(a) Sales tax---

---- Term `search"---Meaning and interpretation---Term "search" implies some exploratory investigation, or invasion and quest, a looking for, seeking out---Quest may be secret, intrusive or accomplished by force-- Search could be by applying force, prying into hidden places for that which is concealed and that the object searched for has been hidden or intentionally put out of the way.

(b) Words and phrases---

----"Search"---Meaning.

(c) Sales Tax Act (VII of 1990)---

----Ss.38, 40 & 40-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3) & 9---Authorised officers to have access to premises, stocks, accounts and records-- Excessive use of force and harassment to the Director and staff of the Company for purposes of an investigative .audit and taking into possession sales tax, income'-tax and accounting record pertaining to current and past years after breaking each and every locked door and table drawers in search of these documents---Validity---Expressions used in Ss..38, 40 & 40-A of the Sales Tax Act, 1990, when viewed against the actual course of events clearly pointed out that it was not a visit -by the authorized officer or his team as claimed by the Department under S.38 of the Sales Tax Act, 1990, but it was a search of the business premises which explained as to why the locks of the doors and drawers were broken open or ordered to be broken open---Such was a search without a statement as contemplated under S.40A of the Sales Tax Act, 1990---If search was intended to be made the procedure provided by law should have been followed---Department in the present case, had conducted a number of audits as a result either the company had paid the tax demand or contested the cases in the relevant forum of appeal-- Complainant did not have any track record of resisting any audit and had always adopted a very cooperative attitude---Assistant Collector Sales Tax heading the team had crossed the limits of law and coercion was so much that even the shift of workers which was to leave the factory premises, was not allowed to go out when the search was in progress-- No signed receipt was given before removing the record taken in custody from the factory premises, as required by S.38 of the Sales Tax Act, 1990---Neither any signed statement in writing as required by S.40-A of the Sales Tax Act, 1990 was left at the place of search nor delivered to the occupier---Entire .operation carried out by .the Department was abuse of power amounting to 'maladministration ---Department having referred the case for adjudication the relevant Authority would decide the case on merits according to law---Federal Tax Ombudsman recommended that Assistant Collector Sales Tax (HQ) be proceeded against under the Efficiency and Discipline Rules, 1973, inquiry be conducted by Director General (Enquiries) who shall also examine the complainants and from amongst the witnesses/employees of the complainants, who had filed affidavits.

M. Aslam, Chief Accountant and Abid Shafi, Manager Taxation for the Complainant.

Dr. Akhtar Hussain, Deputy Collector for Respondent.

DECISION/FINDINGS

This complaint filed by Messrs Ihsan Yousuf Textiles (Pvt.) Ltd. arises out of alleged excessive use of force and harassment to the Company Director and staff by the Collectorate of Sales Tax, Faisalabad purportedly in exercise of powers under section 38 of the Sales Tax Act (hereinafter called, "the Act"), whereas search was carried out for four long hours at gun-point, as contemplated under section 40-A of the Act.

2. Relevant facts in brief are that a team of 7 persons headed by, Mr. Moinuddin Wani, Assistant Collector Sales Tax (Headquarters) reached the mills premises at about 1.30 p.m. on December 8, 2001 ostensibly for purposes of an investigative audit, while the Collector had authorised Mr. Moinuddin Wani, Assistant Collector Sales Tax (HQ) and "Additional Collector had constituted a team of 4 persons only for the purpose. According to the complainant company the team leader humiliated the director, senior management and the staff of the company and nut them into a standstill position. They had not permitted even the director of the company to leave his chair. A detailed search of the business premises was carried out and the team took into its possession sales tax, income-tax, and accounting record pertaining to the current and past years after breaking each and every locked door and table drawers in search of these documents. The complainant has attached photographs of broken locks and doors with the complaint.

3. The allegation of the complainant is that this was not an activity covered under section 38 of the Act as it provides free ,access. In actual fact it was a search without warrant as contemplated under section 40-A of the Act. The complainant has alleged that Member (Sales Tax), C.B.R., Islamabad and Collector (Sales , Tax), .Faisalabad were duly intimated about this state of affairs on December 12, 2001. The Member (Sales Tax), C.B.R. was also informed that record has been fabricated with the assistance of one of the expelled employees and certain anonymous persons were approaching for an amicable settlement against' certain amount of consideration for the fabricated record. No action whatsoever was taken by the C.B.R. on the request of the complainant. On January 14, 2002 the Collectorate of Sales Tax asked for certain documents for the period 1996 to December, 2001 that shows that the intention is not bona fide.

