1. SALMAN TALIBUDDIN, J - These Suits (Nos. 376 of 2002 and 377 of 2002) were fixed in Court on 22- 4-2009 for hearing C.M.A. No. 2335 of 2002 in Suit No. 376 and C.M.A. No. 2338 of 2002 in Suit No. 377.
2. Since the facts in both cases are almost identical, this order will dispose of both applications.
3. Both suits for a declaration, injunction, direction and return of documents and arise out of the following facts.
4. The plaintiffs (AMZ Spinning and Weaving Mills (Private) Limited in suit No. 376 and Marhaba Textile Limited in Suit No. 377) are engaged in the business of manufacturing cotton yarn at their respective factories and are registered with the defendant No. 2, Collectorate of Customs, Sales Tax and Central Excise, Hyderabad under the Sales Tax Act, 1990 (the "Act").
5. According to the plaintiffs, on 21-3-2002 Sales Tax officers visited the plaintiffs' factories; conducted an intrusive search of the plaintiffs' records; took some of the records into their custody; and removed them from the factory premises.
6. The plaintiffs assert that these actions were in violation of Sections 40 and 40A of the Act and amount to an illegal search and seizure of their records. The plaintiffs have also asserted that rights guaranteed to them by the Constitution, particularly the Article 4 right to be dealt with in accordance with law, have been violated. '
7. Through these applications the plaintiffs have sought the following relief:-- It is respectfully prayed by the plaintiff above-named that for the facts and grounds disclosed in the accompanying affidavit this Honourable Court may be pleased to restrain all the defendants specifically the defendants Nos. 2 and 3 or any officer acting for. Or on behalf of said defendants or the department from taking any coercive and prejudicial action (including but not limited to issuance of any show-cause notice) against the plaintiff or any other person(s) directly or indirectly on the basis of the documents and record sized by them in violation 'of Sections 40 and 40A of the Sales Tax Act, 1990 and further be pleased to restrain the official defendants from harassing or creating any hindrance, obstacles in the smooth, running of the affairs of the plaintiffs' business till disposal of the suit.
8. Both suits were instituted on 30-3-2002. In addition to C.M.A. Nos. 2335 of 2002 and 2338 of 2002, the plaintiffs had also filed separate applications in each Suit under Order XVIII, Rule 18 read with Sections 94 and 151, C.P.C. (C.M.A. No. 2336 of 2002 in Suit No. 376 and C.M.A. No. 2339 of 2002 in Suit No. 377).
9. All of these applications were put up in Court on 8-4- 2002 on which date the following orders were passed:-- On C.M.As. Nos. 2335 of 2002 and 2338 of 2002:- Fresh notice be issued. In the meantime the defendants shall not harass or create any hindrance in the running of the plaintiffs business. It is claimed by the plaintiff the (sic) certain documents have been taken and record seized. Based upon these documents and the record seized the defendant shall only take that action which is permissible under the law.
10. This order has remained in force to-date.
11. On C.M.As. Nos. 2336 of2 002 and 2339 of 2002:- Notice:- The defendants Nos. 2 and 3 should supply a list of the documents and record which have been sized and impounded and confiscated by them. They should also submit the relevant law under which the action is taken.
12. By a . Subsequent order, dated 17-4-2002 passed in both suits the defendants were ordered to hand oyer the seized records to the Nazir who was directed to keep the originals with him and provide a complete photocopied set to the plaintiffs and to the defendants. It was further ordered that: "As the defendants are investigating the evasion of the tax therefore, whenever original documents is (sic) required for cross check and verification then they shall directly file application to the Nazir of this Court who shall not withhold the original unless extraordinary reasons justify it."
13. According to the Nazir's report, dated 6-5-2002 the order, dated 17-4-2002 was complied with on 3-5-2002 and the original record of the plaintiffs is kept in the Court's Strong Room vide Serial Nos.
14. 3657 (record of the plaintiff in Suit No. 376 of 2002) and 3658 (record of the plaintiff in Suit No. 377 of 2002).
15. There is nothing on the record that would suggest that any application has been moved by the defendants before the Nazir for any original record required by them for the purpose set out in the order, dated 17-4-2002.
