Search and seizure provisions in the Sales Tax Act, 1990 since its enforcement are continuously undergoing changes. The noose keeps on drawing tighter. The provisions of section 38 as originally framed provided for free access to an authorized officer of the Department to the premises stocks, accounts and record of a registered person. The authorized officer was however, required to proceed only after due notice to him. The access to the business premises was only to "inspect the stock and accounts and may at any time check his. Records". These A provisions were substituted by the Finance Act, 1996. Subsection (1) of section 38 of the amended section not only dispensed with the requirement of issuance of a notice but also authorized the Sales Tax Officer to "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 provisions of section 39 of the Act as originally framed provided for seizure of goods liable to confiscation and any document or thing which in the opinion of the authorized officer could be useful as evidence in any proceedings under the Act. However, where it was not B practicable to seize any such goods or things, the authorized officer was required to serve on the owner of the goods or any person holding them in his possession or charge directing that these shall not be removed, parted with or changed. These provisions of section 39 were altogether Omitted by Finance Act, 1996.
3. In the meanwhile, in 1994 section 40-A providing for search without warrant was inserted.
According to the new provision an authorized officer of the Sales Tax Department not below the rank of Assistant Collector was authorized to proceed to search or cause search to be made for the goods and documents or things in respect of which he had reasons to believe that there was a danger of their removal before a search could be effected under section 40 (providing for all searches to be made under the relevant provisions of Criminal Procedure Code) after preparing a statement in writing of the grounds of his belief for which search is to be made. The provisions of section 40-A were further amended by Finance Act, 1996. In the added provisions, the condition with regard to the belief that there was a danger that these things would be removed before a search could be effected under section 40 ware excised.
4. The volley of change in the provisions of section 38, repeal of section 39, addition of section 40-A, despite provisions of section 40 as originally framed, appears to have given rise to complaints by registered person with reference to their Constitutional rights and guarantees respecting person and property.
5. The petitioner in Constitutional Petition No,19482 of 2002 Messrs Ihsan Yousaf Textile Mills (Pvt.)
Ltd. Is a private limited company and is engaged in the business of manufacture and export of textile aid allied products. It is stated that on 8-12-2001 at about 1-30 p.m. Seven Officers of Sales Tax Department headed by an Assistant Collector visited the factory premises, humiliated the directors, senior management, staff of the company and even the workers of the shift who were supposed to leave at 2.00 p.m. They searched the business premises by breaking open every lock, table drawers etc. Allegedly all available record including computers, CPU and other books were taken .Into custody. The petitioner alleging the search to have practically been conducted under section 40 of the Sales Tax Act, 1990 approached the hierarchy of the Central Board of Revenue. On their failure to redress the grievance, a complaint was made before the Hon'ble Federal Tax Ombudsman who, after detailed proceedings, by way of his order finally on 30-4-2002 held that whole exercise was in violation of section 38, of the Sales Tax Act, 1990 and therefore, amounted to maladministration and abuse of powers by the Department. Accordingly certain recommendations were made against the head of the raiding team, the Assistant Collector. On the basis of various findings recorded by the Hon'ble Tax Ombudsman in which he inter alia interpreted sections 38, 40 and 40-A, the petitioner seeks a declaration that the search and seizure, dated 8- 12-2001 was illegal and unauthorized and therefore, had no legal effect at all.
6. The petitioner in the identical Constitutional Petition No, 17990 of 2002 is also a registered person, a sole proprietorship concern engaged in the business of manufacturing and export of cloth.
According to the amended petition, on there being a dispute between the petitioner and the Department with respect to payment of sales tax, the respondent-Department conducted a total audit of the suit and the auditors found certain sum of money as total liability outstanding against the petitioner. That amount was paid even before the report of the auditors, dated 18-7-2002 was served on the petitioner. In that respect for most of the part of the auditors objected to high claim of wastage by the petitioner. However, despite that fact the respondent No,1 got conducted a raid on 26-9-2002 and took away all the available books of accounts and records. The raid was followed by a notice, dated 30-9-2002 informing the petitioner that the competent authority had been pleased to direct special audit of the unit in terms of STGO No, 9 of 1999. The audit period was identified as July, 1999 till date. The impugned order for conduct of special audit for the same period only after two months of receipt of earlier audit report is claimed to be prima facie illegal and mala fide ignoring the basic requirement of the aforesaid STGO which permitted re-audit only in "exceptional circumstances."
