CAHIRMAN, CENTRAL BOARD OF REVENUE and others VS Messrs HAQ COTTON MILLS (PVT.) LTD., BUREWALA, 2007 PTD-SUPREME-COURT 1351 (2007)

(On appeal from judgment of Lahore High Court, Multan Bench, Multan, dated 8-5-2006 passed in Writ Petition No.6712 of 2004).

Sales Tax Act (VII of 1990)---

---Ss. 38, 38-A, 40 & 40-A----Constitution of Pakistan (1973), Art.185(3)---Search of premises---Non-obtaining of search warrants---Effect---Authorities conducted raid on the premises of assessee without search warrants and seized various documents and records---High Court in exercise of constitutional jurisdiction set aside raid proceedings---Plea raised by authorities was that there was no occasion for issuance of any notice to assessee, who would have otherwise removed the goods and required record from the premises---Validity---In absence of any strong belief to such effect,. S.40-A of Sales Tax Act, 1990, did not confer unlimited and unbridled powers on authorized officer to conduct search or impound any kind of documents, in absence of any reasonable cause and without obtaining any search warrant from Magistrate---Authorities being fully aware and conscious of the settled law, were not in a position to distinguish and differentiate the dictum laid down by Supreme Court in earlier case, which fully covered the controversy and supported the view taken by High Court---Supreme Court declined to interfere with the judgment passed by High Court---Leave to appeal was refused.

Federation of Pakistan v. Master Enterprises (Pvt.) Ltd. 2003 PTD 1034; N.P. Water Proof Textile Mills (Pvt.) Ltd. v. Federation of Pakistan 2004 PTD 2952 and Collector of Customs v. Universal Gateway Trading Corporation 2005 SCMR 37 ref.

Collector of Sales Tax and Central Excise v. Mega Tech 2005 SCMR 1166 fol.

Chaudhry Saghir Ahmed, Advocate Supreme Court and Syed Zafar Abbas Naqvi, Advocate on Record for Petitioners.

Nemo for Respondents.

Date of hearing: 12th February, 2007.

JUDGMENT

RANA BAHGWANDAS, J.---Both the petitions for leave to appeal are directed against common judgment of Lahore High Court, dated 8-5-2006 allowing two separate Constitutional petitions filed by respondent-industries against the petitioners.

Both the writ petitioners are engaged in the business of manufacture and supply of ginned cotton and are registered with the Collectorate of Sales Tax, Multan. On 29-9-2004, Assistant Collector, Sales Tax (Audit), Sahiwal, along with his subordinate staff, raided the business premises of the respondents, without complying with the provisions of section 40 of the Sales Tax Act, 1990 (hereinafter referred as the Act, 1990). It is stated that they seized and secured various documents and records of the respondent-industries with them, in violation of the requirements of law and acted contrary to the provisions of the Act, 1990. Precise relief sought in both the petitions related to the declaration of act of petitioner No.3, in raiding the respondents' premises as illegal, void ab initio, without lawful authority and nullity in the eye of law.

3. Petitioners resisted both the writ petitions and claimed to have acted on receipt of definite information that the respondent-industries were engaged in maintaining double records and thereby causing massive tax evasion in the payment of sales tax. In C.P. No.536 of 2006, the petitioners claimed to have acted under the provisions of section 38, after due authorization by Collector Sales Tax, Multan. It was averred that the authorized officer had taken the record in custody, after handing over a copy of recovery memo against proper receipt in compliance with the provisions of section 38 of the Act, 1990. In C.P. No.535 of 2006, a copy of the parawise comments filed by the petitioners before the High Court has not been placed on record but presumably the line of defence would appear to be the same.

4. The High Court, after taking into consideration, view points of both the parties and after hearing them observed that no search warrants were obtained for the search conducted and recovery of records and documents effected by the Assistant Collector, Sales Tax (Audit), Sahiwal. It was observed that no doubt section 40-A of the Act, 1990 did cater for a situation where the requirement of obtaining search warrant could be dispensed with but the exercise of jurisdiction was subject to the conditions laid down in this provision, which were not followed. When called upon to explain whether Assistant Collector had prepared a statement in writing of the grounds of belief that there was danger that the records or the goods may be removed before the search could be effected in terms of section 40, plain reply was in the negative. It was for these reasons and in view of the law declared by the High Court as well as this Court that the High Court declared the action of petitioner No.3 as illegal, void and without lawful authority. It is in these circumstances that petitions for leave to appeal have been preferred.