16. At the hearing learned counsel for the plaintiffs submitted that; the search and seizure conducted on 21-3- 2002 was in violation of Sections 40 and 40A of the Act in force on that date since the defendants did not comply with the mandatory requirements of those provisions, on the date there was no case/assessm ent pending against the plaintiffs in. Respect of non-payment of sales tax nor did the Act: there was no reasonable basis for the defendants to visit the plaintiffs' premises and seize the plaintiffs' records after conducting a search; the action of the defendants is unlawful, mala fide, arbitrary, illegal and amounts to a deprivation of the plaintiffs' right to l?e dealt with in accordance with law.
17. The plaintiffs have also alleged extreme misbehaviour, by the Sales Tax Officers during their visit which has been denied by them. However, nothing turns on the officers' behaviour during the visit since the consequence in , these proceedings will be the same if applicable law has been violated or if it has not despite the fact that the officers' behaviour was as "barbaric" as alleged by the plaintiffs or as "polite" as alleged by the defendants.
18. The defendants have not filed any counter-affidavits to. The plaintiffs' applications. They have, however, filed a written statement in each suit denying the plaintiffs' allegations and it was on the basis of the contents of the written statements that learned counsel for the defendants made his submissions on 22-4-2009 when these applications were heard.
19. Learned counsel for the defendants submitted that the Suits are not maintainable by virtue of Section 51 of the Act since the departmental remedies provided by Sections 46 and 47 of the Act have not been exhausted and, even otherwise, the defendants acted pursuant to the provisions of Section 38 of the Act and not Sections 40 and 40A. Learned counsel also submitted that the institution of the suits is mala fide and the plaintiffs' intention is simply to engage the defendants in futile litigation and to create ,unnecessary obstacles in the performance of their statutory duties.
20. In support of his submission that the defendants acted under Section 38 and not Sections 40 and 40A, learned counsel asserted that in both cases the defendants visited premises where record under the Act is required to be kept ?(as opposed to a residence) and that the visit had been conducted after the defendants had received "credible information" of the plaintiffs' involvement in massive tax evasion and fraud. According to the defendants it was for the purpose of determining the veracity of this information that the department had conduced the Section 38 visit.
21. As far as Suit No. 376 of 2002 is concerned, the defendants have asserted that prior to the visit on 21-3-2002 the Audit Division of the defendant No. 2 Collectorate had made out a "strong case against the plaintiff for the amount of Rs. 8.025 million which has been .Referred to the Collectorate of Customs, Sales Tax and Central Excise (Adjudication) Quetta at Hyderabad for initiating necessary adjudication proceedings."
22. If this statement is to be believed, on 21-3-2002 there was no proceeding under the Act pending against the plaintiff in Suit No. 376 but the defendants knew that departmental proceedings were in the process of being instituted against the plaintiff; The position is different in Suit No. 377 of 2002. The defendants have referred to certain proceedings that were pending on 21-3-2002 against the plaintiff. Contrary to the submissions of learned counsel at the hearing, these proceedings have been referred to in the plaint itself and were Sales Tax Appeal Nos. 19 of 2002 and 39 of 2002 pending before the learned Customs, Excise and Sales Tax .Appellate Tribunal.
23. According to the written statements in both Suits, the records and documents taken into custody on 21-3-2002 contain incriminating evidence against both plaintiffs. Since this statement was not made in a counter-affidavit, the plaintiffs have not had an opportunity to offer any comment- in writing. This assertion was, however, denied during the course of the hearing on 22-4-2009.
24. In both written statements it is alleged that the records were resumed under proper inventory which was duly signed by the plaintiff as well as the defendants. Both contain a statement that copies of these are attached to the written statements but none have been.
25. During the course of the hearing on 22-4-2009 learned counsel for the defendants produced a copy of an inventory report said to be of the record and documents taken in custody from the plaintiffs in Suit No. 376 of 2002. This document also bears several signatures, one of which is said to be that of the plaintiffs attorney.
26. As noted above, this document had not been produced earlier. Not having afforded the plaintiff any opportunity to comment on this document, it will be extremely unfair and prejudicial to the plaintiff if any reliance were to be placed on it by me.
