory premises till final adjudication of these Suits. In support of his contention he has relied upon the cases of National Bank of Pakistan and 117 others v. SAF Textile Mills Ltd. and another reported as PLD 2014 SC 283, A.M.Z. Spinning and Weaving Mills (Pvt.) Ltd. through Manager Finance v. Federation of Pakistan through Secretary , Revenue Division reported as 2009 PTD 1083 , N.P. Water Proof Textile Mills (Pvt.) Ltd. Through Director v. Federation of Pakistan through Secretary Revenue Division/Chairman, Central Board of Revenue, Islamabad and another reported as 2004 PTD 2952 , Shahzad Ahmed Corporation through Shahzad Ahmed v. Federation of Pakistan through Secretary , Ministry of Finance, Government of Pakistan, Islam abad and 2 others reported as 2005 PTD 23, Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tech (Pvt.) Ltd. reported as 2005 SCMR 1166, Messrs Z&J Hygienic Products (Pvt.) Ltd. v. Commissioner Inland Revenue, Sales Tax Gujranwala and others reported as 2014 SCMR 30, Collector of Sales Tax and others v. Messrs Food Consults (Pvt.) Ltd. and another reported as 2007 PTD 2356 , Messrs Munir Foundry v. C.I.R. (Appea ls-II), Lahore and others reported as 2016 PTD (Trib.) 485, K.K. Oil and Ghee Mills (Pvt.) Ltd. v. Federation Board of Revenue and others reported as 2016 PTD 2601 and Chairman, Regional Transport Authority , Rawalpindi v. Pakistan Mutual Insurance Company Limited, Rawalpindi reported as PLD 1991 SC 14 . 3. On the other hand, learned Counsel for Defendant No.1 i.e. The Directorate of Intelligence has contended that proper jurisdiction and authority has been conferred vide S.R.O.1301(I)/2018 and S.R.O.1302(I)/2018 both dated 29.10.2018, and therefore, the entire action was lawful and within the mandate of law. He has also referred to Sections 30A and 30E of the 1990 Act in support of his contention. Per learned Counsel it is the case of Defendant No. 1 that huge amount of sales tax has been evaded inasmuch the Plaintif f in Suit No. 200/2019 was using a gas connection and supply from the Plaintif f in Suit No.201/2019, and thereby has evaded huge amount of sales tax and such liability has been worked out from the resumed record to the extent of Rs.775.268 Million. According to
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him in view of such position, the Suit is not maintainable as 50% of this amount is to be deposited pursuant to the Judgment of Hon'ble Supreme Court in the case reported as Searle IV Solution (Pvt.) Ltd and others v. Federation of Pakistan and others (2018 SCMR 1444 ). He has further argued that since evasion was taking place and credible information was received, the action under Section 38 of the 1990 Act and under Section 175 of the Ordinance, 2001 was taken lawfully . 4. Mr. Muhammad Aqeel Qureshi, learned Counsel for Defendant No.2 (Commissioner Inland Revenue) has contended that pursuant to directions of the Board dated 30.1.2019 action under Section 40B of the 1990 Act was taken for monitoring of the production and such action is lawful and without any illegality . According to him the Board has been conferred such powers and there is no restriction or rider attached to the exercise of such powers, therefore, the objection taken by the taxpayer is not justified. According to him there was some credible information with the Board that huge amount of sales tax was being evaded; hence the action was required and taken in accordance with law. Per learned Counse l, law does not require that any reason be assigned for initiating such an action, therefore, the listed applications are liable to be dismissed. In support of his contention he has relied upon the cases of Messrs Vincraft (Pvt.) Ltd. through authorized Representative v. Federal Board of Revenue through Chairman and 4 others reported as 2017 PTD 2114, Commissioner Inland Revenue Karachi v. Pakistan Beverages Limited Karachi reported as 2018 PTD 1559 , Messrs BILZ (Pvt.) Ltd. v. Deputy Commissioner