ALI SHAN VS DIRECTORATE OF INTELLIGENCE AND INVESTIGATION (IRS) KARACHI, 2016 PTD-KARACHI-HIGH-COURT-SINDH 2648 (2016)

Sales Tax Act (VII of 1990)---

----Ss. 2(37), 3, 6, 7, 8, 10, 22, 23, 26, 33(11), 33(13) & 73---Criminal Procedure Code (V of 1898), S. 497---Tax fraud---Bail, grant of---Principles---Allegation of fake invoices---Offence falling under crime against society---Scope---Special Court (Customs and Taxation) dismissed the bail application---Sufficient material was available on the record to connect the accused to the offense---Under Ss. 33(11) & 33(13) of Sales Tax Act, 1990, maximum punishment provided was 3 and 5 years respectively, thus, even if the accused was convicted and punished under both of those sections and the sentences were ordered to run consecutively, the maximum of the combined sentence would be 8 years, as such the offences fell within the non-prohibitory clause of S. 497, Cr.P.C.---In non-bailable offences where punishment provided for the offence, was less than ten years, grant of bail was a rule and refusal an exception, and bail would be declined in extraordinary and exceptional cases---Offence in the present case being bailable, accused was prima facie entitled to bail as of right, provided his case did not fall within one of the exceptions mentioned in Supreme Court judgment in Tariq Bashir v. The State PLD 1985 SC 34---Exceptions as laid down in Tariq Bashir's Case were not exhaustive as indicated by use of the words 'for example', and as such there might be other extraordinary and exceptional cases, which would justify refusal of bail for offence which was otherwise bailable---System of governance as per the Constitution in Pakistan, which envisaged a trichotomy of powers, the Court was not to make appropriate sentence for particular offence, which role lay within the domain of the Legislature and not that of Judiciary whose role was to interpret the law---High Court observed that in Pakistan, few people, proprietorship, partnerships or companies paid tax, and the emphasis was either on tax avoidance (legal) or mainly tax evasion (illegal) by simply not paying tax---Deciding the question whether a fiscal crime was a crime against the society, the law must also have been practical, workable and most importantly enforceable---Environment/circumstances of Pakistan had made uplifted tax fraud to a crime against society---Primary objective of Sales Tax Act, 1990, when read as a whole, was one of recovery rather than being of penal nature---Apparent loss to the Government revenue had already been paid up---Contention that the consignments had actually been exported and therefore, the exporter was entitled to refund of sales tax paid, while purchasing the goods from local market could not have been controverted in precise terms for the reason that the final challan had not yet been submitted---Entire case depended upon the documentary evidence, which was already in possession of the prosecution---Commencement of the trial was not yet in sight---Prime question as to whether invoices were fake or not was yet to be determined at the trial---Offence in present case was although of serious nature, but the same could not have been upgraded to an offence to a crime against society---All white collar crimes were not crimes against society and likewise all crimes against society were not white collar crimes---Each crime must have been judged on its own particular facts and circumstances and existing background to determine its effect on society and whether the same qualified as a crime against society---Practicality, workability and enforceability of making certain fiscal crimes as crimes against society must also be considered in the light of the current environment in its relation to tax payment in Pakistan---Assessment order had not yet become final---Accused had been behind the bars for 6 months---Maximum sentence for the offence was 5 years---Accused was first offender and had not indulged in similar acts in the past---Bail application was allowed accordingly.

Syed Amir Ahmed Hashmi v. The State PLD 2004 Kar. 617; Abdul Wahid Bandkukda and others v. The State 2008 YLR 767; Akhtar Zaman Khan v. The State 2010 YLR 804; Arshad Farooq Siddiqui v. The State 2006 YLR 39; The State v. Muhammad Ashfaq Ahmed and others 2006 PTD 286; Khawaja Shabaz Ahmed v. Deputy Director, Directorate General of Intelligence and Investigation, Range Office Gujranwala 2012 PCr.LJ 1378; Messrs G.M.H. Traders and Manufactures v. Deputy Director/Investigation Officer, Directorate of Intelligence/Investigation, Lahore 2009 PTD 1894; Ashraf Steel Mills v. Director Intelligence and others 2014 PTD 1506 and Zaigham Ashraf v. The State 2016 SCMR 18 ref.

