MR. JUSTICE MUHAMMAD MUJEEBULLAH , SIDDIQUI.-(1). The Petitioner is a Private Limited Company, engaged in the manufacture of textile goods. It is stated that on 11-6-2003, the officers of the Collectorate of Custom, Sales Tax and Central Excise, Quetta (at Hub) visited the Office of petitioner at Karachi, and Mill situated at Hub Chowki, after working hours. The staff at the Main Office in Mill was not available and therefore, the Main Office and Store of the Mill were sealed, while registered office of the petitioner at Karachi, was searched and the record, files, cheque books, diskettes, books and registers were seized without service of any notice, as required under the law. It is further stated that the notices under sections 38 and 40-A of the Sales Tax Act, 1990 were served which read as follows:- "GOVERNMENT OF PAKISTAN COLLECTORATE OF CUSTOMS, SALES TAX & CENTRAL EXCISE, QUETTA (AT HUB)
C. No. 4(1 )/STM/2003/HUB/1910 Dated: 11-6-2003.
Messrs N.P. Waterproof Textile Mills Pvt. Ltd., Hub, Head Office, 704, Uni Tower, I.I. Chundriger Road, Karachi.
SUBJECT: NOTICE UNDER SECTION 38 OF THE SALES TAX ACT, 1990.
Please refer to the above noted subject.
As part of an inquiry under section 38 of the Sales Tax Act, 1990, the undersigned alongwith the following officers of this Collectorate will visit your above said premises and any of the premises where your records of stocks pertaining to Sales Tax are kept, to verify the business activity and to inspect the business records and any further action under the said section:- 1.Mr. Muzamil Iqbal Senior Auditor 2.Mr. Tahir Zafar -do- 3.Mr. Laeeq Hasan -do- Your are, therefore, requested to make necessary record available for scrutiny and extend lull cooperation to the visiting officers.
This issues with the approval of the Collector under section 38 of the Sales Tax Act, 1990.
(Sd/.)
(IFTIKHAR AHMAD) DEPUTY COLLECTOR SALES TAX, HUB STATEMENT OF THE GROUNDS FOR SEARCH WITHOUT WARRANT UNDER SECTION 40A OF THE SALES TAX ACT, 1990.
Whereas the undersigned, Deputy Collector of Sales Tax, Collectorate of Customs, Sales Tax and Central Excise, Quetta (at Hub); duly authorized by the Collector to exercise powers conferred under section 38 of die Sales Tax Act, 1990, for conducting investigations against Messrs?
The unit was visited on 11-6-2003 and the management were informed of the objective of the visit and the letter, in this respect, has duly received by them. On demand for production of record they cannot produce the complete records required to ascertain the actual sales tax liability.
The undersigned has, therefore, reasons to believe, on the basis of information received that the documents/records showing the actual sales transactions and not disclosed to the sales tax department are kept in the same premises and the same may be useful and relevant for ascertainment of their actual tax liability and there is a danger that these documents may be removed before a search can be effected under section 40. Therefore, the undersigned is hereby exercising the powers under section 40A of the Sales Tax Act, 1990, for search without warrant.
(Sd.)
(IFTIKHAR AHMAD) DEPUTY COLLECTOR Collectorate of Customs, Sales Tax and Central Excise, Quetta (at Hub) Messrs N.P. Waterproof Textile Mills Pvt. Ltd., Hub, Head Office, 704, Uni Tower, I.I. Chundriger Road, Karachi."
2. It is alleged that the notice under section 38 is illegal, as the requirements of section 40 of the Sales Tax Act, 1990 were not complied with. On 12-6-2003 the Mill, Main Office and Stores were raided which were sealed on 11-6-2003. The notices under sections 38 and 40A of the Sales Tax Act were again served on the petitioners which were similar in terms as served at the time of search of the registered office at Karachi, on 11-6-2003. The search continued for two days and several documents were seized purportedly under the provisions contained in section 38 read with section 40A of the Sales Tax Act, 1990. It is alleged that the officers and staff of the petitioners were humiliated and harassed in the process of illegal raid and search. It is contended that similar action taken by the Officers of the Sales Tax Department was struck down by this Court vide judgment, dated 31-1-2001 in C.P. No. 1926/2000 which was upheld by the Hon'ble Supreme Court, vide judgment reported as Federation of Pakistan and others v. Messrs Master Enterprises 2003 PTD 1034.
3. The petitioners have sought relief in the following terms:- "(a) To declare that the Respondent No. 2 cannot conduct a roving and fishing inquiry into the affairs of the petitioner.
(b) Declare that the action taken by the Respondent No. 2 in pursuance of the notices, dated 11-6-2003 issued in purported exercise of sections 38 and 40A of the Sales Tax Act, 1990, was illegal, mala fide and contrary to the provisions of the Act, 1990.
(c) Declare that under the provisions of the Sales Tax Act, 1990, the Respondents could not use any document or take any actions against the petitioner on the basis of or in consequences of the illegal raid/search conducted by the Respondent No. 2 and the documents recovered from the Petitioner.
(d) Direct the Respondent No. 2 to return all the documents and record etc. Recovered from the petitioner's office and mill during the raid by the Respondent No. 2 immediately.
(e) To declare that the impugned notices being contrary to the provision of Sales Tax Act, 1990 as well as to the principles of natural justice are unlawful, mala fide and coram non judice, and even otherwise section 38 of the Sales Tax Act, 1990 is ultra vires, the Constitution of Pakistan, 1973, as being inconsistent with the fundamental rights guaranteed therein.