of Income Tax, Multan and another reported as 2002 PTD 1, Messrs Indus Basin and Co. v. Comm issioner of Income Tax reported as 2002 PTD 2169 , Messrs Pirani Engineering through Chief Financial Officer v. Federation Board of Revenue and 2 others reported as 2009 PTD 809, Messrs Imperial Builders through Manager v. Province of Punjab through Secretary Legal Government and another reported as 2009 PTD 744, Kundan Bibi and others v. Walayat Hussain, Controller of Estate Duty, Government of Pakistan and another reported as 1971 PTD 43, Commissioner Inland Revenue Zone-I, RTO, Hyderabad v. Messrs Hyderabad Electric Supply (HESCO) Hyderabad reported as 2014 PTD 951 and Taj International (Pvt.) Ltd. and others v. Federation Board of Revenue and others reported as 2014 PTD 1807 . 5. Learned Assistant Attorney General has argued that the Plaintif fs have not challenged the vires of Section 175 of the Ordinance, 2001, and Section 40B of the 1990 Act, for that matter , whereas, the impugned action has been taken in accordance with law. According to him the provision of Section 40B does not stipulate assigning of any reason; however , in view of the latest pronouncement of the Han'ble Supreme Court in the case of Pakistan Beverage Limited (Supra), a certain time frame for monitoring purposes in inevitable, being binding in nature. He further submits that the process of natural justice has been adhered to, whereas, there is no violation of Article 10A and Article 18 of the Constitution as contended. 6. I have heard all the learned Counsel and perused the record. In Suit No. 200/019, the Plaintif f is aggrieved by the authorization of officers to have access under Section 175 of the Ordinance, 2001 dated 30.01.2019 issued by the Director Intelligence. A similar type of notice is also impugned in the connected Suit. Similarly , the said Defendant has also issued an authorizati on on the same date under Section 38 of the 1990 Act, which states that the same has been issued in exercise of powers conferred vide S.R.O.1301(1)/2018 and S.R.O.1302(1)/2018 both dated 29.10.2018, whereas, the third impugned letter (only in Suit No.200/ 2019) is also of the same date issued by Second Secretary addressed to the Chief Commissioner Inland Revenue in terms of Section 40B of the 1990 Act, whereafter in compliance thereof, Commissioner has posted his officers for monitoring. I would be dealing with all three impugned notices separately in this order , one by one, as to their validity and being in accordance with law or otherwise. It would be advantageous first to refer to notice dated 30.01.2019 issued under Section 175 of the Ordinance, 2001, which reads as under:-- Government of Pakistan Directorate of Intelligence and Investigation (Inland Revenue), Karachi C. No. Dir/S.175/1&I-IR/Agha/2018-19/790 Dated 30.01.2019 The Principal Of ficer, M/s Agha Steel Industries Private Limited,
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Plot No. N.W .I.Z/1/P-133, (SP-6)D-2, Port Qasim Authority , Bin Qasim Town, Malir , Karachi. SUBJECT : AUTHORIZA TION OF OFFICERS TO HAVE ACCESS UNDER SECTION 175 OF THE INCOME TAX ORDINANCE, 2001. In exercise of powers conferred upon the undersigned vide Notification No. 115(1)/2015 dated 09.02.2015, the following officers/of ficials, of this Directorate having jurisdiction, are authorized under Section 175 of the Income Tax Ordinance, 2001 to have access to the premises, (either declared as mentioned above or any other where record is kept) accounts, documents or computer , and to impound or to take extracts or copy of such material and/or examine and prepare notes, details of inventory and its valuation or computer disk or information from hard disk or inventory of any article found at anyplace of Messrs Agha Steel Industries Private Limited (NTN-7383402-0) or the earlier AOP (NTN-3922640-9) maintained by them and/or by any other person in its behalf. S.No. Name Designation 1. 2. 3. 4. 5. 6. 7. 8.
