Sales Tax Act (VII of 1990)‑‑‑

---Ss. 38, 40‑A & 25‑‑‑Establishment of Office of Federal Tax ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Authorised Officers to have access to premises, stocks, accounts and records‑‑‑Search without warrant‑‑‑Access to record, documents, etc. ‑‑‑Allegation‑‑‑Raid on factory by large contingent of officers/officials, threatening and Intimidating the management, trying to seal the godown and forcing the management to sign the stock statement‑‑‑Huge presence of Government functionaries on the premises of the mills created an atmosphere of fear‑‑‑Department denied the allegations and pleaded that no physical check of stock was, made and it was considered sufficient to sign the stock statement by the Chief Executive which was the only requirement of law‑Validity‑‑‑Held, it was unbelievable that after raiding the complainants, the staff members would not have made any physical check and would be satisfied on the statement of the Chief Executive‑‑‑If the Department did not count and measure the stock, reliance could not be placed entirely on the signed statement, which had been challenged on valid ground and had made it a disputed document‑‑‑Department did not have any work sheet or lot-wise measurement/counting details for such a huge stock otherwise it would have been produced‑‑‑Complainant/ assessee apparently had a visual look and without any checking estimated the stock and prepared the report on which Chief Executive's signature was obtained‑‑‑Counting and measurement was not carried out and the possibility of obtaining the signature of the Chief Executive and his Chief Accountant against their will could not be ruled out‑‑ Reconciliation of stocks statement with the accounts/records were necessary‑‑‑Element of fear, intimidation and coercion could not be ruled out in presence of large number of public functionaries and armed sepoyes‑‑‑Statement showing one crore metres cloth in the stock would need to be verified by the Department against entries made in the relevant books of accounts maintained by the complainant/assessee‑‑ Complainant/assessee was required to maintain all sorts of accounts of purchases, processes being carried out by them, supplies made, invoices issued ‑‑‑Complainant/assessee and Department would need to undertake a formal exercise for reconciliation of the stock‑‑Probe was needed to ascertain the truth of such serious allegation of the complainant/assessee that the Departmental officials were armed with weapons and conducted an illegal raid on the factory, sealed the godown, used intimidating tactics and forced the management to sign the stock statement under threat of detention and arrest‑‑‑Federal Tax Ombudsman recommended that Revenue Division to appoint D.G. (Inquiries), Central Board of Revenue to hold an inquiry into the allegations of coercion, intimidation, sealing of godown and if allegations are proved against the officers/officials responsible for misconduct appropriate action against them be taken and direct the relevant Tax Authority to decide the case instituted against the complainant on merit but after the completion of inquiry of D.G. (Inquiry), Central Board of Revenue and providing the complainant the opportunity of presenting its case before the Adjudicating Officer.

Zia Harder Rizvi for the Complainant.

Muhammad Tahir, A.G. Sales Tax for Respondent.

DECISION/FINDINGS

The complainant is engaged in the business of processing fabrics in their factory at Faisalabad. The respondent No. 4 alongwith 5 and 6 and certain other functionaries of the department, equipped with weapons, raided their factory on 27‑3‑2002 on the basis of a notice under section 38 of the Sales Tax Act, 1990. They sealed the factory and remained there for six hours. The Chief Executive, Haji Ghulam Rasool was present who despite being a heart patient cooperated with the respondents. As nothing illegal and un-vouched was recovered from the premises the respondents prepared a harsh and excessive stock report at the computer of the factory on the letterhead of the company and respondents Nos. 4, 5 and 6 forcibly obtained the signature of the Chief Executive on it. The complainant thereafter through its Advocate submitted its grievances to the Collector vide letter, dated 10‑4‑2002 informing him about the excesses and forcibly obtaining signature of the Chief Executive on a false stock statement prepared by the officials of the Department. It was pointed out that the said certificate/statement is imaginary based on presumption, as it is humanly impossible to stock that extent of material at the factory. It was stated that the search was carried out in violation of section 40‑A of the Sales Tax Act. The attitude and behviour of the officials and staff members was deplorable and the Chief Executive had to rush to Hospital for medical aid. As no information about excessive stock was found respondent No.4 issued notice under section 25 of the Sales Tax Act, 1990 on 8‑4‑2002 seeking complete particulars of stock i.e. count and construction‑wise details. The complainant's Advocate through letter, dated 11‑4‑2002 reiterated the earlier position and supplied information according to the books of account. The complainant has pleaded that the raid was illegal and void.

