ABID BASHIR (CO-OWNER) MESSRS SHEIKH BROTHERS CHEMICALS VS SECRETARY REVENUE DIVISION, ISLAMABAD, 2016 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2619 (2016)

Sales Tax Act (VII of 1990)---

----Ss. 38, 37 & 40---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 10---Power of authorized officers to have access to premises, stocks, accounts and record---Power to summon persons to give evidence and produce documents in inquiries under the Sales Tax Act, 1990---Searches under warrant--- Maladministration--- Scope--- Complaint against raid of Departmental officials at the complaint's premises under S. 38 of the Sales Tax Act, 1990---Contention of complainant was inter alia that the complainant's business unit had been closed in the year 2013 and that the said raid was conducted without authorization and was hence illegal---Validity---Evidence on record showed that apparently the complainant's business unit was operational after the year 2013, which was contrary to its contention, and Departmental officers visited the complainant's premises on 9.6.2016 after valid authorization from the competent authority and thus no case of maladministration was made out against the Department and plea of complainant to declare actions of Department illegal was premature particularly when so far the Department had not taken any coercive action against the complainant---Federal Tax Ombudsman observed, however, that if the Department subsequently decided to lodge on FIR against complainant, the fate of the same would be decided on the basis of the guidelines about applicability of provisions of S. 38 of Sales Tax Act, 1990---Complaint was disposed of, accordingly.

2005 SCMR 1166 = 2005 PTD 1933; 2003 PTD 2037; 2004 PTD 295; 2009 PTD 690; 2009 PTD 1083; PLD 1991 SC 630; PTCL 2003 CL 338(sic.); 2003 PTD 1034; 2004 PTD 1731; 164/LHR/ST(07)/ 281/2010; Messrs Firdous Textile Mills (Pvt.) Ltd. v. Federation of Pakistan Writ Petition No. 6363 of 2015 and 1993 SCMR 785 ref.

PTCL 2009 CL 671 rel.

Haji Ahmad, Advisor and Abrar Ahmad Khan, Advisor for Dealing Officers.

Mian Zafar Iqbal and Muhammad Anwar Bhatti for Authorized Representative.

Umar Younis, Deputy Director and Tariq Javed, Deputy Director Departmental Representative.

FINDINGS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.---This complaint is filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (the Ordinance) against allegedly unauthorized raid on the business premises of M/s. Sheikh Brothers Chemicals and taking into custody the records, statements and documents etc.

2.According to the Complainant, business of this registered unit was closed with effect from 31 05.2013 and intimation in this regard was sent to the deptt. vide letter dated 30.06.2013. The Deputy Directors, Directorate of Intelligence and Investigation, RTO, Faisalabad visited the site on 09.06.2016 without authorization from the Competent authority as per Section 38 of the Sales Tax Act, 1990 (the Act), broke the locks of drawers and carried with them cheque books, ledger and cash book etc., the list of which was neither prepared at site nor delivered voluntarily to the Complainant. The Complainant vide letter dated 15.06.2016 requested the Director, I&I, to provide names of the raiding party, copy of authority letter, list of documents and evidence on the basis of which the raid was conducted. The same were not provided despite payment of fee for copying as required under section 69 of the Act. In the meanwhile, the Deputy Director demanded payment of tax without any assessment under section 11 of the Act, which was contrary to the law. The law provides to create demand through order-in-original after providing opportunity of hearing and issue of demand notice for recovery of tax to be made within the date specified therein. After the raid, the Deputy Director issued summons under section 37 of the Act to Mr. Khalid Bashir and Mr. Abid Bashir, co-owners of M/s. Sheikh Brothers to appear in person on 17.06.2016. The notices were violative of law and rules prescribed in Cr.P.C. and C.P.C. This action of the Deputy Directors, being contrary to law and rules and absuse of powers, falls within the ambit of maladministration. It was prayed that the proceedings conducted in violation of Section 38 of the Act be declared as null and void, disciplinary action against the defaulting officers/officials be recommended and the deptt. be directed to stop unnecessary harassment of the Complainant.

