2010 PTD 292
MHER MUHAMMAD ARIF SARGANA, (JUDICIAL MEMBER).--- This appeal has been directed against Order-in-Appeal No.167 of 2006 dated 27-10-2006, through which the learned Collector (Appeals), has modified the Order-in-Original No. 18 of 2006, dated 30-3-2009 passed by the learned Additional Collector (Adjudication), Faisalabad.
2. The facts giving rise to this appeal are that the an information was received that Messrs Dawood Tile Printing Industries (Pvt.) Limited were involved in a massive tax evasion by way of concealed supply of taxable goods without payment of sales tax and issuance of fake/flying invoices and records relating to their business activity were presently kept at the premises of the appellant. The learned Collector, Sales Tax Faisalabad authorised a team of audit staff under section 38 of the Sales Tax Act, 1990..The said team visited the premises of the appellant on 30-4-2003. There were reasons to believe that duplicate/private business record may be removed if action is delayed. Therefore, finding no time for-action under section 40 ibid, action was initiated under section 40A ibid and notice was served upon Mr. Tahir Shabbir, Chief Accountant for examination/search of business records and stocks. However, the management refused to cooperate in the exercise of examination/search in their premises. As huge quantity of stock was lying in the factory premises, therefore, further staff was required. Stock of various categories was counted and stock statement was prepared and signed by the sales tax officers. On their refusal to receive/sign resumption memo and physical stock taking report, two independent witnesses were called and copy of each, was signed by the witnesses. The following discrepancies were pointed out:
(i) Clandestine supply of processed fabrics (not entered in the sales tax records).
(ii) Sales of dyes and chemicals.
(iiii) Sale of cut pieces and rejection/C.P.R.K
(vi) Sales tax recoverable on supply of scrap.
(vi) Non-cooperation by the registered person during audit/search and others
3. Based on the above irregularities/omissions, a contravention case was made against the appellant. The adjudication proceedings culminated in passing of an order for recovery of Rs.23,03,73,425 along with additional tax and penalty. Being aggrieved the appellant went up in appeal and the learned Collector (Appeals), vide impugned order in Appeal No.167/2006, dated 27-10-2006 modified the order in original. Hence, this appeal.
4. Arguments were heard. At the very outset, the learned counsel for the appeal stated that he would only argue the appeal on legal grounds without touching the merits of the case. The learned counsel for the respondent had no objection to it. The learned counsel for the appellant contended that the factory premises of the appellant was raided on 27-3-2002 by a large number of Officers/Officials of the Collectorate of Sales Tax, Faisalabad without obtaining search warrants under section 40 of the Sales Tax Act, 1990 or preparing statement containing grounds of belief under section 40-A ibid. Since, the raiding party had committed excess including creation of harassment, maltreating the employees of the appellant, obtaining signatures of the Chief Executive on the stock report falsely prepared by them, therefore, a Complaint No.335 of 2002 was filed under section 9 of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2001 in which it was recommended by the Hon'ble .FTO that Director General (Inquiries), CBR should hold an inquiry into the allegations of coercion, intimidation, sealing of godown and if the same were proved against the officers/officials responsible for misconduct, appropriate action be taken against them. It was further directed that the relevant tax authorities should decide the case of assessment of tax against the appellant on merits, but after the completion of inquiry by the Director General (Inquiries) C.B.R and providing the appellant proper opportunity of presenting his case before the adjudicating officer vide decision/finding dated 28-11-2002. He further contended that aggrieved by the aforesaid decision/findings, CBR filed representation before the President of Pakistan in which the decision/finding of conducting of inquiry' by the D.G. (Inquiries) was upheld while the finding regarding assessment of tax was set aside vide order dated 12-11-2003. The learned counsel further contended that as a counterblast of filing complaint before the Hon'ble FTO and contesting representation of CBR a raiding party headed by an Assistant Collector again raided the factory and office premises of the appellant on 30-4-2003 while the finding/decision of Hon'ble FTO dated 28-11-2002 was holding field and representation filed by the CBR was still pending before the President of Pakistan. The said party entered in the factory/office and took over the entire premises, the officers and staff of the appellant were harassed, maltreated and beaten. The Assistant Collector by sitting in the factory office of the appellant after conducting- raid prepared a memo under section 38 ibid and asked the Chief