Tariq Bashir and others v. The State PLD 1995 SC 34; Zaheer Hussain v. The State PLD 2006 Kar 397; Rizwan Latif v. The State Lhr dated 17th March, 2008 unreported; Chaudari Shabbir Hussain v. The State 2014 MLD 384; Arshad Ali Khan v. The State Kar. dated 25th May, 2015 unreported; Owais v. The State Kar. dated 7th. November, 2015 unreported; Imtiaz Ahmed v. The State PLD 1997 SC 545; Muhammad Siddique v. Imtiaz Begum 2002 SCMR 442; Shameel Ahmed v. State 2009 SCMR 174; Mian Arif Hussain v. State 2011 PCr.LJ 1944; Ameen Saquib v. State 2012 PCr.LJ 577; Mian Tariq Aziz v. State 2015 PCr.LJ 1066 and Syed Amir Hashmi v. The State PLD 2004 Kar. 617 rel.

Zia-ul-Haq Makhdoom for Applicant.

Syed Mohsin Imam for Respondent.

Date of hearing: 19th May, 2016.

ORDER

MOHAMMED KARIM. KHAN AGHA, J.---Being aggrieved and dis-satisfied with the impugned order dated 12.02.2016 passed by a single bench of this Hon'ble Court, the applicant Ali Shah prefers this post arrest bail application in FIR No. 2/2015-16 under sections 2(37), 3, 6, 7, 8, 10, 22, 23, 26 and 73 of the Sales Tax Act, 1990.

2.Precisely, the facts of the case are that the respondent Directorate, on receipt of credible information with regard to involvement of M/s. Azhaan Enterprises (NTN 3599257-3) in claiming bogus sales tax refunds against dubious purchases and exports, conducted scrutiny of monthly sales tax returns and other available record of the subject registered person which shows that the said business was registered for sales tax on 30.09.2010 with principle business activity as wholesale on a fee or contract basis and other activity as exporter/importer. Since its registration the registered person has claimed sales tax refunds of an aggregated amount of Rs. 48.858 million out of which refund of Rs.41.48 million has been allowed to the registered person.

3.It is further stated that during inquiry about genuineness of the refund claims of the said registered person it was found that the subject unit has claimed input from steel sector and P, scrap. During further investigation it revealed that the illustration shows that the registered person has been claiming input of steel related raw material and plastic scrap from various suppliers and then claimed refund of sales tax on the basis of inputs. However, since the registered person is not engaged in any manufacturing activity, therefore, in order to substantiate consumption of inputs/raw material in exported goods and in support of refund claims as exporter, the registered person submitted fabricated/dummy cash memos/bills of so called processing charges from unregistered/unverifiable persons which have no indication that what goods have been processed/produced out of which inputs/raw materials.

4.It is also stated that during further investigation it revealed that during September 2013 to June 2015 registered person has been filing sales tax returns with no sale/purchase activity but suddenly from July 2015 to September 2015 made heavy imports of textile related goods/accessories worth Rs.242.00 million without declaring any sale of goods. The applicant Ali Shah disclosed that he used to purchase steel sheets and get it processed from market to convert it into steel racks and table round stands and then export the same but he could not explain satisfactorily about export of machinery and caterpillar wheel loader and claiming refunds against steel raw materials on the basis of such exports. On account of the above mentioned FIR the applicant was arrested on 11-11-2015 and has remained in custody for approximately six months

5.Learned counsel submitted that the impugned order is opposed to law and facts and is liable to be set-aside and the applicant/accused is innocent and has been falsely involved in this case by the complainant party with the connivance of the police due to enmity and none of the provisions of the Sales Tax Act, 1990 invoked in the FIR and interim challan are attracted in this case. Learned counsel further submitted that the learned Single Judge of this Court has failed to consider that all the G.D.'s on which export was made, is verifiable from the Customs, PRAL data, and allegations against the applicant/accused for providing false documents to the concerned authorities is baseless. Learned counsel also submitted that the learned Single Judge of this Court failed to consider the ground for grant of bail that form "E" submitted in respect of the export made is also verifiable from the concerned issuing bank and the remittance of foreign exchange proceeds amounting to US$ 3,792,152/-.