7. Learned counsel for the petitioners Qazi Kamal, Sibtain Fazli and Waqar Azeem, Advocates have addressed their arguments, Mr. Sibtain Fazli, Advocate, makes a specific reference to four paras No,13 to 16 of the order of the Hon'ble Federal Tax Ombudsman Justice (Rtd.) Saleem Akthar, dated 30-4-2002 which gives useful study of various phrases used in sections 38, 40, and 40-A of the Act.
After reproducing the provisions of sections 38, 40 and 40-A in para 12 the Hon'ble Ombudsman observed as under in the following paras of the order:-- "13. It would therefore be seen that section 38 provides power to the authorized officer to have free access to the business premises or manufacturing premises without any obstacle or hindrance and he is authorized to take the relevant record, documents etc. In his possession against a signed receipt. In order' to appreciate the true meaning of the expression "free access" one may refer to Excellent Legal "Words and Phrases Vol-I P.432" where free access has been explained to mean as under:--"Access" means approach, admittance, admission. Similarly "free access" as explained in the Corpus Juris Secondum unobstructed, open clear, unhampered un-restricted and unimpeded.
(14) Similarly the word "search" as explained at page 24 (Words and Phrases Volume 38-A) means to look for. It implies invasion with some kind of force either actual or constructive. Search is forcible seeking out, a probing in hidden places.
(15) The term search implies some exploratory investigation, or invasion and quest, a looking for, seeking out. The quest may be secret, intrusive or accomplished by force. A search has been held to applying force, praying into hidden places for that which is concealed and that the object searched for has been hidden or intentionally put out of the way.
(16) The meaning of the expressions as explained heretofore and used in sections 38, 40 and 40-A when viewed against the actual course of events clearly point out that it was not a visit by the authorized officer or his team as claimed by the Department under section 38 of the Act, but it was a search of the business premises. That explains as to why the locks of the doors and drawers were broken or ordered to be broken open. This was a search without a statement as contemplated under section 40-A of the Act. If search was intended to be made the procedure provided by law should have been followed."
8. Also in support of his submissions Mr. Ali Sibtain Fazli, Advocate relies upon re: S.M. Yousaf v.
Collector of Customs (PLD 1968 Karachi 599) in which the Sindh High Court held that if the search and seizure were illegal then the goods seized as a result of same had to be returned. That view was upheld by the Supreme Court of Pakistan in re: S.M. Yousaf v. Collector (PLD 1969 SC 153) that no conditions on return of such goods could be imposed. Also refers to two judgments of this Court in re: lqbal Akhtar v. Ch. Muhammad Muslitaq and 4 others (PLD 1977 Lahore 1318) and Shaukat Hussain v. Zulfiqar Ahmed and 2 others (PLD 1981 Lahore 13). In these cases this Court inter alia found that all proceedings held after an illegal search and seizure continued to be infected same illegality. Also learned counsel refers to a judgment of the Hon'ble Supreme Court of Pakistan in re: Collector of Customs (Preventive) and 2 others v. Muhammad Mahfooz (PLD 1991 SC 630). The Hon'ble apex Court was considering the provisions of section 163 of the Cutoms Act, 1969 which were identical to the provisions of section 40-A as these existed for two years after insertion by Finance Act, 1994 and then substitution by Finance Act, 1996. Their Lordships were of the view that from the record no ground for the belief in support of existence of a danger of removal of goods etc. Appeared nor these were mentioned specifically as required under section 163 of the Customs Act. Lastly learned counsel relies upon a judgment of a Division Bench of the Hon'ble Sindh High Court, dated 30-2-2001 recorded in CPD No,1926 of 2000. The learned Bench was considering a raid conducted by the Sales Tax Department in a manner earlier noted in the above-said two petitions and described the same to have been made under the provisions of section 38 and not under the provisions of section 40 or 40-A. A notice earlier served by the Department on the registered person under section 38 in the view of the Bench was totally irrelevant as far the invokable provisions of sections 40 and 40-A were concerned.
9. Mr. Waqar Azim, Advocate, representing the second petitioner has also made similar submissions for a restricted interpretations of section 38 under which the raiding team alleged to have proceeded while making search and seizure in question.
10. Learned counsel for the Revenue Mr. A. Karim Malik and Mr. Izharul Haque, Advocates not only support the mode and manner in which the two searches were conducted but also support the direction for re-audit in the second case and the adjudication proceedings based upon the material collected during the first raid.' Also they rely upon a recent judgment of the Supreme Court in re: Messrs Punjab Beverage Company (Pvt. Ltd. v. Central Board of Revenue and 4 others (2001 PTD 3929). In that case the Hon'ble Court inter alia observed that in cases of evasion of revenue and consequent show-cause notices the superior Courts should not involve themselves into a thorough probe or in depth investigation of disputed questions of fact which necessitate taking of evidence.