Executive of the appellant to sign the same but he `refused on the ground that the raid had already been conducted, entire premises of the office as well as factory was taken over and searched and as such there was no justification for obtaining signature on a so called memo prepared by the said Assistant Collector. The learned counsel for the appellant further contended that after completion of raid, seizure of record and other articles and on refusal by the Chief Executive of the appellant to sign a memo. prepared after raid, the Assistant Collector entered the name of the appellant in the pre-typed form for making a statement under section 40-A ibid.. However, it was never served upon the appellant nor the same was prepared, prior to the raid. The name of the appellant was entered in the said pre-typed form after completion of the entire proceedings. Later on, the said form was got signed late night from a night shift employee of the appellant under coercion by the officials of the Collectorate of Sales Tax, Faisalabad. The learned counsel further contended that neither any search warrant was obtained as required under section 40 ibid nor any statement containing the grounds of belief under section 40-A ibid was prepared and delivered to the appellant or as the case may be occupant of the factory premises before conducting raid and carrying out search of the office and factory premises. According to him, the so called statement prepared afterwards also does not meet the requirement of section 40-A ibid as it was a pre-typed form in which, the name of the appellant was entered and that there was nothing in the said form that the appellant had taken any step or he was going to take such step for removal of the record and other articles from the factory premises. According to the learned counsel for the appellant preparation of memo under section 38 on the same date and time and thereafter, entering name of appellant in pre-typed form clearly shows that the said form was filled in after conducting raid on the office/factory premises and as such the raid, search and seizure of record and other articles were illegal as having been conducted in violation of mandatory requirement of sections 40 and 40-A of the Sales Tax Act, 1990. He further contended that the entire record and other articles recovered and seized in illegal raid can neither be used against the appellant nor any demand can be raised on the basis thereof. The learned counsel for the appellant further contended that the aforesaid illegal action was taken prior to conduct of inquiry by the Director General (Inquiries), CBR which was never undertaken subsequently. The learned counsel for the appellant showed us various news clipping, proclamation and appeals appeared/published in the leading news papers which are available on record showing excess committed by the officers and officials of the Collectorate of Sales Tax, Faisalabad. He further contended that the entire aforesaid illegal action was taken against the appellant after cession of his complaint by the Hon'ble FTO and while representation filed by the CBR was pending with the President of Pakistan. He further contended that in order to create a pressure upon the appellant to withdraw complaints, FIR was also lodged after lapse of about 8 days of the said raid. He further contended that the department had been alleging different figures of evasion of taxes at different times. According to him in the FIR, the evaded amount was mentioned as Rs.81.34 (m) while in contravention report the figure was raised to Rs.230,373 (m), on rechecking it was reduced to Rs.36.0 (m) again in the original order the evasion was shown as Rs. 230,373(m) while in the impugned order in appeal, the figure was again reduced to Rs.147,286(m). The learned counsel for the appellant contended that the appellant had been paying sales tax on the taxable supplies regularly. He never evaded any amount of sales tax. He was a regular filer. The appellant had been serving his country earning huge foreign exchange by way of exportation. The entire case was falsely made against the appellant. As regards, the raid, search and seizure of record and other articles, the learned counsel for the appellant relied upon PLD 1991 SC 630 titled as "Collector of Customs (Preventive) and 2 others v. Muhammad Mahfooz" in which it was held that the officer conducting raid must state the grounds; 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 search without warrant. According to the learned counsel for the appellant, the aforesaid-requirement laid down by the apex Court was never met in this case as there was nothing in the so called statement that the appellant had taken any step or was about to take such step for removal of record and other articles of that obtaining warrant shall consume time or that the Magistrate was not available. He also referred 2003 PTD SC 1034 titled as "Federation of Pakistan through Ministry of Finance, Islamabad v. Master Enterprises (Pvt.) Limited and 4 others" in which similar views were given by the Apex Court. He also relied upon Collector of