27. This document formed part of the defendant's record and even found mention in the written statement but a copy had not been attached to it. Nothing prevented its production earlier and if any prejudice has to be occasioned on anyone as a result of this failure to produce, it must be the defendants. It have mentioned this document since it was provided during the hearing and has also being placed on the suit file. In all fairness, however, I cannot rely on it for any purpose whatsoever since the plaintiff in Suit No. 376 had no opportunity to see it before the date of the hearing.
28. In support of his contention that these suits are not maintainable, learned counsel for the defendant relied upon the judgments of the Honourable Division Bench of this. Court passed in C.P.
29. 527 of 2002 (Shiftaq International Ltd. v. Federation of Pakistan): Chemical Industrial Ltd. v.
30. Superintendent of Income Tax 1999 PTD 1184 and on the judgment of a learned Single Bench of the Lahore High Court, Lahore in Civil Revision No. 828-D of 1998 (World Trade Corporation v. C.B.Rt).
31. In his reply learned counsel for the plaintiffs argued that Section 51 is not applicable since it only bars suits to set aside or modify any order passed,, assessment made, tax levied, penalty imposed or collection of any tax made under the Act as well as suits against the Federal Government or against any public servant in respect of any order passed in good faith-a|l of which' ingredients are missing in the instant . Cases.
32. Learned counsel for the plaintiffs relied upon the following cases in support of his submission that these Suits are maintainable: Lever Brothers Pakistan Limited v. The Federation of Pakistan 2002 YLR 1363; Abdul Rauf v. Abdul Hamid Khant PLD 1965 Supreme Court 671; Muhammad Jameel Asghar v.
33. The Improvement Trust, Rawalpindi, PLD 1965 Supreme Court 698; Pervez Iqbal v. Provincial Transport Authority, 1996 CLC 182; Al-Hamd Edible Oil (P.) Ltd. v. Collector of Customs, 2003 PTD 552; Kamran Industries v. Collector of Customs (Exports) 11th Floor, Customs House, Karachi, PLD 1996 Karachi 68; Saman Diplomatic Bonded Warehouse Proprietorship Concern v. Federation of Pakistan, 2003 PTD 409; Marghub Siddiqui v. Hamid Ahmed Khan, 1974 SCMR 519; Hamid Hussain v.
34. Government of Pakistan, 1974 SCMR 356; K.G. Traders v. Deputy Collector of Customs, PLD 1997 Karachi 541 and Abbasi Cooperative Bank (now Punjab Provincial Cooperative Bank Ltd.) v.
35. Hakeem Hafiz Muhammad Ghaus - PLD 1997 Supreme Court 3.
36. As noted above, learned counsel for the defendants asserted that the actions of 21-3-2002 were taken under Section 38 of the Act and that the provisions of Sections 40 and 40A have no application to these cases. Even if this contention were correct, the defendants would have to show that the basis for and the manner in which the actions were taken were not in violation of Section 38 itself. Learned counsel for the defendants has not relied on any case in support of his contention that compliance with the requirements of Sections 40 and 40A was not required in these cases and that all action taken on 21-3-2002 was in compliance with the requirements of Section 38.
37. Replying to the submission that the officers acted pursuant to Section 38 of the Act learned counsel for the plaintiffs submitted that Section 38 cannot be interpreted in a manner that permits the sales tax authorities to do what they are prohibited from doing except in the manner specified in Sections 40 and 40A.
38. In support of his submissions on Sections 38, 40 and 40A learned counsel for the plaintiff relied on S.M. Yousuf v. Collector of Customs, PLD 1968 Karachi 599; Collector of Customs v. S.M. Yousuf, 1968 SCMR 603; Collector of Customs (Preventive) v. Muhammad Mehfooz PLD 1991 SC 630, Urooj (Pvt:)
39. Ltd. v. Deputy Commissioner of Income Tat. , Circle-6, Company IV. Karachi, 2004 PTD ,195, Collector of Sales Tax and Central Excise (Enforcement) v. Mega Tech (Pvt.) Ltd., 2005 PTD 1925 and on Customs General Order 12 of 2002, dated-15-6-2002 relating to search and seizures under similar provisions of the Customs Act, 1969.
