STYLO SHOES through Managing Partner VS DEPUTY DIRECTOR, 2013 PTD-LAHORE-HIGH-COURT-LAHORE 1780 (2013)

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

----Ss. 40 & 38---Constitution of Pakistan Art. 199---Constitutional petition---Access to premises of registered person---Search under warrant---Scope---Petitioner impugned search conducted by Department on the ground that Department had obtained warrant of the petitioner's premises on basis of false information and no inquiry or default could be attributed to the petitioner----Search conducted on premises of another company was also impugned---Validity---Under S. 38 of the Sales Tax Act, 1990, an authorized officer had free access to the premises of a registered person whereas under S. 40 of the Act an officer who had "reason to believe" that any thing or document would be useful for or relevant to any proceedings then he may obtain search warrant from Magistrate and carry out search of "any place"---No requirement of notice under S. 38 of the Act before proceeding under S.40 of the Sales Tax Act, 1990, existed---Department, in the present case, was conducting an enquiry under S. 38 of the Sales Tax Act, 1990 for which the concerned officer obtained the relevant order from the competent authorities and therefore, on basis of credible information (declaration of petitioner company on its website) the concerned officer obtained search warrant from concerned Magistrate under S. 40 of the Act and carried out search strictly in accordance with law---Further search was conducted on basis of intelligence, of the premises of the other company, and management of both the petitioner company and said other company was the same, and one was manu-facturing exclusively for the other---Term "any place" used in S.40 of the Act included any third party's place and was not restricted to the business premises of the registered person or place of the registered person against whom any enquiry was pending---No illegality existed in the impugned actions of the Department---Constitutional petition was dismissed, in circumstances.

Federation of Pakistan and others v. Master Enterprises (Pvt.) Ltd.2003PTD1034;Z & JHygienicProducts(Pvt.)Ltd.v.Collector Sales Tax 2011 PTD 697; Chairman, Central Board of Revenue and others v. Haq Cotton Mills (Pvt.) Ltd., Burewala and others2007SCMR1034=2007PTD1351;2004PTD1339andCollector ofS.T.&C.E.(Enforcement)andanotherv.MegaTech (Pvt.) Ltd. 2005 SCMR 1166 = 2005 PTD 1933 distinguished.

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

----S.40---InterpretationofS. 40,SalesTaxAct,1990---Searchunder warrant----Under S. 40 of the Sales Tax Act, 1990 where an officer of the Department had "reason to believe" that anything or documentwouldbeusefulfororrelevanttoanyproceedings he,may obtain warrant from Magistrate and carry out search of "any place"----"Any place" included any third party's place and was not restrictedtothebusinesspremisesoftheregisteredpersonorplaceof the registered person against whom any enquiry was pending.

Naved A. Andrabi for Petitioner.

Miss Kausar Parveen with Saad Waqas, Deputy Director Intelligence and Investigation Inland Revenue for Respondents.

Date of hearing: 27th May, 2013.

JUDGMENT

SHEZADA MAZHAR, J.---Through this single judgment, I intend to decide Writ Petition No. 11727 of 2013 and Writ Petition No.11728 of 2013, as in both the writ petitions, the petitioners have challenged the order dated 30-4-2013 with identical prayers. It was obtained by the respondent-department from the concerned Area/Judicial Magistrate for search of Stylo Shoes business premises bearingNos.153-M and 161-M, Quaid-e-Azam Industrial Estate, Kotlakhpat, Lahore. The prayer in both the petitions were as follow:--

(a)To declare that order obtained under section 40 of the Act read with sections 96/98 of the Cr.P.C. from the Learned Judicial Magistrate by giving false information and without following the procedure as laid down in law is illegal, without lawful authority and of no legal effect.

(b)To declare that the acts of respondents to enter the registered premises of the petitioner without following the procedure of law and the ensuing proceedings are illegal and without lawful jurisdiction.

(c)To direct the respondents not to harass the petitioner for providing of various information/details till the decision of this petition by this honourable Court.

(d)The cost of this petition may graciously be awarded to the petitioner.

(e)Any other relief which this honourable Court deems fit may also be granted to the petitioner.