(f) Grant permanent injunction prohibiting the Respondents jointly and/or severally through their agents/officers from taking any action against the Petitioner or its sister concerns on the basis .Of or in consequence of the action taken by the Respondent No. 2 including the raid/removal of documents or from taking any other action which may adversely affect or interfere with the business of the petitioner in any manner whatsoever."
4. The Respondent No. 2 has submitted the parawise comments, contending that the appellant had produced record for routine audit by the Sales Tax Auditor but was maintaining parallel record seized under section 38 read with section 40A of the Sales Tax Act, which was never produced for audit by the Sales Tax Department and was a Katcha record. It is admitted that the factory and main office was visited by the Officers of the Sales Tax Department on 11-6-2003 and it is alleged that the Sales Tax Officials were fully authorized by Respondent No. 2 namely, Collector of Customs, Sales Tax and Central Excise, Quetta, under sections 38 and 40A of the Sales Tax Act, 199Q. It is further stated that credible information was received by C.B.R, about evasion of Sales Tax by the petitioner and the directions were issued by the C.B.R, to carry out proceedings under sections 38 and 40A of the Sales Tax Act, 1990. It is further averred that there was imminent danger that the petitioner would remove the parallel Sale/Purchase record and other related documents from registered premises. In order to prevent removal of record it was essential to seal mill, office and store because no responsible representative of the petitioner was available in presence of whom proceedings could be completed. It is alleged that on the second day the seals were removed in presence of the representative of the petitioner and the second team of the Sales Tax Officials visited the registered office of the petitioner at Karachi, and conducted the search after the service of notice. It is further stated that the tax officials initially served a notice under section 38 on the representatives of the petitioner and requested to provide access to complete sale/purchase record. However, the entire record was not produced and then only a notice under section 40A was served and the search of the premises was carried out. According to Respondent No. 2, the search was conducted after service of notices under sections 38 and 40A of the Sales Tax Act. Photocopy of letter, dated 10th June, 2003 written by Member C.B.R, addressed to Respondent No. 2 has been produced which contains that information has been received that tax fraud was being committed by the petitioner and action in exercise of powers conferred under sections 38 and 40-A, was advised. It was further directed that the stock taking of raw materials and finished goods may be conducted besides obtaining the records in order to ascertain the amount of tax evaded. In support of the plea that the tax officials were authorized to conduct the search, a photocopy of Note Sheet has been produced which reads as follows:- "Note Sheet File No. 4(l)STM/2003/HUB
(1) Kindly refer to the Boards letter C. No. 4(l)STM/2003, dated 10-6-2003 (copy placed at PUC 1) concerning tax fraud by Messrs Diamond International Cooperation Limited and by Messrs N.P. Waterproof Textile Mills, with the instructions to take action under sections 38 and 40A of the Sales Tax Act, 1990. As discussed with your good self one of the above mentioned units namely Messrs Diamond International Cooperation is registered with the Collectorate of Sales Tax and Central Excise (EAST), Karachi and the Assistant Collector (I&P), of the said Collectorate has been duly informed of this for appropriate action as per instructions of the Board vide this office letter C. No. 4( 1 )STM/2003/HUB/1907, dated 11-6-2003. As for the other unit which is registered with this Collectorate namely Messrs N.P. Waterproof Textile Mills (Pvt.) Ltd. Following two teams have been formed for taking action as per instruction of the Board.
Team No. 1
(a) Mr. Samiullah Khan Collector Deputy
(b) Mohd. A.I Rashid Auditor
(c) Hanif Zaidi Auditor
(d) Habib Akthar Auditor
(e) Ovais Ashraf Auditor Team No. II
(a) Iftikhar Ahmad Deput Controller
(b) Muzzamil Iqbal Senior Auditor
(c) Laeeq Hassan Senior Auditor
(d) Tahir Zafar Senior Auditor
(2) Team No. I mentioned above will proceed to the factory premises of the unit located at Hub while Team No. II will proceed to the head office of the unit located at Uni Tower, Karachi. It is requested that necessary permission under section 38 read with the section 40A of the Sales Tax Act, 1990, be kindly granted to the above mentioned officials of the Sales Tax Hub.
Submitted for necessary approval please.
Collector Deputy Collector (Sd.) 11-6-2003 As approved verbally on phone on 11-6-2003 the action taken is confirmed.
(Sd.)
16-6-2003."
5. A plea has been taken on the point of law that the provisions contained in section 40 are not relevant as the action has been taken under section 40A of the Sales Tax Act. It is maintained that a notice under section 40A contained the purpose of visit and the specific information received on the point that the documents/records showing the actual sale transactions were not disclosed to the sales tax department and the said documents/records were kept in the premises which was searched. It is urged that the search under sections 38 and 40A of the Sales Tax Act, were carried out on the basis of definite information received from C.B.R, through letter, dated 10-6-2003 and not merely on whims of the tax officials. It is alleged that all the documents/records were resumed/seized under proper resumption memo, copy whereof has been filed alongwith comments.
6. We have heard Mr. Khawaja Shamsul Islam, learned counsel for the petitioner and Mr. Nadeem Azhar Siddiqui, learned Deputy Attorney General for the Respondents.
The learned counsel for the petitioner has reiterated the contentions raised in the memo, of petition, while the learned DAG has supported the impugned action contending that the search was conducted in pursuance of the provisions contained in section 40A of the Sales Tax Act. After perusal of the record produced by the respondents with their para-wise comments, the learned DAG realized the infirmity in the notice under section 38 and consequently, did not support the plea, taken by the Revenue that the impugned action had the sanction of provisions contained in section 38 of the Sales Tax Act, 1990. Certain points of law require consideration in connection with the plea taken by the Revenue and the procedure adopted by them with reference to the notice under section 38 and, therefore, notwithstanding, the fact that the learned DAG has not placed reliance on the notice under section 38, we will advert to the points requiring consideration at the later stage.