6.In summary he argued that the case did not fall within the prohibitory clause of section 497, Cr.P.C.; that the maximum sentence is three years for an offence under section 33(11) of Sales Tax Act, 1990, and five years for an offence under section 33(13) of Sales Tax Act, 1990; that it is a case of further inquiry; that the entire case is based on documentary evidence which has been collected by the prosecution and, there is no chance for the applicant to tamper or destroy the evidence and the genius of invoices is yet to be determined at trial; that the applicant' is behind the bars since the last 6 months and the order in appeal is in his favour and the final liability of Sales Tax has yet to be determined; that the assessment order dated 16.11.2015 is not final because an Appeal has been filed against it and the same is pending for adjudication; that the case in hand is not a crime against society and for all the above reasons the applicant is entitled to be granted post arrest bail.

7.In support of his contentions learned counsel placed reliance on the following authorities; Tariq Bashir and others v. The State (PLD 1995 SC 34), Syed Amir Ahmed Hashmi v. The State (PLD 2004 Karachi 617), Abdul Wahid Bandkukda and others v. The State (2008 YLR 767), Akhtar Zaman Khan v. The State (2010 YLR 804), Arshad Farooq Siddiqui v. The State (2006 YLR 39), The State v. Muhammad Ashfaq Ahmed and others (2006 PTD 286), Khawaja Shabaz Ahmed v. Deputy Director, Directorate General of Intelligence and Investigation, Range Office Gujranwala (2012 PCr.LJ 1378), Messrs G.M.H. Traders and Manufactures v. Deputy Director/Investigation Officer, Directorate of Intelligence/Investigation, Lahore (2009 PTD 1894), Ashraf Steel Mills v. Director Intelligence and others (2014 PTD 1506) and Zaigham Ashraf v. The State (2016 SCMR 18).

8.Learned counsel for the respondent has vehemently opposed the bail application on the ground that the learned Single Judge has rightly rejected the bail application after going through the material placed before him and as such he supported the impugned order and prayed for dismissal of the bail application. In particular he contended that even if the offense was a bailable one falling within the non-prohibitory clause of section 497, Cr.P.C. since the nature of the crime e.g. tax fraud, amounted to a crime against society then as per the case of Imtiaz Ahmed v. The State (PLD 1997 SC 545) it could also fall into an exception where bail could be declined to an accused even if the case did not fall within the prohibitory clause of section 497, Cr.P.C. He also in this respect placed reliance on the case of Muhammad Siddique v. Imtiaz Begum (2002 SCMR 442), and the following judgments of the following High Courts:

1)Zaheer Hussain v. The State (PLD 2006 Kar. 397).

2)Rizwan Latif v. The State (Lah. dated 17th March, 2008 unreported).

3)Chaudari Shabbir Hussain v. The State (2014 MLD 384 (Sindh))

4.Arshad Ali Khan v. The State (Kar. dated 25th May, 2015 unreported).

5)Owais v. The State (Kar. dated 7th. November, 2015 unreported).

9.Learned Counsel also produced various documents indicating the seriousness of white collar crimes and that in certain jurisdictions such as the USA particularly heavy sentences had been handed down to those involved in white collar crimes, as in this case, and as such the perpetrators of such crimes should not be treated with any leniency.

10.We have perused the record, considered the submissions (both written and oral) of the learned counsel for the parties, the relevant law and the authorities cited by them.

11.We would like to make it clear that as per settled law on the grant of bail we have only made a tentative assessment of the material placed before us and that this order shall not prejudice the case of any party at trial whose case shall be decided on merits based on the evidence produced before the trial court.

