MIAN TAUQEER ASLAM (JUDICIAL MEMBER). (1). Titled sales tax appeal has been filed at the instance of the registered person against order-in-appeal No. 89/2022 dated 25-02-2022 passed by the learned CIR(Appeals-II), Faisalabad.
2. Briefly stated, the relevant facts of the instant case are that the Directorate of Intelligence & Investigation-IR, Faisalabad had found that taxable supplies without charging/paying due tax were being made and appellant was involved in sales tax evasion by way of suppression of taxable supplies during the tax periods from January-2018 to November-2018 and January-2020 to August-2020. Consequently, a team of Directorate of Intelligence & Investigation-IR, Faisalabad visited the business premises of the appellant on 07-10-2020 authorized u/s 38 of the Act vide order C. No. 1545 dated 07-10-2020. The department has also obtained the search warrant from the concerned magistrate in terms of section 40 of the Sales Tax Act, 1990 and raided the business premises of the appellant on 07-10-2020. As per the department, some documents and record were impounded from the business premises of the appellant. The tax authorities scrutinized the sales tax record detained during the raid/search operation and noted that the appellant is involved in suppression of sales and huge evasion on account of taxable activity of manufacturing of ceramics products without charging/paying sales tax due thereon. On these basis, a show cause notice dated 25-03-2021 was issued as to why an amount of sales tax worth Rs. 44,523,664/- may not be recovered under section 11(2) of the Act and as to penalty under section 33 ibid may not be imposed. Finally, the proceedings culminated in passing of order-in-original No. 03/2021 dated 18-10-2021 creating a tax demand of Rs. 44,523,664/- alongwith penalty u/s 33 of the Act.
3. Being aggrieved, the registered person filed first appeal before the learned CIR(A) which was rejected vide impugned appellate order. Being aggrieved, the registered person filed the instant second appeal before this Tribunal on the grounds as set forth in the memo of appeal.
4. The case was fixed for hearing. The learned AR vehemently argued that the learned CIR(A) has given no exhaustive judgment instead of retrieving to primitive assertions already taken in the adjudication order and neither discussed the grounds filed nor even a single question has been attended to and answered by the CIR(A) while handing down the impugned judgment. Learned counsel has contended that the impugned orders are erroneous in law and the same are based on misconceived facts. The learned counsel submitted that the impugned order u/s 38 of the Act issued in a flagrant violation of the relevant statutory provisions of law as neither proper procedure has been followed by the learned Commissioner IR nor due consideration has been given to mandatory requirements of the law. According to him, impugned order suffers from certain legal infirmities. Learned counsel stated that assumption of jurisdiction in the case of the appellant was illegal, unlawful and void ab initio as the Officers of Directorate of Intelligence & Investigation (IR), Faisalabad have not been 'appointed' by the Board as an Officers of Inland Revenue in terms of section 30A(1) of the Sales Tax Act, 1990 after amendment through Finance Act, 2019 through which the word "post" was substituted with "appoint" and SRO was required on the pattern of Notification No. S.R.O. 1302(I)/2018 dated 29th October, 2018 therefore, whole exercise of conducting investigative audit and creating huge demand of sales tax is illegal and without lawful jurisdiction.
Learned counsel has called into question the very exercise of jurisdiction with regard to invocation of section 38 of the Act inter alia on the ground that while issuing impugned order dated 07-10- 2020, learned Commissioner IR authorized twenty four (24) persons, out of which nine (9) were Officers of Inland Revenue in terms of section 30 of the Act below the rank of an Assistant Commissioner and fifteen (15) were from the lower staff i.e. UDC, LDC, Driver, Sepoy and Armed Guard, to exercise the powers as envisaged in the provisions of section 38 of the Act.
5. Learned counsel explained his view point by maintaining that the learned Commissioner IR brushed aside the mandatory provisions contained in proviso to sub-section (2) section 25 of the Act which categorically state that no appointment of Officers, below the rank of an Assistant Commissioner IR, is lawful for the purposes of conducting enquiry/investigation under section 38 of the Act against a registered person. It has also been urged by the learned AR that the appointment of Officers below the rank of an Assistant Commissioner IR and authorizing to free access to the business premises of the appellant was clearly illegal and without jurisdiction. Learned counsel further argued that even if it is considered that on a jurisdictional plane, provisions of section 38 of the Act were lawfully invoked, these have not been legally and rightfully imposed in the case of appellant because entire edifice is based on suspicions, surmises, conjectures and presumptions, etc. On 07-10-2020, at the time of raid, there was no inquiry/investigation/assessment against the appellant in respect of evasion of tax or commission of fraud pending before any authority nor did the appellant has notice of any proceedings instituted against them under the Act; there was no reasonable basis for the revenue to visit the appellant's premises and seize the appellant's records after conducting a search and as such, action of revenue authorities is illegal, unlawful, mala fide, and amounts to a deprivation of the appellant's right to be dealt with in accordance with law. As per counsel, the roznamcha, on the basis of which, charge of suppression of sales was created, was never resumed from the appellant's business premises but subsequently fabricated to create charge of suppression of sales therefore, the appellant is constrained to disown of these documents as being not prepared, maintained or kept by him.