8. Before dilating on the contentions raised on behalf of the parties, it would be appreciated to re-produce the provisions contained in sections 38 and 40A of the Sales Tax Act, 1990, which read as follows:- "Section 38. Authorized officers to have access to premises, stocks, accounts and records.-(1) Any officer authorized in this behalf by the Board or the Collector 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 statements, information regarding nature and sources of funds or assets with which his business is financed, and any other records 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 authorised officer in the course of inquiry or investigation under this section.
Section 40A. Search without warrant:-
(1) Notwithstanding the provisions of section 40, where any Officer of Sale Tax not below the rank of an Assistant Collector of Sale Tax has reasons to believe that any goods liable to confiscation or any documents or things which, in his opinion, may be useful for, or relevant to, any proceeding under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 40, he may, after preparing a statement in writing of the grounds of his belief for which search is to be made, search or cause search to be made for such goods, documents or things in that place.
(2) Any officer or person who makes a search or causes a search to be made under subsection (1) shall leave a signed copy of the statement referred to in that section in or about the place searched and shall, at the time the search is made or as soon as is practicable thereafter, deliver a signed copy of such statement to the occupier of the place at his last known address.
(3) No suit, prosecution or other legal proceedings shall be instituted, except with the previous sanction in writing of the Federal Government against any person in respect of anything done or purporting to be done in respect of exercise of any powers conferred by subsection (1) or subsection (2)."
9. Since the above provisions are analogous to the provisions contained in section 163 of the Customs Act, 1969, which came for consideration before this Court and the Hon'ble Supreme Court therefore, for the sake of convenience, section 163 of the Customs Act, 1969, is also re-produced which reads as under:- "Section 163. Power to search and arrest without warrant.-(1) Whenever any officer of customs not below the rank of an Assistant Collector or Deputy Collector of Customs or any other officer of like rank duly employed for the prevention of smuggling has reasonable grounds for believing that any goods liable to confiscation or any documents or things which in his opinion will be useful for or relevant to any proceedings under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 162, he may, after preparing a statement in writing of the grounds of his belief and of the goods, documents or things for which search is to be made, search or causes search to be made for such goods, documents or things in that place.
(2) Any officer or person who makes a search or causes a search to be made under subsection (1) shall leave a signed copy of the aforementioned statement in or about the place .Searched and shall, at the time search is made or as soon as is practicable thereafter, delivered furthermore a signed copy of such statement to the occupier of the place at his last known address."
10. The provisions contained in section 163 of the Customs Act, came for consideration before a Division Bench of this Court in the case of Muhammad Mahfooz v. Collector of Customs, PLD 1986 Kar. 28 = PTCL 1986 CL. 270. The issue was examined in depth and we can do no better than to reproduce the entire discussion which is as follows:- "(27) Now, taking up the second point that the said search and seizure were illegal, it may be stated that in order to carry out search without warrant the Customs Officer should have firstly, reasonable grounds for believing that (a) any goods liable to confiscation or any documents or things for which information will be useful for or relevant to any proceedings under the Act are kept in any place, and (b) that there is danger that they may be removed before a search warrant could be effected under the provisions of section 162 of the Act, secondly, he should prepare a statement in writing of the grounds of his belief on both the points mentioned above.
(28) It is urged on behalf of the petitioner by his learned counsel that firstly conditions Nos. 1 and 2 mentioned above were not fulfilled inasmuch as the grounds of belief on both the points were not stated. In order to appreciate this contention it will be convenient to reproduce for future reference the statement under section 163 of the Act alleged to have been delivered by the Assistant Collector of Customs (Preventive) which reads as follows:- "Whereas credible information has been placed before me that foreign smuggled refined tin slabs and other contraband foods are stored in the premises of Messrs Ittehad Re-Rolling Mills, L-10-C Block 21, Federal 'B' Area, Karachi, it is not expedient to obtain a search warrant as required under section 162 of the Customs Act, 1969 as the goods may be removed from the premises.
I, Afzal Ameer Khan, Assistant Collector of Customs (Preventive) under the powers conferred under section 163 of the Customs Act, 1969 order the search of the said premises."
(29) Now, it is clear from the above statement that there is no mention that there was any danger of immediate removal of the goods for what is said in it is not expedient to obtain a search warrant as the goods may be removed. This statement in our opinion, was not sufficient for searching the premises without warrant. The requirement of law is that the officers of Customs searching a premises without warrant should have reasonable grounds for believing that (a) any goods liable to confiscation or other documents and things are concealed or kept in a place and that (b) there is a danger (underlined for emphasis (sic)) that the goods may be removed and then he should prepare a statement in writing recording the grounds of his belief.
Now, nothing has been said in the statement about the grounds of belief that there was any danger that the goods might be removed. The respondents have not even filed any counter- affidavit disclosing the grounds. Thus we are of the view that one of the necessary condition to carry out search was not satisfied.
We must emphasize that before any officer of Customs carries out search without warrant he must fulfil the conditions as these conditions have been provided by the Legislature as a safeguard against mala fide interference with the rights' of citizen, in respect of property and against violation of right of privacy.