40. Before proceeding further, I must deal with the defendants' objection regarding the maintainability of these suits.
41. Section 51 of the Act reads as follows:-
(51) Bar of suits, prosecution and other legal proceedings.--! 1) No suit shall be brought in any Civil Court to set aside or modify any order passed, any assessment . Made, any tax levied, any penalty imposed or collection of any tax made under this Act.
(2) No suit, prosecution or other legal proceeding.. Shall lie against the Federal Government or against any public servant in respect of any order passed in good faith under this Act.
42. I have gone through the judgments cited by learned counsel for the defendants and am unable to agree that this Court does not have jurisdiction to entertain these suits.
43. The I order passed in the first, C.P. 527 of 2002, disposed: of -five other petitions since the facts and law involved in each were ^identical. The petitioners in those cases had challenged the seizure of their documents by Sales Tax Officers under Section 38 of the Act and had prayed for a declaration that the 'officers of .The Collectorate do not have any power to conduct a 'roving and fishing inquiry' into the affairs of the petitioners-and that the raids that were conducted were in violation of Sections 40 and 40A of the Act. The petitioners had also prayed for return of the documents seized by the respondents.
44. All six petitions were disposed by the following Order- Similar questions were considered by this Court in the case of Master Enterprises (Pvt.) Ltd. v.
45. Federation of Pakistan,. C. P. D-1926 of 2000 which was disposed of on 31.1.2001 with the following observations:-- "For the foregoing reasons, it is directed that the respondents should return the documents to the petitioner, resumed vide Resumption memo., dated 19-12-2000 within 3 days. The respondents are further directed to deiseal the room of; the petitioner where their record pertaining to the Sales Tax is lying within the same period as specified above. The petition is allowed in the above terms.
46. "Before parting with this order, we would like to clarify that the respondents Nos. 2 to 5 shall be at liberty to take any action in accordance with the provisions contained in Sections 38, 40 and 40-A of the Sales > Tax Act, 1990 or any other, provision contained m the Sales. Tax Act, 1990 and nothing said or observed in: this order shall have any effect of restraining then from performing their duties in accordance with law."
47. The above judgment was confirmed by the Hon'ble Supreme Court of Pakistan as reported in 2003, PTD 1034. With the consent of all the, learned counsel, these petitions are also disposed of in terms of our order, dated 31-1-2001 passed in C.P. No. D-1926 of, 2000. The listed interlocutory applications are dismissed as infructuous.
48. I do not see how this judgment assists the defendants. It is evident from the order that the actions of the Sales Tax Officers were held to be illegal. The Federation sought leave to appeal this order and the judgment of the Honourable Supreme Court dismissing the' Federation's petition is reported in 2003 PTD T034 (Federation of Pakistan v. Master Enterprises (Pvt.) Ltd. As reported in the judgment of the Honourable Supreme Court, the facts that led to the institution of C.P. 1926 Were that the sales tax department had issued a notice, dated 2-8-2000 to Master Enterprises (Pvt.) Ltd., (hereinafter "Master Enterprises"). The notice was purportedly issued under Section 38 of the Act and informed Master Enterprises that a team of officers of the Headquarters Intelligence, Sales Tax and Central Excise had been nominated to scrutinize the prescribed sales tax record for the last five years. The notice also called upon Master Enterprises to produce the record before the nominated team.
49. On 2-8-2000 the nominated team conducted a raid on Master Enterprises' premises, inspected the record consisting of stock books, accounts and diskettes relating to the period of five years and seized the originals without preparing an inventory on the premises and giving a copy to Master Enterprises. The premises were also sealed by the team.
50. This action was challenged in C.P. 1926 on the ground that-the notice was illegal on the face of it and was liable to be quashed. Master Enterprises also sought a declaration that the raid was Without lawful authority and that the seized documents were liable to be returned.
51. Before the Honourable Supreme Court learned counsel for; Master Enterprises had submitted that the team had been constituted only to scrutinize the record and had not been authorized to raid the premises and seize the record. As such, the team had travelled beyond the scope of its authority in violation of law: It was further argued that the entire exercise was illegal since the search and seizure had not been made in compliance with Sections 40 and 40A of the Act and no memorandum of seizure of documents was prepared.