6. As per learned AR that the department cannot be allowed to create any tax liability on any of the record which is not a prescribed one in the Sales Tax Act, 1990. In support of his stance, he placed reliance on (PTCL 2014 CL 194). Learned AR also argued that the impugned investigative audit exercise carried out and search conducted by the Officers of Directorate of Intelligence and Investigation as well as adjudication by the ACIR without any reconciliation and without disclosing the record to appellant relied by them is illegal and unlawful. Reliance was placed on the judgments of Hon'ble High Courts reported as (1985 CLC 1781) & (PTCL 1989 CL 144). It was also contended that the mandatory requirements of section 40 of the Act were not complied with, which made the whole proceedings as illegal and void ab initio. The learned AR submitted that the raiding officer did not prepare the recovery memo and even no acknowledgment of the impounding of record was given to the appellant. Reliance in this regard was placed on (2015 PTD 1520). It has been pleaded that there was no difference in the declarations made in the sales tax returns and the sales tax record of the appellant. He further contended that the sales tax record and documents of the appellant was exactly tally with the declaration made in sales tax returns of the appellant during the tax periods in question. The record documents/record relied upon by the learned CIR(Appeals) was not belonged to the appellant. On the strength of these assertions, learned AR seeks vacation of the impugned orders passed by both the authorities below.
7. Conversely, the learned DR appearing on behalf of the revenue/department has fully supported the impugned orders assailing that the department visited the business premises after having credible information and material evidence on the basis of which it was evident that the appellant is involved in tax fraud and evasion of sales tax but he could not render any satisfactory explanation with respect to the assertion of the learned AR regarding unauthorized nominations in the impugned order passed under section 38 of the Act. He submitted that in fact authorization was given only to the Assistant Commissioner IR and the other officials were supporting staff to assist him and nothing newel, except to reiterate earlier set of contentions, has been put forth by him simply re-endorsing the basis evolved therein and has failed to substantiate his stance with documentary evidences.
8. We have heard arguments of both the rival parties and have carefully examined the relevant provisions of law as well as the case record and the case laws cited by the learned AR of the registered person have also been perused carefully. It is an admitted fact that the appellant submitted written reply and raised some legal as well as factual objections which were not attended by the adjudicating officer. The learned CIR(A) while deciding the appeal also did not give findings on the legal objections by holding that the grounds taken by the appellant relate to the alleged irregularities and mal-administration on behalf of the Directorate of Intelligence & Investigation, Faisalabad against which appeal does not lies with her office. After having heard both the sides, we have noted that the department has raised exorbitant demand of sales tax merely on assumptions and presumptions without any tangible basis and has failed to provide documentary or any other corroborating evidence regarding physical delivery of the goods, receipt of any consideration of money and more so, the existence of any buyer without which no supply can be effected under Section 3 of the Act. The dispossession and actual transfer of goods by the manufacturer to the other party is a basic requirement to bring the goods within the charge.
Unless, the department is in a position to establish that the assessee did more production and the same has been transferred to another party, sales tax cannot be charged. The estimate, however, strong it may be, unless is based upon some corroborating and solid evidences and reasons to believe cannot lead to creation of huge demand of sales tax. The departmental case is totally based upon hypothetical calculations without any proof which established beyond any shadow of doubt that impugned liability of sales tax is based on the figures and calculations, which are imaginary and presumptive without any logical and legal basis and no tax could be levied on the basis of assumption and presumption. It is now well-settled law that sales tax imposed on the basis of some assumption and presumption not warranted in law shall always be struck down.
9. There is also nothing on the record to show that the visit on 07-10-2020 was conducted by an authorized officer or that there was reasonable cause to conduct the visit u/s 38 of the Act. Mere reference to credible information of huge tax evasion without offering the same for review by the Appellate Tribunal is not sufficient to support a finding that the impugned action was in compliance with the requirements of section 38 of the Act. Likewise, in the context of the facts of the present case, authorization by the learned Commissioner IR of twenty four persons, out of which fifteen were below the rank of an Assistant Commissioner, was ab initio null and void. Not only their authorization was nullity in the eyes of law but also any action taken by them pursuant to the nomination was also illegal and unlawful. The provisions of section 38 of the Sales Tax Act, 1990 empower the Board or the Commissioner IR to authorize only Officer of Inland Revenue to enter into the premises of a registered person. When the said provision is read with section 25(2) of the Act it further clarifies that the authorization of an Officer of Inland Revenue should not below the rank of an Assistant Commissioner IR for the purpose of an investigation under section 38 of the Act whereas in the instant case, impugned order shows fifteen persons authorized by the Commissioner IR were below the rank of an Assistant Commissioner IR. The upshot of the above discussion is that the impugned order passed by the Commissioner IR under section 38 of the Act was illegal, ab inilio void and without jurisdiction.
