MULTAN ENTERPRISES (PVT.) LTD. VS DIRECTOR-GENERAL (INTELLIGENCE & INVESTIGATION) SALES TAX, MULTAN, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 1785 (2009)

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

----S. 38---Authorised officers to have access to premises, stocks, accounts and record of registered person---Department had addressed a number of letters and required from the registered person original record for the purpose of completion of audit---Registered person had failed to respond to said letters of the department---Registered person's reply placed on record showed his inability to provide record on the basis that same had been misplaced and could not be located---Department had been authorised by the Federal Board of Revenue to conduct audit and department, for the purpose of inquiry and investigation, could requisition the record and take the same into their custody---Registered person was bound to furnish such information or explanation as may be asked by the authorised officer, as envisaged by S.38(2), Sales Tax Act, 1990-Letters issued by the department being in accordance with law and within contemplation of S.38, registered person was bound to answer the queries and provide requisite information.

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

----S. 25(2)---Audit---Access to record, documents etc.---Registered person had failed to join the proceedings of audit on the ground that "audit could be conducted once in year"---Validity---Restraint imposed on the conduct of audit once a year was with regard to the audit conducted by "officer of the Sales Tax"---Registered person had placed on record certificate of audit conduct by Audit Officer of the Revenue Receipts Audit, said officer was not the officer of Sales Tax and audit by him would not bar the audit by Sales Tax Department---Language employed in S.25(2), Sales Tax Act, 1990, was "may, once a year, conduct audit"-Use of word "may" made the provision directory and not mandatory---Said provision when read in conjunction with proviso to S.25(2) of the Act, left hardly any restraint on the authorised officer to conduct a second audit, when there was sufficient evidence or information of a tax fraud or evasion of tax.

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

----S. 40---Searches under warrant--Authorised Officer had not removed goods or other record from the premises of the registered person---Requirement of a warrant from Magistrate within the contemplation of S.40, Sales Tax Act, 1990, was mandatory only when the officer of Department enters the place of a registered person to cause a search---Officer of the department neither procured any record from the premises of the registered person nor searched the premises; he had throughout been issuing letters for the delivery of record---Section 40 of the Act could be invoked only when the document or other material was obtained through search of the premises---Registered person, could not assail the procurement of record, which the officer of department had obtained from his Sole Agent firstly for the reason that said Sole Agent had not assailed the procurement of record at any forum and secondly, the General Manager of the registered person was one of the witnesses of the inventory, who accompanied the officer of the department for the procurement of record.

Chairman, Central Board of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) Ltd., Burewala and others 2007 PTD 1351 distinguished.

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

----S. 25(2)---Audit---Department was bound to issue show-cause notice, which could be replied and contested by Registered person who also had the remedy to assail the proceedings subsequent to audit, in the hierarchy of department, under law.

Shahid Jameel Khan for Appellant.

Ahmad Raza along with Gulsher Auditor for Respondent.

Date of hearing: 5th June, 2009.

JUDGMENT

SYED HAMID ALI SHAH, J.---Petitioner is a manufacturer unit for beverages under the trade name of Amrat Cola and is a registered person with the Sales Tax Department, since October, 2004, respondent No.2 required from the petitioner certain documents under section 38 of the Sales Tax Act, 1990 and addressed communication in this regard through various letters, but of no avail. Respondents completed audit reports of the petitioner and found the petitioner involved in evasion of sales tax valuing Rs.33,044,216 and Federal Excise duty amounting to Rs.i8,916,862. The legal action under sections 37-A and 37-B was proposed for the recovery of Government revenue. The petitioner has assailed the investigative audit report in the instant petition.

2. Learned counsel for the petitioner contended that section 38 of the Act, 1990 empowers the 'authorized officer to have an access to the premises, stocks, accounts and record. Learned counsel then submitted that section 40 of the Sales Tax Act, 1990, provides that the provisions regarding search of premises of a registered person and procurement of the record can be made only after obtaining a warrant from the Magistrate. Entering in the premises and causing search can be carried out, only in accordance with the provisions of Code of Criminal Procedure, 1898. Learned counsel having referred to the case of "Chairman, Central Board of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) 'Ltd. Burewala and others" (2007 PTD 1351), contended that it has been held by the Honourable Apex, Court that provisions of section 38 are sub-servient to section 40. The authorized officer has to comply with the provisions of section 40, first and thereafter he can proceed under section 38. Learned counsel contended that the authority to intervene is with regard to the tax fraud and the allegations against the petitioner do not fall within the definition of tax fraud within the contemplation of clause (37) of section 2 of the Act, 1990. Learned counsel contended that audit has to be conducted once in a year within the contemplation of section 25(2). The Sales Tax Act nowhere provides for investigative audit. The audit in respect of the affairs of the petitioner was conducted, therefore, second audit was not permissible. Learned counsel vehemently contended that respondent No.2 visited the premises of the petitioner on 24-7-2004 and thereafter conducted the raid at the premises of sole agent of the petitioner Karim Enterprises, without compliance of section 40. The visit without warrant from the Magistrate is nullity and any action taken on the basis of such raid, has no legal sanctity. Learned counsel in support of his contention has referred to the cases of "Messrs Ihsan Yousaf Textile Mills (Pvt.) Ltd., Faisalabad v. Federation of Pakistan through Ministry Finance, Islamabad and 4 others" (2003 PTD 2037), "Messrs Food Consults (Pvt.) Ltd., Lahore and others v. Collector (Central Excise & Sales Tax), Lahore and 2 others" (2004 PTD 1731), "Messrs Zikeria Enterprises through Partner v. Muhammad Musharaf 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). Learned counsel vehemently contended that notices, which have been issued against the spirit of section 38, are nullity and have no legal value. It was contended that the last audit, with respect to the affairs of the petitioner, was conducted for the year ending on 30-6-2007, therefore, a subsequent audit regarding same year, is not permissible.

