BAYER CHEMICALS through Partner VS FEDERATION OF PAKISTAN through Law, Justice and Human Rights Division, Government of Pakistan, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 690 (2008)

(a) Sales tax---

----Illegal order---Scope---Action of authorities was based upon audit report which was not conducted by an unauthorized person and had emanated from illegal raid which was not permissible under law---Such action could not legally sustain.

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

----Ss. 38 & 40---Constitution of Pakistan (1973), Art.199---Constitutional petition---Recovery of tax---Show-cause notice---Tax evasion---Proof---Authorities entered premises of assessee without any notice or information to her and got conducted audit on the basis of record removed from premises---Appellate authority on appeal filed by assessee, allowed re-audit by independent team---Validity---Audit team issued notices for re-audit and subsequently such proceedings were dropped and authorities issued show-cause notice on the basis of earlier audit---Re-audit proceedings were required to be completed, once it had commenced---Non-appearance or non-cooperation of party could result into ex parte proceedings against such party but dropping proceedings for re-audit was not justified, thus authorities had ignored such aspect of controversy---Representation of assessee was decided without any valid reason and reasons justifying raid were in conflict with principles laid down in judgments passed by Supreme Court in various cases---Representation of assessee was decided ignoring law settled by Supreme Court and it lacked element of valid reasoning, such order was declared having been passed without lawful authority and with no legal effect---High Court, in exercise of constitutional jurisdiction, directed the authorities to proceed with fresh audit through independent team of auditors, as directed by Collector---Petition was allowed accordingly.

Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tech (Pvt.) Ltd. 2005 SCMR 1166; Federation of Pakistan v. Messrs Master Enterprises (Pvt.) Ltd. 2003 PTD 1034; Messrs Ihsan Yousuf Textile Mills (Pvt.) Ltd. v. Federation of Pakistan 2003 PTD 2037; Messrs N.P. Water Proof Textile Mills (Pvt.) Ltd., Karachi v. Federation of Pakistan and another 2004 PTD 2952; Muhammad Siddique v. Federation of Pakistan and 3 others 2005 YLR 2859; Nagina Silk Mill, Lyalpur v. The Income Tax Officer, A-Ward Layalpur and others PLD 1963 SC 322 and Messrs Ahmed Hassan Textile Mills Ltd. through Chairman v. Federation of Pakistan 2005 PTD 2455 ref.

Salman Akram Raja for Petitioners.

Qamar Zaman Qureshi, Dy. A.-G. for Respondents.

ORDER

SYED HAMID ALI SHAH, J.---Petitioners are engaged in the business of manufacture and sale of chemicals. The premises of the petitioner were raided by respondent No.2, without any notice or information to the petitioner. Respondent No.2 and her staff in this exercise, statedly broke doors and windows and took along with them record of the petitioners and created an audit report. Respondent No.2 having found tax evasion to the tune of Rs.14,106,105, forwarded audit report to the Collector, on 2-4-2003. Petitioner approached respondent No.3. who acceded to the request of petitioners, directed for re-audit. Re-audit by independent team was recalled on account of alleged non-cooperation by the petitioner. Petitioner in the meantime, filed complaint (Complaint No.927-L/2003) before Federal Tax Ombudsman. Learned Tax Ombudsman vide order dated 4-10-2003 directed the respondents to refrain from proceeding against the petitioner, on the basis of audit already completed and further directed for re-audit of petitioner's accounts. Respondent department was directed to hold inquiry into the allegations of abuse of power and harassment. Respondent/Department assailed the order of Federal Tax Ombudsman, before President of Pakistan, through representation under section 32 of Ordinance XXV of 2000. The representation was decided and decision was conveyed through letter dated 19-5-2005, whereby the decision of learned Ombudsman was set aside being without jurisdiction, in view of provisions of section 9(2)(a) of Ordinance XXV of 2000. Hence this petition.