5. We have heard learned counsel for the petitioners, who was duly assisted at the hearing by Mr. Mumtaz Ahmad Sheikh, Member (Legal), Central Board of Revenue. Learned counsel vehemently contended that the action initiated by petitioner No.3 with the express authorization of petitioner No.2 was fully warranted and justified by the provisions of section 38 of the Act, 1990. Learned counsel submitted that Assistant Collector Sales Tax (Audit) having received definite information about maintenance' of double records, massive evasion of sales tax had inspected the business premises of the respondents, and collected necessary record and found the respondents involved in the evasion of sales tax of their manufacture and supply of goods. When called upon to explain whether the Assistant Collector had recorded his reasons for inspection and seizure of the records of the respondents before proceeding to inspect the business premises of the respondents, learned counsel did not make any satisfactory reply, except that there was no occasion for issuance of any notice to the respondents, who would have otherwise removed the goods and the required records from their premises to an unknown place making. it practically difficult and futile to detect evasion of tax. Learned counsel was confronted with the provisions of sections 40 and 40A of the Act, 1990, but he repeatedly referred to the provisions of section 38, without explaining as to whether section 38 could be read in isolation from the provisions of sections 38-A, 40 & 40-A of Act, 1990, relating to "search under warrant" and the "search without warrant". On our repeated queries in respect of letter of authorization in favour of Assistant Collector Sales Tax within the contemplation of section 38 of the Act, 1990, learned counsel has not been able to produce the same or even to refer it in the impugned judgment of the High Court. We are, therefore, left with no option but to presume that petitioner No.3 i.e. Assistant Collector Sales Tax acted under the provisions of sections 40 and 40A as aforesaid. For the sake of convenience and ready reference, section 40 and relevant provisions of section 40-A, may be reproduced hereunder:

"(40) Search 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 this 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 under subsection (1) shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (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 proceeding under this Act are concealed or kept in any place and that there is a danger that they 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) ---------------"

6. It may be pertinent to point out that sections 38, 40 and 40-A were amended vide Act II of 2004 with effect from 1-7-2004 whereby section 38-A was inserted in the Act, 1990 and section 40 as well as 40-A were appropriately amended with a view to, curtail and monitor the unlimited and unbridled powers of the Sales Tax Authorities resulting in undue harassment and humiliation to the tax payers. This question has been the subject-matter of consideration before this Court at a number of times. In Federation of Pakistan v. Master Enterprises (Pvt.) Ltd. (2003 PTD 1034), this Court held as under:-

"It is expressly stipulated in the provisions of sections 40 and 40A of the Sales Tax Act, 1990 that all searches made under Act or the Rules shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898 (Act V of 1898). Procedure regarding search has been laid down in sections 96, 98, 99-A and 100 of the Code whereby, firstly, a search warrant is to be obtained from the Illaqa Magistrate when search of the premises is to be made. In view of section 103 of the Code, it is mandatory to join two or more respectable inhabitants of the locality in which the place to be searched is situated, to attend and witness the search and a list of all articles taken into possession shall be prepared and a copy thereof shall be delivered there and then. In the present case Department had failed to show from record that the above provisions of law were strictly followed while seizing the record and sealing the premises of the Company. As such, there was no cogent reason to interfere with the impugned judgment which was exceptionable."

7. In N.P. Water Proof Textile Mills (Pvt.) Ltd. v. Federation of Pakistan (2004 PTD 2952), a Division Bench of the Sindh High Court laid down that failure of tax officials to place any material before the Court to establish that there were sufficient reasons and grounds for by-passing normal course of action specified in section 40 and resorting to section 40-A of the Act, 1990, action under section 40-A was not sustainable and consequently the search and seizure was held illegal and .of no legal consequence. In Collector of Customs v. Universal Gateway Trading Corporation (2005 SCMR' 37), which was a case involving interpretation and application of sections 162 and 163 of the Customs Act, 1969, search was conducted without obtaining a search warrant for the reason that it could have been done in view of the circumstances prevalent at the relevant moment, which could only be adjudged by concerned officer under whose supervision the raid was being conducted, it was held that the same could not be done in routine practice and every possible effort should be made to comply with the provisions as enumerated in sections 162 and 163 of the Customs Act, 1969. It, may not be out of place to observe that such provisions more or less correspond to sections 40 and 40-A of the Act, 1990. Lastly, the scope and authority in terms of sections 38, 40 & 40-A of the Act, 199Q was examined in Collector of Sales Tax and Central Excise v. Mega Tech (2005 SCMR 1166) by a Bench of this Court, including Rana Bhagwandas and Nasir-ul-Mulk, JJ. It, was held that section 40-A, in the absence of any strong belief to such effect does not confer unlimited and unbridled powers on the authorised officer to conduct search or impound any kind of documents, in the absence of any reasonable cause and without obtaining any search warrant horn the Magistrate.

8. Learned counsel for petitioners as well as the Member (Legal), Central Board of Revenue, being fully aware and conscious of this judgment, were not in a position to distinguish and differentiate the dictum laid down in the earlier case, which fully covers the controversy in hand and supports the view taken by the High Court.

9. No other point has been raised in support of these petitions, which are devoid of any substance and without, any merit. Both the petitions are, therefore, dismissed with no order as to costs.

M.H./C-6/SCPetition dismissed.