10. The next legal issue raised by the appellant is about non-preparing of the resumption/recovery memo at the time of raid and search conducted under section 40 of the Sales Tax Act, 1990. For ease of reference, provisions of section 40 of the Act are being reproduced hereunder:-- S.40. Searches under warrant-(1). Where any officer of Inland Revenue has reason to believe that any documents or things which in his opinion, may be useful for, or relevant to, any proceedings under this Act are kept in any place, he may after obtaining a warrant from the magistrate, enter that place and cause a search to be made at any time.
(2) The search made in his presence under sub-section (1) shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (V of 1898).
From bare perusal of above quoted provision of law, it becomes clear and obvious that the search shall be made in accordance with the provisions of the Code of Criminal Procedure, 1898 (V of 1898). Sub-section 1 of section 40 clarifies that the search under section 40 can only be conducted in case when any proceedings are pending under the Sales Tax Act, 1990 but contrarily, there was admittedly no proceeding was pending in the case of appellant at the time of conducting the raid and search under section 40 of the Act, hence conducting the search/raid in the absence of pending proceedings is violative to the statutory provisions of the Sales Tax Act, 1990. The sub- section 2 of section 40 of the Sales Tax Act, 1990 further provides the safeguard to the person who is searched, in a way that the search shall be conducted in accordance with the provisions of the Code of Criminal Procedure, 1898 (V of 1898). Section 96 to section 105 of the Code of Criminal Procedure, 1898 deals with the procedure how to make a search the premises of a person. Section 103 of the Code of Criminal Procedure, 1898 is of significant importance, sub-section (1) thereof requires that two or more respectable inhabitants of the locality in which the place to searched, be associated at the time of search. Sub-section (2) mandates that the search shall be made in the presence of such persons and list of all things seized shall be prepared by the searching officer and signed by inhabitants of the locality. Sub-section (4) of section 103 further emphasized that a list of all the things taken into possession shall be prepared and copy thereof shall be provided to the occupant of premises on his request. But we have noted in this case that the searching officer neither associated the two witnesses of the locality in which the search was made nor did searching officer prepare the list of documents/record taken into possession/custody. Despite several directions given to the learned DR, during the hearing proceedings, to provide the record on the basis of which, charge of suppression of sales was created as well as recovery memo/list of the record seized during the search of appellant's business premises under section 40 of the Sales Tax Act, 1990, the learned DR has provided only search warrant dated 07-10-2020, order of CIR u/s 38 and roznamcha however, he has failed to provide recovery memo and list of record and documents seized during the search/raid. More so, the show cause notice and the order-in- original neither speaks about the roznamcha, on the basis of which, charge of suppression of sales was created nor reflect the preparation of list of the documents and record taken into custody. The case was founded on some trail balance but the appellant denied such trail balance hence, in absence any documentary evidence on the part of department and particularly in absence of list of documents taken into custody, it cannot be ascertained whether the said trail balance belong to the appellant or not, particularly when, the appellant has disowned of these documents i.e. roznamcha. The important document `roznamcha' on the basis of which, huge recovery of sales tax has been created against the appellant, neither contain any "signature or sign" of any person on the behalf of appellant or its owner nor "stamp" or "seal" nor even "name of the firm" printed or hand-written thereon. We are therefore of the confirmed view that whole search/raid was conducted in sheer violation to the provisions of section 103 of the Code of Criminal Procedure 1898, hence as an ultimate corollary, whole edifice of the case falls on to the ground being founded on an illegal and unlawful act. It is an admitted position of the case that no witness was present during the search of the business premises of the appellant and moreover, searching officer did not prepare the list of documents/articles impounded during the search conducted under section 40 of the Act, 1990. It is also admitted by the learned DR that no proceedings against the appellant was pending under the Sales Tax Act, 1990 at the time of search/raid which establishes that the whole case was erected on an illegal foundation. If the law had prescribed method for doing of a thing in a particular manner, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted. This very issue has been articulated by the Hon'ble High Court, Lahore in case of "M/s. Pakistan Chipboard (Pvt) Ltd vs. Federation of Pakistan through revenue division and 5 others" reported as (2015 PTD 1520) in the following words:- "The basic requirement of Section 40 