2. Learned counsel for the petitioner contended that the impugned order of the respondent department has been taken under section 38 of the Sales Tax Act, 1990. Any authorized officer can inspect the goods, stocks, record, data, documents and accounts. Learned counsel added that to collect information or document etc., officer of Sales Tax can enter premises to cause search, after obtaining a warrant as envisaged in section 40 of the Sales Tax Act. Before a search, Sales Tax Officer has to prepare a statement in writing of grounds of his belief, for which search is to be made, within the contemplation of section 40-A. A copy of the statement duly signed by the officer, has to be delivered to the occupier of the premises. Learned counsel referred to the case of "Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tech (Pvt.) Ltd." (2005 SCMR 1166), to contend that no search on anonymous complaint can be conducted. A search, according to the requirement of Sales Tax Act, is conducted validly, when it is done after obtaining search warrants from Magistrate and on the basis of credible information, having direct nexus that tax is being evaded. It was emphasized that according to law enunciated by the Hon'ble Supreme Court, a search without a search warrant is only permissible, when the Magistrate is not available and there is possibility that till the availability of Magistrate, the record will be removed. Learned counsel, while referring to the cases of "Federation of Pakistan v. Messrs Master Enterprises (Pvt.) Ltd." (2003 PTD 1034), "Messrs Ihsan Yousuf Textile Mills (Pvt.) Ltd. v. Federation of Pakistan" (2003 PTD 2037) and "Messrs N.P. Water Proof Textile Mills (Pvt.) Ltd., Karachi v. Federation of Pakistan and another" (2004 PTD 2952), has submitted that where search was conducted without complying with the procedure laid in sections 96, 98, 99-A, 100 and 103, renders entire action of Sales Tax officials as without lawful authority. Detection of the tax evasion and protecting State revenue, on one hand and saving the taxpayer from arbitrary action and misuse of power on the part of tax official, on the other hand, require a balance, which the legislature has through provisions of sections 38 and 40-A. Strict compliance of these provisions is mandatory and there is no departure from strict compliance. Learned counsel, at this stage, went through the decision/finding of learned Tax Ombudsman and submitted that after going through whole controversy and on thorough examination of record, learned Ombudsman found that there was no specific authorization for search and Collector's omnibus order dated 21-9-2002 to all Deputy Collectors and Assistant Collectors to have an access to premises and record, is invalid authorization. Ombudsman found that in course of re-audit, petitioner was not associated and was wilfully kept away and adjudication of case; the contravention report was based on already completed audit, is unjust. Learned counsel went on to argue that such findings, which are well reasoned and devoid of any legal infirmity, are not open to any exception. Impugned order of Section Officer of Ministry of Justice, purportedly on behalf of President lacks the element of "satisfaction", as it has been passed without proper consideration of facts and law applicable to the case. It was contended that every order of the President justifiable, except the appointment of Armed Service Chief. Impugned order has been passed without considering the dictum of law laid down by the apex Court and every decision of the Hon'ble Supreme Court has to be followed and acted upon, as envisaged in Article 189 of the Constitution. Omission to follow dictum of the apex Court calls for interference of this Court, in it's constitutional jurisdiction. Learned counsel referred to the cases of "Muhammad Siddique v. Federation of Pakistan and 3 others" (2005 YLR 2859) and "Nagina Silk Mill, Lyalpur v. The Income Tax Officer, A-Ward Layalpur and others" (PLD 1963 SC 322) and contended that writ against the decision of President, lies and constitutional jurisdiction can be invoked, even in cases where, appeals against the order-in-original, are pending in appellate forum. Learned counsel submitted that when representation against the order of Ombudsman is decided, without proper reasoning, then writ jurisdiction can be invoked. Learned counsel supported his contention while relying on the case of "Messrs Ahmed Hassan Textile Mills Ltd. through Chairman v. Federation of Pakistan" (2005 PTD 2455). Learned counsel summed up his arguments with the contention that proceedings against the petitioner were commenced, consequent upon illegal raid/search and without proper seizure of documents. The root of impugned action is illegal thus the fruits of poisonous tree must fall to ground.

3. Respondents Nos.1 to 3, on the other hand, have filed para-wise comments separately. They controverted the stance taken by the petitioner and the grounds urged therein. Mr. Qamar-uz-Zaman Qureshi, learned Deputy Attorney General has submitted that the order of President is well reasoned and petitioner was provided opportunity of being heard through receiving the comments on representation. The representation was decided, considering the reply of the petitioner, therefore, the impugned decision is unexceptionable. He has submitted that matter is sub judice before Additional Collector (Adjudication) Sales Tax, Lahore and the petitioner has the remedy to approach the forum available to it under law. Learned Law Officer has submitted with vehemence that instant petition is not competent. He has submitted that record, was collected by respondent No.2, which the petitioner has provided at the time when staff of department visited the premises on 28-12-2002. Proper resumption memos. were prepared and a certain information of massive tax evasion was available. Neither the premises were raided nor any harassment was caused as alleged. Mr. Ahmad Khalil, partner of the petitioner was contacted on his mobile phone, but he did not reach, despite promise. The record was submitted by Mr. Ayub, Manager of the firm. Irrelevant record was handed over to the representative of the petitioner on 2nd, 7th, 9th and 17th of January, 2003 and complete record, after scrutiny, was returned on 28-4-2003. Learned Law Officer has submitted that section 40-A of the Sales Tax Act, is applicable only when record is not available and it is concealed. The petitioner, in the case in hand, has delivered record through representative, during visit of petitioner.

