2004 PLP 1731 (PTD)

11. Similarly in the Sales Tax Act, 1990 (a later Statute) the powers of access, raid, search and seizure are 'contained in sections 38, 40 and 40‑A of the Act as under: "Section

38. Authorized officers to have access to premises, stocks accounts and records.‑‑‑(1) Any officer authorized in this behalf by the Board of the Collector shall have free access to business or manufacturing premises, registered office or any other place where any stocks, business records or 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 officer may, at any time, inspect the goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds or assets with which his business if financed, and any other records of documents, including those which are required under any of the "Federal, 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 subsection (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." Section 40 "Searches how to be 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 (Act V of 1898)." Section 40‑A. "Search without warrant.‑‑‑(1) 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 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 documents or things in that place. (2) Any officer or person who makes a search or causes to be made under subsection (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 subsection (1) or subsection (2). "

13. The above reproduced section 38 was introduced. in its present form by way of substitution through the Finance Act, 1996 (IX of 1996). Prior to 1996, section 38 reads as under:‑‑ "(38) Authorized officers to have access to premises, stocks accounts and records.‑‑‑(1) Any officer authorized by the Board or Collector in this behalf shall have free access to the business premises of a registered person, and such officer may, after due notice to the registered person, inspect the stocks and accounts, and may at any time check his records. (2) If the authorized officer makes any query the registered person shall furnish such information or explanation as may be sought by him." This section was followed by under reproduced section 39 which was omitted by the Finance Act, 1996 (IX of 1996):‑‑ "(39) Seizure of goods liable to confiscation.‑‑‑Any officer of Sales Tax empowered by the Board or Collector in this behalf may seize any goods liable to confiscation and any documents or things which in his opinion will be useful as evidence in any proceeding under this Act and where it is not practicable to seize any such goods or things, he may serve on the owner of the goods or any person holding them in his possession of charge, an order that he shall not remove, part with, change or otherwise deal with the goods except with the prior permission of such officer."

14. A comparison of the access, search and seizure provisions before and after 1996 amendment highlights striking differences. The short "free access provisions" of section 38 (prior to 1996 amendments) did allow access to an authorized person to the "business premises of a registered person" for inspecting and checking the stocks, accounts and A the records. This power was however, exercisable after and on compliance with the condition of "due notice to the registered person". Powers of seizure were available to an officer empowered for the purpose under the unamended section

39. Except for minor changes, the provisions of sections 40 and 40‑A were retained in the Act.

15. The major changes introduced by the Finance Act of 1996 were that section 39 was omitted and section 38 was totally substituted by more elaborate provisions. In the substituted section 38 "free access provisions" were substantially enlarged in respect of the accessible premises, places and persons. Additional powers of inspection and custody of the goods and records etc. were given to the authorized officer. However all important conditions of due notice by the authorized officer prior to the exercise of powers of access, inspection and checking, were omitted.

16. The respondent Revenue interprets the removal of the restriction of due notice on the exercise of powers by the tax functionaries as the Legislature's intention to give unchecked powers to the departmental officers to enjoy "Free Access", unobstructed inspection and unqualified right to the custody and seizure. Similar meaning is ascribed by the learned counsel for the respondents to Rule 179 of the Central Excise Rules.

17. The respondents appear to be oblivious of the effects of such an interpretation. It will not only be unacceptable and distasteful to the modern day jurists in a civilized society but will also be offensive to the principles of the rule of law. It will no doubt be incompatible with and obstructive of the country's economic growth. Under the guise of Revenue collection the officers of the department will come to possess the unrestricted State power and unlimited authority. The citizens will be at their whim, wish and unrestrained discretion. The "Free Access provisions" will become usable as "free for all" process. It will be abused as a free entry pass to the business or manufacturing places or the work premises of the citizens. Armed therewith evidence, information or admissions to the officer's liking will not be hard to obtain. More often than not these provisions in the hands of the Revenue officer will become the instruments of terror, intimidation, harassment and exaction. The outcome will be patent offence to the inviolatable rights of freedom, dignity; privacy of life and sanctity of the business, trade and calling.