Customs, Lahore and another v. Universal Gateway Trading Corporation and other (2005 SCMR 37), Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tec (Pvt.) Limited (2005 PTD SC 1933), Collector of Sales Tax and others v. Food Consultants (Pvt.) Limited and Messrs Depilex Beauty Clinic and others (2007 PTD 2356) and Chairman CBR and others v. Haq Cotton Mills (Pvt.) Limited (2007 PTD (SC) 1351"). According to the learned counsel for the appellant the record and other articles recovered and seized in such illegal raid can neither be used against the appellant nor any demand can be based thereon and in this behalf he relied upon "Messrs Ahsan Yousaf Textile Mills (Pvt.) Limited, Faisalabad v. Federation of Pakistan through Ministry of Finance, Islamabad and 4 others (2003 PTD 2037)", Messrs Food Consultants (Pvt.) Limited, Lahore and others v. Collector (Central Excise and Sales Tax), Lahore and 2 other (2004 PTD 1731)". He also referred a Division Bench judgment in the case of Messrs N.P Water Proof Textile Mills (Pvt.) Limited through Director Karachi v. Federation of Pakistan through Secretary Revenue Division/Chairman Central Board of Revenue, Islamabad and another (2004 PTD 2952), Messrs Zakeria Enterprises v. Muhammad Musharafa and 7 others (2005 PTD 1200 and A.R.K. Textile through Proprietor v. Federation of Pakistan through Ministry of Finance, Islamabad and 4 others (2006 PTD 494)".
5. The learned counsel appeared on behalf of the respondent contended that in the first instance a memo of resume record was prepared under section 38 of the Sales Tax Act, 1990, but on refusal to sign by the Chief. Executive of appellant, a statement under section 40-A ibid was prepared by the Assistant Collector and delivered to an employee of the appellant. He further contended that the appellant was involved in massive tax evasion by concealing supply of taxable goods without payment of sales tax and issuance of fake/flying invoices and that the appellant had kept duplicate/private business record and that the appellant clandestinely supplied processed fabrics without entering in the sales tax record and he was also found involved hi sale of dyes, chemicals and cut pieces without payment of sales tax. The appellant also evaded sales tax on supply of scrap and in that way he deprived the National Exchequer of huge amount of taxes. The learned counsel for the respondent further contended that it was neither raid nor search, it was a visit under section 38 ibid as the department had free access to visit the premises of any registered person. He further added that in case the record was resumed in earlier raid it does not debar the department to audit or re-audit as there was no restriction under the law. However, according to him access under section 38 would not permit raid and search which can be conducted under section 40 or 40-A ibid. He vehemently rebutted the arguments advanced by the learned counsel for the appellant. He further contended that the law referred by the learned counsel for the appellant are not relevant as is the case in hand the requirements of sections 38, 40 and 40-A were met by the Assistant Collector.
6. We have heard the arguments advanced by both the parties and perused the record. The learned counsel appearing on behalf of the respondent contended that in the first instance memo of resuming record under section 38 of the Sales Tax Act, 1990 was prepared by the Assistant Collector and on refusal to receive the same by the appellant another statement under section 40-A ibid was prepared and on the basis thereof the raid was conducted. Perusal of memo under section 38 ibid reveal that it contained the directions to the appellant for arranging the physical stock taking in respect of raw material, grey fabrics, dyes and chemical and others work in progress and finished goods and not for resuming record only. Moreover, the said memo was prepared on 30-4-2003 and the appellant was directed to make arrangement for the aforesaid purposes immediately, which was otherwise not possible. The appellant should have been given reasonable time if the department wanted to carry out physical stock taking and others. Perusal of the said memo as well as statement under section 40-A ibid would further reveal that the said statement was also prepared on the same date meaning thereby that the raiding party was present in the factory premises. Moreover, statement under section 40-A itself reflects that it was a raid and not a mere visit. The contention of the learned counsel for the appellant that the said statement was prepared after completion of the raid and carrying out search cannot be ruled out. For the sake of convenience and ready reference sections 40 and 40-A of the Sales Tax Act, 1990 may be reproduced as under:--
" Searches under warrant .--(1) Where any officer of sales tax has reason to believe that any documents or things which in his opinion, may be useful for, or relevant to, any proceedings under Act are kept in any place, he may after obtaining a warrant from the Magistrate, enter that place and cause a search to be made at any time.