3.The complaint was sent for comments to the Secretary, Revenue Division, Islamabad in terms of section 10(4) of the Ordinance. In response, the Director, Intelligence and Investigation (IR)P&I), Faisalabad submitted comments vide letter No.Dir/I&I/FSD/02 dated 01.07.2016 contending that the Deputy Director, I&I was duly authorized under section 38 of the Act by the competent authority i.e. Director I&I vide letter No.Dir/I&I-IR/Fsd/3127 dated 09.06.2016 whereas, the Complainant has deliberately falsified the facts regarding closure of the business by M/s. Sheikh Brothers Chemicals. According to the deptt, the said unit was fully operative which is confirmed from the record/documents of purchase of raw material, transportation expenses, sheet of sale staff, cash book, receipts of Leopard Courier Service and renewal contribution intimation regarding finance arrangements with Pak Qatar family Takaful for the period from 2014 to 2016 i.e. after the so called discontinuation date of 31.05.2013, inspected and taken into custody from the premises. The persons present in the premises had refused to receive the order of authorization in the presence of two witnesses from the deptt said Khalid Hussain, an employee of the Complainant handed over record voluntarily to the Deputy Director-III. A list of resumed record was prepared at site in the presence of two witnesses which was signed by said Khalid Hussain. Another business concern namely M/s. S.B. Chemical Industry (not the Complainant) moved an application asking for authorization and copy of the resumption memo of record which was provided by the Director, I&I vide letter No.3195 dated 20.06.2016. The authorized officer visited premises of the Complainant as well as of M/s. S.B. Chemical Industry, Faisalabad under two different authorizations, copies of both the letters were provided to the applicant.

4.As regards the summons under section 37 of the Act to Mr. Khalid Bashir and Mr. Abid Bashir, the Deptt contended that the same were issued after scrutinizing the record taken into custody for answering certain queries about the record. They did not appear in person. However, Mr. Naveed Anwar Bhatti, Advocate submitted reply on 17.06.2016 on their behalf without questioning the authorization and other allegations leveled in the complaint.

5.The deptt has denied the allegation of demanding tax without assessment being absolutely frivolous, totally baseless and utterly unfounded. The Deptt. pleaded that the Complainant has intentionally tried to mislead the FTO which attracts the contempt proceedings under section 16(1)(c) of the FTO Ordinance.

6.Contradictory the above position, the AR contended that constitution of the raiding party was illegal and void for the following reasons:

a)The authorization under section 38 of the Act is merely enabling provision and nothing to do with the regular search and seizure which can be conducted under subsection (2) of section 40 of the Act.

b)The search must be in accordance with the Criminal Procedure Code Act, 1898. Section 103 of Cr.P.C. makes it mandatory the presence of two or more witnesses from respectable inhabitants of the locality near the place of search. The witnesses claimed to have been present were staff members namely Mr. Waqar Ahmad and Mr. Arshad Ali which were not reliable and authenticated.

c)The substituted service of notices where refused must be affixed at the conspicuous outer door of the business premises in the presence of two independent witnesses from the vicinity of the site of the search.

d)Search under section 40(2) of the Act can be made with prior approval of the Magistrate which was not obtained in the instant case.

e)The general provisions of Section 38 are subject to the guarantee of dignity of an individual ensured under Article 14(1) of the Constitution of Pakistan.

7.In view of the above, it was argued that the record impounded from the site without following the prescribed procedure cannot be used against the taxpayer (the Complainant).

8.The AR further alleged that 20 officials of the Deptt. entered the business premises unauthorizedly, created harassment under threat of gun fire, whereas, authorization was required to be issued to a single officer and not to the multiple persons. Even, the letter of authorization and list of record was provided at a later date on request. According to him, the authorization letter was prepared after conducting the raid and so was void ab initio. The order sheet on the file is silent about reasonable cause which is essential for issuance of authority under section 38 of the Act.