of the Act is that an officer of Inland Revenue must have reasons to believe that a search is necessary to obtain document or things relevant in a pending proceeding. The Respondents have relied upon letters dated 02-10-2007 issued by the Collector, Sales Tax and Federal Excise, Gujranwala and letter dated 11-10-2007 issued by Aftab Ahmad Bhatti, Second Secretary (STM), Government of Pakistan, Revenue Division, Central Board of Revenue, Islamabad to show that the Respondents had reason to believe that the search was necessary. After going through the record, it appears that earlier the record of Arshad Traders, Sialkot was taken into custody under Section 38 of the Act and from that record the Respondents claim that they suspected tax fraud has been committed by other registered suppliers, in the same business, including the Petitioner. Subsequent thereof a letter was issued on 11-10-2007 granting approval on behalf of the board to conduct an investigation against suppliers located outside the jurisdiction of the Sialkot Collectorate. Subsequently the Respondents went to the Magistrate at Sheikhupura, on 03-12-2007 who then issued the search warrant under Section 84 of the Cr.P.C on 11-12-2007. The letters relied upon by the Respondents do not satisfy the specific conditions of section 40 of the Act. Admittedly, at the time there were no proceedings pending under the Act against the petitioner. Admittedly, there is no order explaining and detailing what documents or things were required from the Petitioner for which a search under Section 40 of the Act was necessary. In the case titled as Collector of Sales Tax and others vs. Messrs Food Consultants (Pvt) Ltd and another (2007) 96 Tax 259 (S.C. Pak.)=(2007 PTD 2356), the Hon'ble Supreme court of Pakistan has held that where an officer of sales tax has reason to believe that any document or things, which, in his opinion, may be relevant to any proceedings under the Act, are concealed or kept in any place and there is a danger of removal of such documents or records, he may, after obtaining a warrant from the Magistrate, enter that place and cause a search to be made at any time. The Respondents have not complied with the requirements of Section 40 of the Act because firstly there are no proceedings pending against the Petitioner and the letters on the basis of which search warrant was obtained suggest that the Respondents are still at an inquiry phase, trying to ascertain whether or not the Petitioner is an evader of sales tax.
Section 40 of the Act can only be invoked when there are proceedings pending under the Act for which a document or other material is necessary. Secondly, it has been held in (2007) 96 Tax 259 (S.C. Pak) =(2007 PTD 2356) (supra) that the mandate of law as enunciated in sub-section (2) seems to be that search authorized under the above provision of law shall be carried out strictly in accordance with relevant provisions of the Code of Criminal Procedure, 1898. Such provisions are contained in sections 96 to 105 of the Code and need not be dilated upon as admittedly the petitioner did not invoke these important provisions of law while seizing the records of the respondent company. In this case, even the requirements of the Cr.P.C for issuance of search warrant have not been complied with. The search warrant was issued by Civil Judge/Magistrate 1st class, Sheikhupura on 11-12-2007 whereas, the search was carried out one year later on 02-12- 2008 and more importantly, the search warrant was issued in favour of Respondent No. 4 who on his own endorsed the search warrant in favour of Respondent No. 3. The procedure regarding issuance of search warrant is provided for in Sections 96, 98 and 103 of the Cr.P.C whereby firstly the search warrant is to be obtained from Illaqa Magistrate where search of the premises is to be made. Under Section 103 of the Cr.P.C before making a search, the officer or other person about to make it shall call upon two or more respectable inhabitants of the locality in which the place to be searched is situate to attend and witness the search, which are taken Into possession.
6 In view of the aforesaid, this petition is allowed. The search warrant dated 11-12-2007 issued by the Civil Judge/Magistrate 1st Class, Sheikhupura is set aside. The Respondents are directed to return all the records, documents and computers confiscated by the Respondents during search on 02-12-2008 to the petitioner immediately."
It is, therefore, very much obvious from the above reported judgment of Hon'ble High Court, Lahore that any search/raid made in violation to the provisions of section 40 of the Sales Tax Act, 1990 read with sections 96 to 105 of the Code of Criminal Procedure, 1898 does not have any legal force and the impugned orders passed on the basis of such an illegal search/raid cannot be let to hold the field.
11. In view of what has been discussed hereinabove, particularly in the light of law, the instant appeal is accepted and the impugned show cause notice and consequent orders of both the authorities below being illegal, unlawful and void ab initio are set aside. Further it is also directed to the department that all the documents, records or accounts, etc. taken into custody during search, is ordered to be returned to appellant immediately.
12. Appeal succeeds in the above manner.