PAKISTAN CHIPBOARD (PVT.) LTD. VS FEDERATION OF PAKISTAN through Revenue Division, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 1520 (2015)

Sales Tax Act (VII of 1990)---

----S.40---Constitution of Pakistan, Art.199---Constitutional petition---Search and seizure conducted by Sales Tax Authorities under S.40 of the Sales Tax Act, 1990---Non-compliance with requirements of S.40 of the Act---Effect---Petitioner impugned warrant for the search of its premises as well as the subsequent confiscation of material from its premises on the ground that such search and seizure was conducted without a proper warrant and without fulfilling requirements of S.40 of the Sales Tax Act, 1990---Held, that basic requirement of S.40 of the Sales Tax Act, 1990 was that an officer of Inland Revenue must have reasons to believe that a search was necessary to obtain document or things relevant in pending proceedings---Department, in the present case, relied upon letters issued by Collector of Sales Tax to show that department had reason to believe that search was necessary and the letter relied upon by the Department did not satisfy conditions of S.40 of the Sales Tax Act, 1990 and admittedly at that time there were no proceedings pending against the petitioner---No order was on record, explaining and detailing as to what documents were required from the petitioner for which a search under S.40 was necessary---Letters on basis of which search warrant was obtained suggested that the Department was still in the inquiry phase trying to ascertain whether or not the petitioner was an evader of sales tax---Section 40 of the Sales Tax Act, 1990 could only be invoked when there were proceedings pending under the Sales Tax Act, 1990 for which a document or other material was necessary---Search warrant was set aside and the Department was directed to return all records, documents and computers to the petitioner---Constitutional petition was allowed, accordingly.

Chairman Central Board of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) Ltd. Burewala 2007 SCMR 1039 and Collector of Sales Tax and others v. Messrs Food Consultants (Pvt.) Ltd. and another 2007 PTD 2356 rel.

Hasham Ahmad Khan for Petitioner.

Ms. Amna Warsi for Respondents.

Date of hearing: 24th February, 2015.

JUDGMENT

MRS. AYESHA A. MALIK, J.---The petitioner seeks a declaration that search and seizure conducted by respondent No. 3 on 2-12-2008 is illegal and all actions taken are contrary to the mandate of the law.

2.The case of the petitioner is that a search was carried out on 2-12-2008 by respondent No.4 on the business premises of the petitioner and during the process of search, business records, documents and computers were removed from its premises. Learned counsel for the petitioner argued that the petitioner has challenged this search and seizure as it was done without a proper warrant and without fulfilling the requirements of section 40 of the Sales Tax Act, 1990 ("Act"). Learned counsel argued that the search warrant relied upon was issued under section 40 of the Act read with section 84 of the Criminal Procedure Code, 1898 ("Cr.P.C.") for searching the business premises of the petitioner. Learned counsel further stated that it was issued in the name of Jawad Zafar Malik, Assistant Collector, Sales Tax and Federal Excise, Gujranwala. The SHO Police Station Saddar, Jhelum endorsed the warrant which was issued by the Magistrate Ist Class, Sheikhupura. Learned counsel argued that the search warrant was issued in favour of respondent No.4, however, the search was conducted by respondent No.3. Learned counsel argued that respondent No.3 was given permission to conduct the search by respondent No.4 which is not permissible under the law. Learned counsel further argued that respondent No.3 does not fulfil the criteria of being an officer of sales tax for the purposes of the search warrant as he belongs to the Sialkot Region whereas the petitioner's premises are located in Jhelum. Learned counsel argued that respondent No.3 was competent for the purposes of Sheikhupura, Gujranwala, Faisalabad and Sialkot in terms of S.R.O. 547/2008 dated 11-6-2008 but he was not competent for the purposes of conducting search on the premises of the petitioner which premises fell within the jurisdiction of Regional Sales Tax Office, Rawalpindi. Learned counsel further argued that the search warrant was issued by Magistrate Ist Class, Sheikhupura without complying with the requirement of Section 84 of the Cr.P.C and further that he is not the relevant Illaqa Magistrate. In this regard, learned counsel for the petitioner placed reliance on the case titled Chairman, Central Board of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) Ltd. Burewala (2007 SCMR 1039). Learned counsel further argued that there are no proceedings pending against the petitioner before the respondents. Learned counsel further argued that the business record and documents seized by the respondents was also done contrary to the procedure provided under section 40 of the Act. He stated no seizure report was prepared nor any reasons were provided for conducting the search under section 40 of the Act.