11. The position in both the above petitions is however, totally different. The conduct of raid, seizure, search and taking into possession of records, books of accounts by the Sales Tax Department is not disputed. The issue as noted by the Hon'ble Division Bench of the Karachi High Court in the aforesaid judgment basically revolves around the parameters of the provisions of section 38. The only issue to be resolved is if in the guise of proceeding under section 38, the departmental officers could act and proceed in a manner which was possible only either under the provisions of section 40 or those of 40-A of the Sales. Tax Act, 1990.
12. In the opening part of the order I have observed that seizure and search provisions in the Sales Tax Act, 1990 were framed in a manner which is usual in similar other taxing statutes. The amendments brought about during these years have brought more misery to the taxpayers. The provisions of section 38 without an iota of doubt as observed by the Hon'ble Tax Ombudsman were meant only to authorize an officer to have access to a premises, accounts or record of a registered person. Their purpose was nothing but .To give their visit a legal cover. That purpose was subsequently sought to be served by introducing subsection (2) of section 40-A as it was inserted for the first time by Finance Act 1994. It was to forestall and restrict any legal proceedings against an officer of the Department. Section 38 when read with those of the following provisions of sections 40 and 40-A contemplate a routine visit by an officer in a jurisdiction. It is only on such visit, without previous planning or without having the intention of taking into custody any particular material or documents that the officer finds some books of accounts, stock record documents, or.
Other information which may be required for any" inquiry or investigation in any tax fraud committed by him or his agent or any other person..."that he may take them into his custody. These are mere enabling provisions and have nothing to do with regular search or seizure which can only be done in accordance with the provisions of section 40 and in emergent cases under section 40- A. The general provisions of section 38 therefore, cannot be made to circumvent or override the Constitutional guarantees of an individual. Particularly those ensured to a person under Article 14(1) of the Constitution.
13. The reason for seeking umbrella of the provisions of section 38 for extending the strong arm of the Revenue beyond the prescribed limits is not far to seek. It is that while the provisions of sections 40 and 40-A give a specific procedure and contain specific conditions for the conduct of search and seizure, section 38 contains no such limitation. No one can impute motive to legislature but the amendments made in these provisions do allow extraordinary powers to the Sales Tax Officer.
These are however, definitely subject to the Constitutional guarantees and their interpretation must conform to the limits prescribed therein. The provisions of section 40 requiring all searches to be made in accordance with the provisions of Code of Criminal Procedure, unfortunately has practically become redundant. The provisions of section 40-A give an unrestricted authority to Assistant Collector of Sales Tax to proceed in cases of emergency without making resort to the provisions of section 40. The sweeping powers given by section 40-A still fall short of the insatiable desire of the executive for power. It is not ready to undergo even the formality of writing a statement. And, in order to bypass even that minimum safeguard, it seeks to invoke the general provisions of section 38. It is lamentable to say the least. It is trite law that where general and a specific provision on a particular subject is available then resort to general provision cannot be made to do or sustain the act. As generally it so happends in cases of amending. An existing provision the over all scheme and the comparable provisions are often overlooked. 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 40-A would be invokable. In other words if the interpretation of the provision as being made by the Revenue is accepted correct then either section 38 is superfluous or, vice versa, both sections 40 and 40-A are reduced to be a mere duplication. The correct approach therefore, would be to make a accumulative reading of all the 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 40-A.
14. In the case of the first petition learned counsel has shown me a copy of proceedings recorded on 8-12-2002. It appears that on the examination of a number of documents an officer of the Sales Tax Department concluded that the registered person had committed tax fraud by getting refund of sales tax on the basis of flying invoices. Therefore, a request is made for an authorization under section 38 for "obtaining record". The prayer which appears to have travelled at least three stages was readily granted on the same day by the Collector. In the second case no authorization has been produced or annexed with the reply. Even if it is there, it will not change the legal position referred to above. In that aspect I will again refer to the observations of the Hon'ble Federal Tax Ombudsman made with regard to the real import of the phrase free access.