2.Learned counsel for the petitioner submits that before obtaining impugned order dated 30-4-2013, neither any notice under section 30 of Sales Tax Act, 1990 was served upon the petitioner nor any inquiry was underway, therefore, the order is illegal. It is further submitted that the petitioner is admittedly registered with the respondent-department as 'Retailer', whereas, in the impugned order the respondent-department has submitted that the petitioner is involved in manufacturing activities of leather shoes. It is also submitted that after the raid the respondent issued contravention report dated 16-5-2013 against the petitioner wherein it has been mentioned by the respondent-department that the petitioner is "exclusively engaged in retail sale of leather goods/ products". Learned counsel further submits that in the search warrant the respondent-department mentioned the address of the petitioner as 153-M and 161-M, Quaid-e-Azam International Estate, Kotlakhpat, Lahore, though, the respondent had full knowledge that the premises No. 153-M had nothing to do with the petitioner. It is further submitted that as no notice was given under section 30 of the Sales Tax Act, 1990, therefore, order dated 30-4-2013 obtained was illegal and unlawful and the same is liable to be set aside. It is further added that even after making contravention case, the department is approaching petitioner's vendors/suppliers with notices wherein respondent-department mentioned that an enquiry is underway against the petitioner and have demanded information from the vendor/suppliers. The learned counsel submits that department can approach any of his suppliers/vendors but without mentioning the name of the petitioner company. In Writ Petition No.11728 of 2013, the learned counsel submits that respondent department has obtained search warrant of the petitioner premises after giving false information and without following the procedure as laid down in law. No inquiry or tax default is attributed or alleged to the petitioner for which the search warrant was obtained. In support of his contentions, the learned counsel for the petitioner has relied upon:--

2003 PTD 1034, 2011 PTD 697, 2009 PTD 1083, 2007 SCMR 1034 = 2007 PTD 1351, 2004 PTD 1339, 2004 PTD 1731, 2003 PTD 2037 and 2005 SCMR 1166 = 2005 PTD 1933.

3.Notices were issued to the respondent-department, who filed report and para wise comments along with supporting documents.

4.Learned counsel for the respondent-department has vehemently opposed the writ petitions and submits that the present writ petitions involve factual controversies which cannot be resolved in constitutional jurisdiction, therefore, not maintainable and are liable to be dismissed. The petitioners have not approached this Court with clean hands and the present writ petitions have been filed with mala fide intention just to avoid the proceedings in terms of sections 38 and 40 of the Sales Tax Act, 1990. It is further submitted in support of order dated 30-4-2013 that the same was obtained on the basis of investigation carried out by the respondent-department. Learned counsel further states that the petitioner as per its own declaration, on its business website, and that with the department, was found at variances. The petitioner is registered with the department, as a 'Retailer', whereas, as per information available on web portal of petitioner (www.styloshoes.com <http://www.styloshoes.com>), the petitioner has shown itself to be involved/engaged in manufacturing activities. On this information the order was obtained under section 40 of the Sales Tax Act, 1990 from the concerned Magistrate for search of the mentioned premises. It is further added that neither any false nor fabricated information was provided to the concerned Magistrate and search was carried out on the basis of search warrant which resulted in contravention case against the petitioner for an amount of Rs.192,060,185. Adds that intelligence gathering revealed that the premises 153 - M Quaid-e-Azam, Industrial Estate, Kot Lakhpat, Lahore is being used exclusively for the manufacturing of Stylo brand shoes. It was also revealed that above said business premises is registered under the name and style of Messrs SS Foot Mark (Pvt.) Limited. It was also revealed during investigation that Messrs Stylo Shoes is registered as an AOP consisting of four (4) members whereas the petitioner is a private limited company having the same four people as its directors. Therefore the argument of the petitioner counsel that M/s Stylo Shoes has nothing to do with the business premises 153-M Quaid-e-Azam, Industrial Estate, Kot Lakhpat, Lahore is absolutely incorrect as both entities are under same management. It is further submitted that the present writ petitions are liable to be dismissed.

5.Arguments heard. Record perused.

6.The case of the petitioner is that without issuance of notice under section 38 of the Sales Tax Act, 1990, the respondent-department cannot obtain an order of search under section 40 of the said Act. In order to understand the point raised by the parties Sections 38 and 40 of Sales Tax Act, 1990 are reproduced hereunder:--

38. Authorized officers to have access to premises, stocks, accounts and records.---(1) Any officer authorized in this behalf by the Board [or the Commissioner shall have ,free access to business or manufacturing premises, registered office or any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to any registered person or a person liable for registration or whose business activities are covered under this Act or who may be required for any inquiry or investigation in any tax fraud committed by him or his agent or any other person; and such officer may, at any time, inspect the goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statement, information regarding nature and sources of funds or assets with which his business is financed, and any other record or documents, including those which are required under any of the Federal, Provincial or local laws maintained in any form or mode and may take into his custody such records, statements, diskettes, documents or any part thereof in original or copies thereof in such form as the authorized officer may deem fit against a signed receipt.

(2)The registered person, his agent or any other person specified in subsection (1) shall be bound to answer any question or furnish such information or explanation as may be asked by the authorized officer.

(3)The department of direct and indirect taxes or any other Government department, local bodies, autonomous bodies, corporations or such other institutions shall supply requisite information and render necessary assistance to the authorized officer in the course of inquiry or investigation under this section.

