DECISION DECISION/FINDINGS JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN - This complaint alleges maladministration against Assistant. Collector (Audit-Ill), Sales Tax and other officials of the Collectorate of Sales Tax, Lahore for illegal entry into find search of the complainant's premises, forcible resumption of various records and subsequent illegal proceedings against him.
2. Facts of the complaint are that on 28.12.2002 a team bf Sales Tax officials headed by Ms. Naureen Ahmad Tarar, A.C., Sales Tax visited the complainant's business premises and asked for business records on the pretext that the unit was not registered with the Tax Department. Not accepting complainant's explanation that it was indeed a registered unit, the respondents searched the premises, breaking open locks and almirahs. Thinking that some burglars were at work the management informed the police whom upon arrival the respondents informed that they were Sales Tax Officers on an official visit. The policemen went away but say the locks broken. The Tax officials seized and took away the records and also illegally detailed one of their employees in the office of the Collector. On a complaint made to him about the high-handedness of the officials of the Collector did not'take any action against them but merely referred the complainant to see the A.C. To sort out the issues. Tub A.C. Misbehaved and used harsh language. The A.C. Issued a notice dated 15.3.2003 asking for records for purposes of audit. The complainant receited it very late as is evident from the postal envelope postmarked 1st April, 2003.
The aforesaid notice was deliberately posted late demanding production of certain records within three days hardly allowing any time for its compliance. When on 4.4.2003 the complainant's staff approached the Sales Tax office for supplying the requisite records they were informed that the AC. Had already finalized the audit report on 2.4.2003.
Although the A.C. Had been transferred from Audit and had relinquished the charge oh 31.3.2003 she, with mala fide intent, unauthorizedly signed the audit report on 2.4.2003.
The audit was, therefore, completed without records called for and behind the cornplainanfs back. Records were supposedly seized under Section 38 of the Sales Tax Act, 199Q but the provisions of the aforesaid section were abused as no signed receipt for documents so resumed was given nor. Was any authorization as required under the said section was produced/shown. Section 38 of the Act does riot provide free excess to premises at all times nor does it bestow any power on any^one*to search the premises nor, for that matter, it permffs use of arms. Search could be conducted only under Section 40A of the Sales Tax Act, 199Q subject to fulfilment of conditions laid down therelnt* fio notice was served under Section 40A of the Sales Tax'Act, 199Q for search of premises. Hence the provisions of Section 40A were not followed. The audit report was cooked and the pitch of sales^was exaggerated, In a number of judgment ghren by higher judicial forums it has been held that where a power is given to do a certain'thing in a pertain way the thing must be done in that way or not .At all. Illegal acts of search, seizure and recovery of record^-are'-unlawful and without jurisdiction ?
In cases of Ehsan Yousaf Textile Mitts Limited in C. No. 107/02 and Daud Textile Milts in C. No. 335/02 the. Honourable F.T.O. Taking .Notice of acts of maladministration ordered inquiry into the misconduct of officials for taking action against them. The A.C, may be proceeded against for abuse of powers, the Collector for gross negligence and aH of their actions based on maladministration may be held as illegal.
3. In reply, the respondents -have stated that the A.C. Alongwith staff visited the complainant's premises on 28.12.2002 on the direction of Collector Sales Tax, Lahore. The department had information,that the unit was indulging in evasion of sales tax. Record was resumed for investigation under a proper recovery memo. Some police officials did visit the premises but left on being informed that Sales Tax,Officers were visiting the premises, officially. Locks were no broken as alleged Records were willingly provided by complainant's- representative and were resumed against proper recovery memo. The representative also signed the documents retrieved from tl^. Computer. The complainant did meet the Collector to receive back irrelevant , record, which was handed over to him on various dates.-The rest of the record was returned on 28.4.2003. A notice dated"
15.3.2003 was issued , to collect more records. The .Complainant did not respond to/the notice nor did he inform the department regarding its late receipt.'' The complainant remained in touch during finalization of the audit deport, which waa issued with the approval, of Additional Collector.
The records were legally resumed under Section 38 of the 'Sales Tax Act, 1990, The*authorization under Section 38 of the Act. Was, duly handed over to the person who provided the records. No search was conducted under Section 40A of the^sales Tax Act, 1990 nor were locks broken as alleged. However, the complainant'-approached the Collector vide letter dated 14.4.2003 expressing certain reservations about the audit report. Although the audit report had been fow*arded to the Collector of Adjudication for decision on merit, re-audit was ordered by the Collector to meet the demands of justice and fair play. The Collectorate acted fairly on merit and without prejudice. The observations of the audit report were discussed with the representative of the complainant before issuing it. The A.G. Does not bear any personal grudge against the complainant. She performed her duty in accordance with the provisions of Section 38 of the -Act on Collector's direction, and. Holding the requisite authorization, collected the records under proper recovery memo. The complaint may be disposed of with the orders to the complainant to coordinate with the audit for completion of the re-audit within due time.