18. Such resort to the free access and free inspection provisions without essential safeguards will be subvertive of the guarantees under Articles 9, 14, 15, 18,23 and 24 of the Constitution of Islamic Republic of Pakistan, 1973. Furthermore without reasonable standards upon the E exercise of such powers by the taxation officers, economic activity will decline. Instead of enhancing the Revenue, such powers will fatally diminish the sources that generate the State revenues.

19. I believe that the legislators in re‑enacting section 38 of the Sales Tax Act, 1990 or in framing Rule 179 of the Central Excise Rules cannot be presumed to be unmindful or unaware of the possible misuse or mis exercise of the powers under these provisions by the tax officers. In my opinion, the legislators amended the provisions of section 38 of the Sales Tax Act, 1990, or introduced Rule 1 79 of the above Rules, to make law harmonious to the commercial activity and its development. To F achieve harmony and development, necessary safeguards and standards had all along been incorporated in the provisions of section 40 of the Sales Tax Act, 1990 or section 18 of the Central Excises Act, 1944 which are identical. These sections mandate that all searches made under the Act or Rules shall be (or shall be carried out) in accordance with the relevant provisions of Code of Criminal Procedure, 1898. The provisions of sections 38, 40 and 40‑A of the Sales Tax Act, 1990 or of section 18 of the Central Excises Act of 1944 and Rules 179 and 201 of the Excise Rules, all relate to searches.

20. It is also to be noted that except for section 18 of the Central Excises Act, 1944, there are no other provisions in the said Act qua "access" or "search" as in sections 38 and 40‑A of the Sales Tax Act, G 1990, which were provided for through Rules 179 and 201 of the Central Excise Rules. These rules can therefore, be invoked subject to the provisions of section 18 of the Act of 1944.

21. Similarly on amendment of sections 38 etc. in 1996, due notice standard as contained in the unamended sections 38 of the Sales Tax Act, 1990 was purposely taken out. The reason becomes evident when sections 38, 40 and 48‑A ibid are read together. Had the. Legislatures meant to treat all the three sections independent of each other and to confer‑ separate powers upon the taxation officers thereunder, there was H no need to incorporate or to retain sections 40 and 40‑A in the Statute book. If "Free Access", "Free Inspection" and "custody" powers contained in section 38 ibid are given the interpretation sought by the learned counsel for the Revenue sections 40 and 40‑A would become superfluous. And the provisions of section 38 read with those of section 37 will be adequate as complete code of entry, inspection, acquisition, information, evidence and custody. Section 37 empowers an, officer to summon a person to tender evidence or produce evidence orb any other thing in any inquiry which such, officer is making for any of the purposes under the Act. The person so summoned is bound to attend. The officer of the Sales Tax also has the power to arrest and prosecute under section 37-A to 37‑C ibid. Exercising powers under section 37 read with section 38, the taxation officer, simply upon a notice, can obtain any informations, concealed documents or the record etc. Despite such powers in sections 37 and 38, sections 40 and 40‑A were enacted and retained by the Legislature in the Sales Tax Act, 1990.

22. Section 40 of the Act of 1990 and section 18 of the Act of 1944 require "all searches" to be in accord with the Code of Criminal Procedure, 1898.

23. To prevent the removal of relevant documents or things, powers of search without warrant have also been provided for in section 40‑A of the Sales Tax Act. Exercise of this power is conditional upon a statement of grounds of belief as to and the showing of the danger of removal or destruction of the record. This section is in pari materia the applicable provisions of the Code of Criminal Procedure. Section 40‑A is nevertheless invocable only in the extreme and extraordinary situations. All searches otherwise have to be carried out as per the provisions of Code of Criminal Procedure. 24: 1 am thus of the opinion that once warrants for a search under section 40 of the Sales Tax Act or section 18 of the Central Excises Act are obtained as per the Code of Criminal Procedure, or once the provisions of section 40‑A of the 1990 Act for a search without warrant are invoked, the officer gains entry and access to the required places and premises. The provisions of section 38 of the Act 1990 or the above Rules of the Central Excises Rules then take over to provide "Free Access" to the authorized officer to enter the places where stocks or records are kept or maintained. And such officer can inspect and take into custody the required records, things, diskettes and documents etc. He can also obtain information and assistance in the course of his inquiry and investigation. In my opinion no other meaning to the provisions of section 40 of the 1990 Act or section 18 of the 1944 Act can be ascribed. Any other interpretation will render the word "all searches" as contained in these sections as superfluous and redundant.