(30) A similar notice under section 172(A) of the Sea Customs Act, 1878, served on S. M. Yousuf came up for consideration of this Court in S. M. Yousuf v. Collector of Customs. We may here reproduce the notice from they judgment and it reads:- "Notice for search under section 172(A) of the Sea Customs Act.-Whereas credible information has been received that certain documents/prohibited and restricted goods/gold bullion, forged to effect illicit import of foreign goods have been prepared and secreted in the premises known as and whereas it is not expedient to take a search warrant, the said premises are being searched under section 172(A) of the Sea Customs Act, after serving this notice on you."
This notice was not held to be in conformity with law and was, therefore, declared to be illegal. The arguments in this regard have been noticed in paragraph 9 of the judgment of Anwarul Haq, J. (as the learned Judge then was), we may reproduce the same hereinbelow:- "(9) The case for the petitioners is that none of the requirements prescribed by section 172(A) of the Act were complied with by the Customs Officials, as there were no reasonable grounds for the belief mentioned in the section, nor was any written statement of such grounds of belief prepared by the officials concerned before embarking on these searches, and no copy of the required statement was supplied to the petitioners at the time of the search; nor was any such copy delivered to them after the search. On behalf of the respondents Mr. Shah Jamil Alam submitted that reasonable grounds were available to the Collector of Customs and his subordinate officers for believing that smuggled goods were concealed or kept in the place belonging to the petitioners, and that these goods would be removed before search could be effected under the provisions of section 172; and that the notice under section 172(A) of the Act prepared and signed by the Customs Officers before commencing the searches was in the nature of the written statement envisaged by the section. It was further submitted by Mr. Shah Jamil Alam that the failure of the official concerned to deliver a signed copy to the occupier of the premises at his last known address was really not germane to the legality of the search, and was only in the nature of something which had to be done after the event. The learned counsel for the respondents further contended that, in any case, the omissions pointed out on behalf of the petitioners amount to mere irregularities which would not vitiate the search, as the power to search out warrant was not dependent on the recording of the statement of the grounds of his belief by the Customs Official, but arose from the statutory recognition of the necessity to search without warrant in certain situations calling for immediate preventive action."
11. Considering the arguments of the learned counsel for the petitioner it was observed in paragraph 15 of the judgment as follows:- "(15) The petitioners are, however on firmer ground when they contend that the second requirement contained in section 172(A) to the effect that the Customs Officer shall prepare statement in writing of the grounds of his belief, has not been complied with in these cases as already pointed out, the only document available in these cases is the so-called notice under section 172(A) of the Act. I am clear in my mind that this notice falls for short of the relevant requirement laid down by the statute. In the first place, this is a cyclostyled and stereotyped document merely stating that 'credible information has been received...', thus showing beyond doubt that the Customs Officer concerned did not apply his mind to each individual case.
The notices were already available at the Custom House and they were filled in at the spot by the officer concerned before commencing the search of a particular premises. In many cases they had already been signed by officers who neither searched the premises, nor caused die search to be made. Such a procedure can hardly satisfy the requirement of the law that before embarking upon a search without warrant the Customs Officer shall prepare statement in writing of the grounds of his belief that smuggled goods are concealed or kept in any place and diat there is a danger that they may be removed before a search can be effected under the provisions of section 172 of the Act. The law further requires that the statement must also mention the goods for which the search is to be made. These are stringent requirements prescribed by law in order to ensure that the enormous power of search without warrant given to Customs Officers is exercised honestly and judiciously. By insisting that the grounds for his belief shall be recorded before hand by die Customs Officers concerned the law seeks to ensure that the search without warrant is made for a bona fide purpose and on reasonable grounds which can be tested later, if challenged by the aggrieved party. To put it differently, it seems to me that this is a safeguard prescribed by the Legislature to ensure that the rights of the citizen in respect of private property are interfered with only for genuine reasons related to the prevention of smuggling and evasion of customs duty, etc. This safeguard can be effective only if the procedure prescribed by law is faithfully and honestly followed by application of mind in each individual case. The notice relied upon by die Customs Authorities does not fulfil these requirements."
(31) The condition required to be fulfilled under section 172(A) of the Customs Act, 1878 also came up for consideration in the case of Mirza Anwar Baig v. Nazir Azhar and 4 others PLD 1979 Kar. 687. Considering and analysing the same it was observed in paragraph 4 of the report as follows:-- "From the above decision it will follow that the respondents were bound to disclose in their counter- affidavit the grounds on which they promised their belief that specified smuggled goods had been stored in a particular place and that there were grounds to believe that if immediate action is not taken under section 172-A the goods will be removed. The respondent's case has been stated in the aforesaid paragraph 2 of the counter-affidavit and it is obvious that the paragraph does not disclose the material upon which the satisfaction of the respondent was founded at least as to the latter requirement, namely, that were grounds to believe that the goods would be removed unless immediate action was taken without a warrant from a Magistrate under section 172 of the Sea Customs Act. In this connection we may also refer to the case of S. M. Yousif v. Collector of Customs and others in which also an action under section 172-A was under attack and the view that found favour was that it is within our jurisdiction to ascertain the material available to the relevant authorities which could furnish reasonable grounds for believing that action under section 172-A of the Act was called for and what was to be adjudicated upon was the reasonableness thereof. In the present case, as aforesaid no material has been disclosed which warranted action under section 172-A of the Sea Customs Act against the petitioners for the only ground disclosed is that if action under section 172-A is not taken the goods will be removed."
And consequently, the orders were set aside.
