2025 PLP 1095 (PTD)

MUHAMMAD SAJID MEHMOOD SETHI, J.

This consolidated judgment shall decide instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), along with connected Reference Application i.e. STR No.73779 of 2022 as common questions of law and facts are involved in these cases.

2. The following question of law, asserted to have arisen out of the impugned order dated 31.08.2015, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), has been pressed and argued for our opinion:- "Whether non-appearing of two witnesses on recovery memo dated 19.11.2013 as required under Sections 102 and 103 of Cr.P.C. is not a procedural / technical infirmity as held by the Honorable Supreme Court of Pakistan in a reported judgment cited as 2005 PTD 2234, 94 TAX 101 in the case of Messrs Medora of London Ltd. and another?"

3. Brief facts of the case are that a show cause notice was issued to the respondent-taxpayer on 07.05.2014 confronting willful / deliberate evasion of sales tax found on the basis of contravention report, during the period from financial years 2007-08 to 2013-14. The SCN culminated in passing of assessment order dated 17.09.2014. Being aggrieved, the registered person went into appeal before the CIR (Appeals), who vide order dated 15.01.2015 upheld the action of the assessing officer, however, on the issue of limitation the principal amount of sales tax along with corresponding default surcharge and penalty relating to the tax period up to March 2009 was vacated. Against the Order of the CIR (Appeals), the registered person preferred second appeal before the learned Appellate Tribunal, who vide order dated 31.08.2015 allowed the appeal and vacated the order-in-original.

4. Learned counsel for applicant-department submits that non-appearance of two witnesses on the recovery memo as required under Sections 102 and 103, Cr.P.C. is a procedural/technical infirmity. He has referred to Collector of Sales Tax and others v. Messrs Medora of London Ltd. and another (2005 PTD 2234). Contrarily, learned counsel for respondent-taxpayer defends the impugned order.

5. Arguments heard. Available record perused.

6. Section 40 of the Act of 1990 authorizes an Officer of Inland Revenue to enter a place, after obtaining a warrant from a Magistrate, to search any documents or items, that in his opinion may be useful or relevant to any proceedings under the Act. The use of word "shall" in subsection (2) of Section 40 of the Sales Tax Act, 1990, makes the procedure outlined in the Criminal Procedure Code, 1898 as mandatory. The provisions of Section 103, Cr.P.C. require that a search be conducted in the presence of two or more respectable inhabitants of the locality, which was not done in this case. It has not been shown to us by learned counsel for applicant-department that the recovery memo dated 19.11.2013 contained signatures of any witnesses. This establishes that no witnesses were associated with the seizure of record and or preparation of the seizure memo, as rightly observed by learned Appellate Tribunal.

7. The provisions of Section 40 of the Act of 1990 have not been complied with by the department in letter and spirit while conducting raid and seizing the documents. All searches made under the Act of 1990 are to be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898. The procedure regarding search has been provided in Sections 96, 98, 99-A and 100 of the Cr.P.C. whereby firstly, a search warrant is to be obtained from the Illaqa Magistrate when search of the premises is to be conducted. In accordance with the Section 103 of the Cr.P.C., it is mandatory to involve 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. It is evident from the record that there has been a clear departure from the compliance of the procedure and law qua the impugned action, therefore, the so-called recoveries cannot be used against the respondent. Reliance is placed upon 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), A.R.K. Textiles through Proprietor v. Federation of Pakistan through Ministry of Finance, Islamabad and 4 others (2006 PTD 494), Shafqat Hameed v. Federation of Pakistan (PTCLR 834) and Naimat alias Chacha Katta v. Summary Military Court No.2, Lahore and another (PLD 1979 Lahore 279).

8. Needless to observe, Section 38-A (inserted through the Finance Act, 2004), Section 40 (substituted through the Finance Act, 2004) and Section 40-A (omitted by the Finance Act, 2006) are meant to curtail and monitor the unlimited and unbridled powers of the sales tax authorities, which were resulting in undue harassment and humiliation of taxpayers. We are also fortified by the judgment reported as Chairman, Central Board of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) Ltd. Burewala (2007 SCMR 1039). No doubt, tax officials are empowered under the law and are duty bound to check tax evasion but, it is always to be kept in mind that the evasion of taxes and duties is a contravention of law, which cannot be eradicated through commission of another illegality and contravention of law. An illegality can be checked by adherence to the dictates and requirements of law only. Reference can be made to M/s. N. P. Water Proof Textile Mills (Pvt.) Ltd., Karachi v. Federation of Pakistan and another (2004 PTD 2952). Learned counsel for applicant-department has failed to pinpoint any illegality or legal infirmity in the impugned order. The case law relied upon by learned counsel for applicant-department is distinguishable as the case of Messrs Medora of London is a leave-granting order, as such not applicable to the present scenario.

9. In view of the above, question, supra, is answered in affirmative. This Reference Application, along with connected Reference Application, is decided against the applicant-department.

10. Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal as per Section 47(5) of the Sales Tax, 1990. MQ/C-5/L References dismissed.