Limitations on exercise of powers under section 38 The Sales Tax Act, 1990

Section 38 of the Sales Tax Act, 1990 did authorise an officer of Sales Tax to have an access to the premises, stocks, accounts and records in respect of an inquiry or investigation relating to a tax fraud, and in consequence the authorised officer is empowered to conduct investigation. However, in order to invoke these provisions, the officer must be authorised by a competent authority, furthermore, there must be some ongoing investigation relating to a tax fraud.1
The authorised officer enjoys full powers and authority to inspect the offending promises and the prescribed records to ensure that the tax payer is abiding by the law in respect of proper maintenance of prescribed records, and to satisfy himself that the prescribed records as required under the law is fully in order, and such officer has to act fairly, justly and reasonably while exercising the said powers and such officer has to disclose that he has been dully authorised to act by the competent authority.
Where any action is taken without authorisation, such action would be illegal, null and void, since the requirements of the provisions of section 38 are not complied with. It may be noted that section 38 by itself does not authorise an officer to carry out searches and seizures since there are other provisions in the law; for example powers conferred under section 40 and 40-A of the Sales Tax Act, 1990, the provision of said sections do provide authority to search and seize. The powers under section 38 as such are only restricted to check the maintenance of prescribed records related with the offences related to book keeping requirements.2
Furthermore, another important requirement is the basis and belief upon which an office is invoking the powers under section 38 must record before embarking upon an inquiry. The provisions of section 38 of the Sales Tax Act, 1990 have been enacted with a view to protecting the interest of the citizens and therefore a tax official who claims to be authorised by the competent authority is bound to show the authorisation to the person who is asked to make the compliance of the requirements of the sales tax law.
It is noteworthy that where the tax authorities carry out searches without any authorisation, a contravention case made by such officer would be null and void having no legal effect. The authorisation of the competent authority is mandatory.
It would, therefore, be necessary for the departmental officers that before embarking upon to exercise powers under section 38 of the Sales Tax Act, 1990, such functionaries must have reasons to believe that such a visit or inspection of records:
I. Is duly warranted by law;
II. There exists a sound belief on record that exercise the powers conferred under section 38 of the Sales Tax Act, 1990, it is also mandatory that the reasons for such belief must be recorded;
III. A situation exists where a registered person has filed documents in the normal course and these documents reveal non compliance of sales tax law;
IV. Such visit must be confirmed in advance to the taxpayer indicating the requirements and the purpose of visit;
V. Custody of documents can only be taken of such records which have been presented to the visiting officer by an authorised person of the tax payer;
VI. A proper receipt for taking the documents in custody must be given to the taxpayer;
VII. Any record or document taken into custody under compulsion cannot be used for any purpose against the tax payer.
Thus where a departmental officer act in violation of the said provisions of law, his act would amount to an act falling short of the requirement to act fairly, justly and reasonably and would therefore make the undertaken proceedings in violation of law as being illegal and void.
It must therefore be noted that where a visit is conducted by an unauthorised person and there was no reasonable cause to conduct such visit, the action of the departmental authorities would be void and illegal as the contemplated actions are not in compliance with the requirements of the sales tax law.
(The writer is an advocate and is currently working as an associate with Azimud-Din-Law Associates Karachi)
1. The law requires that such demand of documents for inspection can also be made from a person who is liable for registration and demand of documents relate to for an inquiry or investigation relating to a tax fraud committed by him.
2. A probable cause for search can arise during the visit made in exercise of powers under section 38, if it does, provisions of section 40 and 40-A must be complied with.