(32) We may also refer to Shoukat Hussain v. Zulfiqar Ahmed and others PLD 1981 Lah. 13 wherein search and seizure was carried out in the presence of a Magistrate but without search warrant under section 163 of the Act. It was urged that the search and seizure were vitiated by non-compliance of the provisions of sections 162, 163 and 171 of the Act. On behalf of the respondent, it was urged that since the Magistrate was present at the spot and smuggled goods were produced, no warrant was required. Dealing with the contention it was observed by M.S. H. Qureshi, J. In paragraphs 3 and 4 of the report as follows:- "(3) Section 162 of the Customs Act empowers a Magistrate to issue search warrant on an application by a gazetted Officer of Customs. Under section 163, subsection (1), an officer of Customs not below the rank of an Assistant Collector of Customs or any other officer, of like rank duly employed for the prevention of smuggling, if he has reason to believe that any goods liable to confiscation under the Act are concealed or kept in any place and there is a danger that the same may be removed before a search can be effected under section 162, may 'after preparing a statement in waiting of grounds of his belief and of goods' for which search is to be made, search or cause search to be made for such goods in that place. The officer who makes the search or causes the search to be made, is further required by subsection (2) to leave a signed copy of the aforementioned statement in or about the place searched and at the time of the search or as soon as practicable thereafter to deliver, furthermore, a signed copy of such statement to the occupier of the place at his last known address. Subsection (3) of section 163 directs that all searches made under this section shall be carried out mutatis mutandis in accordance with the provisions of the Criminal Procedure Code. Section 171 requires that when anything is seized, the officer making such seizure shall, as soon as may be, inform in writing the person from whose possession the things are seized, of the grounds of such seizure or arrest.
(4) The contention that there was no search involved is not correct because the act of entering upon the shop premises with a view to finding out if it contained any smuggled cloth and if so to seizing it, did constitute search. From the F.I.Rs. In both the cases and the written statement filed, it appears that the raid had been organized and conducted on the basis of an information that the petitioners had stock of foreign I cloth in their shops. However, there is no mention in the F.I.Rs. Nor is it the case of the respondents that any attempt had been made to obtain a search warrant from the Magistrate as required under section 162 of the Customs Act, or a statement as required under section 163(1) of that Act had been prepared in writing of the grounds of the raiding officer's belief that goods liable to confiscation were concealed in the shops and that there was a danger that the same might be removed before a search warrant could be obtained.
It is also not the case of the respondents that the raiding officer had, after the seizure, informed in writing the petitioners of the grounds of the seizure as required under sections 163(3) and 171 of the Act. It is, therefore, clear that there had been no compliance of the provisions of sections 162, 163(1) and (2) and 171 of the Customs Act."
(33) We, therefore, are of the opinion that search and seizure of the goods were illegal for non-compliance of the provisions of sections 162 and 163 of the Act. We, therefore, hold accordingly PLD 1986 Kar. 28."
12. The above judgment was assailed in appeal before the Hon'ble Supreme Court which was dismissed vide judgment reported as Collector of Customs v. Muhammad Mahfooz PLD 1991 SC 630 = PTCL 1992 CL.
155. The Hon'ble Supreme Court upheld the judgment with the following findings:- "Now so far powers under section 163 of the Customs Act, 1969 are concerned, they are to be read alongwith section 162 of the Customs Act. Requirement of section 162 of the Customs Act is that on application by a gazetted officer of Customs, in which grounds are stated, search-warrant is to be obtained from the Magistrate having local jurisdiction and such warrant shall be executed in the same way and will have the same effect as is provided under the Code of Criminal Procedure, 1898. This requirement of issue of search- warrant by the Magistrate can be dispensed with under section 163 of the Customs Act, which empowers Assistant Collector of Customs or any other officer of like rank to make search without warrant if he is satisfied that there is danger of removal of goods if search-warrant is obtained and further he has to record such reasons. Requirement of giving reasons is stated in subsection (1) of section 163 of the Customs Act, which is reproduced as under:--
(1) Whenever any officer of Customs not below the rank of an Assistant Collector of Customs or any other officer of like rank duly employed for the prevention of smuggling has reasonable grounds for believing that any goods liable to confiscation or any documents or things which in his opinion will be useful for or relevant to any proceedings under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 162, he may, after preparing a statement in writing of the goods, documents or things for which search is to be made, search or cause search to be made for such goods, documents or things in that place."
13. Here the emphasis is that statement to be prepared by the Customs Officer in writing is to include grounds of his belief with regard to danger he apprehends that the goods may be removed before search can be made on the basis of search-warrant and secondly about the goods or documents or things for which the search is to be made. In the instant case, it appears in the order, dated 22-9-1981 passed by Central Board of Revenue that Assistant Collector concerned had recorded the grounds for his belief for making search and seizure in the note made by him on page 4 of the Custom House File No. SIB 104/81. In the record of the High Court in Constitutional Petition there is counter-affidavit of Z.A.K. Saifi, Senior Law Officer (at page 231) in which in paragraph 3(ii) it is stated that search was conducted under section 163 of the Customs Act, 1969 as there was no time for obtaining search-warrant under section 162 of the said Act and photo copy of the statement of grounds of search under section 163 of the Customs Act, 1969 is produced as marked R-l (at page No. 243). It reads as under:- "Statement of grounds of search under section 163 of the Customs Act, 1969.
Whereas credible information has been placed before me that smuggled refined in slabs and other contraband goods are stored in the premises of Messrs Ittehad Re-Rolling Mills L-10-C Block 21, Federal 'B'
Area Karachi, it is not expedient to obtain a search-warrant as required under section 162 of the Customs Act, 1969 as the goods may be removed from the premises.
I, Afzal Ameer Khan, Asstt. Collector of Customs (Preventive) under the powers conferred under section 163 of the Customs Act, 1969 order the search of die said premises.
(Sd.)
Afzal Ameer Khan Asstt. Collector of Customs (Preventive) 2-1-1981."
