ABID HUSSAIN CHATTHA, J: Through the instant constitutional Petition, the Petitioner prays that the acts of the Respondents, more precisely, the functionaries of Inland Revenue, Sargodha regarding raid and seizure of record at the business premises of his sole proprietorship concern, namely, Sangha Brothers Goods Transport Company and General Order Supplier (the "Sanga Brothers") without complying with the requirements of Section 40 of the Sales Tax Act, 1990 (the "Act") be declared as illegal and unlawful, the Respondents be directed to return the record unlawfully seized and be further restrained from taking illegal coercive measures against the Petitioner.
2. It is the case of the Petitioner that sole proprietorship concern of the Petitioner, Sanga Brothers is duly registered with the Respondent-Department since 12.11.2004 under National Tax Number 2208833-4 and Sales Tax Number 3277876188564. The Petitioner is regularly complying with the tax laws by filing its tax returns. Respondent No. 5 initiated proceedings against Sanga Brothers for recovery of Rs. 183,268,628/- with principal allegation of claiming inadmissible input tax for the months of July 2022 to November 2022. The show cause notice culminated into adverse Order-in- Original dated 11.10.2023 against the Petitioner and the same was upheld by Commissioner (Appeals) Inland Revenue vide order dated 21.05.2024. However, the Appellate Tribunal Inland Revenue (the "ATIR") acting upon the appeal of the Petitioner vide order dated 28.06.2024 stayed the recovery proceedings and restrained the Respondent-Department from adopting any coercive measures against the Petitioner for thirty days. The said order was extended for another period of 30 days vide order dated 29.07.2024. During that period, Respondent No. 5 under the garb of search warrant dated 24.07.2024 pertaining to premises of other business concerns i.e. M/s Allah Baksh & Company (the "ABC") and Sangha Petroleum Service (the "Sanga Petroleum"), illegally raided the business premises of Sanga Brothers and seized its record in violation of express provisions of Section 40 of the Act although Sanga Brothers, Sanga Petroleum and ABC are three independent and distinct entities with respective corporate structures in terms of sole proprietors or association of persons. By relying upon cases titled "Pakistan Chipboard (Pvt.) Ltd. through Chief Executive Officer v. Federation of Pakistan through Revenue Division and 5 others" (2015 PTD 1520); "Collector of Sales Tax and others v. Messrs Food Consults (Pvt.) Ltd. and another" (2007 PTD 2356); and "Federation of Pakistan through Secretary, Ministry of Finance, Federal Secretariat, Islamabad and 4 others v. Messrs Master Enterprises (Pvt.) Ltd. through Managing Director"
(2003 PTD 1034), learned counsel for the Petitioner contended that the acts of raid and seizure of record of Sanga Brothers by Respondent No. 5 are unlawful amounting to infringement of statutory and constitutional rights of the Petitioner for the following reasons:-
(i) Respondent No. 5 did not obtain mandatory search warrant from the concerned Magistrate in terms of Section 40(1) of the Act in the name of Sanga Brothers particularly, when no inquiry or investigation was pending against Sanga Brothers;
(ii) Without prejudice to the above, no reasons to believe were expressed as condition precedent before obtaining search warrant under Section 40(1) of the Act which makes it mandatory to disclose such reasons to believe in terms that certain exact documents which are required in some pending proceedings have been concealed at a certain place and there is danger of their removal;
(iii) The mandate of Section 40(2) of the Act read with Section 103 of the Criminal Procedure Code, 1898 (the "Cr.P.C.") was breached inasmuch as search and seizure of the Petitioner's premises was undertaken in the absence of independent witnesses;
(iv) The mere fact that two legal independent entities are sharing common place of business does not allow Respondent No. 5 to obtain search warrant against one of them and apply it to the other;
(v) The acts of raid and seizure could not have been undertaken during subsistence of stay order passed by ATIR;
(vi) Without conceding the fact that any officer of the Respondent-Department had been appointed at the business premises of the Petitioner, the claimed posting of an officer, if any, is in violation of the express requirements of Section 40B of the Act which stipulates that any such officer can only be appointed subject to conditions and restrictions as deemed fit by the Federal Board of Revenue (the "Board"); and
(vii) The alleged search warrant was obtained by Respondent No. 5 by misstating the facts that an officer of the Respondent-Department had been appointed in terms of Section 40B of the Act on the business premises of the Petitioner although no such officer had been appointed.