15. Accepting the interpretation of the Department would render the provisions of section 40-A as superfluous and redundant. A "free access" to any property of the citizen does not mean search and seizure of the purpose of collecting evidence against him. That object can only be achieved on observing the codal formalities under sections 40 and 40-A which ensure respect for the rights of the subject. It is surprising that Department is not willing to accept the minimum level of safeguard for the person and property of a subject as are contemplated in section 40-A. It looks for an absolute discretion to violate the property of the subject on the ground that an officer of the Department has been given "free access" to such property. A search and seizure by State functionaries is the hardest hit on the person, property and (self) respect of a citizen. It cannot be assumed to have been granted as a matter of course. Mere allegation of some tax evasion, here and there, cannot be allowed to be extended to justify a "storming" of business houses and factories.
16. The free access contemplated in section 38, as observed above, does not mean a storming of the fort of an unexpecting enemy to pill and plunder at the fancy of the victorious prince overjoyed with the satisfaction of his having trampled the enemy. A visit by a State functionary to the person or property of a citizen should not have the colour and countenance of the royal wrath against a defiant adversary. The State has all the legal and moral justification to collect revenue. The Caesar must have what is due to him. However, the State, the Revenue acting through its functionaries should never lose sight of the hard fact that a tax in the final analysis is a forceful exaction of money from the subject.
17. The precedents relied upon by the learned counsel for the petitioners certainly support their case overwhelmingly that the general provisions of section 38 are not meant for the kind of raid search or seizure as was done in these cases. The Department cannot be allowed to act and achieve which is possible only in the conditions stated in sections 40 or 40-A. The provisions of section 38; it needs to be repeated are not a carte-blanche a bull or an edict sealed and signed by the king which can be used against the person or property of an individual whose name can be filled in the blanks by the functionaries. As rightly remarked by the learned Division Bench of the Karachi High Court the acts deeds and things required to be done should be done in accordance with law or should not be done at all. Also, in the given facts of both cases, I am in agreement with the submissions made at bar and the observations of the learned Division Bench of the Karachi High Court that the only provisions which authorise a departmental officer to conduct a search and seizure available in the Sales Tax Act are sections 40 and 40-A.
18. Mr. Tariq Kamal Qazi, Advocate, also appearing for the first petitioner is right in pointing out that an illegal search and seizure must be set at naught right from its inception otherwise the purpose of Constitutional guarantees with regard to person and property of an individual shall be completely defeated. He has pointed out that the learned Division Bench of the Karachi High Court while accepting the petition also made a direction that all material, books of accounts etc. Be returned to- the registered person. According to Mr. Tariq Kamal Qazi, Advocate, fruit of a poisonous tree cannot be allowed to be enjoyed. A tree not grown by dint of labour or acquired by lawful means is a poisonous tree and its fruit cannot be allowed to be enjoyed by the offender.
Every evidence collected through an illegal means, howsoever incriminating, partakes the colour of a confession extracted through torture. It is not admissible in evidence in any legal tradition/jurisdiction of the world. It needs to be discarded through and through.
19. Accordingly for the aforesaid reasons both raids are declared to be against the provisions of section 38 and therefore, illegal and void ab initio. All evidence, material, documents records or accounts taken into custody in the process shall be returned to the petitioners. Also none of these materials, records, books of accounts and articles etc. Shall directly or indirectly be used in adjudication proceedings against the respondents or to create demand based thereupon in any other manner. In case of second petitioner, the impugned notice, dated 30-92002 admittedly having been issued on the basis of the material collected, in the said illegal raid, dated 26-6-2002 also suffers from another illegality inasmuch as no exceptional circumstances were brought home to order conduct of re-audit as contemplated in STGO No,9 of 1999, dated 2nd September, 1999.
20. .
21. This order will also dispose of Writ Petition No,17990 of 2002.
22. Before parting with this order I am constrained to observe that search and seizure powers as originally framed answered all the legal requirements of law as well as the Constitutional guarantees. The patchwork of amendments in section 38, repeal of section 39 and introduction )f section 40-A have resulted in chaos and extremely unjustified powers to the Revenue Authorities.
None of the two petitioners have challenged the vires of section 40-A in the perspective of its being delegation excessive power on an executive authority. Therefore, that aspect of the matter will be taken up as when it is so raised. However, it needs to be observed that conferring of such uncontrolled power is against the Constitutional requirements of separation executive from judiciary. These provisions have resulted in an unnecessary row between the Revenue Authorities and the taxpayers. Therefore, a copy of this order shall be sent to the Secretary, Ministry of Law Justice and Parliamentary Affairs (Justice Division) Islamabad to make above reference for the consideration of the Cabinet to propose necessary change in law and if possible for revival of the provisions of sections 38,39 and 40 as these were originally framed and for repealing section 40-A of the Sales Tax Act, 1990.