14. Perusal of the statement of grounds reproduced above clearly shows that grounds for belief in support of danger as such were not mentioned specifically as is required under section 163 of the Customs Act. This is a statutory requirement and there is legislative wisdom behind it which is to the effect that ordinarily a place is to be searched only after search-warrant is obtained from the Magistrate as is contemplated under the preceding section of the Customs Act and only in extraordinary cases this section can be dispensed with as is permissible under section 163 of the Customs Act but then grounds are to be stated by the Customs Officer who is allowed this facility for his belief and decision in not obtaining the search warrant. He must state the grounds which satisfy apprehension of danger of removal of goods. For example, information is received from such and such person that the party concerned has taken steps or is about to take steps for removal of goods and if search-warrant is obtained the same will consume time or the Magistrate is not available, hence there is no other way but to go for the search without warrant. By providing such statutory requirement, the intention of Legislature is to provide safe guard against mala fide interference with rights of citizens in respect of property and against violation of right of privacy. In the instant case in the statement of grounds reproduced above, reasons are not stated as to why arid what danger was apprehended for removal of goods and it is not enough simply to say that "it is not expedient to obtain search-warrant". We are, therefore, in agreement with the finding of the High Court on the ground that search and seizure were defective and improper on account of noncompliance with the provisions of sections 162 and 163 of the Customs Act.
15. The provisions contained in section 40-A came for consideration before the Lahore High Court in the case of Messrs Ihsan Yousuf Textile Mills (Pvt.) Ltd. v. Federation of Pakistan, 2003 PTD 2037 and while agreeing with the view taken by Division Bench of this Court in the case of Master Enterprises referred to above in C.P. No. 1926 of 2000, it was held as follows:- "(15) Accepting the interpretation of the Department would render the provisions of section 40A as superfluous and redundant. A "free access" to any property of the citizen does not mean search and seizure for the purpose of collecting evidence against him. That object can only be achieved on observing the codal formalities under sections 40 and 40A which ensure respect for the rights of the subject. It is surprising that Department is not willing to accept the minimum level of safeguard for the person and property of a subject as are contemplated in section 40A. It looks for an absolute discretion to violate the property of the subject on the ground that an officer of the Department has been given "free access" to such property. A search and seizure by State functionaries is the hardest hit on the person, property and
(self) respect of a citizen. It cannot be assumed to have been granted as a matter of course. Mere allegation of some tax evasion, here and there, cannot be allowed to be extended to justify a "storming" of business houses and factories."
16. It was further observed in the above judgment that the Department cannot be allowed to act and achieve which is possible only in the conditions stated in sections 40 and 40-A and that every evidence collected through an illegal means, howsoever incriminating, partakes the colour of a confession extracted through torture. It is not admissible-in-evidence in any legal tradition/jurisdiction of the world. It needs to be discarded through and through.
17. The issue again came for consideration before another Bench of Lahore High Court in the case of Megna Textile Mills v. Collector for Customs 2004 PTD 1339. In this case also a raid/search was conducted by the Sales Tax Officials at the business premises of the petitioner under section 40-A of the Sales Tax Act, 1990, and the record lying in the premises was taken into the possession through a resumption memo and on the basis of resumption of documents a contravention report was prepared. The petitioner challenged the legality of search/raid and the subsequent proceedings in pursuance thereof. On the point of fact the following statement was made by the tax officers:- "Reliable information was received that Messrs Megna International (Pvt) Ltd. PI-15, Rail Bazar Faisalabad and Messrs Megna textile (Pvt.) Ltd. Jaranwala Road, Khurrianwala Faisalabad, were involved in massive tax evasion and former had maintained an undeclared godown under the premises of Rehmat Poultry Farm at about 10 K. Ms., Jaranwala Road, Faisalabad. On receipt of this information, the Collector, Sales Tax, Faisalabad, authorized the Assistant Collector, Sales Tax, Faisalabad, Audit Division-ll alongwith audit staff under section 38 of the Sales Tax Act, 1990 to visit the premises to examine the records and verify the stocks. The concerned Assistant Collector alongwith other staff visited Messrs Rehman Poultry Farm (godown of Messrs Magna International Limited) and as it was not possible for the Assistant Collector to conduct search of two different places simultaneously, be caused search of the premises of Messrs Magna Textile Industries through Respondent No. 3 under section 40-A of the Sales Tax Act 1990, Mr. Saleem Akhtar, Deputy Superintendent conducted search accordingly and resumed the record."
18. The learned Single Judge of the Lahore High Court observed that, for adopting extraordinary measure of search without warrant a belief and apprehension of the Assistant Collector of Saids Tax is to be transcribed in the shape of a written statement which is the prelude before the action under section 40A is initiated. It was further observed that the search and seizure by .The Government functionaries which is required to be done in a particular way and if it was not done in accordance with law, it has no legal value.
Reliance was placed on a large number of cases including Collector of Customs v. Muhammad Mahfooz (Supra). It would be instructive to reproduce relevant discussion and finding which is as follows:- "(21) The intention of the Legislature in empowering the Assistant Collector or person only above him has a rationale and this is to protect the rights of the citizens and their privacy guaranteed by the Constitution, otherwise there would be anarchy and a perennial threat to the citizens.
(22) This Court has been told that there is a massive evasion of sales tax on the part of the petitioner and the industrialists of Faisalabad who have ingenious methods of evading sales tax and that it has become difficult for the department to contain them. This is no excuse for violating the law. The documents which were required, could have been asked for under the provisions of section 38 or search could have been effected under section 40 or action follow ed strictly in accordance with the provisions of section 40-A. Why was this not done? Somebody in the department has to enquire into this lapse and for also finding out w hether the procedure was discarded to provide a legal defence to a wrong-doer.