3. Conversely, the Respondent-Department in its report & para wise comments submitted in the form of booklet has objected to the maintainability of this Petition on the score that since Sales Tax Reference No. 77141 / 2024 filed by the Respondent-Department against the Order dated 09.09.2024 passed by ATIR and W. P. No. 54994 / 2024 instituted by the Petitioner with respect to F.I.R No. 6 / 2024 dated 07.06.2024 are independently pending before two learned Division Benches of this Court, therefore, the vires of impugned action can be adjudged by such learned Benches and even otherwise adequate alternative remedy is available to the Petitioner under Sections 45B and 46 of the Act, particularly, when any action taken under tax laws do not violate fundamental rights. On merits, it is contended that enforcement action under Section 40 of the Act is surely lawful. The raid was conducted with the approval of the competent authority under Section 40(1) of the Act after obtaining search warrant in accordance with law on the basis of credible information. The specific reasons to believe that relevant documents were concealed at the business premises of the Petitioner were mentioned in the application submitted to the Magistrate for obtaining search warrant. Sanga Brothers and Sanga Petroleum are operating from the same premises with same proprietor and business activities. As such, the Respondent-Department had reasonable grounds to believe that evidence pertaining to evasion of sales tax by the Petitioner was present at the joint business premises. The search warrant dated 24.07.2024 covered the premises as a whole, irrespective of internal labels or nomenclature of entities including Sanga Brothers. Hence, it is not an abuse of process to act on credible information connecting such entities.
4. Further, recovery proceedings against the Petitioner were pending and orders of suspension and blacklisting were in effect. The Petitioner withdrew his Appeal against order of blacklisting which has attained finality. F.I.R No. 6 / 24 dated 07.06.2024 has also been registered against the Petitioner, therefore, there was no need to issue a separate show cause notice at the stage of inspection and seizure of record especially when the impugned action against the Petitioner is merely investigative in nature on account of his involvement in tax fraud. Section 40(2) of the Act only incorporates the provisions of Cr.P.C. to the extent that they may be applicable, as such, the requirement of two respectable witnesses under Section 103 of the Cr.P.C. is directory and not mandatory in fiscal matters, particularly, when tax raids being intelligence-based operations involving commercial premises are generally conducted during off-hours which cannot always ensure civilian presence without compromising confidentiality and efficacy. The stay order was restricted against coercive recovery and do not extend to investigative measures or lawful search operations. Moreover, the raid was conducted under Section 40 and not under Section 40B of the Act, therefore, any argument pertaining to Section 40B is irrelevant. However, if any officer was posted under Section 40B of the Act, such posting would be pursuant to administrative orders duly issued by the Board. If at all, there are any procedural irregularities, the same are curable and do not vitiate the search operation conducted by the Respondent-Department since no statutory or constitutional guarantees have been infringed. Hence, the search and seizure operation conducted by Respondent No. 5 is in accordance with the mandate of Section 40 of the Act. Reliance is placed upon cases titled, "Alif Plastic Industry v. Federation of Pakistan etc." (W.P. No. 20175 of 2012) decided on 15.01.2013 and "Chief Commissioner Inland Revenue Regional (RTO) Peshawar v.
Paper World (Pvt.) Ltd. Amangarh, Nowshera" (2020 SCMR 105).
5. Arguments heard. Record perused.
6. At the outset, it is imperative to address the concerns qua maintainability of this Petition. Sales Tax Reference No. 77141 / 2024 has been filed by the Respondent-Department against the Order dated 09.09.2024 passed by ATIR, whereby, recovery proceedings initiated against Sanga Brothers on the basis of show cause notice for alleged adjustment of inadmissible input tax of Rs.
183,268,628/- upheld vide Order-in-Original and Order-in-Appeal dated 11.10.2023 and 21.05.2024, respectively were annulled. As such, the scope of pending Sales Tax Reference is limited to the validity of impugned orders therein regarding recovery of alleged sales tax. The vires of impugned raid and search operation conducted on 24.07.2024 during pendency of appeal of the Petitioner before ATIR, therefore, does not fall within the scope and ambit of pending Sales Tax Reference before the learned Division Bench of this Court. Similarly, W. P. No. 54994 / 2024 instituted by the Petitioner with respect to F.I.R No. 6 / 2024 dated 07.06.2024 emanates from criminal proceedings initiated by the Respondent-Department and as such, it is distinct in terms of scope, cause of action and prayer made therein in comparison to the instant Petition which impugns the raid and search operation alleging the same to be in derogation to the express provisions of Section 40 of the Act. Needless to state that constitutional challenge qua breach of statutory rights lies with the Single Bench of this Court and on account of difference in the scope of cited matters, there is no reason to club the titled Petition with referred cases. Further, Section 45B of the Act provides remedy of appeal against specific orders passed under specified Sections of the Act, whereas, Section 46 of the Act provides for appeals to the ATIR against specified orders. The stated remedy of appeal is not available to assail statutory infringements which is examined by this Court in exercise of its power of judicial review under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973. Hence, the objections qua maintainability are baseless and accordingly, the same are overruled.