9.The manner in which the premises/site raided was also in violation of the aforementioned Article of the Constitution which provides that "the dignity of man and, subject to law, the privacy of home, shall be inviolable .... No person shall be subjected to torture for the purpose of extracting the evidence". In support of aforementioned contention, the AR relied on the following judgments of the superior courts

"2005 SCMR 1166 = 2005 PTD 1933 (Supreme Court of Pakistan), 2003 PTD 2037 (Lahore High Court), 2004 PTD 2952 (Sindh High Court), 2009 PTD 1083 (Lahore High Court), 2009 PTD 690 (Sindh High Court), PLD 1991 SC Pak 630 (Supreme Court of Pakistan), PTCL 2003 CL 338(sic.), 2003 PTD 1034 (Supreme Court of Pakistan), 2004 PTD 1731 (Lahore High Court), 2005 and 164/LHR/ST(07)/281/2010 (FTO)"

10.The DR reiterated the written comments. According to him, no maladministration was involved in the case. He pleaded that Section 38 of the Act does not require warrants if the action is to be carried on at the declared business premises as held by the Lahore High Court in Writ Petition No.6363 of 2015 [M/s Firdous Textile Mills (Pvt.) Ltd. v. Federation of Pakistan]. Section 38 of the Act allows free access to the declared premises which has been carefully exercised by the officers/officials authorized by the competent authority. The allegations of harassment, gun fire, breaking the locks frivolous, baseless and without any supportive evidence. The Complainant was found involved in the tax evasion and so lawful raid was conducted after obtaining information on the subject and authorization from the competent authority.

11.The AR's contention that only one officer can be authorized under section 38 of the Act, is misconceived. Section 13 of the General Clauses Act 1897 provides that "in all (Central Act) and Regulations, unless there is anything repugnant in the subject or context - Words importing the masculine gender shall be taken to include females, and words in the singular shall include the plural, and vice versa".

12.According to the DR, provisions of section 103 can be invoked where the proceedings are initiated under section 40 of the Act, whereas, in the instant case the Deptt. proceeded under section 38. The main aim and object of enacting section 103 of Cr.P.C. was to ensure that search and recovery was conducted honestly and fairly and to exclude any possibility of concoction and transgression as held in a case cited as "1993 SCMR 785".

13.Both parties heard and record perused. In this case Complainant is contending that unit was closed since 31.05.2013 and departmental officers have raided it on 09.06.2016 by using force in the form of breaking lock etc. without search warrants under section 40 of the Act. It has also been alleged that officers even had no departmental authorization from competent authority under section 38 of the Act and the same was allegedly prepared after raid. The deptt's view is that the unit was visited after proper authorization by Director I&I Faisalabad vide letter No.DIR/I&I-IR/FSD/3122 dated 09.06.2016. Deptt. has also contended that the unit was not closed as record resumed during visit on 09.06.2016 showed that it had received raw materials during 2014, 2015 and 2016. Moreover it had renewed financial arrangement with Pak-Qatar Family Takaful on 17.12.2015.

14.The above position shows that apparently the Complainant's unit was operational after 2013 (contrary to Complainant's contention) and departmental officers had visited it on 09.06.2016 after valid authorization from competent authority. Thus apparently no case of maladministration is made out against the department. The request of the Complainant for declaring action of the deptt. as null, void and illegal also appears pre-mature particularly when so far deptt. has not taken any coercive or legal action against him.

15.It would be pertinent to mention that if deptt. subsequently decides to lodge an FIR or make out a contravention case against the Complainant, their fate would be decided on the basis of following guidelines about applicability of provisions of section 38 of the Act given by Sindh High Court in its judgment cited as 2009 PTD 1083:-

The visit by deptt. officials under section 38 of the Act would 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(s) present at the premises on request. Consequently, custody within the meaning of section 38 can only be taken of such record and documents that are in plain sight or those that have voluntarily been made available for inspection on request. The record and documents taken into custody must be against a receipt signed by the officer. The officers have no powers under section 38 to compel the production of any record or document that is not in plain sight or that has not been voluntarily made available as above. Any record or document taken into custody under compulsion cannot be used for any purpose whatsoever by the department against the person from whose custody the record or document has been taken into possession by an officer. Any action that is in contravention of the foregoing would be an action that falls short of the requirements to act fairly, justly and reasonably and, therefore, wholly illegal and void. Permitting the department to benefit from such actions would be equally illegal.

16.The complaint is disposed of in the above terms.

KMZ/100/FTOOrder accordingly.