(2) The search made [in his presence,] under subsection (1) shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure (V of 1898)].
40-A Search without warrant .---(1) Notwithstanding the provisions of section 40, where any officer of sales tax not below the rank of an Assistant Collector of Sales Tax has reasons to believe that any documents or things which, in his opinion, . may be useful for, or relevant to, any proceedings 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, he may, after preparing a statement in writing of 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."
7. The condition precedent for carrying out search under section 40-A is that where any officer of sales tax not below the rank of an 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 search can be. conducted under section 40 he may after preparation of statement in writing of the grounds of his belief for which search is to be made, search, cause search to be made for such documents or things. Moreover, the aforesaid statement is to be prepared before conducting the raid on any premises. For better appreciation of this issue the statement under section 40-A prepared in the present case is reproduced as below:-
STATEMENT UNDER SECTION 40-A OF THE SALES TAX ACT, 1990
Whereas the undersigned has a reasonable belief that there are certain documents/record, which in my opinion are useful for and relevant to the case against Messrs Dawood Textile Printing Industries who are involved in the sales tax evasion by way of mis-declaration of their taxable supplies are concealed at their premises.
And whereas, the undersigned has reasonable grounds to believe that there is a danger that these documents/records shall be removed before a search can be effected under section 40 of the Sales Tax Act, 1990.
I, therefore, in exercise of the powers conferred upon me in terms of section 40-A of the Sales Tax Act, 1990 order for search of the premises for procuring/resuming all such record/documents for the purposes of scrutiny and audit thereof.
(Sd.)
(NISAR AHMAD)
Assistant Collector
??? 30-4-2003
8. The aforesaid statement cannot be termed as statement containing grounds of belief as required under section 40-A of the Sales Tax, 1990, firstly because the said statement was not written by the Assistant Collector; as it was pre-typed form in which the name of the appellant was only entered. Moreover, the said statement is missing the essential requirement that the appellant had taken or was about to take any step for removal of record and other articles or that obtaining of search warrant would consume time or that the Magistrate was not available. The perusal of the earlier memo for resuming record under section 38 ibid the recovery memo and the aforesaid statement clearly shows that in the aforesaid form the name of the appellant was entered while the raiding party was present in the factory premises of the appellant. Law does not permit to prepare such statement after entering in the private property of any person. Had there been any information and danger of removal of record and other things, the Assistant Collector should have prepared the statement containing his grounds of belief prior to the raid and carrying out search that the appellant had taken certain steps or he was about to take such steps and if time was consumed in obtaining warrant, the record and other articles would be removed. The perusal of the notice under section 38 clearly shows that the raiding party visited the factory premises and asked the Chief Executive of the appellant to sign the same and on his refusal another pre-typed form was filled just by entering the name of the appellant in order to make it statement under section 40-A remotely. Keeping in view the aforesaid situation, the contention of the learned counsel for the appellant that the said statement was prepared after conducting raid carrying out search and seizure of documents and other things cannot be ruled out as it carry force. Since, sections 40 and 40-A ibid are identical to sections 162 and 163 of the Customs Act, 1969 and as such the dictum laid down by the Hon'ble Supreme Court in the case of "Muhammad Mahfooz" supra is fully applicable in this case. It was held by their lordships:--
"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 search without warrant. By providing such statutory requirement, the intention legislature is to provide safe-guard against mala fide interference with rights of citizens in respect of property and against violation of rights 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 which the findings 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."