2. In their written reply the respondents submitted that they visited the factory lawfully after serving notice under section 38 of the Sales Tax Act, 1990. The management did not cooperate for physical inspection of stocks and records for audit purposes. The Chief Executive came later. The notice under section 38 of the Act was served on the complainant, which was received reluctantly. The audit staff physically inspected the stock and calculated the quantity of stock available on the premises of the registered person. The registered person tried his best to avoid inspection of the stock, pressurizing the respondents through influential people but the audit staff counted the stock as per law. A huge quantity of undocumented stock was lying there without entry in the sales tax record. The officials were not provided access to record. The stock statement was prepared by the registered person himself and it was duly signed by the Chief Executive Mr. Haji Ghulam Rasool and Chief Accountant Mr. Tahir Shabbir. Neither the sales tax officials resorted to any coercion nor it was possible to do so where hundreds of workers were present as complainant's workforce.

3. It was further pleaded that a notice under section 25 of the Sales Tax Act, 1990 was issued on 8‑4‑2002 to the registered person for obtaining from the complainant count and construction‑wise details of stocks of cloth already declared by him on 27‑3‑2002. Action under section 38 of the Sales Tax Act, 1990 was absolutely legal as provided under Sales Tax Act, 1990; which inter alia, allows the authorized sales tax staff free access to the business/manufacturing premises of the registered person and can inspect the stock and verify it with sales tax record to check evasion of sales tax. The stock was physically counted for audit purposes and each and every bale and lot of fabrics was examined before the complainants Chief Executive and Chief‑Accountant. The stocks available in the factory premises were labeled with measures (Gazana) in Meters. Three senior auditors alongwith the Assistant Collector remained there for sufficient time to exactly measure the stock. This calculation was conducted before the registered person and he himself provided the stock statement after counting and tallying every bale of fabric. The allegations made against the respondents have been denied.

4. The learned counsel for the complainant contended that the raid was illegal and the signature of the Chief Executive on the stock statement prepared by the respondents was obtained by coercion and show of force. It was further contended that the complainants had informed that no purchase register was maintained and the size of godown could not accommodate the stock stated in the stock statement.

5. The learned representative of the department contended that the visit and entry was legal and fully authorized under section 38. The complainant did not produce record/inventory on the plea that they had not entered purchases in their record. It was further contended that as there was huge stock the respondents could not verify and the team tried to determine the quantity but basically the stock statement given by the complainant was accepted.

6. The arguments of the parties and the record of the case have been considered and examined. At one point of time both the parties to the dispute had shown wilingness to reach an out‑of‑Court settlement but it could not be succeed in spite of sufficient time allowed to them. The respondents contended that (i) the complaint did not make available the record, purchase registers, supply registers, stock registers and other documents for reconciliation, (ii) supplied only a newly prepared register showing entries only for short period without giving count‑wise or construction‑wise details of the stock and (iii) did not disclose address of the parties from whom gray fabrics were received/purchased for processing. They also contended that the complainant had objected to the whole exercise on the ground that the FTO had not given any order for scrutiny of record. Therefore, in view of the complainant's refusal to make the requisite record available for reconciliation, the out‑of‑Court settlement was not possible. The complainant, on the other hand, contended that they produced evidence in the shape of income tax assessment alongwith the auditor's accounts to show that the company was engaged in processing exclusively and that no gray cloth was purchased from the market, hence no registers of stock of purchases were maintained by them. The supply registers and inventory record were produced to show the extent of gray cloth received with details of supply made up to 27‑3‑2002. The company had been maintaining stocks between 25 to 30 lac meters all the time.