12.We have observed that in essence this is the third bail application of the applicant. His first application for bail was rejected on 13-01-2016 by, the Special Judge (Customs and Taxation) Karachi and his second bail application was rejected by a single Judge of this Hon'ble Court by the impugned order.

13.In both the above orders rejecting bail it was found that there was sufficient material on record to connect the accused to the commission of the offense, it was a white collar crime and as such he was denied bail. We have reviewed those two earlier bail orders especially the impugned order and after reviewing the record are also of the view that there are sufficient grounds to connect the accused to the offense and thus prima facie his application for bail should be declined.

14.However we have also observed that the applicant has been charged for offenses under sections 2(37), 3, 6, 7, 8, 10, 22, 23, 26 and 73 of the Sales Tax Act, 1990 punishable under section 33(11) and (13) of the Sales Tax Act, 1990 which provide for a maximum sentence of 3 and 5 years respectively so even if the applicant was convicted and punished under both of these sections and the sentences were ordered to run consecutively as opposed to concurrently the maximum of the combined sentences would be 8 years. As such the offenses fall within the non-prohibitory clause of section 497, Cr.P.C.

15.In the classic case of Tariq Bashir v. State (PLD 1985 SC 34) which dealt, amongst other things, with the distinction in the granting of bail in bailable and non-bailable offenses it was held as under at P.40 in respect of offenses which did not fall within the prohibitory clause i.e. were bailable.

"It is crystal clear that in bailable offences the grant of bail is a right and not favour, whereas in non-bailable offences the grant of bail is not a right but concession/grace. Section 497, Cr.P.C. divided non-bailable offences into two categories i.e. (i) offences punishable with death, or imprisonment for life or imprisonment for ten years; and (ii) offences punishable with imprisonment for less than ten years. The principle to be deduced from this provision of law is that in non-bailable offences falling in the second category (punishable with imprisonment for less than ten years) the grant of bail is a rule and refusal an exception. So the bail will be declined only in extraordinary and exceptional cases, for example---

(a)where there is likelihood of abscondence of the accused;

(b)where there is apprehension of the accused tampering with the prosecution evidence;

(c)where there is danger of the offence being repeated, if the accused is released on bail; and

(d)where the accused is previous convict."

16.Since the sentence in this case is bailable prima facie following the decision in 'Tariq Bashir's case (Supra) the applicant is entitled to bail as of right provided that it does not fall within one of the exceptions mentioned in that case which, at first glance, it appears not to do so.

17.However it may be observed that the exceptions as laid down in Tariq Bashirs case (Supra) are not exhaustive as indicated by the word, "for example" and as such there may be other extraordinary and exceptional cases which would justify bail being refused for an offense which was otherwise bailable. This possibility was recognized in the case of Imtiaz Ahmed v. The State (PLD 1997 SC 545) which was decided only two years after Tariq Bashir's case (Supra).

18.Indeed, in the case of Shameel Ahmed v. State (2009 SCMR 174) the Hon'ble Supreme Court emphasized that bail could be declined in other wise bailable offenses by observing as under at P.176

"With regard to the contention that the bail should always be granted in cases not falling within the domain of prohibition clause of proviso to section 497, Cr.P.C. It is observed that it is not a rule of universal application. Each case has to been seen through its own facts and circumstances. The grant of bail, no doubt, is discretion granted to a Court, yet the exercise of it cannot be arbitrary, fanciful or perverse." (bold added)

19.Since Tariq Bashir's case (Supra) and with the march of time we have seen a number of other categories of offenses which have been regarded as extraordinary and exceptional and despite being bailable have justified the refusal of bail on this count.

20.For example, in the 2011 case of Mian Arif Hussitin v. State (2011 PCr.LJ 1944) the sale of soft drinks which were unfit for human consumption was found to be a crime against society which lead to the refusal of bail in an other wise bailable offense.

21.Then in the 2012 case of Ameen Saquib v. State (2012 PCr.LJ 577) stealing secret examination papers and assisting cheating was found to be a crime against society which lead to the refusal of bail in an otherwise bailable offense.