4. The complainant company has further submitted that they faced a number of audits conducted by the staff of the Sales Tax Collectorate, DRRA and the Special Auditors appointed by the Collectorate and the C.B.R. between 1996 and 2000-2001. As a result of those audits, the company has paid the tax demand or contested the case in the relevant forum of appeal. The company has submitted that in the previous audits, all activity was conducted in professional way and show-cause notices/order-in-original were issued. There was, therefore, no need to take such a harsh action at present. The complainant has further alleged that if the audit is carried out at gun-point and the Assistant Collector and his junior staff just show their powers of nuisance, how could business continue in this country? The company is seriously thinking about winding up its business, where it has served for more than 40 years in a dignified and graceful manner.

5. In reply the respondent Sales Tax Department explained that an information was received that the complainant company was involved in perpetual evasion resulting in huge lose to the Government treasury on account of:

(i)Fraudulent refund of sales .tax:

(ii)Evasion of sales tax lit respect of taxable supplies. ,

(iii)Fraudulent sale of sales tax invoices of processing of fabrics printing to different registered persons to enable them to get refund/adjustment of input tax illegally.

The Department also referred to letter of the Collectorate of Sales Tax, Lahore dated 7-11-2001 intimating about a list of fake units who were issuing sales tax invoices to the complainant showing supply of yarn, which they had never purchased or manufactured.

6. The Department has further alleged that Messrs Rahim Jan & Co. Chartered Accountant had conducted a special audit of the complainant in terms of section 32-A of the Act for the years 1996-97 and 1997-98, and observed that the complainant had evaded sales tax amounting to more than rupees 80 million. In view of the above stated position the Department decided to conduct an investigative audit under section 38 of the Act. As such an audit team authorised by the Collector, Sales Tax, Faisalabad under section 38 of the Act visited the premises of the complainant on 8-12-2001. The team took some subordinate staff for assistance. The audit team visited the premises of complainant to obtain record for an investigative audit The team visited the Chief Executive of the complainant and handed over to him the notice issued by the Additional Collector, who directed Mr. Abid Shafi, an employee to receive the notice and provide the record. The Department has denied having humiliated Mian Akram the Chief Executive. The Department has further alleged that the complainant did not fully cooperate with the Audit Team and supplied some records. The details of the record supplied were signed by the officials of the unit, deputed by the Manger Mr. Abid Shafi: The resumption memo. was prepared on the spot on the basis of aforesaid details. Despite the non cooperative behaviour of the complainant, team cooperated with them. In fact the doors/locks were opened by the officials of the complainant company for providing record to the audit team. The Department has ---further referred to Sales Tax General Order No. 9 of 1999, which does not bar re-auditing of a unit in special circumstances and on specific instructions by the Collectorate concerned. Audit of the complainant was conducted under section. 25 of the Act for the period 1996-97, on account of which an amount of Rs.12,89,631 was deposited by them. Audit for the years 1996-97 and 1997-98 was conducted under section 32-A of the Act by the special auditors Messrs Rahim Jan & Co, Chartered Accountant which resulted in the detection of evasion of Rs.78,256,817 which is under adjudication. Messrs Ilyas Saeed & Co. Chartered Accountant conducted the audit for the period 1998-99 and 1999-2000 in terms of section 32A of the Act, as a result of which a liability of Rs.203,185 was adjudged against them. Now the case is pending before the Appellate Tribunal. The contravention report was prepared for violation of section 10 of the Act as the complainant had obtained double refund on the export of same goods, one refund of Rs.30.457 millions from the Collectorate of Sales Tax, Faisalabad and other of the same amount from Collectorate of Customs, Faisalabad, which case is pending adjudication with the Collectorate of Sales Tax (.Adjudication), Multan.

7. The contention of the Department is that there was no violation of any provision of the Act and Rules made thereunder. The Department has carried out investigative audit and has sent the case to the Collectorate of Sales Tax (Adjudication); Faisalabad and the complainant may be directed to defend the case in that forum.

8. The case was, therefore, fixed for hearing when Mr. M. Aslam, Chief Accountant and Mr. Abid Shafi, Manager Taxation appeared for the complainant company while the Department was represented by Dr. Akhtar Hussain, Deputy Collector Sales Tax, Faisalabad. The A.R Mr. M. Aslam was asked to provide an affidavit in connection with the course of events and the alleged use of force by the Sales Tax Team. and Dr. Akhtar Hussain was asked to produce the original file regarding authorisation granted to the team by the Collector under section 38 of the Act. He was also asked to inform DT. Moinuddin Wani, Assistant Collector, who was the head of the team to attend on next date fixed. which was 11-3-2002.

9. Dr. Moinuddin Wani, Assistant Collector Sales Tax (HQ) appeared for the Department on 11-3-2002. Mr. M. Aslam, Chief Accountant of the complainant attended alongwith Mr. Abid Shafi, Manager Taxation of the company. Mr. Aslam submittee eight affidavits. One each for himself, and Mr. Abid Shafi while the rest for six other employees who were eye-witnesses of the whole episode. The statement of Mr. Wani on solemn affirmation was recorded and is placed on file. He also produced official record regarding authorisation granted by the Collector under section 38 of the Act.