4. During the hearing the A.R. Stated that the respondents abused the powers in that the search was conducted without a warrant failing to fulfill conditions of Section 40A of the Sales Tax Act, 1990. Neither any notice was served on the complainant, which was a prerequisite for search nor was any statement left on the premises. The record was returned piecemeal. Asked whether the complainant had responded to notice dated 15.3.2003 the A.R. Stated that the ' complainant had deputed a representative to visit the Tax office on 2.4.2003 to find out that more records were required but learned that the audit report had been finalized on 2nd April, 2003. The Honourable F.T.O. In Complaints Nos. 107/02 and 335/02 has already decided cases involving high-handedness in similar situations. The department's contention that the action was taken under Section 38 of the Act is incorrect because Section 38 is to be read with Section 25, the two being interconnected.
Inspection under Section 38 is not a search. The record cannot be resumed without consent of the taxpayer. They used force (6 armed guards)'to intimidate and coerce the complainant. No statement was provided to the complainant either under Section 38 or Section, 40A. There is difference between search and inspection. Searches are inspections but all inspections are not searches The Collector authorized Assistant Collectors and Deputy Collectors to act under Section 38 of the Act in a mechanical manner by giving them a* blank cheques to harass the taxpayers. He should have studied and examined each base on its merit before authorizing anybody under Section 38 to act in that specific case. An omnibus authorization is against the spirit of the Section 38. The Supreme Court in case (88) Tax 1 SC 3 (Master Enterprises Vs. Federation of Pakistan) ruled that the search and seizure could only be made under Sections 40 and 40A and not under Section 38 of the Act. The Lahore High Court in the case of Ehsan Yousaf (\NP. No. 19482 of 2000). Ruled that the raid was made in violation of the provisions of Section 38 and was, therefore, illegal. The documents seized cannot be used in adjudication proceedings directly or indirectly.
5. The D.R. Denied maladministration and justified action under Section 38 of the Sales Tax Act, 1990 for which she was authorized vide Collector's order dated 28.9.2002. Asked whether the Collector had given orders to act under Section 38 of the Act with reference to specific information obtaining in the present case the D.R. Stated that the officers were authorized under Collector's general order to initiate action under the provisions of Section 38 of the Act. The visiting team was not armed. Mr. Khalil, the proprietors, was not available. He was reached by phone. The complainant arranged the police to vjsit the premises but the police went away on being informed that the respondents were Sales Tax Officers on official visit. Locks were not broken as alleged. The complainant tried to exert external pressure on the respondents, for dropping action against them. The procedure prescribed in Section 38 was followed. A notice was served on the complainant, which was duly received by their representative Mr. Muhammad Ayub, who also signed the records resumption memo. The audit, which.Was carried out for the period June, 2000 to October, 2000 created, prima facie, total liability of Rs. 1.41,06,105/- . The case was sent to the Collector (Adjudication)" for decision. Show-cause notice has been , * issued. Asked as to what happened to Collector's direction for re-audit and to respondents own request made ,in parawise comments fifed in the case that the complainant be directed to cooperate with officials in conducting second audit, the D.R. Stated that the complainant was given notices for re-audit but since they did not respond, the case would be adjudicated on the basis of previous audit. The A.R., however, protested that if notices for re-audit were issued they should produce evidence of service on the complainant. The case was adjourned to enable the respondents and the complainants to produce certain documents for consultation, including postal receipts to ascertain whether or not the notice for re-audit was dispatched and served.