22.Then again in the 2015 case of Mian Tariq Aziz v. State (2015 PCr.LJ 1066) it was found that the pilferage of gas was a crime against society which lead to the refusal of bail in an otherwise bailable offense.

23.More recently on 31-3-2016 a Divisional Bench of this Court in the case of Muhammad Siddique v. State (Cr.B.A. 2001/16) found that the manufacturing or selling of drugs or medicines which fall within section 23 of the Drugs Act, 1976 amounts to a crime against society and would be one of those exceptions which would justify the refusal of bail in cases which do not fall within the prohibitory clause of section 497(1) Cr.P.C.

24.The question therefore seems to be whether tax fraud falling under the Sales Tax Act, 1990 could be seen as a crime against society and one of those exceptional cases as indicated in Tariq Bashirs case (Supra) and followed in the cases mentioned above to bring it within the class of case which due to its very nature would justify the refusal of bail despite it being a bailable offense.

25.The reference by learned counsel for the respondent to USA law and heavy sentences imposed thereunder for white collar crime although helpful in assessing global attitudes to this type of crime is in our view not of huge assistance to us. This is because the USA legislature has most probably laid down the maximum sentence for the commission of such offenses as has the Pakistani legislature. Furthermore, in the USA examples, it appears that heavy sentences were given based on sentencing guidelines which are not present in our criminal justice system. As an aside however we would observe that the creation of such sentencing guidelines may be of immense value in the Pakistani criminal justice system especially where a sentence is said to be up to a given maximum number of years. This is because in our view the use of such guidelines would most probably lead to a greater consistency in sentencing throughout the country based on the particular facts arid circumstances of the case and would avoid criticism of arbitrariness or discrimination in sentencing and thereby hopefully enhance the public's confidence in the criminal justice system and the administration of justice.

26.We would also like to observe that based on the Pakistani system of Governance as per our Constitution which envisages a trichotomy of powers it is not for the Courts to make appropriate sentences for particular offenses. This role lies within the domain of the legislature and not the judiciary one of whose roles is to interpret that law if called upon to do so. In this case the Hon'ble Supreme Court in bailable offenses has already found that there may be exceptional cases where bail cannot be given as of right. The question is as noted above whether tax fraud is one of those offenses.

27.In determining this issue in our view we need to consider the environment in which we live. In Pakistan at the moment precious few people, proprietorships, partnerships or companies pay tax. The emphasis is either on tax avoidance (legal) or mainly tax evasion (illegal) by simply not paying tax. Despite promises made by successive Governments to increase/broaden the tax base it appears that little head way has been made in this respect.

28.Now if we consider Pakistan's economic and financial position it appears that it is in a poor shape with the Government of the day often resorting to loans from the IMF etc. Perhaps if more tax was paid and collected this would not be the position and the State would not find it itself in the position of constantly taking loans which will need to be repaid and potentially will hang around the neck of future Governments.

29.If more tax was paid it is likely that more money could be put into the important but neglected areas of education and health for the people of this Country which budgetary allocation remains very small compared to its need.

30.Although learned counsel for the respondents, in the above environment, has made out a good case for uplifting tax fraud to a crime against society it appears to us that when deciding whether a fiscal crime is a crime against society the law must also be practical, workable and most importantly enforceable. As such to find all non income tax payers, non income tax filers or persons who commit tax fraud as committing a crime against society may be a step too far at this juncture.

31.It is true that a number of single benches of this Court have declined to grant bail in tax fraud cases. For instance in the cases of Zaheer Hussain v. The State (PLD 2006 Kar. 397) Chaudri Shabbir Hussain v. The State (2014 MLD 384 (Sindh)) Owais v. The State (Karachi dated 7th November, 2015) and the impugned order. However, with full respect and deference to our learned brothers sitting in single benches, we are of the considered view that when the Sales Tax Act, 1990 is read as a whole it becomes apparent that its primary objective is one of recovery rather than being of a penal nature (although of course it does have penal sections which in our view are secondary to the primary objective of collection, payment and recovery of Sales Tax). The fact that the legislature has also in its wisdom decided that the maximum sentence for the offenses in hand should be 3 and 5 years respectively also clearly indicates that the offense was intended to fall within the non prohibitory clause. In this respect we are fortified by a Divisional Bench decision of this Court in the case of Syed Amir Hashmi v. The State (PLD 2004 Kar. 617) where although the amount of sales tax had been repaid in that case, and in this respect is distinguishable for the present case, it was held as under at P. 619.

