COLLECTOR OF SALES TAX VS Messrs MEDORA OF LONDON LTD., 2005 PTD-SUPREME-COURT 2234 (2004)

(On appeal from the judgment dated 18-10-2004 of the Lahore High Court, Lahore, passed in Writ Petitions Nos.12309 and 12310 of 2003).

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

-----Ss. 38, 40 & 40-A---Constitution of Pakistan (1973), Art.185(3)---Scheme of the Sales Tax Act, 1990 prima facie emerging from Ss.38, 40 & 40-A, Sales Tax Act, 1990---Powers conferred by Ss.38, 40 40-A and others on the competent officers in the said connection required an authoritative pronouncement and it was needed to be determined whether these provisions could be said to be an encroachment on any alleged Constitutional guarantee especially when all Constitutional guarantees were subject to reasonable restrictions imposed by law and question whether High Court could prohibit the direct or direct and se question material in any proceedings under the Sales Tax Act, 1990 of which material had been collected in pursuance of an exercise of powers under Ss.38, 40 & 40-A of the Act which allegedly suffered from technical defect also required consideration---Leave to appeal was granted by the -Supreme Court to consider the said questions and operation of impugned High Court judgment was suspended.

Ahmer Bilal Soofi, Advocate Supreme Court with Faiz-ur-Rehnan, Advocate-on-Record for Petitioners.

M.A. Qureshi, Advocate-on-Record for Private Respondents.

Nemo. for other Respondents.

Date of hearing: 29th December, 2004.

ORDER

KHALIL-UR-REHMAN RAMDAY, J.---In pursuance of an allegedly reliable information that Messrs Medora of London and Messrs General Cosmetics were, inter alia, involved in the evasion of sales tax by distributing/supplying taxable goods without paying sales tax thereon and upon receipt of further information that important record of both these units was available in their office located on the 3rd Floor of Nizam Chambers at Fatima Jinnah Road, Lahore and apprehending that the said record would be shifted to some unknown destination, a team of the Collectorate of Sales Tax at Lahore searched the said office on 27-8-2003 and took some record into custody in the presence of some officers of Messrs Medora of London. The said Messrs Medora of London questioned the said action of the said Collectorate through a writ petition filed in the Lahore High Court bearing W.P. No.12309 of 2003. The premises of some other companies had also been similarly searched and those companies also filed similar writ petitions which were all consolidated and decided by the learned High Court through a single judgment announced on 18-10-2004. Some of the petitions were dismissed through the said judgment while the petition filed by Messrs Medora of London was allowed declaring, inter alia, the said search and taking into custody of the record in question to be illegal and void ab initio with a direction to the Collectorate to return the said record to the said writ petitioner and with a further direction that:--------

"none of these material, records, books of account and articles etc. shall directly or indirectly be used in adjudication proceedings against the respondents or to create a demand based thereupon in any manner."

2. The Collector of Sales Tax and another are now before this Court with C.Ps. Nos.3382-L and 3383-L of 2004 praying for grant of leave to appeal against the said judgment of the learned High Court.

3. Mr. Ahmer Bilal Soofi, the learned Advocate Supreme Court has been heard on behalf of the petitioners while Mr. Mehmood A.. Qureshi, the learned Advocate-on-Record has been heard on behalf of Messrs Medora of London and also on behalf of Masoom Jaffery who is a Director of Messrs Medora of London and the sole proprietor of General Cosmetics.

4. The reasons which had weighed with the learned Judge in Chambers in allowing the private respondents writ petitions were that any provision of law which encroached upon the Constitutional guarantees of a citizen could not be invoked as a matter of course and that the Revenue had not been able to demonstrate that the raid in question answered the requirements of the relevant provisions o sections 38, 40 and 40-A of the Sales Tax Act, 1990.

5. The provisions of section 3 of the Sales Tax Act being Act VII of 1990 envisage levy of a tax known as Sales Tax. And the provisions of section 36 thereof prescribe recovery of the said tax from persons who are liable to pay the same but who, through some collusion etc. avoid payment thereof or where such taxes has been short-levied or had been erroneously refunded. Clause (37) of section 2 of the said Act defines "tax fraud" and section 37A makes commission of tax fraud, a culpable offence punishable with imprisonment extending upto five years or with fine or with both.

6. In order to detect non-payment or short payment of the sales tax or to detect tax-frauds, various provisions of the Sales Tax Act, 1990 authorise the competent officers to reach the relevant record and documents etc. belonging to the registered persons or to persons etc. liable to pay tax. The relevant provisions which are contained in sections 38, 40 and 40-A of the said Act are reproduced hereunder for ready reference:---

"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 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 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. Searches 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).

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) 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)." (emphasis is ours).

7. The scheme of the 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 etc. to keep the relevant records etc. 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 etc. at all times without seeking any warrant etc. 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 authorise searches 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 etc. 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 40-A of the Sales Tax Act of 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 on 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 provision 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 hypertechnical 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.

10. Therefore, having considered all aspects of the matter we find that this is a fit case where leave should be granted to determine the above questions and others.

11. Civil Petitions Nos.3382-L and 3383-L of 2004 are, therefore, allowed and leave granted for the said purpose.

12. Since we are, prima facie, of the opinion that the conclusions reached through the impugned judgment and the reasons which had led to the same were open to exception and since we are also of the view that the balance of convenience lay in favour of the Revenue, therefore, the operation of the impugned judgment announced on 18-10-2004 is suspended.

M.B.A./C-36/SLeave granted.