52. It was in this context that the Honourable Supreme Court found; as follows on pages 1036-1037 of the judgment' and declined to interfere with the order passed in C.R. 1926:- We are in full agreement with the contentions raised at the bar by the learned counsel for the respondent. Admittedly, the provisions of Sections 40 and 40A of the Act have not been complied with the petitioners while conducting the raid and seizing the documents.
53. The next case cited by learned counsel in support of his contention that this suit is not maintainable is Chemitex Industries Ltd. v. Superintendent of Income Tax 1999 PTD -1184. The facts in this case were that an assessm ent order had been made against the plaintiff under Section 11 of the Act and the plaintiff instituted a suit in this Court (No. 494 of 1995) challenging the assessment order without availing the administrative remedies available to it under Sections 12,45, 45A and 46 of the Act.
54. As is immediately apparent, the facts in Chemitex "Industries are distinguishable from the facts in these cases.' The events of 21-3-2002 do not constitute an order passed, assessment made, tax levied, penalty imposed or collection of any tax made within the meaning of Section 51.
55. Even otherwise, Chemitex Industries itself recognizes that there may be circumstances when a suit is maintainable Oven if administrative forums available. Under the Act have . Not been resorted to.
56. This is evident from the following passage on page 1187 of the judgment:-- It is settled law that where the legislators have provided a particular forum for redressal of the grievance, the same could not be circumvented by invoking jurisdiction of the Civil Court. A It is hot shown in the plaint that the authority which passed the impugned order was not lawfully constituted; that the order under challenge is mala fide and' without jurisdiction or that the plaintiffs right to natural justice r was violated while passing impugned order. All these ingredients being missing in the plaint, the ouster of jurisdiction of a Civil Court as provided in Section 51 of the Act, 1990 is complete and this Court has no jurisdiction.
57. Reliance is placed on a Full Bench case of Hon'ble Supreme Court in Abbasi Cooperative Bank v.
58. Hakeem Hafiz Muhammad Ghaus and 5 Others PLD 1997 SC 3. This suit being incompetent and barred under Section 51 of the Act, 1990; is liable to be buried at the initial stage.
59. Thus, if any of the ingredients specified in the. Chemitex Industries' case are present, a suit to this Court will lie.
60. The next case relied upon by learned counsel for the defendants is the judgment of the Lahore High Court, Lahore in Civil Revision No. 828-D of 1998 (World Trade Corporation v. C.3.R ). In this case an assessm ent had been made which could have been challenged under Sections 45 to 47 of the Act.
61. Instead of availing the remedy provided by these provisions, the plaintiff filed a civil suit and it was in these circumstances that the learned Single Bench of the Lahore High Court held as follows:- The Sales Tax Act, 1990 provides a detailed process for the imposition of the sales tax. The Legislature] after making provisions with regard to assessment, enacted Sections 45 to 47 of the Act, 1990 which- provide a comprehensive machinery for the redress of the grievance of any party in respect of any order passed under the Act. It was thereafter that Section 51(1) of the Act, 1990 barring the jurisdiction of Civil Court was enacted. There being a special forum under the relevant law, resort to the Civil Court is not justified, more so when the jurisdiction was barred under the provisions contained in Section 51(1) of the Act.
62. Unlike the present Cases an assessment had been made in the World Trade Corporation case which the Court held should have been challenged in departmental proceedings and not in a civil suit.
63. Of the cases cited by learned counsel for the plaintiffs,' the Lever Brothers' case (2000 YLR 1363) involved a notice issued under Section 14 of the Central-Excises Act, 1944 which had been challenged in a Suit No. 561, of 1998 filed in this Court on the ground that it was ultra vires the powers conferred under the 1944 Act. The plaintiffs application for interim relief was dismissed which order was challenged in appeal. On appeal the Honourable Division Bench had occasion to consider Section 40 of the Central Excises Act (which is similar to Section 51 of the Act) and held as follows on page 1368 of the judgment. "Indeed the jurisdiction of Civil Courts to entertain suit against action which are mala fide or ultra vires the powers conferred by the Act cannot be ousted."
64. Lever Brothers clearly followed the long line of authority for the proposition that mala fide or ultra vires actions of administrative authorities can always be Challenged in Civil Courts notwithstanding provisions similar to Section 51 in the statutes under which they function.