9. Similar views were taken by the Hon'ble Supreme Court of Pakistan in the case of "Master enterprises (supra) in which, it was held by their lordships that all searches under sections 40 and 40-A of the Sales Tax Act, 1990 shall be carried out in accordance with the provisions of the Code of Criminal Procedure (Act V of 1898) and it is mandatory to comply with the requirement of section 40-A for conducting raid without warrant. Similar taw was laid down by the apex Court in "Messrs Mega Tech (Pvt.) Limited (supra). Their lordships in the said case held as under:--
"Reasonable belief of an officer must have direct nexus and material bearing on the strong circumstances for formation of such opinion. Indeed the legislature has used the expression reasonable belief and not a mere suspicion in the mind of an authority with a view to authorize the search of premises without obtaining a search warrant from a Magistrate. Sections 40 and 40-A of the Act appear to be neither overlapping nor in conflict with each other. While section 40 caters for search where a sales tax officer has reason to believe that any documents or things, which may be useful or relevant to any proceedings under the Act kept at any place are apprehended to be removed, he may enter the place and cause a search after obtaining search warrant from the Magistrate, section 40-A was enacted to meet an emergent situation where a sales tax officer has reason to believe that documents or things useful for or relevant to any proceedings under the Act, kept at any place are apprehended to be removed, he may proceed to make a search without obtaining any warrant. It would, however, appear that every word used by the Legislature must be given its true meaning and the provisions construed together in a harmonious manner. It would not be legal and proper to apply one provision of law in isolation from the other provision as no surplusages or redundancy can be attributed to the legislative organ of the State".
10. The aforesaid controversy also stood resolved by the Hon'ble Supreme Court of Pakistan in the case of "Messrs Haq Cotton Mills (Pvt.) Limited (supra), that "section 38 cannot be read in isolation of the provision of sections 40 and 40-A of the Sales Tax Act, 1990 relating to search under warrant and the search without warrant. It was held in the above said case that in the absence of any strong belief that if the raid was not conducted the record and goods would be removed, section 40-A did not confer unlimited and unbridled powers on the authorized officers to conduct search or impound any kind of documents. Thus, the case law referred by the learned counsel for the appellant is fully applicable and we are of the view that the raid, search and seizure were carried out in utter disregard and violation of the mandatory requirement of sections 38, 40 and 40-A of the Sales Tax Act, 1990. As regards the consequence of the said raid, search and seizure, the learned counsel has referred a case of "Messrs Ahsan Yousaf Textile Mills (Pvt.) Limited (2003 PTD 2037) in which it was held that "if the raid is declared illegal, the document and things recovered in such action would not be used against the said person. It was held in the aforesaid case 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 and others shall directly or indirectly be used in adjudication proceedings against the respondents or to create demand based thereupon in any other matter. 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 Sales Tax General Order No. 9 of 1999 dated 2nd September, 1999.''
11. Similar views were taken by the Hon'ble Lahore High Court, Lahore in case of "Messrs Food Consults (Pvt.) Limited (2004 PTD 1731). In this case, it was held that "the proceedings and actions taken in consequence of such raid, searches and seizure including the issuance of any show cause notice, registration of an FIR, the complaint, the prosecution or recovery proceedings would also be illegal, unlawful and without lawful authority." The aforesaid judgment was assailed by the department in the Hon'ble Supreme Court of Pakistan, but the same was upheld vide judgment reported as (2007 PTD 2356). The operating part of the above judgment reads as under:-
"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 as 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 consequence of such raids, searches and seizure including the issuance of any show cause notice, registration of an FIR, 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 Depilex) 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 are further restrained from using the seized material or records and others in any manner whatsoever in any proceedings or actions against 'the petitioners."