25. The nature of powers exercisable under section 38 of the Sales Tax Act, 1996 have been termed in the last two lines of the sub‑ L section (3) of section 38 as the powers of "inquiry or investigation" which are obviously synonymous to the "search" powers.

26. The term "search" implies an exploratory investigation, invasion, quest, looking for or seeking out. The quest may be secret, M intrusive or accomplished by force. In judgment, dated 21‑5‑2003 in the case of "Ihsan Yousaf Textile Mills v. Federation of Pakistan" (W.P. No. 19482 of 2002) my learned brother Nasim Sikandar, J. beneficially quoted from order, dated 30‑4‑2002 of the Hon'ble Tax Ombudsman in Ihsan Yousaf Textile Mills complaint as under:‑‑ "(14) ... ... ... 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, prying into hidden places for that which is concealed and that the object searched for has been hidden or intentionally put out of the way."

27. The distinction between a "search" and an "inspection" was noted by Keith Committee cited on page 165 of the Book titled "Entry, Search and Seizure" (Sweet and Maxwell 3rd Edition) as under:‑‑ Inspection is by eye, search by hand, and that inspection would not allow the uncovering of anything not visible merely by walking around the premises in the absence of any clear judicial rulings.

28. It cannot be denied that "Probe", "Investigation" or "Inquiry" into the affairs or the business or trade or occupation or record or accounts etc. is a search for answers to any questions or allegations regarding possible evasion of tax or violation of law. The information or the documents etc. accessed or obtained or taken in custody during such inquiry or investigation are useable in evidence and are also, incriminating. Such powers of access, inspection, resumption and information cannot therefore, be termed as anything but the powers to "search".

29. It is also a well settled rule of law that an interpretation and meaning protective of the rights and interests of the taxpayers is to be adopted if more than one meanings can be attributed to the whole Scheme of "the Access" and "Search" provisions.

30. The sequence of events in the case of Diplex proves and it has not been denied by the respondents that the purpose of "the pre textual R transaction" was to investigate and determine the purported evasion of excise duty by Diplex. It is also admitted in their reply by the respondents that "the male members of staff were waiting outside the premises for support and backing" while the female members of the team entered Diplex pretending to be ordinary and normal customers interested to receive services. This "pre textual business transaction" or the female staff of the Excise Department was admittedly created and devised to test and probe into the conduct of Diplex. The "pre textual transactions" was employed as the excuse, reason or justification for entry into Diplex and consequent inquiry.

31. In the both Food Consults and Diplex cases, the undisputed facts are that the raiding teams of respondent Tax Departments entered the petitioner's business premises on their own authority without a warrant. In both cases, the respondents appear to have predetermined that the record of the petitioners would be seized. In each case, the danger or risk of removal of evidence, goods, record, accounts or computers was not alleged by the respondents. And in each case, the respondents physically searched for, recovered and took custody of petitioners record and assets. And such exercise by the respective departmental officers in both cases is a "search' in its classic sense. Furthermore the actions of the respondents were specifically intended and designed to probe, investigate and discover the presumed illegal tax avoidance for which the record and accounts were seized. These acts could not therefore be termed as the "routine inspections" but were akin to a raid and investigation in a criminal matter or for an, offence. At the very least, it was a search.