3.Report and parawise comments have been filed on behalf of respondent No.3. Learned counsel for the respondents argued that a case of massive fraud involving units located in Districts Sheikhupura, Jhelum and Lahore were involved, therefore, the Department sought permission for issuance of one search warrant from the Magistrate at Sheikhupura. In this regard, the Department made a written request to the learned Sessions Judge, Sheikhupura who was pleased to direct the concerned Magistrate through his orders in writing to do the needful as required under the law. The warrant was issued as per law under Section 84 of the Cr.PC read with Section 4(1)(i) and (2) of the Federal Board of Revenue Act, 2007. She argued that on 2-10-2007 and then on 11-10-2007 a letter was issued by Aftab Ahmad Bhatti, Second Secretary (STM), Government of Pakistan, Revenue Division, Central Board of Revenue, Islamabad for investigation into tax fraud, search warrant was issued on 11-12-2007 and the search was conducted on 2-12-2008. The material which was retrieved during the search was documented in an inventory which was duly signed and acknowledged by Mirza Bashir Ahmed, Director Pakistan Chip Board Jhelum. Learned counsel argued that from the retrieved data, it was revealed that the petitioner has not been filing correct sales tax returns for making due payments of sales tax nor has it been paying the due tax on the basis of its end products and the petitioner is involved in evasion of sales tax. Learned counsel argued that the petitioner's unit has suppressed its sales to the tune of Rs.791.94 million involving evasion of sales tax in the amount of Rs.119.43 million for the period from July 2004 to October 2008.

4.Heard and record perused.

5.The basic issue is the issuance of search warrant under section 40 of the Act read with section 84 of the Cr.P.C. and the search conducted on 2-12-2008. The relevant facts are that search warrant was issued by the Civil Judge/Magistrate 1st Class, Sheikhupura in favour of Jawad Zafar Malik, respondent No.4. There is no date on the search warrant, however on 26-11-2008, respondent No.4 endorsed the search warrant in favour of respondent No.3. During the process of the search, admittedly business record, documents including accounts ledger and invoice books were seized by the respondents. Section 40 of the Act provides as follows:--

Searches under warrant (1) Where any officer of [Inland Revenue] 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 [in his presence] under subsection (1) shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (V of 1898).

The basic requirement of section 40 of the Act is that an officer of Inland Revenue must have reasons to believe that a search is necessary to obtain document or things relevant in a pending proceeding. The respondents have relied upon letters dated 2-10-2007 issued by the Collector, Sales Tax and Federal Excise, Gujranwala and letter dated 11-10-2007 issued by Aftab Ahmad Bhatti, Second Secretary (STM), Government of Pakistan, Revenue Division, Central Board of Revenue, Islamabad to show that the respondents had reason to believe that the search was necessary. After going through the record, it appears that earlier the record of Arshad Traders, Sialkot was taken into custody under section 38 of the Act and from that record the respondents claim that they suspected tax fraud has been committed by other registered suppliers in the same business, including the petitioner. Subsequent thereof a letter was issued on 11-10-2007 granting approval on behalf of the board to conduct an investigation against suppliers located outside the jurisdiction of the Sialkot Collectorate. Subsequently the respondents went to the Magistrate at Sheikhupura, on 3-12-2007 who then issued the search warrant under section 84 of the Cr.P.C. on 11-12-2007. The letters relied upon by the respondents do not satisfy the specific conditions of section 40 of the Act. Admittedly at the time there were no proceedings pending under the Act against the petitioner. Admittedly there is no order explaining and detailing what documents or things were required from the petitioner for which a search under section 40 of the Act was necessary. In the case titled as Collector of Sales Tax and others v. Messrs Food Consultants (Pvt.) Ltd. and another (2007 PTD 2356), the Hon'ble Supreme Court of Pakistan has held that where an officer of sales tax has reason to believe that any document or things, which, in his opinion, may be relevant to any proceedings under the Act, are concealed or kept in any place and there is a danger of removal of such documents or records, he may, after obtaining a warrant rom the Magistrate, enter that place and cause a search to be made at any time. The respondents have not complied with the requirements of section 40 of the Act because firstly there are no proceedings pending against the petitioner and the letters on the basis of which search warrant was obtained suggest that the respondents are still at an inquiry phase, trying to ascertain whether or not the petitioner is an evader of sales tax. Section 40 of the Act can only be invoked when there are proceedings pending under the Act for which a document or other material is necessary. Secondly it has been held in 2007 PTD 2356 (supra) that the mandate of law as enunciated in subsection (2) seems to be that search authorized under the above provision of law shall be carried out strictly in accordance with relevant provisions of the Code of Criminal Procedure, 1898. Such provisions are contained in sections 96 to 105 of the Code and need not be dilated upon as admittedly the petitioner did not invoke these important provisions of law while seizing the records of the respondent company. In this case, even the requirements of the Cr.P.C. for issuance of search warrant have not been complied with. The search warrant was issued by Civil Judge/Magistrate 1st Class, Sheikhupura on 11-12-2007 whereas the search was carried out one year later on 2-12-2008 and more importantly the search warrant was issued in favour of respondent No.4 who on his own endorsed the search warrant in favour of respondent No.3. The procedure regarding issuance of search warrant is provided for in sections 96, 98 and 103 of the Cr.P.C. whereby firstly the search warrant is to be obtained from Illaqa Magistrate where search of the premises is to be made. Under section 103 of the Cr.P.C. before making a search, the officer or other person about to make it shall call upon two or more respectable inhabitants of the locality in which the place to be searched is situate to attend and witness the search, which are taken into possession.

6.In view of the aforesaid, this petition is allowed. The search warrant dated 11-12-2007 issued by Civil Judge/Magistrate 1st Class, Sheikhupura is set aside. The respondents are directed to return all the records, documents and computers confiscated by the respondents during search on 2-12-2008 to the petitioner immediately.

KMZ/P-19/LPetition allowed.