Chaudari SHABBIR HUSSAIN VS State, 2014 PTD-KARACHI-HIGH-COURT-SINDH 612 (2013)

Sales Tax Act (VII of 1990)---

----Ss.2(37), 3, 6, 7, 8, 22, 23, 26, 33, 34, 37-A & 73---S.R.O. 1125(I)/2011, dated 31-12-2011---Criminal Procedure Code (V of 1898), S.497---Tax fraud---Bail, grant of---Accused was alleged to have been engaged in tax fraud by facilitating different manufacturers/ importers of textile relateditemsby misusing provisions of S.R.O. 1125(I)/2011,dated31-12-2011---Validity---Company of accused was not genuine taxpayer and not doing business in textile industry but on the basis of paper transactions had facilitated textile manufacturers to evade tax liabilities bydeclaringzero-rated supplies under S.R.O. 1125(I)/2011,dated31-12-2011, while the same were chargeable at 5%---Returns filed by the company of accused showed unlawful adjustment of input tax/refund against invoices of those units/importers who were engaged in import of steel, in such a manner accused caused huge loss of millions of Rupees to national exchequer---Bail was refused, in circumstances.

Black's Law Dictionary; Legal Terms and Phrases 2013 Edition by M. Ilyas Khan; Khawaja Shahbaz Ahmed v. Deputy Director, Directorate General of Intelligence and Investigation, Range Officer, Gujranwala and another 2012 PTD 1361; GMH Traders and Manufacturers v. Deputy Director/Investigating Officer, Directorate of Intelligence and Investigation, Lahore 2009 PTD 1894; Zaheer Hussain v. The State PLD 2006 Kar. 397 and Imtiaz Ahmed v. The State PLD 1997 SC 545 ref.

Muhammad Kokab Sabahuddin for Applicant.

S. Mohsin Imam for Federal Board of Revenue.

Dilawar Hussain, Standing Counsel.

Saeed Khan, Investigating Officer and Muhammad Azam Nafees ROA/DR, Directorate of ISI/IB, Karachi. present.

ORDER

SADIQ HUSSAIN BHATTI, J.---The applicant is facing trial in F.I.R. No.ST/AD-A/2013-14/01 registered at Police Station Directorate of Intelligence and Investigation-IR, Karachi under sections 2(37), 3, 6, 7, 8, 22, 23, 26 and 73 of the Sales Tax Act, 1990 read with S.R.O. 1125 of 2011 before the Court of Special Judge (Customs and Taxation), Karachi.

2.Facts of the case are that, on an information received by the Directorate of Intelligence and Investigation, Inland Revenue, Karachi, that a number of persons are engaged in the business of manufacturing/import of textile related goods and misusing the provisions of S.R.O. 1125(I)/2011 dated 31-12-2011 ("the S.R.O.") to deprive the national exchequer by committing tax fraud with the connivance of some unscrupulous persons, the Directorate started desk inquiry and noticed that Chaudari Shabbir Hussain son of Abdul Habib, proprietor of MessrsShabbir Jan and Company, STRN 11005811003364 along with some other persons is involved in the tax fraud by facilitating the above stated manufacturers/importers of textile related items. Accordingly, scrutiny of the sales tax returns of MessrsShabbir Jan and Company was conducted which revealed that the registered person is taking unlawful adjustment of input tax/refund against invoices of those units/importers who are engaged in the import of steel products. Thus, the said registered person is obtaining refunds which are not in consonance with the declared activities of the said registered person. During the period of April, 2001 to December, 2012, MessrsShabbir Jan and Company bought invoices of steel and claimed refund thereon amounting to Rs.48,861,533. In view of such facts, it has been established that the applicant/accused Chaudari Shabbir Hussain, CNIC No.42301-0967882-3, being the proprietor of MessrsShabbir Jan and Company, is knowingly, dishonestly and fraudulently involved in running/operating the fraudulent unit/firm by way of declaring supply of textile goods to bogus units as zero-rated which are otherwise chargeable to tax at the rate of 5% in term of S.R.O. 115(I)/2011 and thus has deprived the national exchequer of its legitimate revenue to the tune of Rs.145.17 million and have violated the provisions of Sales Tax Act, 1990. Therefore, the applicant/accused was arrested by a team of officers of the Directorate of Intelligence and Investigation-IR, Karachi on 2-9-2013 from his office. During such arrest, 10 files pertaining to seven properties in the name of the applicant/accused and his immediate family members were also taken into custody for which the applicant was unable to provide the sources of income through which the same were acquired as the income tax returns of the applicant were silent. Thus, prima facie, it is conceived that such properties were purchased by the applicant in his name and in the name of his close relatives from the money realized through the illegal business of selling of fake invoices, submitting fraudulent refunds and declaration of bogus purchases to the misuse the zero-rating provided under the said S.R.O. The applicant/accused filed bail application before the Special Judge (Customs and Taxation), Karachi which was rejected vide order dated 24-9-2013, hence this bail application.