32. The Central Board of Revenue has itself approved the search and seizure procedure to be followed by its officers in "Customs General Order, 1971‑1995 (Fourth Edition)" at page 245, C.B.R's Customs General Order No.9 of 1981, dated 27th August, 1981 as under:‑‑ "(3) Section 162 of the Customs Act empowers a Magistrate to issue search warrant on an application by a Gazetted officer of Customs. Under section 163, subsection (1) an "Officer of Customs not below the rank of the Assistant Collector of Customs" or any other officer of like rank duly employed for the prevention of smuggling" if he has reasons to believe that any goods liable to confiscation under the Act are concealed or kept in any place and there is a danger that the same may be removed before a search can be effected under section 162, may "after preparing a statement in writing of grounds of his belief and of goods" for which search is to be made, search or cause search to be made for such goods in that place. The officer who makes the search or causes the search to be made, is further required by subsection (2) to leave a signed, copy of the aforementioned statement in or about the place searched and at the time of search or as soon as practicable thereafter to deliver furthermore a signed copy of such statement to the occupier of the place at this last known address. Subsection (3) of section 163 directs that all searches made under this section shall be carried out mutatis mutandis in accordance with the provisions of the Criminal Procedure Code. Section 171 requires that when anything is seized, the officer making such seizure shall as soon as may be, inform in writing the person from whose possession the things are seized, of the grounds, of such seizures or arrest .... (4) The Spirit of the Customs Law is that unless there was a danger that the goods might be removed before a search warrant could be obtained from a Magistrate this has been made a condition precedent to making a search under section 163(1) " Relying on the relevant case law, Customs General Order further states that:‑‑ "(7) The law, as we have seen, does not recognize any general right in the police of entry into private property for the purpose of obtaining evidence of smuggled goods. The right is available only upon fulfillment of certain conditions. The defects pointed out, I am afraid, are neither minor nor just technical. They are violative of the basic conditions prescribed for carrying out a search under section 163, a breach of which will strike at the protection guaranteed under Article 4 of the Constitution itself. Clause (2)(a) of Article 4 requires that no action detrimental to the life, liberty, body, reputation or property of any person shall be taken except in accordance with law ....[Emphasis Added]" The issuance and continued validity of the C.G.O. makes it abundantly clear that C.B.R. wants its officers to follow these instructions meticulously and stringently.

33. The Hon'ble Supreme Court in case of "Collector of Customs (Preventive) and 2 others v. Muhammad Mahfooz" (PLD 1991 SC 630) declared the law as under:‑‑ ...... ordinarily a place is to be searched only after search warrant is obtained from the Magistrate as is contemplated under the preceding section of the Customs Act and only in extraordinary cases this section can be dispensed with as is permissible under section 163 of the Customs Act but then grounds are to be stated by the Customs Officer who is allowed this facility for his belief and decision in not obtaining the search warrant. He must state the grounds which justify apprehension of danger of removal of goods. For example, information is received from such and such person that the party concerned has taken steps or is about to take steps for removal of goods and if search warrant is obtained the same will consume time or the Magistrate is not available, hence there is no way but to go for search without warrants .... "