Learned counsel for the respondents, on the other hand, has contended that no audit was conducted, as alleged by the petitioner. The petitioner has placed on record letter dated 10-3-2008, to show that the audit was conducted. Learned counsel contended that the letter has statedly been issued by Muhammad Ilyas, Audit Officer of the office of Director General, Revenue Receipts (North). It is unsigned and bears no seal of the department. Learned counsel contended that on verification from the Collector of Customs, Sales Tax and Federal Excise, it was found that no audit of the petitioner .was conducted. Learned counsel, in support of his contention, has referred to letter dated 24-10-2007, which was issued by the Collectorate of Customs, Sales Tax and Federal Excise, Multan. Learned counsel further contended that certificate dated 10-2-2008, which the petitioner has placed on record, does not show that it was a regular audit by the Sales Tax Department and perusal of the letter reveals that the audit team which conducted the audit (if any), it was on test basis. He then referred to the Audit Observation No.53 dated 20-3-2008, which reflects inadmissible adjustment of input tax return by the registered person. Learned counsel went on to argue that the authorized officer of the sales tax Department, can call for any information and direct for submission of record or other material under sections 38 of the Sales Tax Act, 1990. Learned counsel further contended that inquiry or investigation can be carried as per proviso to section 25, if the Collector has information or sufficient evidence that the registered person is involved in tax fraud. It was contended vehemently that the impugned action against the petitioner was taken in accordance with law. The permission of Federal Board of Revenue was accorded, to conduct sales tax audit in terms of section 39-C, vide Sales Tax General Order No.3 of 2004 dated 12-6-2004, A specific permission was accorded through letter dated 13-7-2007. Learned counsel contended that petitioners have provided certain material in response to notices and when an adverse order has been passed against them, they have assailed the order in this writ petition. It was submitted that the judgments cited by the petitioner have no relevance to the instant controversy. The record, which has been procured on the visit to the premises belonging to Karim Traders, was lawfully procured. Karim Traders had not challenged the action of the respondents, therefore, the petitioner has no locus standi.. Learned counsel submitted that the petitioner has declared sales to the tune of Rs.45.7 million against total purchases of Rs.58.89 million and paid Sales Tax to the tune of Rs.15089 only.

3. Heard learned counsel for the parties and record perused.

4. The respondents have addressed communication to the petitioner through letters dated 10-8-2007, 20-8-2007, 12-9-2007, 4-10-2007, 16-11-2007, 28-2-2008 and required from the petitioner original record for the purpose of completion of audit. The petitioner has failed to respond to these letters. The petitioner's reply dated 20-9-2007 was placed on record by the petitioner itself, wherein the inability to provide record was attributed to the resignation of the Factory Manager Naseem Akhtar. The petitioner conveyed that record has been misplaced and cannot be located. Respondent No.2 has requisitioned the record from the petitioner under section 38 of the Sales Tax Act, 1990. The respondents were authorized by the Board to conduct audit. The respondents, for the purpose of inquiry and investigation, can requisition the record and take the same into their custody. The registered person is bound to furnish such information or explanation as may be asked by the authorized officer, as envisaged in subsection (2) of section 38. The letters issued were in accordance with law and within the contemplation of section 38, therefore, the petitioner was bound to answer the queries and provide requisite information.

5. The petitioner has justified it's neglect to provide required record and failure to join the proceedings of audit, on the ground that audit can be conducted once in a year. The restraint imposed on the conduct of audit once in a year is with regard to the audit conducted by the officer of the Sales Tax. The petitioner has placed on record certificate of audit conducted by audit officer of Revenue Receipts Audit, Lahore. The Audit Officer of the office of Director General, Revenue Receipts Audit, is not the officer of the Sales Tax and audit by him will not bar the audit by respondent No.2.

6. The language employed in subsection (2) of section 25 is "may, once in a year, conduct audit." The use of word `may' makes the provisions directory and not mandatory. The provision when read in conjunction with proviso, leaves hardly any restraint on the authorized officer to conduct a second audit, when there is sufficient evidence or information of a tax fraud or evasion of tax.

7. Respondent No. 2 has not removed goods or other record from the premises of the registered person. The requirement of a warrant from Magistrate within the contemplation of section 40 of the Act, 1990, is mandatory only when the officer of the Sales Tax enters the place of registered person to cause a search. Respondent No.2 has neither procured any record from the premises of the petitioner nor searched the premises. He has throughout been issuing letters for the delivery of record. Section 40 can be invoked only when the document or other material is obtained through search of the premises. The judgment of the Honourable Apex Court in the case of Messrs Haq Cotton Mills (supra) is on different facts and circumstances, thus does not qualify to the facts of the case in hand. The petitioner cannot assail the procurement of record, which respondent No.2 has obtained from Karim Traders, firstly for the reason that Karim Traders had not assailed the procurement of record at any forum. Secondly, the General Manager of the petitioner is one of the witnesses of the inventory, who accompanied respondent No.2 for the procurement of record.

8. The petitioner has assailed the audit report in the instant petition which is preliminary step. The respondents are bound to issue show-cause notice, which can be replied and contested. The petitioner has the remedy to assail the proceedings subsequent to audit, in the hierarchy of respondents, under law.

9. For the foregoing, this petition has no force and is accordingly dismissed.

M.B.A./M-451/LPetition dismissed.