2. The officers authorized shall handover a copy of inventory of goods and material to the person(s) available on premises and/or put/ affix on the conspicuous place in case of refusal of such person(s) to receive or accept. In the later situation, may also send such copy through registered/courier service as early as possible. The officers may keep in mind the enquiry/ investigation relating to tax issues only . 3. The report of the of ficial activity must be communicated to the undersigned during the very next working day . (Abdul Rahim Bullo) Director 7. Perusal of the above purported authorization reflects that it has been issued by the Director of Intelligence in terms of powers conferred upon him vide SRO 115(1)/2015 dated 9.2.2015. Besides this there is nothing in the authorization as to why it has been issued and whether the same has been done on the basis of any information or directions or for that matter , in respect of any pending proceedings. It is completely silent in all respects, except the last line of Par-2 thereof, in which the officers have been directed to keep in mind the enquiry/ investigation relating to tax issues only. Now what does this means and what inference is to drawn from this is not clear . Nor the learned Counsel representing the Director Intelligence made any effort to assist the Court in this regard. Are the officers so authorized do indulge in anything else? If not, then why they have been asked to confine themselves to the enquiry and investigation relating to tax issues only. And what enquiry? Nothing has been brought on record to this effect. Rather , the Court kept on asking about any pending proceedings against the Plaintif fs, but no such material was placed before the Court; nor any such plea was even raised. To this Court, it only appears to be a letter prepared generally for all such acts of authorization of officers, without any application of a prudent mind and examination of relevant facts of the case by the Officers. Insofar as Section 175 of the Ordinance 2001, is concerned the same reads as under:- "175. Power to enter and search premises . (1) In order to enforce any provision of this Ordinance (including for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorized in writing by the Commissioner for the purposes of this section- (a) shall, at all times and without prior notice, hive full and free access to any premises, place, accounts, documents or computer;
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(b) may stamp, or make an extract or copy of any accounts, documents or comp uter-stored information to which access is obtained under clause (a); (c) may impound any accounts or documents and retain them for so long as may be necessary for examination or for the purposes of prosecution; (d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information required; and (e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a). (2) The Commissioner may authorize any valuer or expert to enter any premises and perform any task assigned to him by the Commissioner . (3) The occupier of any premises or place to which access is sought under subsection (1) shall provide all reasonable facilities and assistance for the ef fective exercise of the right of access. (4) Any accounts, documents or computer impounded and retained under subsection (1) shall be signed for by the Commissioner or an authorized of ficer. (5) A person whose accounts, documents or computer have been impounded and retained under subsection (1) may examine them and make extracts or copies from them during regular office hours under such supervision as the Commissioner may determine. (6) Where any accounts, documents or computer impounded and retained under subsection (1) are lost or destroyed while in the possession of the Commissioner , the Commissioner shall make reasonable compensation to the owner of the accounts, documents or computer for the loss or destruction. (7) This section shall have effect notwithstanding any rule of law relating to privilege or the public interest in relation to access to premises or places, or the production of accounts, documents or computer-stored information. (8) In this section, "occupier" in relation to any premises or place, means the owner , manager or any other responsible person on the premises or place." 8. Section 175 provides that to enforce any provision of this Ordinance, including for the purposes of making an audit of a taxpayer , or a survey of persons liable to tax, the Commissioner or any officer authorized in writing by the Commissioner for the purposes of this Section shall, at all times and without prior notice, have full and free access to any premises, place, accounts, docum ents or computer; and is further authorized to make an extract or copy of any accounts, or information stored in computer or may impound any accounts or documents and retain them and make an inventory of any articles found in any premises. Firstly it is to be noted that the provision itself confers power on the Commissioner and nowhere provides that any other officer except the Commissioner or the one authorized by him can exercise these powers. The Directorate of Intelligence has been established in terms of Section 230 of the Ordinance, 2001, and in terms of Subsection (2) (b) thereof, the Board may by notification in the Official Gazette confer the powers of authorities specified in Section 207 upon the Director General and its officers, whereas, Section 207 notifies the Income Tax Authorities including Chief Commissioner , Commissioner and so on an so forth. It is to be noted that withou t going into the question that whether any powers can be exercised by Director Intelligence in this case under Section 175 of the Ordinance, 