7. Record manifests that the NTN of the Petitioner lists three businesses i.e. Sanga Brothers, Sanga Petroleum and Haider Petroleum. Business premises of Sanga Brothers and Sanga Petroleum is the same yet the principal line of activity of both business concerns is separate. At the time of applying for search warrant, the stay order granted by the ATIR against adopting coercive measures regarding recovery of tax liability under Order-in-Original and Order-in-Appeal dated 11.10.2023 and 21.05.2024 was not an impediment to conduct search and seizure operation against the Petitioner since it was restricted to recovery of tax provided the requirements of Section 40 of the Act were complied with by Respondent No. 5. The application for search warrant states that the Petitioner was supervised under Section 40B of the Act for purchases and sales of coal and during scrutiny, the Petitioner was found involved in under invoicing and suppression of sales. Hence, there is reason to believe that documents placed at the business premises of the Petitioner would be helpful in determining the correct amount of sales and invoice prices. Therefore, search warrant is required under Sections 38 and 40 of the Act regarding record available at office premises of ABC situated at Kacha Bazar, Old Lari Ada, Sargodha Road, Khushab and Sanga Petroleum, Pindi Road, Khushab (NTN 2991993). Accordingly, search warrant dated 24.07.2024 was issued, the office premises of the Petitioner was raided on the same day and as per seizure memorandum dated 24.07.2024, record comprising eight registers was taken into custody by Respondent No. 5 in presence of two official departmental witnesses.
8. Before proceeding further, it is advantageous to reproduce Section 40 of the Act which reads as under: "40. Search under Warrant.
(1) Where an 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)."
It is explicitly clear from the above that discretion to obtain warrant is not unfettered. There must be a reason to believe that some useful or relevant record required with respect to any proceedings under the Act is available at a particular place. This is an extraordinary power granted by the Act in addition to other powers, such as, to have access to premises, stocks and records, to call for information and posting of an officer at the premises of a tax payer under Sections 38, 38A and 40B of the act. The exercise of power of search, being harsh in nature, has been made dependent upon certain conditions with the objective to place a check on unbridled, arbitrary and capricious use of power.
9. The analysis of established facts of the case on the touchstone of the requirements of law encapsulated in Section 40 of the Act proves that Respondent No. 5 did not obtain specific search warrant in the name of Sanga Brothers from the concerned Magistrate. The name of Sanga Brothers is conspicuously missing in the warrant. Generally, a proprietorship concern merely reflects and denotes a different business name distinct from the name of its individual owner and the latter is personally liable for such concern, however, where a person has more than one proprietorship business concerns with different lines of business, it is obligatory to disclose the name of the concern(s) regarding which search warrant is required. A search warrant obtained in the name of one business concern cannot be used to raid and confiscate record of the other business concerns. If their offices were situated at the same place, there was no impediment to list the names and address of all concerns owned by one person regarding which search warrant was required. Respondent No. 5 included the name of three business concerns in the said application but conspicuously omitted to include the name of Sanga Brothers for which no legally tenable explanation has been provided. The Respondent-Department has also not been able to demonstrate the nexus of ABC with the Petitioner since the same is not reflected in the NTN of the Petitioner available on record.
10. No specific order of audit or inquiry or investigation or proceedings was identified or relied upon in the application for warrant under the provisions of the Act. The search operation was conducted on 24.07.2024 when Order-in-Appeal dated 11.10.2023 was already in field and further appeal of the Petitioner before ATIR was pending. The said proceedings were not disclosed in the application for obtaining warrant. Similarly, the proceedings qua suspension and blacklisting of the Petitioner were also not disclosed or made basis for reasons of belief of Respondent No. 5. Rather, Respondent No. 5 disclosed in the application for warrant that the Petitioner was supervised under Section 40B of the Act for purchases and sales of coal and during scrutiny, it was found that the Petitioner is involved in under invoicing and suppression of sales which provides him a reason to believe that documents placed at the business premises of the Petitioner would be helpful in determining the correct amount of sales and invoice prices. However, the Respondent Department has miserably failed to establish that an officer of the Respondent-Department had been appointed at the business premises of Sanga Brothers or any other business concern of the Petitioner in terms of Section 40B of the Act by placing on record any order of the Board to this effect. As such, the premises on the basis of which search warrant was obtained falls to ground.
11. More importantly, Section 40(2) of the Act unequivocally requires that the officer who has obtained search warrant shall make such search in his presence in accordance with the relevant provisions of the Cr.P.C., Section 103 whereof, obligates that search and seizure must be carried out in the presence of independent witnesses. The Respondent-Department has admitted the seizure of record in the absence of any independent witness and the explanation rendered in this behalf that the said provisions of law do not apply to fiscal matters is unacceptable being in violation of express mandate of law as held in the cases of Master Enterprises, Food Consults and Pakistan Chipboard (surpa). The case law cited by learned counsel for the Respondent-Department is distinguishable and do not apply to the facts and circumstances of the case. As such, the raid and seizure of record by Respondent No. 5 was unlawful being in derogation to the express provisions of Section 40 of the Act.
12. In view of the above, this Petition is allowed and the impugned search and seizure operation conducted by Respondent No. 5 at the business / office premises of the Petitioner is declared as unlawful and of no legal effect. In consequence thereof, the Respondents are directed to forthwith return the seized record of the Petitioner and are restrained to use the same against the Petitioner.