40. 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 this presence, under subsection (1) shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (V of 1898)

Reading of the above two sections makes it clear that both sections cater for different situations. In section 38 of the Act, the authorized officer has free access to the premises of registered person. Whereas under section 40 of the Act, officer of respondent department has "reason to believe" that will be useful for or relevant to any proceedings that he may obtain search warrant from Magistrate and carried out search of "any place". Such search shall be carried out in accordance with Criminal Procedure Code, 1898. What is necessary for the search under section 40 is that "a proceeding" under the Act is pending. There is no such requirement of notice under section 38 of the Act before proceeding under section 40 of the Act as mentioned by the learned counsel for the petitioner. Even in sections 96/98 of the Criminal Procedure Code, 1898 notice is not mandatory.

7.The case-law referred by the learned counsel for the petitioner is also not relevant to the facts of the present case as in 2003 PTD 2037 (Ihsan Yousaf Textile Mills (Pvt.) Ltd. v. Federation of Pakistan and 4 others), 2004 PTD 1731, Food Consults (Pvt.) Ltd., v. Collector of Customs, and others, 2009 PTD 1083, A.M.Z. Spinning and Weaving Mills (Pvt.) Ltd. v. Federation of Pakistan through Secretary, Revenue Division/Ex-officio Chairman, C.B.R. Islamabad and 2 others, 2011 PTD 697, Z & J Hygienic Products (Pvt.) Ltd. v. Collector Sales Tax and 2003 PTD 1034, Federation of Pakistan and others v. Master Enterprises (Pvt.) Ltd. raids were conducted under section 38 of the Sales Tax Act, 1990 and the Hon'ble Court held that under the said provisions department can have routine visits which must be confined to inspecting the record and documents that are in plain sight or those that are voluntarily made available for inspection by the person present at the premises but does not have power to search or seizure which can only be done in accordance with the provisions of section 40 or in emergency cases under section 40-A of the Sales Tax Act, 1990.

Whereas in cases 2004 PTD 1339 (Megna Textile Mills v. Collector of Customs), 2007 SCMR 1034 = 2007 PTD 1351 (Chairman, Central Board of Revenue and others v. Haq Cotton Mills (Pvt.) Ltd., Burewala and others) and 2005 SCMR 1166= 2005 PTD 1933 (Collector of S.T. and C.E. (Enforcement) and another v. Mega Tech (Pvt.) Ltd. the courts have interperated the provision of Section 40-A of the Sales Tax Act, 1990 and hold that section 40-A was enacted to meet an emergent situation, where the authorized officer has reasonable belief and not just a suspicion, that document or things useful for or relevant to any proceeding under the Act, kept at any place are apprehended to be removed only then provision of section 40-A will be applied.

In the present case department was conducting an enquiry under section 38 of the Sales Tax Act, 1990 for which the concerned officer obtained relevant order from the competent authority on 13-2-2013 (copy of which was placed on record by Deputy Collector) and therefore on the basis of credible information (the declaration of the petitioner company at its web portal regarding involvement of the petitioner company in manufacturing of the leather goods "Our production facilities have the provisions for handmade shoes as well as automated shoe-manufacturing units)" the concerned officer obtained search warrant from the concerned Magistrate under section 40 of the Sales Tax Act, 1990 and carried out the search strictly in accordance with the law. In obtaining the search warrants the respondent department neither fabricated nor furnished any false information before the learned Magistrate for obtaining search warrants rather on the basis of documentary evidence i.e. website of the petitioner (www.styloshoes.com <http://www.styloshoes.com>), search warrant was obtained to ascertain actual status of the petitioner whether manufacture-cum-retailer or exclusively retailer. Further on the basis of intelligence gathering153-M. Quaid-e-Azam, Industrial Estate, Kot Lakhpat, Lahore was added as the said premises is exclusively used for the manufacturing of Stylo brand shoes. Further the petitioners counsel has not denied that the management of both the petitioners is the same and that the premises 151-M Quaid-e-Azam, Industrial Estate, Kot Lakhpat, Lahore is exclusively used for the manufacturing of Stylo brand shoes.

8.Moreover, under Section 40 of the Sales Tax Act, 1990 where an officer of respondent department had "reason to believe" that will be useful for or relevant to any proceedings he may obtain warrant from Magistrate and carried out search of "any place". Any place includes any third party's place and it does not restrict to the business premises of the registered person or the place of the registered person against whom an enquiry is pending. Therefore, the search carried out at the premises of the petitioners was in accordance with the law thus, no ground exists for declaring the order dated 30-4-2013 as illegal or unlawful.

9.Further under the law respondent department has all the right and power to approach any and/or all the vendors/suppliers of the petitioner for their verification on the basis of legally carried out search.

10.In this view of the matter, these writ petitions having no merits are hereby dismissed with no order as to costs.

KMZ/S-73/LPetitions dismisse