2001, and whether by implication and through a Notification, the Director Intelligence can be called or termed as a Commissioner within itself, what is more pivotal for the present purposes for this Court is to first dilate upon the fact that whether , even the Commissioner himself in the given facts, can exercise such powers without first fulfilling the requirements as provided under Section 175 of the Ordinance, 2001. If the Commissioner cannot, then on the same analogy , even the Director Intelligence is also barred from exercising such powers in vacuum, notwithstanding issuance of a Notification in terms of section 230 ibid. The heading of this Sections states "Power to enter and search premises" , however , notwithstanding this, the Section itself says that in order to enforce any provisions of this Ordinance, (including for the purposes of making an audit of a taxpayer or a survey of persons liable to tax) the authorized officers may have free access to any premises. This is of pivotal importance as even the Commissioner himself can only exercise such powers in order to enforce any provisions of the Ordinance and when read as a whole, it leads to the conclusion that this power can only be exercised when there are some pending proceedings against a taxpayer , and for one reason or
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the other , there is obstruction in the enforcement of such proceedings, and as a last measure, again to enforce such proceedings resort is to be made to enter and search the premises of the taxpayer . It is not that without pendency of any proceedings and just in a cursory manner , at the whim and desire of the Commissioner , the provisions of this Section can be invoked. There is a prerequisite that it can only be resorted to enforce any proceedings, hence; there must be some proceedings pending against the taxpa yer, enforcement of which was being obstructed, and therefore now access and search of premises is inevitable. In fact the power under Section 175 of the Ordinance 2001 is ancillary in nature, and is not an independent functio n of itself; and this leads to the conclusion that firstly , there must be some pending proceedings; and secondly , the power is to be exercised by the Commissioner , who is otherwise competent and has jurisdiction in respect of pending proceedings against the taxpayer . Therefore, it can only be the same "Commissioner" or at least "a Commissioner", who can exercise such powers as this is available only for enfor cement of other proceedings already pending with him. And as a natural corollary , these powers under Section 175 ibid, are only available for a Commissioner who is otherwise concerned or vested with powers of assessment, amendment in the assessment, conduct of audit etc. This appears to be a conscious act that the legislature has restricted such powers of access and raid with certain circumspection for enforcement of pending proceedings and not otherwise. It may also be relevant to note that while issuing SRO 115(l)/2015 dated 9.2.2015, which according to the Director Intelligence, confers powers upon him under section 175, FBR has only conferred powers of a handful of sections, and the only notice able section viz a viz relating to any payment of tax is of section 177 which relates to Audit. Though I am not sure whether the intention is that the Director of Intelligence, Inland Revenue has to conduct the Audit as well, which again is a specialized job of an Income Tax Officer; but nonetheless, since this power has been conferred through Notification, the inference which can be drawn is that no other power relating to sections 121, 122 or 122-A, (which are powers of assessment and amendment of assessment orders) have been conferred; rather in my view consciously not conferred or provided for. What further inference can be drawn from this? Whether , the authority of exercising such powers by Director Intelligence under section 175 ibid are dependent on an approval by the concerned Commissioner , or may be it is only there for assistance of the concerned Commissioner to carry out such exercise for enforcement of proceeding pending before him. To me it appears to be the latter . However , since this issue is not directly under scrutiny , nor was it argued, I leave it open to be dealt with in an appropriate case as and when the occasion arises. Having said that, one conclusion can be finally drawn that firstly , the powers under section 175 are only to be exercised in respect of enforcement of any provision of the Ordinance, 2001, and for that there must be some pending proceedings of which the enforcement has to be sought, and not for making a roving or a fishing expedition or to conduct investigation; and secondly , since, this power of entering and making a search is an extreme action intended to be taken against a taxpayer , infringing upon various Constitutional rights, including the right of privacy and liberty of a person, the same must be exercised in a manner that the rights of the taxpayer shall remain safeguarded, as these powers are coercive, and therefore, shall be exercised with care, circumspection and after a thoughtful decision. 9. A learned Single Judge of the Islamaba d High Court in the case of K.K.Oil and Ghee Mills (Pvt) Ltd. (supra) had the occasion to interpret the provisions of Section 175 (ibid) with respect to proceedings initiated under section 65- D and was pleased to hold as under:- "7. The office of DG I& I was established under the Ordinance of 2001 by inserting Section 230 through the Finance Act, 2012. The respondent No.3 is an officer of the rank of Director in the said organization. Subsection (2) of section 230…
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