(23) The law is obvious. It is for the department to handle its search operation carefully for success of genuine case.
(24) The argument that Faisalabad is notorious for tax evasion and people like the petitioner have become rich through tax evasion, is hardly a legal argument. In fact, the department has to be equally smart in trapping them.
(25) If this was a genuine case of tax evasion, I am afraid because of its actions against the law, the department today has to face these consequences. It is for the Board of Revenue to ensure that Sales Tax cases are proceeded strictly in accordance with law so that the defaulters are brought to account. Only experienced officials should be appointed for raids and searches in case the provisions of section 40-A are to be followed.
(26) As the act of search and seizure in this case was illegal, it will be of no consequence. The department should return the record so seized. But nothing in this order restrains the department from proceeding against the petitioner in accordance with law."
19. A bare perusal of the provisions contained in sections 38 and 40A of the Sales Tax Act, 1990 shows that on one hand, the Legislature has empowered the tax officials to detect the instances of tax evasion and protect the State revenue and on the other hand the citizens have not been left totally at the mercy of tax officials. In order to avoid arbitrariness and misuse of power on the part of tax officials, citizens have been provided the necessary protection, and thereby a balance has been struck by Legislature. This aspect has been discussed at sufficient length in the judgments cited above and we need not to dilate any more on this point.
20. Applying above principles to the facts of the present case, we find that the statement of grounds for search without warrant which are identical in terms, for both the raids at Karachi, and Hub, do not fulfil the requirements of law. First, the statement of ground must be transcribed before the raid/search is conducted and not after the completion of raid/search, as in this case which is evident from the notices containing the statement, "the unit was visited on 11-6-2003 and the management were informed of the objective of the visit and the letter in this respect has duly received by them". The learned DAG was pointed out this fact and on the basis of the above statement, he was not able to rebut the contention of learned counsel for the petitioner that the statement of grounds was transcribed after the search was completed.
Secondly, the requirement of section 40A is that Officer of Sales Tax not below the rank of an Assistant Collector of Sales Tax must have reasons to believe that any documents or things which, in his opinion, may be useful for, or relevant to, any proceeding under the Sales Tax Act are concealed or kept in any place. The words "reason" and "opinion" have been subject-matter of judicial interpretation in the large number of cases and therefore, we need not to delve into the connotation of these expressions. It would be sufficient to observe that whenever any opinion is required to be recorded with reasons, it should always be objective and should contain the necessary details and particulars of the facts leading to the opinion failing which it shall not be treated as an opinion based on reasons. A perusal of the notice under section 40A shows that the Deputy Collector has stated that he has reasons to believe on the basis of information received that the documents/records showing the actual sales transaction and not disclosed to the sales tax department are kept in the same premises. This is a general statement totally devoid of reasons and the particulars on the basis whereof the opinion is formed. During the course of proceedings of this petition it has been stated that the information was communicated by the Member Sales Tax Central Board of Revenue to the Collector of Customs, Sales Tax and Central Excise, Quetta vide fax massage, dated 10th of June, 2003. This fact was not incorporated in the statement of grounds under section 40A, which is required to be included in the statement of grounds for the reasons that this provision has been made by the legislature for the protection of the citizens and therefore, it has been specifically enacted in subsection (2) of section 40A, that a signed copy of the statement under subsection (1) is to be delivered to the occupier of the place searched. Thus, the information if any, cannot be withheld from the person whose premises is searched and he is entitled to know the reasons for which the extraordinary measure of search without warrant were resorted to. It requires no emphasis that in the words of Justice Nasim Sikandar in the case of Ihsan Yousuf Textile Mills (Supra) "storming" of business, houses and factories should not have the colour and countenance of royal wrath against a defiant adversary and that search and seizure by State functionaries being the hardest hit on person, property and self-respect of a citizen could not be assumed to have been granted as a matter of course. Even the letter addressed by the Member Central Board of Revenue to the Collector of Customs, Sales Tax & Central Excise, Quetta shows that it does not contain the necessary particulars of the information received and the tax fraud which was being committed by the petitioner.