65. Of the other cases cited by learned counsel for the plaintiffs in support of this proposition, it will be.
66. Sufficient for 'the present purposes to only refer to the following passage, from pages 8 and 9 of the judgment of the Honourable Supreme Court in Abbasi Cooperative Bank v. Hakeem Hafiz Muhammad Ghaus PLD 1997. Supreme Court 3:-- The next question which arises for consideration in the cases is whether the Civil Court was competent to examine the validity of actions conducted by the authorities? The Civil Courts under Section 9' of the Code of Civil Procedure are competent to try all suits, of civil nature except those of which their jurisdiction is barred either expressly or by necessary implication.
67. It is a well-settled principle of interpretation that, the provision contained in a statute dusting the jurisdiction of Courts of general jurisdiction is to be construed very strictly and unless the case falls within the letter and spirit of $he barring provision, it should not be given effect to. It is also well- settled law that where the jurisdiction of the Civil Court to examine the validity of .An action or an order of executive authority /or a special Tribunal is challenged on the ground of Ouster of jurisdiction of the Civil Court, it must be shown (a) that the authority or Tribunal was validly constituted under the Act; (b) that the order passed or action taken by the authority or Tribunal was not mala fide] (c) that the order passed or action taken was ' such which could be passed or taken under the law which conferred exclusive jurisdiction on. The authority or tribunal and (d) that in passing the order or taking the action, the principles of natural justice were not violated. Unless all the conditions mentioned above are satisfied, the order or action of the authority or the tribunal would not be immune from being challenged before a Civil Court. As a necessary corollary, it follows that where the authority or the Tribunal acts in violation of the provisions of the statutes which . Conferred jurisdiction on it or the action or order is in . Excess or lack of jurisdiction or mala fide or passed in violation of the principles of natural justice, such an order could be challenged before the Civil Court in spite of a provision in the statute barring the jurisdiction of Civil Courts - Unless all the conditions set out in the Abbasi Cooperative Bank's case have been met in the present cases, the action taken by the Sales Tax officers on 21-3-2002 can very Nearly be the subject of a challenge in these proceedings.
68. The defendants in the present cases assert that action was taken pursuant to section 38 of the Act.
69. Accordingly, in order o determine whether the Abbasi conditions have been met it will have to be determined whether there has been any violation by the defendants of this provision- of the Act sufficient to bring a challenge to the impugned actions within the jurisdiction of this Court.
70. Section 38 of the Act as in force in 2002 when the impugned action was taken reads as follows:--
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 premise, registered office or any other place where any stocks, business records or.
71. 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 office? May, at any time, inspect the goods, stocks, records, -data, documents, correspondence, account and statements, utility bills, bank statements, information regarding nature and sources of funds or asset with which his business is financed, and any other records or documents, including those which are required under any of the Federal or 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 sub-section (1) shall be bound to answer any question or furnish such information or explanation as may be asked by the authorized officer.
(3) The department of direct and indirect taxes or ' any other government department, local bodies, autonomous bodies, corporations or such other institutions shall supply requisite information and render necessary assistance to the authorized officer in the course of inquiry or investigation Under this section.
72. On the day that the impugned action took place in 2002, the following provisions of the Act were also in force:--
40. Searches how made. All searches made under this Act or the rules made thereunder shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (V of 1898).
73. 40A. Search without warrant. (11 Notwithstanding the provisions of Section 40, where any officer of Sales Tax not below the rank of an Assistant Collector of Sales 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 sub-section
(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 sub-section (1) or sub- section (2).
74. Given the foregoing provisions of the Act in force on 21-3- 2002, it is clear that on that day a Sales Tax Officer had no power to visit the plaintiffs' premises for the purpose of conducting a search unless the requirements of Section 40 or 40A of the Act had been met.