12. Besides above, the case of Messrs Zakeria Enterprises (2005 PTD 1200) also applies to the present situation in which it was held as under:-
"4. I have gone through the respective pleadings of the parties in these cases and also the documents being relied upon by them particularly by the respondents. It is an admitted position that the respondents did not obtain any search warrant in the manner prescribed in section 40 of the Sales Tax Act, 1990 and purported to act under section 40-A of the said Act: I have also examined the respective documents in these cases, filed by the respondents which according to learned Standing Counsel constitute compliance of provisions of said section 40-A. Examining the said documents in the light of the judgment being relied upon by the learned counsel for petitioner. I find that none of these documents do constitute even remote compliance with the said provisions of law."
13. The learned counsel for the appellant stated that the FIR was lodged against the appellant but no action has been taken and even no challan has been presented. When confronted, the learned counsel for the respondent could not rebut it with any cogent reason. Further, on asking about the inquiry against the officers officials as ordered by the Hon'ble FTO, the learned counsel for the respondent also could not satisfy the Court. He was also unable to controvert the assertion of the learned counsel for the appellant that different figures of allegedly evaded amount were brought on record at different stages.
14. The upshot of the above discussion is that the raid, search and seizure conducted without complying with the mandatory provisions of sections 38, 40 and 40-A of the Sales tax Act, 1990, was illegal and the proceedings and actions' taken in consequence of such raid, search and seizure including issuance of show cause notice passing of order in original raising of demand/recovery have no legal effect. Resultantly, the impugned orders in original as well as order in appeal are set aside and the appeal is accepted.
(Sd.)
(Mher Muhammad Arif Sargana)
Judicial Member
PER MR. KHALID NASEEM, MEMBER (TECHNICAL):
Brief facts of the case are reported to the adjudicating officer by the Assistant Collector (HQ), Collectorate of Sales Tax, Faisalabad are that a credible information was received that Messrs Dawood Textile Printing Industries (Pvt.) Limited. Sargodha Road, Faisalabad were involved in massive tax evasion by way of concealed supply of taxable goods without payment of sales tax and issuance of fake/flying invoices; and records relating to their business activity were presently kept at the premises of Messrs Dawood Textile Printing Industries (Pvt.) Limited situated at Sargodha Road, Faisalabad. The Collector, Sales Tax, Faisalabad authorized a team of audit staff headed by Mr. Nisar Ahmad, Assistant Collector under section 38 of the Sales Tax Act, 1990. The Authorized team visited the premises of the registered person situated at Sargodha Road, Faisalabad on 30-4-2003. There were reasons to believe that duplicate/private business record may be removed if action is delayed. Therefore, finding no time for action under section 40 of the Sales Tax Act, 1990, action was initiated under section 40-A ibid. The statement of grounds for action under section 40-A of the Sales Tax Act, 1990 was served on Mr. Tahir Shabbir (Chief Accountant) for examination/search of business records and stock. However, the management of Messrs Dawood Textile Printing Industries (Pvt.) Limited, Sargodha Road, Faisalabad including the Chief Executive Mr. Ghulam Rasool refused to cooperate in the exercise of examination/ search in their premises. As huge quantity of stocks was lying in the factory premises in the form of grey cloth, work-in-process, finished cloth dyes and chemicals and spares, it was essential to make an inventory of the same. Therefore, further staff was required from the Collectorate. Consequently, Mr. Jamil Nasir Khan (Assistant Collector) 'and Mr. Shafique Anwar (Senior Auditor) reached the factory duly authorized by the Collector under section 38 of the Sales Tax Act, 1990. The Chief Executive Haji Ghulam Rasool and management of the factory was also asked to make arrangement for physical stock taking of grey cloth, work-in-process, finished cloth and dyes and chemicals and others but they refused to do so. Thus the business records were resumed as per resumption memo, which was prepared on spot and was duly signed by the Sales Tax Officers.