6. At the resumed hearing the-D.R. Continued that re-audit was ordered by the Collector vide his letter dated, 19.6.2003 on complainant's ovirn request made vide letter dated "25.4.2003. Notices dated 23.6.2003,-3.7.2003 arfd 10.7.2003 were issued to The complainant to produce thb relevant .Records to enable the respondents to initiate audit but he responded only to one notice dated 3.7.2003 vide his letter dated 8.8.2003, too late. Enough time for re-audit was given, which was noT availed. The A.R. Denied receipt of, notices The D.R. Stated that all the notices were sent at the proper address and placed on record extracts of, register showing dispatch of notices by registered post except that the notice dated 3.7.2003 was dispatched by ordinary post. The D:R. Continued that the respondents took action within the parameters of law. There* was neither any personal grudge agaipst nor enmity with the complainant. The complairiant was associated with the audit although the law does not make it mandatory. The contravention report was sent to the Collector (Adjudication) on 2nd April, 2003. The complainant should contest the case before him because toe complainant failed to comply with notices for re-audit-The A.R stated that notice under Section 38 was served on a peon who was unauthorized to sign or receive it. The Collector could order, ce-audit but he could not revoke las own order for re-audit The A.R.' further stated that the procedure for audit laid down'In Generaf Orders Nos ' 1/99 and 9/99 and certain parameters recently laid down for conducting audit were not adhered: The A.R. Also' placed on record three affidavits' one by'the proprietor himself and two by complainant's empfbyees to the effect that: (i) the police * was informed about respondenfs illegal entry and' (ii) the respondents had broken open the locks recovering various documents from different places. The D.R. Objected to the language used in the: affidavits as derogatory and vehemently denied breaking the locks or use of intimidatory tactics. The re-audit had to be completed within one month but it could not be because of lack of cooperation on the part of the complainant. The A.R: emphasized that there was need for neutral audit for which they were fully prepared but they never received the So:called notices. An independent team, should tiave conducted the audit by associating the complainant. The D.R. Stated that the second team authorized by the Collector for re-audit was. An independent ope but unfortunately the complainant did not cooperate and the re-audit could not materialize. They should now take a decision from the adjudicating authority and may, if aggrieved, file an appeal before the appropriated appellate forum. ' '
7. The arguments of the'parties and the record of the case have been considered and examined.
Under Section 38 of the Sales Tax Act, 1990 any officer authorized by the C.B.R, or the Collector has free access to file business or manufacturing premises, registered officers' or any other place where any fctocks; business record or documents required under'the Sales Tax Act, 1990 are kept Or maintamed for inquiry and investigation arid inspect the fpoeds^ stocks, records and other documents and relevant information mentioned therein and can also take into custody such records or documents in original or copies thereof as fine authorized officer may deem fit against a signed receipt. Exercising the authority .'vested in him file Collector issued an order dated 21.9.2002 authorized all Deputy Collector/Assistant Collectors of the Collectorate to have access to premises, stocks and accounts of the registered persons within the area of their jurisdiction subject to the conditions that before initiation of any action under Section 38 of the Act they would seek permission from their immediate supervisory officer and submit a detailed report regarding outcome of action within 24 hours of the completion of such action. On the authority of the aforesaid order the A.C. Prepared a notice dated 28.12.2002 and served it on one Mr. Muhammad Ayub claimed by the respondents to be the representative or Messrs Bayers Chemical (the complainant).
8. A close look at the authorization given by the Collector will reveal that the Collector's order did permit access to premises, stocks and accounts of the registered persons but did not make specific mention of whether the authorized persons could take the records into custody. Entry to this effect was, however, made by the A.C. In notice dated 28.12.2002, Furthermore, Collector's omnibus order dated 21.9.2002 authorized all Deputy Collectors and Assistant Collectors to have access to premises, stocks and accounts of units within the area of their jurisdiction without particularizing or specifying the names of assessee whose premises and accounts could be visited.
The question is whether such an omnibus direction/authorization could "be given to officers without considering the facts in each case and satisfying oneself abbiit the need to visit the premises of one assessee or the other, especially in a case such as this where it is claimed 'that visit to the complainant's premises was necessitated by information about evasion of duty and taxes being indulged''in. Such omnibus orders without making selection of a unit to be visited at a senior level are likSly to be abused by the subordinates who may arrogate to themselves the power to do anything that they wished. The selection of complainant's premises for a visit was thus left to the subordinate staff, It appears that in situations such as these the so-called action under Section 38 of the Act tends of dovetail into operations under Section 40A of the Sales Tax Act, which tendency needs to be curbed unless of course action is actually intended to be taken under the provisions of Section 40A after fulfilling all its requirements.
9. The case record also shows that the complainant's business records were resumed indiscriminately which is evident from the fact that alongwith the relevant records a lot of irrelevant records was also seized which was subsequently returned piecemeal on different dates ae admitted in- parawise comments. The respondents'contention that the record was willingly given - by the representative of the complainant is not reliable on two counts no doubt, the resumption memo, (on record) v- shows presentation of record by one M. Ayub, allegedly the representative of the complainant, but the complainant disown him being the authorized person as he was not holding any power-of-attorney ojr authorization to do so. Secondly, if the records, as contended by the respondents, were willingly given how is it chat the so-called representative also supplied irrelevant records, which had to be subsequently ' returned. If anything, it shows that the respondents went about recovering the records in a slipshod manner and resumed whatever came . To hand. The possibility of intimidation, coercion and forcible resumption of -" records smacking of maladministration cannot be ruled out, especially when the respondents did not produce any evidence to show that Mr. Muhammad Ayub was indeed the authorized person holding a power-of-attorney to handover the records'and to receive and sign copy of authorization notice.