75. In the absence of the requisite authorization to conduct a search, all that an officer visiting the plaintiffs' premises could do on that day was to inspect the record and documents specified in section 38. Keeping in view the search provisions contained in Sections 40 and 40A a visit under Section 38 would per force be limited to inspecting only that record and those documents that were in plain sight or were voluntarily made available for inspection on request. In the absence of the Section 40 or the Section 40A authorization, the officer would not have had any power to search for any record or document or compel any person present in the premises at that time to disclose and make available for inspection any record or document sought by the officer. As far as the power under Section 38 to take record and documents into custody is concerned, this can only extend to that record and those documents that the officer is permitted to inspect. To hold otherwise would render the provisions of Sections 40 and 40A meaningless and expose persons such as the plaintiffs in. These cases to unbridled invasion at any time of the officers choosing., In the first instance, and this is essential to the. Proper conduct of the inspection, the department must, have reasonable cause for arriving at a determination; that a particular premises ought to be visited for the purple&even carrying out a Section 38 inspection. The department cannot use Section 38 to enter into a given premises without reasonable cause and then look for or create cause to take ' record and documents into custody. Secondly, the officer } must have prior authorization to carry out the inspection by the Board or by the Collector and must show it to the person present at the. Premises where the record and documents to be inspected are kept.
76. Without reasonable cause and proper authorization the visit and all subsequent actions taken by the officer will be entirely illegal.
77. In arriving at this view with respect to Section 38 of the Act I am fortified by the following judgments:-- Collector of Sales Tax and Central Excise (Enforcement) v. Mega Tech (Pvt.) Ltd. 2005 PTD 1933, where on page (1935), the Honourable Supreme Court held that: "The Authorized Officer has full powers and authority to inspect the premises of the Company under Section 38 of the Act with a view to satisfy himself that proper records under the provisions of the Act, rules and regulations were maintained, nevertheless, in law, he is expected to act fairly, justly and reasonably"; and, on page 1941 that: "Learned Judges of the High Court, after a threadbare and in-depth examination and analysis of the record have recorded a finding of fact that the only course available to the petitioner was, as contemplated under Section 40 of the Act, thus, by passing of such course and direct invocation of the powers under Section 40A in the garb of access to the office premises of the respondent in terms of Section 38 of the Act was not warranted by law. On careful consideration of the record and analyzing .The submissions of the learned counsel for the parties, we are in compete agreement I with the view taken by the High Court as, apparently, action taken by the petitioner-Department smacks of lack of bona fide and acting on personal whims."
78. N.P. Water Proof Textile Mills (Pvt.) Ltd., Karachi v. Federation of Pakistan 2004 PTD 2952, where at page 2976 it was held that: "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 the 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".
79. AH Soap Factory, Faisalabad v. Collector of Appeals, Central Zone, Lahore TCb, 1999 CL 803, where On page 807 it was held that: "[At the staff of the Collectorate of Sales Tax, Faisalabad entered the factory premises of the appellants without-any authorization by the Board or the Collector under Section 38, the case made out by them and the proceedings subsequently conducted in this behalf are automatically rendered null and void and of no legal effect".
80. And Ahsan Yousaf Textile Mills Ltd., v. Federation of Pakistan 2003 PTD 2037 where on page 2046 it was held that: "If the Stand point of the department vis-a-vis Section 38 is accepted then no one can give the picture of a situation in which Section 40 or 40A would be in-vocable. In other words if the interpretation of the provision as being made by the revenue [sic] is accepted correct then either Section 38 is superfluous or vice versa, both Sections 40 and 40A are reduced to a mere duplication. The correct approach therefore, would be to make a cumulative reading of all three provisions. When it is so, done, one reaches the only possible and practical conclusion that the provisions of section 38 are not by itself search and seizure provisions and these, therefore, must give way to the two specific provisions of Sections 40 and 40A."
81. Having regard to the principles of natural justice, and building upon the foregoing judgments, the position that emerges with respect to Section 38 is as follows.
82. Before embarking on Section 38 visit to any premises the department must have .Reasonable cause to believe that such a visit is warranted. This has to be more than a mere hunch or suspicion and must also be recorded in writing. Since the purpose of-a Section 38 visit is to see that proper records under the Act, Rules and Regulations are maintained, reasonable cause for a visit could, for example, arise in a situation where a registered person has filed documents in the- normal course which indicate that a particular record is not being maintained or that it is not being maintained in the required manner. The basis for the visit need not be shared with the person whose premises are to be visited but must be on the department's files for production in proceedings that may be instituted by the said person. The officer designated to conduct the visit must be authorized in that regard by the Board or The Collector and must produce a copy of the authorization before commencing the inspection. The visit must. Be confined to inspecting the record and documents that are in plain sight or those that are voluntarily made available for inspection by the person(s) present at the premises on request. Consequently,- custody within the meaning of Section 38 can only be taken of such record and documents that are in plain sight or those that have voluntarily been made available for inspection on request. The record and documents taken into custody must be against a receipt signed by the officer. The officer has no power under Section 38 to compel the production, of any record or document that is not in plain sight or that has not been voluntarily made available as above. Any record or document taken into custody under compulsion cannot be used for any purpose whatsoever by the department against the person from whose custody the record or document has been taken by an officer into his possession.