3.Mr. Muhammad Kokab Sabahuddin, advocate appeared on behalf of the applicant/accused and contended that there is no such thing as "bogus registered firm" as the firms are registered by the respondents and not by the applicant. He stated that all the buyers, who purchased goods from the applicant/accused, are still active on the FBR e-portal which clearly shows that they are duly registered firms. He submits that under section 2(25) of the Sales Tax Act "registered person" has been defined to mean "a person who is registered or is liable to be registered under this Act." He further contended that under the S.R.O., the condition precedent for availing the facility of zero-rated tax is that the supplies should be made to a registered person falling in the five sectors as mentioned in the S.R.O. and since the supplies were made to registered buyers, therefore, the case of the Prosecution falls apart and stands demolished. Learned counsel further submitted that till date no refund claim has been sanctioned or received by the applicant. He stated that scrutiny of the Refund Claims falls within the exclusive domain of the concerned R.T.O. in which the tax-payer is registered and where the refund claims have been filed which are to be dealt with in accordance with Sales Tax Refund Rules, 2006 and the Prosecution has no jurisdiction to process or scrutinize the same. In this regard he made specific reference to the provisions of Rules 26 to 39-A of the said Rules and explained the complete mechanism for refund claims and stated that the Directorate has neither the power to process the Refund Claims nor to carry out post refund audit. He also stated that the alleged refund claimed by the applicant during the period of April, 2011 to December, 2012, amounting to Rs.48,861,533 was not yet sanctioned and the competent authority is empowered to reject the same in case the same is inadmissible or not in accordance with law. He also submitted that no notice under section 37 of the Sales Tax Act was issued to the applicant before his arrest in terms of section 37A of the said Act. He submitted that the liability foisted upon the applicant is a fictitious liability not corroborated by any material evidence. He also referred to Black's Law Dictionary and stated that "material evidence" means "that quality of evidence which tends to influence the tier of fact because of its logical connection with the issue. Evidence which has an effective influence or bearing on question in issue." He also referred to the law dictionary "Legal Terms and Phrases", 2013 Edition, by M. Ilyas Khan, wherein "material evidence" has been defined as "such piece of evidence or documents, which affect the findings returned by the Court or in other words the findings of the Court would have been different if the documents that have not been considered, had been looked into by the Court." He vehemently argued that the initial burden was cast upon the Prosecution to show that the applicant has knowingly, dishonestly and fraudulently and without any lawful excuse had done any act in contravention of the duties and obligations imposed upon him under the Sales Tax Act. Once such burden is discharged by the Department only then the burden will shift to the applicant. The learned counsel urged that nothing can be read into or implied in the Sales Tax Act and the same, being a fiscal statute is to be construed strictly. Learned counsel further submitted that the statutory audit under section 25 of the Sales Tax Act has not ever been conducted by the concerned authority and as such the purported liability created by the Prosecution is based on presumption which is not legally tenable. He also submitted that the alleged liability of the applicant was not yet finally determined and, therefore, the case was of further inquiry. He relied on the case of Khawaja ShahbazAhmed v. Deputy Director, Directorate General of Intelligence and Investigation, Range Officer, Gujranwala and another (2012 PTD 1361) and GMH Traders and Manufacturers v. Deputy Director/Investigating Officer, Directorate of Intelligence and Investigation, Lahore 2009 PTD 1894. He submitted that the alleged offence is punishable with imprisonment of less than 10 years and in such cases the bail is granted as a rule and refusal is an exception. Therefore, the learned counsel added, the applicant is entitled to bail.

4.On the other hand, both Mr. Mohsin Imam, learned counsel for the FBR and Mr. Dilawar Hussain, learned Standing Counsel, opposed the grant of bail. Mr. Mohsin Imam stated the applicant, as proprietor of MessrsShabbir Jan and Company, has indulged in illegal and unlawful activities of and claimed refund on the basis of fake invoices and thus caused huge loss to the national exchequer. He stated that it is not correct to state that the alleged refund claim of the applicant has not been sanctioned or paid as, according to him, such refund was sanctioned and was paid to the applicant. He also argued that though the offence does not fall within the prohibitory clause but since the national exchequer was deprived of huge amount therefore the offence is a crime against society and the applicant does not deserve any leniency. Learned counsel further stated that sufficient documentary evidence is available with the Prosecution to connect the applicant with the crime, therefore, the applicant is not entitled to bail. He placed reliance on the case of Zaheer Hussain v. The State (PLD 2006 Karachi 397).

5.I have heard the learned counsel for the parties and have perused the record as well as the case-law cited before me.