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

5. The representation filed by the respondents under section 32 of Ordinance XXXV of 2000, against the decision dated. 4-10-2003 of Tax Ombudsman, has been decided through impugned order, after calling reply from the petitioners. The apex Court explained and considered the disposal of representation against the findings of Mohtasib in the case of "Federation of Pakistan through Secretary Establishment Division, Government of Pakistan v. Muhammad Tariq Pirzada and 2 others" (1999 SCMR 2744) and found that favourable order having accrued in favour of a complainant, cannot be brushed aside by setting aside the recommendation of Mohtasib, without assigning any reasons. Recording of valid reasons, while setting aside the recommendation of Mohtasib, would be the minimum requirement of law. The Hon'ble Supreme Court, through various judgments, have enunciated that a hearing to complainant, while deciding the representation, is not mandatory and purpose of providing opportunity of being heard, can be accomplished by calling reply, or written statement or written arguments. The recording of valid reasons, while setting aside the recommendation of Mohtasib, is mandatory requirement.

6. Section Officer, Ministry of Law, Justice and Human Rights Division, while conveying the order of the President, has stated in the impugned order that Authorized Officer's power to inspect goods/record etc. and to take them into his custody, do not depend upon, their conferment by the Board/Collector. He has further discussed the scope of sections 38 and 40-A of the Sales Tax Act, 1990. The findings in para.5 of the order, are in complete oblivion of the law laid down in the cases of "Messrs Flying Board and Paper Products (Pvt.) Ltd., Lahore through Manager v. Deputy Collector of Customs Dryport, Lahore" (2003 PTD 1037), "Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tech (Pvt.) Ltd." (2005 SCMR 1166), Messrs N.P. Water Proof Textile Mills (Pvt.) Ltd., Karachi v. Federation of Pakistan and another" (2004 PTD 2952) and "Messrs Ihsan Yousaf Textile Mills (Pvt.) Ltd., Faisalabad v. Federation of Pakistan through Ministry of Finance, Islamabad and 4 others" (2003 PTD 2037).

7. The decision made in the representation under section 32, is based oh the plea that the matter has been referred to the Adjudication Officer and same, being sub judice, falls outside the jurisdiction of Ombudsman, by virtue of provisions of section 9(2)(a) of Ordinance, 2000. While observing so, the respondents have ignored that the whole structure of the impugned action, was, raised on foundation, which is false and illegal. The action of the respondents based upon the audit report, which is not by an unauthorized person, but has emanated from an action (collection of record through illegal raid), which is not permissible under law. Such action cannot legally sustain. The Assistant Collector, on her transfer from the existing posting, was not authorized to sign the audit report. The audit report is valid only, when it is signed and conveyed by the authorized officer.

8. There is another angle to view this controversy, admittedly the Collector, while entertaining the complaint of the petitioners, directed for conduct of re-audit. The order of Collector for fresh and independent audit conveyed through letter of Deputy Collector dated 19-6-2003, still holds the field. The direction for re-audit was passed by Collector, admitting the genuineness of the grievance of the petitioners and for fair dispensation, of justice. Re-audit, through an independent team, cannot be stopped or recalled, merely on the plea that taxpayer, had not co-operated. The respondents once agreed for re-audit, cannot subsequently resile from their stand.

9. The Collector has passed the order, for conduct of re-audit, through an independent team. The audit team issued notices for re-audit and subsequently dropped the proceedings and the department proceeded to issue show cause notice, on the basis of earlier audit. Re-audit proceedings were required to be completed, once it had commenced. Non-appearance or non-cooperation of a party, results into ex parte proceedings against such party, but dropping the proceedings for re-audit is not justified. Section Officer has totally ignored this aspect of the controversy. Representation has been decided without any valid reason. Reasons justifying the raid, are in conflict with the dictum of various judgments of the Hon'ble Supreme Court. Section Officer of Ministry of Justice should have avoided such course. The representation has been decided, ignoring the law settled by the Hon'ble Supreme Court and it lacks the element of valid reasoning. Such order is, therefore, declared having been passed without lawful authority and with no legal effect.

10. For the foregoing, this petition is allowed, respondents are directed, to proceed with fresh audit, through an independent team of auditors, as directed by the Collector. Respondent can proceed against, the petitioners, but on the basis of fresh report of audit.

M.H./B-5/LPetition allowed.