Thirdly, section 40A requires that the competent official of the sales tax should record his opinion with reasons as to why there is a danger that document etc. Shall be removed before a search can be effected under section 40. It has nowhere been shown in the statement of grounds that the petitioner was intending, preparing or attempting to remove the documents etc. From the place searched. The Legislature has provided in clear words in section 40A, that, the officer concerned should record the opinion with reasons that there is danger of removal of the documents etc. Before a search can be effected under section 40. He after preparing a statement in writing of the grounds of his belief may search or cause search to be made for such documents and things in that place. Thus, the condition precedent for adopting extraordinary measure of search without warrant has not been complied with at all. We fully subscribe to the opinion of learned Single Judge of Lahore High Court in the case of Megna Textile Mills that the extraordinary mode of search under section 40A and the lightening action thereunder is to be taken on the basis of belief to be transcribed in the shape of written statement before the action is initiated. We would like to add that the normal procedure of search is provided in section 40 of the Sales Tax Act and the normal procedure is to be adopted in ordinary course. The extraordinary powers conferred under section 40A are contingent on recording of the opinion supported with reasons that search documents or things which may be useful or relevant to any proceeding under this Act are concealed or kept in any place and that there is a danger that they may be removed before a search can be effected under section 40. All these conditions specified in section 40A are to be complied with strictly failing which the action under section 40A shall not be sustainable in law and shall always be treated to be invalid, without jurisdiction and void ab initio, rendering the search, recoveries and all subsequent actions to be void and invalid. In the present case, we find that the tax officials have miserably failed to place any material before us to establish that there were sufficient reasons and grounds for by passing the normal course of action specified in section 40 of the Sales Tax Act and resorting to the provisions contained in section 40A of the Sales Tax Act, 1990. At this juncture, we would like to clarify that the Deputy Collector Sales Tax or even Collector are not responsible for illegal action because they were acting under the instructions of Member Sales Tax, Central Board of Revenue, who in his letter, dated 10th of June, 2003 did not disclose the necessary particulars of the information received by him pertaining to the tax fraud committed by the petitioner and gave instructions which are manifestly against the provisions of law. The Member Central Board of Revenue, advised the Collector to take action in exercise of powers conferred under sections 38 and 40A of the Sales Tax Act, 1990. Thus, the Member Central Board of Revenue, directed for adopting a course not warranted in law. Being a Member of apex body in the hierarchy of tax administration, the learned Member C.B.R, ought to have given the directions to adopt the normal course of search provided under section 40 of the Sales Tax Act, and if he had any evidence that in case of adopting the procedure under section 40 there is a danger of removal of the documents/things, he ought to have specified that evidence/information. At this juncture, we would like to observe that, it is expected that in future the Members C.B.R, shall demonstrate more responsibility and strict adherence to the provision of law failing which the C.B.R, would be loser in terms of the recovery of the genuine tax revenue, confidence and credibility in the eyes of citizens. We would like to reiterate the view expressed by Justice A.I Nawaz Chowhan of Lahore High Court in the case of Megna Textile Mills in the following words:- "(25) If this was a genuine case of tax evasion, I am afraid because- of its actions against the law, the department today has to face these consequences. It is for the Board of Revenue to ensure that Sales Tax cases are proceeded strictly in accordance with law so that the defaulters are brought to account. Only experienced officials should be appointed for raids and searches in case the provisions of section 40-A are to be followed."
21. We have already observed that the learned Deputy Attorney General, has not placed reliance on the notice under sections 38 and 40A and has supported the impugned action on the basis of statement of grounds under section 40A only. We have held that the impugned action under section 40A is not sustainable in law and consequently, the search and seizure is illegal and of no legal consequence. It is further held that all subsequent proceedings held in pursuance of such illegal search are also void ab initio and all the proceedings/actions taken are hereby quashed. The Respondent No. 2 is directed to return all the documents to the petitioner still lying with the respondents, as the documents illegally procured cannot be used for any action against the petitioner, as they are inadmissible-in-evidence.
22. In the end, we would like to deal with an issue pertaining to notice under section 38 which is also of sufficient importance, notwithstanding the fact that the learned DAG, realizing the infirmity in the notice under section 38 has not placed any reliance on it. A perusal of the note sheet, dated 11-6-2003 shows that the Deputy Collector sought permission from the Collector to take action under section 38 of the Sales Tax Act. The learned Collector made an endorsement on 16-6-2003 as follows:- "As approved verbally on phone on 11-6-2003, the action taken is confirmed."
23. The above order passed by the Collector is not in consonance that the requirement of law contained in section 38. It is provided in section 38 that, any Officer authorized in this behalf by the Board or Collector shall have free access to business or manufacturing premises etc. The words are very clear to the effect that the officer taking action under section 38 should be authorized in this behalf by the Board or Collector.
It nowhere provides that the action taken without authorization can be subsequently confirmed. There is no provision for ex-post facto confirmation. The authorization envisaged under section 38 should precede the action and not vice versa. This provision has also been made with a view to protect the interest of the citizens and therefore, any tax official who claims to be authorized by the Board or Collector, under section 38 of the Sales Tax Act, is bound to show the authorization to the person who is asked to make the compliance of the requirements made by such officer. It is further held that in all matters where a public officer is supposed to pass an order which can be exposed to the scrutiny of Appellate Courts/Superior Courts in exercise of judicial review of administrative actions the orders must always be in writing. If any authority is required on this point it is available in the case of Munawar-ud-Din v. Federation of Pakistan PLD 1979 Lahore 699, wherein it has been held that, "it is a well established position of law and practice that the public functionaries have to pass all orders in writing. It is necessary for the purpose of record and responsibility and to judge their validity." Since it is specifically provided in section 38 that the action specified therein can be taken by any Officer authorized in this behalf by the Board or Collector, therefore, it is held that such authorization should precede the action and shall always be in writing failing which all the actions taken under section 38 shall be treated as illegal and void.
24. Before parting with this judgment, we would like to observe that the tax officials and the CBR, are no doubt empowered under the law and are duty bound to check the evasion of tax but, it is always to be kept in mind that the evasion of taxes and duties is a contravention of law, which cannot be eradicated by commission of another illegality and contravention of law by tax officials. An illegality can be checked by adherence to the dictates and requirements of law only. The violations of law can be controlled and checked by adherence to the rule of law and not by commission of counter illegalities which shall result in multiplying of illegalities only, causing ultimate loss to the State Revenue and the legal system.
25. We hope, that the Central Board of Revenue shall take serious and immediate measures to ensure that the actions taken by the tax officials are strictly in accordance with law and then only the evasion of taxes can be controlled. A copy of this judgment should be sent to the Chairman, Central Board of Revenue for taking necessary measures as deemed fit.
26. Consequent to the above findings, the petition is allowed in the terms stated above. After hearing the learned Advocates for the parties on 15-9-2004, the Petition was allowed by a short order. These are the detailed reasons in support thereof.