10. According to the authorised representative for the complainant company the functionaries of the Sales Tax Collectorate surrounded the factory premises and 7 armed gunmen entered the administrative blocks at about 1-30 p.m. The team adopted a very aggressive posture to the extent that even the Chief Executive was not allowed to leave his chair No one was allowed to move and the team ordered one of the staff members to break open the locked doors and table drawers in order to carry out their search. Although the staff member informed that the keys are available in the administration department, but it was insisted that the doors be broken open at once. The coercion was so much that even the shift of workers which was to leave at 2-00 p.m. was not allowed to go out of the mills premises when the search was in progress. The Chief Accountant submitted that the team left at about 5-30 p.m. without leaving a receipt for the record taken into possession by them. The Chief Accountant informed that they had supplied copies of the affidavits to the Department on 9-3-2002. The D.R. was allowed to offer a counter-affidavit or rebuttal on the next date, which was fixed for 12-3-2002. On that date he submitted his reply, which is also placed on record.

11. After hearing the arguments of the both the parties to the dispute and after perusal of the record it is quite evident that the moot point in the instant case is whether the Sales Tax Authorities had exercised their powers as claimed by them under section 38 of the Act or had transgressed the limit laid down by that provision of the law and exercised powers as contemplated under section 40-A of the Act i.e. search without warrant.

12. It would be pertinent to reproduce sections 38 of the Act and sections 40 and 40-A of the Act in order to appreciate the legal position.

"38. Authorised officers to have access to remises stocks, accounts and records.---(1) Any officer authorised 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 o; 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 source 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 authorised officer may deem fit against a 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 authorised 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 authorised officer in the course of inquiry or investigation under this section. "

"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."

"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 proceeding under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 40, 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 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 previous 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)."

13. It would, therefore, be seen that section 38 provides power to the authorised officer to have free access to the business premises or manufacturing premises without any obstacle or hindrance and he is authorised to take the relevant record, documents etc. in his possession against a signed receipt. In order to appreciate the true meaning of the expression "free access" one may refer to Excellent Legal "Words and Phrases, Vol-I, p.432" where free access has been explained to mean as under:- "Access" means approach, admittance, admission. Similarly "free access" as explained in the Corpus Juris Secondum unobstructed, open, clear, unhampered, unrestricted and unimpeded.

14. Similarly the word "search" as explained at page 24, (Words and Phrases, Volume 38-A) means to look for. It implies invasion with some kind of force either actual or constructive. Search is forcible seeking out, a probing in hidden places.

15. The term 'search' implies some exploratory investigation, or invasion and quest, a looking for, seeking out. The quest may be secret, intrusive or accomplished by force. A search has been held to applying force, prying into hidden places for that which is concealed and A that the object searched for has been hidden or intentionally put out of the way.

16. The meaning of the expressions as explained heretofore and used in sections 38, 40 and 40-A, when viewed against the actual course of events clearly point out that it was not a visit by the authorised officer or his team as claimed by the Department under section 38 of the Act, but it was a search of the business premises. That explains as to why the locks of the doors and drawers were broken open or ordered to be broken open. This was a search without a statement as contemplated under. section 40-A of the Act. If .search was intended to be made the procedure provided by law should have been followed.

17. During the course of hearing it was pointed out by the A.R. that the Department had conducted a number of audits that included the audit by the Directorate of Revenue Receipts Audit and Special Auditors appointed between 1996 and 2000-01. As a result either the company had paid the tax demand or contested the cases in the relevant forum of appeal. It was contended that the complainant did not have any track i record of resisting any audit and had always adopted a very cooperative attitude but Dr. Moinuddin Wani, Assistant Collector Sales Tax heading) the team had crossed the limits of law. The coercion was so much that even the shift of workers which was to leave at 2-00 p.m. from factory premises, was not allowed to go out when the search was in progress. III is also pertinent to point out that 'no signed receipt vas given before removing the record taken in custody from the factory premises, as required by section 38. Neither any signed statement in writing as required by section 40-A was left at the place of search nor delivered to the occupier. The entire operation carried out by the Department was in abuse of power amounting to maladministration. As the Department has referred the case for adjudication the relevant authority shall decide the case on merits according to law.

18. In view of the above it is recommended that:

(i)Dr. Moinuddin Wani, Assistant Collector Sales Tax (HQ) be proceeded against under the Efficiency and Discipline Rules, 1973. The inquiry be conducted by Director-General (Enquiries) who shall also examine the complainants and from amongst the witnesses/employees of the complainants who have filed affidavits.

(ii)Compliance be reported within 60 days.

C.M.A./M.A.K./317/FTOOrder accordingly