2. It was also revealed at the time of physical stock taking by the respondent that Clandestine supply of processed Fabric has not been recorded in the stock registers, sales of dyes and chemicals have also not been registered, sale of cut pieces and rejection of the material have also not been correct, sales of tax recoverable on supply of scrap was also not recovered leading to action under sections 2, 3, 3(1A), 6, 7, 11, 22, 23 and 26 of the Sales Tax Act, 1990 read with section 2(37) ibid. As per details in the appellate order, the total amount of tax evaded stands at Rs.230,373,425 along with additional tax and penalty under sections 36(1), 34 & 33(2)(cc) of the Sales Tax Act, 1990. The ground which has been adjudged before this Tribunal are almost same as were adjudged before the Collector (Appeals). The action as taken by the respondent have been alleged to be in violation of sections 38, 40 and 40-A & 40 A(1) of the Sales Tax Act, 1990. The objections have been made regarding non-fulfilment of requirements before initiating proceedings under section 40 of the Sales Tax Act, 1990 by the appellant. As a ready reference sections 38, 40-A and 40A(1) of the Sales Tax Act, 1990 are re-produced as under:---
"[38. Authorized officers to have access to premises, stocks, accounts and records .---(1) Any officer authorized in this behalf by the Board or the Collector shall have free access to business or manufacturing premises, registered office or any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to any registered person or a person liable for registration or whose business . activities are covered under this Act or who may be required for any inquiry or investigation in any tax fraud committed by him or his agent or any other person and such officer may, at any time, inspect the goods, stocks, records, data documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds or assets with which his business is financed, and any other records or documents, including those which are required under any of the Federal, Provincial or Local laws maintained in any form or mode and may take into his custody such records, statements diskettes, documents or any part thereof, in original or copies thereof in such form as the Authorized Officer may deem fit against as signed receipt.
(2) The registered person, his agent or any, other person specified in subsection (1) shall be bound to answer any question or furnish such information or explanation as may be asked by the authorized Officer.
(3) The Department of Direct and Indirect Taxes or any other Government Department, Local Bodies Autonomous Bodies, Corporations or such other institutions shall supply requisite information and render necessary assistance to the Authorized Officer in the course of inquiry or investigation under this section.
??????????? 39. ??????????????
40. Search how to be made :--- All searches made under this Act or the rules; made thereunder shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (Act V of 1898).
40A. Search without warrant .---(1) Notwithstanding the provisions of section 40, where any Officer of Sales Tax not below the rank of an Assistant Collector of Sales Tax has reason to believe that any documents or things which, in his opinion, may be useful for, or relevant to, any proceedings under this Act are concealed or kept any place and that 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 grounds of his belief for which search is to be made, search or cause search to be made for such documents on things in that place.
(2) An Officer or person who makes a search or causes a search to be 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.
(3) No suit, prosecution or other legal proceedings shall be instituted, except with the provisions sanction in writing of the Federal Government against any person in respect of anything done or purporting to be done in respect of exercise of any powers conferred by subsection (1) or subsection (2)."
3. The attitude of the appellant has throughout been non-cooperative. Different channels have also been knocked and all the channels have accordingly directed to cooperate with the respondent in order to arrive at a correct position. The basic position in this whole scenario is that the respondent has a definite information and on the basis of which the department enters the premises/manufacturing premises and examines stocks position, books of accounts and other documents which are to be maintained by the appellant under law and rules. The respondents have done this exercise and have been through all odds as created by the appellants in one way or the other. The respondents have fulfilled their duties as assigned and have not violated fundamental rights as vested in the appellant and emphasis over the same has been made by Superior Courts.
4. The compliance of Section 38 of the Sale Tax Act, 1990 has duly been made and further action under section 40-A of the Act ibid has also been taken within due authorization limits. The authorization have duly been shown to one Tahir Shabbir, Chief Accountants and notice under section 40-A was also delivered having proper acknowledgement.
5 .That at earlier stage, the reconciliations were also called for between the parties and the same were also completed or left in the due course. The very fact that the appellants have deposited Rs.1,25,00,000 in the government treasury during the proceedings clearly confirms that violations are admitted to have been made and the show cause notice which was issued was properly issued having valid reasons.