6.The allegation against the applicant is that MessrsShabbir Jan and Company, of which the applicant is the sole proprietor, by misusing the provisions of the S.R.O., have caused huge loss to the national exchequer. The inquiry conducted by the Directorate revealed that MessrsShabbir Jan and Company has shown supply of zero-rated goods in terms of the S.R.O. to various bogus registered firms as some of the buyers who were selected for ground check were found to be untraceable. Thus, these buyers were non-existence and fictitious registered persons. Thus, it was found that MessrsShabbir Jan and Company is not a genuine taxpayer and not doing business in the textile industry but on the basis of paper transactions has facilitated the textile manufacturers to evade tax liabilities by declaring zero-rated supplies under the S.R.O. while the same are chargeable at 5%. It was also found that the returns filed by MessrsShabbir Jan and Company show unlawful adjustment of input tax/refund against invoices of those units/importers who were engaged in the import of steel. In this way the applicant caused a huge loss of millions of Rupees to the national exchequer.

7.It was argued by Mr. Kokab Sabahuddin that the alleged refund claim has not yet been sanctioned and the competent authority is empowered to reject the same, however, Mr. Mohsin Imam, learned counsel for FBR has shown that the said amount has already been sanctioned and released to the applicant.

8.In the case of Zaheer Hussain (supra), the facts were that the Sales Tax Authorities received information that MessrsFata Textiles, Karachi have fraudulently obtained sales tax refund amounting to Rs.37,45 million against fake document. On verification, it was found that on the business address of MessrsFata Textiles, Karachi, there was a godown owned by another person and there was no unit in existence in the name of MessrsFata Textiles. The verification of the persons who allegedly supplied goods to the Fata Textiles showed that most of them were not existing and they had also claimed refund of sales tax by submitting fake purchase invoices and other documents. The shipping bills produced for obtaining sales tax refund were sent to the Customs Collectorate of Karachi, for verifying their genuineness and it was reported that the shipping bills did not match with the bills submitted for the export and that the shipping bills submitted for claim of sales tax refund were tampered. According to prosecution it was established on inquires that Farhan Anwar, Proprietor of MessrsFata Textiles and some other unscrupulous persons were involved in the claim of fraudulent refund which amounted to tax fraud as defined under section 2(37) of the Sales Tax Act, 1990, causing loss in the tune of Rs.37.45 million to the exchequer. An F.I.R. was recorded in this behalf. On further investigation it was found that applicant Zaheer Russian, owner of MessrsZaheer Dying and Bleaching Works Karachi, and Muhammad Anwar Choudhry owner of MessrsR.A. Textile Mills were also involved in the commission of tax fraud. The bail application filed by applicant/accused Zaheer Hussain was dismissed.

9.In the present case the applicant is accused of causing a much huger loss than that caused by the above said Zaheer Hussain. The documents produced before me are sufficient to prima facie connect the applicant with the commission of the crime and in view of the law laid down by the Hon'ble Supreme Court in the case of Imtiaz Ahmed v. The State (PLD 1997 SC 545) to the effect "that a distinction is to be made between an offence which is committed against an individual like a theft and an a offence which is directed against the society as a whole for thepurpose of bail and that the Courts should be strict in exercise of discretion of bail relating to the category of offenders belonging to a distinct class, of white collar crime is fully attracted to the facts of the present case. Further observation of the Hon'ble Supreme Court, that Courts should not be oblivious of the fact that at present Pakistan is confronted with many serious problems/difficulties of national and international magnitude, which cannot be resolved unless the whole Pakistani nation as a united entity makes efforts, and that the desire to amass wealth by illegal means has penetrated in all walks of life and that the people commit offences detrimental to the society and the country for money, are also fully applicable to the facts of the present case in which a tax fraud is alleged to have been committed causing loss of very huge, hard-earned money to the State".

10.Learned counsel for the applicant relied on a number of cases but the same are distinguishable on facts. In the case of Khawaja Shahbaz Ahmed (supra), the applicant was the sole proprietor of a running steel mill and there was allegation of tax evasion and the learned Court observed that since the amount of tax evaded is not determined, therefore, the case was of further inquiry. The other point of distinction was that the applicant was heart patient and, therefore, was granted bail. Similarly, in the case of G.M.H. Traders and Manufacturers (supra) it was observed that nobody can be asked to pay taxes before completion of adjudication proceedings and the collection of tax was, therefore, held to be totally illegal. Thus, these cases are distinguishable.

11.Mr. Kokab Sabahuddin, learned counsel also argued some finer points like "material evidence", "bogus registered firm", non-issuance of notice undersection 37 of the Sales Tax Act and the question of jurisdiction of the Prosecution. All these finer points are to be discussed and decided by the Trial Court.

12.I would not like to make any detailed observations on the above points at this stage for the reason that the observations made by this Court may affect the proceedings before the learned trial Court. I feel it sufficient to observe that the material placed before me by learned counsel for FBR/Standing Counsel makes out a prima facie case involving the applicant in the commission of tax fraud. However, it is tentative assessment only and shall have no bearing on the merits of the case, when it proceeds before the learned trial Court. The learned trial Court without being influenced with this tentative assessment by this Court for the purpose of bail plea, shall decide the issue strictly on merits in the light of evidence produced by the prosecution at the trial.

13.In view of the above discussion, I find no merit in this bail application which is dismissed.

MH/S-122/KBail dismissed.