"During the arguments it was consistently asserted that loss to Government revenue, if any, has already been met as the amounts have been deposited even in excess. This position could not be rebutted. No doubt, payment of amount to Government exchequer by a defaulter would not per se wash out the criminality of the act, if any committed in violation of rules/law, but we have note that, while introducing the scheme of adjudication under section 45 of Sales Tax Act a situation arising out of erroneous refund under the Sales Tax and the rules made hereunder was amenable to adjudication through different officers mentioned therein. This process was aimed at catering for the civil liability arising out of sales tax evasion or refund and eventually, looking to such aspect, while dealing with the criminality of the tax fraud the Legislature has provided a lighter sentence in respect of the offences. For instance, an offence under section 37-A(3) of the Sales Tax Act is punishable with imprisonment for 5 years, or with fine, or with both indicating thereby possibility of punishment by way of fine only. Section 36 of the Act provides a mechanism for recovery of tax, inter alia, erroneously refunded. Section 33 also provides penalties in terms of money.

In the instant case it is not disputed that the apparent loss to Government revenue has already been paid up. The contention that the consignments had actually been exported and, therefore, the exporter was entitled to refund of sales tax paid, while purchasing the goods from local market, could also not be controverted in precise terms, perhaps, inter alia, for the reason that the final challan has not yet been submitted. Besides, we agree with the learned counsel that entire case depends on documentary evidence, which has already been collected and is in possession of prosecution. The prosecution side has so far submitted only an interim challan and the commencement of trial is not yet in sight. The maximum punishment in terms of imprisonment is 5 years. The case law cited at the Bar also lends support to the bail plea.

The prime question as to whether the invoices were fake or not is yet to be determined at the trial, but for the time being in view of the foregoing discussion we are of the considered view that the applicants are entitled to concession of bail" (bold added)

32.No doubt the offense charged in the instant case is a serious one but, on balance, we do not feel inclined at this point in time to upgrade the offense to a crime against society. In our view not all white collar crimes are crimes against society and likewise not all crimes against society are white collar crimes. Each offense must be judged on its own particular facts and circumstances and existing background to determine its effect on society and whether it qualifies as a crime against society. As noted earlier the practicality, workability and most importantly the enforceability of making certain fiscal crimes as crimes against society must also be considered in the light of the current environment vis-a-vis paying tax in Pakistan.

33.Based on the particular facts and circumstances of this case it is particularly observed that the entire case is based on documentary evidence, there is little, if any, chance to tamper or destroy evidence, the genius of the invoices is yet to be determined, the final sales tax liability is yet to be worked out, the assessment order has not yet become final and the applicant has already been behind bars for 6 months when a maximum sentence of 5 years would be applicable and the applicant would also be entitled to remission.

34.Furthermore, it would appear that the applicant is a first offender who has not indulged in similar acts in the past, the Department is busy in the recovery proceedings which are yet to be determined and the case does not fall within the non prohibitory clause of section 497, Cr.P.C. and we have not found the offense to be a crime against society or another type of crime so as to make it an exceptional case which would fall outside the general rule regarding bail in cases which fell outside the non prohibitory clause as laid down in Tariq Bashir's case (Supra).

35.As such for the reasons mentioned above we hereby enlarge the applicant on post arrest bail subject to him furnishing solvent surety of Rs. 1,000,000 (One million) with PR bond in the like amount subject to the satisfaction of the Nazir of this Court.

36.The learned trial court however is directed to complete the trial of the applicant within six months of the date of this order. The office shall immediately send a copy of this order to the concerned trial court for compliance.

SL/A-68/SindhBail allowed.