6. That the A.R of the appellant instead of arguing the impugned order-in-appeals on facts, has taken the plea of incorrect application of sections 38, 40 & 40A of the Sales Tax Act, 1990 on the appellant and the impugned sections as applied have not been applied by following the proper procedure as laid down while applying the said sections.
7. The Hon'able Supreme Court of Pakistan reported "Collector of Sales Tax and others v. Medora of London Limited and others 2006 PTD (Trib.) 689, has interpreted the scheme of Sales Tax Act, 1990 of the above quoted section in paras:--
"7. The Scheme of Sales Tax Act, prima facie, emerging from the above quoted sections is as under:--
(a) these provisions envisage two distinct situations to reach the relevant and useful record;
(b) the provisions of section 38 expect the registered persons and others to keep the relevant records and others in an open and transparent manner at their known or declared premises and the said provisions of section 38 appear to allow the competent officers free access to the said record and others at all times without seeking any warrant and others from any Court and the law permits them to even take such record into custody and also to question the registered persons and others in the said connection;
(c) the provisions of section 40 of the said Act of 1990 authorize search in accordance with the provisions of Code of Criminal Procedure, 1898 and the relevant provisions could be found in sections 96, 102 and 103 thereof out of which section 96 of the Cr.P.C. envisages searches with warrants;
(d) but the provisions of section 40-A of the Act of 1990 appear to be a departure from the provisions of section 40 thereof as the same authorize searches, without warrants, where the record and others were not being kept in an open manner at the known or declared premises mentioned in section 38 but were kept surreptitiously at some secret hide-outs and there were apprehensions of the removal of the same if a search was to make after obtaining the warrant in view of the provisions of section 40 of the said Act."
8. Prima facie, therefore, the said provisions of sections 38, 40 and 40A of the Sales Tax Act, 1990 do appear to allow the competent officers free access to the relevant record and to authorize them to carry out searches with and in certain conditions even without warrants. But we, however, feel that the powers conferred by these provisions and others on the competent officers in the said connection require an authoritative pronouncement and it also needs to be determined whether these provisions could be said to be an encroachment or any alleged Constitutional guarantees especially when all Constitutional guarantees are subject to reasonable restrictions imposed by law.
9. We have also not been able to lay our hands on any provisions either in Cr.P.C. or in the Qanun-e-Shahadat Order, 1984 or in any other law which prohibited use or admissibility of a piece of evidence in judicial proceedings if the 'proceedings which had led to the collection of such incriminating pieces of evidence suffered from some hyper-technical or even a technical infirmity. Therefore, the question whether the learned High Court could prohibit the direct or indirect use of any material in any proceedings under the Sales Tax Act, 1990 which material had been collected in pursuance of an exercise, which allegedly suffered from some technical defect, also requires consideration."
The above stated interpretation by the Hon'ble Supreme Court of Pakistan clearly envisages the practical difficulties being faced by the respondents while fulfilling their officials duties.
8. That the appellant's behaviour by making deposit of Rs.125,00,000 confirms that 'the evasion have been made and the respondent's action to visit and to obtain records getting duly certified by the authorized representative of the appellant confirms that the proceedings have been initiated and completed correctly. The appellants have not taken the factual position obtaining on record to be discussed in this forum, which leads to conclude that the appellants have no case to plead on the facts which are confronted and thereafter liability has been raised. It is established from the proceedings that the appellants instead of arguing on facts have taken the plea of technical infirmity under sections 38, 40, 40A of the Sales Tax Act, 1990 in the proceedings as were conducted in this context and has ignored all the facts and circumstances which have led to conclusions of establishing contravention, violation and suppression has been made by the appellant.
9. The appeal therefore, is found devoid of any merit and stands rejected.
G.M.A./162/Tax(Trib.) ???????????????????????????????????????????????????????????? Appeal rejected.