83. Any Section 38 action that is in contravention Of the foregoing will be an action that falls short of the requirement to act fairly, justly and reasonably and, therefore, wholly illegal and void.
84. Permitting the department to benefit from such actions would be equally illegal.
85. In this view of the matter the question that naturally- arises is whether probable Cause for a search can arise during a Section 38 visit and the answer is that it can, but must not be of the department's own creation. If it does, the provisions of Sections 40 and 40A must be strictly complied with and the search and seizure procedure set out in Customs General Order 12 of 2002 must be followed in order to ensure that any action that is taken is fair and' conforms to the principles of natural justice.
86. Having held as above, I now come to the, position taken by the. Defendants in these cases. As noted above, the defendants have not filed any counter-affidavit to C.M.A. No. 2335 of 2002 or 2338 of 2002. They have, however, filed a written statement in each Suit denying the plaintiffs' allegations and have asserted that the officers were duly authorized and that the Section 38 action was taken on the basis of "credible information" that the plaintiffs were involved in massive evasion of sales tax.
87. It is relevant that no document had been filed with either written statement and the contents of the same were said to have been based on "official record and relevant document".
88. I am afraid this is wholly unacceptable in view of what has been held above. There is nothing on the record to show that the visit on 21-3-2002 was conducted by an Authorized Officer or that there was reasonable cause to conduct the visit. Mere reference to the authorization and to "credible information" of massive tax evasion in the pleadings without offering the same for review by the Court is not sufficient to . Support a finding that the impugned actions were in compliance with the requirements of Section 38.
89. Being ultra vires, all actions taken by the Sales Tax Officers on 21-3-2002 are subject to challenge in these proceedings and are hereby held to be illegal.
90. Before concluding, there is one other aspect of the matter that needs to be addressed. As noted above, on 21- 3-2002 the department was aware that proceedings were in the offing against the plaintiff in Suit No. 376 and pending against the plaintiff in Suit No. 377. The visits to the plaintiffs' premises on that date could only have been motivated by a desire to search for record and documents that would bolster the department's case against the plaintiffs. Being 3 visit for the purpose of conducting a search (as opposed to a visit to see if records are being maintained in accordance with the provisions of the Act), compliance with the requirements of Sections 40 and 40A was mandatory and the consequence of failure to comply with the same must follow.
91. The consequence of this failure must be that the defendants cannot be permitted to use the records and documents seized illegally in any manner whatsoever against plaintiffs notwithstanding the defendants' assertion that they contain incriminating evidence against the plaintiffs, This prohibition includes but is not limited to using them for the purpose of the proceedings that were in the process of being instituted in 2002 against the plaintiff in Suit No. 376 or the proceedings that were pending against the plaintiff in Suit No. 377 of 2002 on 21-3-2002, namely, Sales Tax Appeals Nos. 19 of 2002 and 39 of 2002.
92. Being so, the order passed on the listed applications on 8-4-2002 to the extent that it permitted the defendants to take action based on the seized record and documents and the order passed on 17- 4-2002 permitting the defendants to continue investigating the alleged evasion of tax through an examination of the seized record and documents are hereby recalled. The plaintiffs applications, C.MA. No. 2335 of .2002 in Suit No. 376 of 2002 and C.MA No.2338 of 2002 in Suit No. 377 of 2002, are allowed and the defendants are restrained from taking any action whatsoever against the plaintiffs Which relies or is based upon the records and documents taken into custody on 21-3- 2002.
93. The Nazir is also directed to forthwith release and return the original record and documents-of the plaintiffs kept in the Court's Strong Room vide Serials Nos. 3657 and 3658.