34. In a recent judgment of an Hon'ble Division Bench of the Sindh High Court in the case of "Master Enterprises (Pvt.) Ltd. v. Federation of Pakistan and others" (C.P.No. 1926 of 2000), the learned‑Judges noted that where the procedure prescribed in sections 40 and 40‑A of the Sales Tax Act was not followed while conducting a raid and seizure, such search was unlawful and documents were ordered to be returned. Relevant case opinion was that:‑‑ "After hearing the learned counsel for the parties, we are of the considered opinion that the resumption of documents by the departmental officers on 19‑12‑2000 is not in accordance with the procedure prescribed by the legislature in sections 40 and 40‑A of the Sales Tax Act, 1990. It is an established principle of law that acts, deeds and things should be done as they are required to be done or not at all. It is therefore, held that the resumption of the documents by the departmental officers on 19‑12‑2000 was not in accordance with law and as such the respondents Nos.2 to 5 cannot place any reliance on the documents which they have acquired otherwise than in due course of law." This judgment of the Sindh High Court was affirmed by the Hon'ble Supreme Court of Pakistan on departmental petition for appeal i.e. "Federation of Pakistan and 4 others v. Messrs Master Enterprises (Pvt.) Ltd." (2003 PTD 1034). The Hon'ble Supreme Court of Pakistan also pronounced the law that "all searches" made under the Sales Tax, 1990 were to be in accordance with the provisions of Criminal Procedure Code, 1898 on a search warrant from the Illaqa Magistrate when search of the premises was to be made. It was observed that:‑‑ "(6) 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 arid 40‑A of the Act have not been complied with by the petitioners while conducting raid and seizing documents. It is expressly stipulated in the above provisions that all searches made under the Act or the Rules shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898 (Act V of 1898) (hereinafter referred to as the Code). Procedure regarding search has been laid down in sections 96, 98, 99‑A and 100 of the Code whereby, firstly, a search warrant is to be obtained from the Illaqa Magistrate when Search of the premises is to be made. In view of section 103 of the Code, it is mandatory to join two or more respectable inhabitants of the locality in which the place to be searched is situated to attend and witness the search and a list of all articles taken into possession shall be prepared and a copy thereof shall be delivered there and then. Though repeatedly called upon learned counsel for the petitioners failed to show from record that the above provisions of law were strictly followed while seizing the record and sealing the premises of the respondent‑company. As such, we do not find any cogent reason to interfere with the impugned judgment which is unexceptionable. (7) Resultantly, the petition being devoid of any force is dismissed and leave to appeal refused."

35. In the above referred case of Ihsan Yousaf Textile discussing the provisions of the Sales Tax Act, 1990 relating to search, seizure and raid, it was held by the Hon'ble Judge that the raids conducted without strict compliance with the provisions of law were illegal and void ab initio. All the documents, records or accounts, taken into custody in the process, were ordered to be returned to the petitioners and it was also directed that the same shall not, either directly or indirectly, be used against the petitioners because "the fruit of the poisonous tree cannot be enjoyed by the offender and the material collected cannot be used in evidence against the petitioner." It was also opined that: "A "free access" to any property of the citizen does not mean search and seizure for 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 the 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 a 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. "The free access" contemplated in section 38, as observed above, does not mean a storming of the fort of an un expecting 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."

36. On the question of relief, the learned counsel for the petitioners relied upon the above cases and also on the case of "Shaukat Hussain v. Zulfiqar Ali & 2 others" (PLD 1981 Lah. 13), declaring "the search and the seizure of the goods" to be without lawful authority and of no legal effect as well as the consequent proceedings to be non‑existent in the eye of law. The goods seized were ordered to be returned to the petitioners. The Hon'ble Sindh High Court in the case of "S.M. Yousaf v. Collector of Customs" (PLD 1968 Karachi 599) also held that if the search and seizure were illegal, the goods seized as a result of the same must be returned. The above view was upheld by the Hon'ble Supreme Court on appeal in "S.M. Yousaf v. Collector" (PLD 1969 SC 153). The Hon'ble Supreme Court observed that no conditions on return of goods could be imposed. Similarly in the case of "Iqbal Akhtar v. Ch. Muhammad Mushtaq and 4 others" (PLD 1977 Lah. 1318), on ad judgment of the proceedings of the raid, the search, the seizure and the prosecution as without lawful authority, the subsequent proceedings based thereon were declared to be illegal and non‑existent in the eye of law.

37. In view of the above discussion, it is held that in both the cases the purported visit or access by the concerned officers were raids designed at search and seizure of the records and assets which for the above recorded reasons are declared to be without lawful authority and of no legal effect. The proceedings and actions taken in consequent of such raids, searches and seizures including the issuance of any show cause notice, registration of an F.I.R., the complaint, prosecution or recovery proceedings, are also adjudged to be illegal, unlawful and without lawful authority. The respondents shall in both cases (Food Consults and Diplex) return to the petitioners, within a period of 30 days, the records, accounts, papers or the other property seized during such raids and searches. The respondents are further restrained from using the seized material or records etc. in any manner whatsoever to any proceedings or actions against the petitioners.

38. The petitions are accepted in above terms. S.A.K./F‑23/L Petitions accepted.