7. The respondents contended that the statement showing one crore meters cloth in stock on 27‑3‑2002 was given by the Chief Executive of the factory wilingly and voluntarily without any pressure, coercion on intimidation. They also contend that they had fulfilled the requirements of the law as a proper notice was served on the complainant a order section 38 of the Act. The complainant, however, contends that a large contingent of officers officials, raided the factory, threatened and intimidated the management tired to seal the godown and forced the management to sign the statement. There was, according to the complainant, a huge presence of Government functionaries on the premises of the mills, which created an atmosphere of fear.

8. Although the respondents deny that no pressure was on exerted on the management for obtaining the stock statement, the possibility of intimidation, considering the number of officials present on the spot cannot be ruled put. Again there is a degree of variance in what the respondents have stated in their written reply and the position, taken by them during the haring. In the written reply the respondents had stated that "the stocks available in the factory premises were labelled with measures (Gazana) in Meters (as it is a usual practice). Three senior auditors alongwith the Assistant Collector remained there for sufficient time to exactly measure the stocks. This calculation was conducted before the registered person and he himself provided the stock statement after counting and tallying every bale of fabric." During the hearing they were asked to disclose the statement or worksheet showing the calculations/counting/measuring made by them or some details showing counting/tallying exercise but the respondent had nothing to show for it. They now take the position that it was sufficient for the Chief. Executive to sign the stock statement and that was the only requirement of law. This explanation is contradictory to what has been pleaded by them. It is unbelievable that after raiding the complainants promises the staff members would not have made any physical check and would be satisfied on the statement of the Chief Executive. If the respondents did not count and measure the stock reliance cannot be placed entirely on the signed statement, which has been challenged on valid grounds and has made it a disputed document. This proves that respondents did not have any worksheet or lot-wise measurement/counting details for such a huge stock otherwise it would have been produced. It seems that the complainant had a visual look and without any checking estimated the stock and prepared the report on which Chief Executive's signature was obtained. From the circumstances it is clear that counting and measurement was not carried out and the possibility of obtaining the signature of the Chief Executive and his Chief Accountant against their will cannot be ruled out.

9. The peculiar circumstances of the case necessitate a reconciliation of stocks statement with the accounts/records being maintained by the complainant. The element of fear, intimidation and coercion cannot be ruled out in presence of large number of public functionaries and armed sepoyes. The statement shoving one crore meters cloth in the stock needs to be verified by the respondents against entries made in the relevant books of accounts being maintained by the complainant. The complainant should be maintaining all sorts of accounts of purchases, processes being carried out by them, supplies made, invoices issued. The complainant and the respondents need to undertake a formal exercise for reconciliation of the stock. Since the case has already been sent for adjudication and a show‑cause notice has been issued which is to be decided by the Adjudicating Authority on merit it should be decided after completing the above mentioned exercise. A clear picture of the case needs to be brought out before deciding the case on merits.

10. There is another aspect of the case which also needs to be probed to ascertain the truth. The complainant has alleged that the respondents armed with weapons had conducted an illegal raid on their factory, sealed the godown, used intimidating tactics and forced the management to sign the stock statement under threat of detention and arrest. These are serious allegations calling for a detailed inquiry to determine the truth.

11. Based on the above discussion, it is recommended that the Revenue Division:

(i) Appoint D.G. Inquiries C.B.R. to hold an inquiry into the allegations of coercion. intimidation, sealing of godown and if allegations are proved against the officers/officials responsible for misconduct appropriate action against them be taken.

(ii) Direct the relevant 'Tax Authority to decide the case instituted against the complainant, on merit but after the completion of inquiry by D.G. (Inquiry). C.B.R. and providing the complainant the opportunity of presenting its case before the Adjudicating Officer.‑

(iii) Compliance report to be submitted.

(a) as regards (i) within 30 days of the receipt of this decision.

(b) Recommendation (ii) within 30 days of the report of U.G. (Inquiry).

C.M.A./580/FTO Order accordingly.