10. At one point in time the Collector, on a complaint made to him. By the complainant, had ordered re- audit to give a fair dispensation in the case as claimed in parawise comments. The re-audit, however, never materialized and, as it is, the findings of the audit already completed are being made the basis of adjudication despite the fact that in parawise comments filed the respondents had themselves -suggested that the complainant be asked to cooperate with the department* to complete re-audit. By agreeing to a re-audit the Collector had, In fact conceded that there was, indeed, something wrong with the first audit and created another opportunity for a fresh apd independent audit, which somehow did not materialize. As regards the audit already finalized the complainant emphasized that the respondents were in a hurry to complete and close it without giving the complainant the opportunity to join it and deliberately issued notice dated 15.3.2003 late which was received by the complainant on 2.4.2003 as the delivery envelope bore postmarked date as 1.4.2003. The said envelope (on record) does show the postmarked date as 1.4-2003 and the record shows that this letter was dispatched to the Complainant by ordinary post. Thus there is some substance in complainant's contention that there was a deliberate attempt not to associate him with audit. As to the fresh audit ordered by the Collector as conveyed vide D. C's. Letter dated 19.6.2003 the respondents contend that it could not take place because of complainant's non- cooperation and failure to produce the relevant records within the prescribed period, the complainant on the other hand, rebuts that he was prepared second audit by an independent team emphasizing that except for one notice dated 3.7.2003 for re-audit he did not receive any othe* notice, In reply to the one notice that he received the complainant vide his letter dated 4.8.2003 wrote to the A.C. Seeking adjournment on the grounds of pendency of his complaint t>efore the F.T.O. Instead, the complainant contends that he was told that the re-audit proceedings had been closed. These, according to him, were illegally abandoned. The record shows that the respondents did issue notices dated 23.6.2003, 3.7.2003 and 10.7.2003 calling for record for re-audit and for associating the complainant with the audit setting one month's time for compliance. The complainant was subsequently informed vide'letter dated 3.7.2003 that since he failed to contact the audit team for re-audit alongwith record the Collector (Adjudication) has issued show-cause notice based on findings in the first audit report advising him to defend the case before the adjudication authority.
The postal receipts produced and placed on record by the respondents do show that the notices were issued by post on 23.6.2003, 5.7.2003 and 10.7.2003 but'the complainant contends that none of these, except, notice dated 3.7.2003, was ever received by him. No doubt, the respondents did issue notices for re-audit but the complainant's request seeking more time could have been considered a little more sympathetically, especially when the Collector had, considering the overall Circumstances of the case, ordered a re-^udit to meet the ends of justice and the notice dated 15.3.2003 (relevant to the previous audit) postmarked 1.4.2003 was dispatched by ordinary post and received late by the. Complainant, rendering him unable to comply with it before completion of earlier audit.
11. Considering the overall circumstances of the case it is observed that: (i) while there appears to be no substance in the allegation of maladministration against the Collector, the allegation of high-handedness against the A.C.
And'the staff that visited the complainant's premises would need to be separately looked into through an independent inquiry which the C.B.R, should conduct to determine the truth, (ii) though the Collector had allowed re-audit by an independent team but recalled his orders on account of alleged non-cooperation of the complainant, his agreeing*to re-audit that he was satisfied that a re-audit was warranted in the case.-That being the position, the adjudication of the case on the strength of contravention based on the already completed audit will be unjust. The ends of justice would be met if an independent re-audit is conducted as originally intended by associating the complainant with it to ascertain the correct picture in the case. The complainant should, for his part, cooperate with the Audit Team for re-audit. Accordingly, it # recommended that the C.B.R, direct the authorities concerned:--
(i) Not to proceed with.Adjudication of the instead, a re-audit of the complainant's accounts for the same period after associating him with the audit, adhering to the procedure prescribed for the purpose and then draw adjudication proceedings, if so warranted by findings in re-audit, for decision oh merit in accordance with the provisions of law.
(ii) Appoint Director General (Inquiries) to hold an independent impartial inquiry into allegations of abuse of powers and harassm ent levelled against officers/officials who visited the complainant's premises, In the inquiry so conducted the witnesses shall be examined together with the complainant and employees who have filed affidavits.
(iii) Take appropriate disciplinary action against officers/officials if the inquiry finds them responsible for abuse of authority and high- ' handedness on the complainant's premises as alleged in the complaint.
(iv) Compliance be reported within 30 days. . \