The Supreme Court turned down Peshawar High Court (PHC) judgment, which had termed the raid and search conducted in terms of Section 40A of Sales Tax Act, 1990 as illegal.
Chief Commissioner Inland Revenue, Regional Tax Office (RTO), Peshawar, had raided and conducted search on the premises of Paper World (Pvt) Ltd Amangarh, Nowshera, (respondent) and seized record related to evasion and non-payment of dues.
However, Paper World maintained much of the relevant record at certain premises outside the licensed area. To seize such record, the tax officials organized and conducted a raid and search under Section 40A of Sales Tax Act, 1990. The department's (RTO, Peshawar) case was that incriminating material and record were indeed recovered as a result of the raid and search.
Therefore, a show cause notice was issued to the respondent on 16-03-2004 in which it was alleged that there had been evasion and non-payment of dues, totaling Rs 61,103,660.
An order-in-original was made against the respondent (company) dated 12.10.2005. The respondent challenged the same in departmental proceedings (including before the Appellate Tribunal), which were dismissed. The respondent filed tax references before the high court, which were also dismissed by judgment dated 27.03.2008.
The matter then came before the apex court, which remanded the matter to the tribunal on 11.06.2008 for decision afresh. The tribunal so considered the matter and this time, by order dated 07.04.2010, allowed the respondent's appeals. It was, inter alia, held that the raid and search conducted in terms of Section 40A were illegal.
The department being aggrieved by the tribunal decision filed tax references before the high court, which relying on the Supreme Court judgment on Mega Tech (2005 SCMR 1166, 2005 PTD 1933) case dismissed the references on 26.02.2015.
The high court noted that the department received information on 19.01.2014 while the raid was conducted on 20.01.2014, which shows that there was sufficient time with the department to get proper permission from the magistrate concerned as per provisions of the Code of Criminal Procedure. The department for no valid reason bypassed Section 40 and resorted to Section 40-A of the Act, which in the circumstances was not warranted under the law.
The apex court did not agree to either the conclusions or reasoning of the high court. It noted the raid conducted within one day of the receipt of information serves only to show that there was urgency in the matter, and not as (with respect) wrongly concluded by the high court that there was sufficient time to obtain a warrant from the concerned magistrate in terms of Section 40.
The most important of all is that there can be no doubt that the record recovered from the raid was indeed that of the respondent, and related to its business matters and was supportive of the case sought to be made against it, ie, of clandestine removal of goods and evasion of tax.
Why such record was to be found at premises that the respondent itself claimed were "abandoned and vacant" i.e. at other than its place of business or manufacture or registered office, or any other place where it could be reasonably expected or plausibly explained that the record could be maintained, was never explained.
In such circumstances, where the department was operating on the basis of a secret tip-off, the concerned officer could reasonably conclude that the record and material might be removed at any moment. Hence, the ingredients for invoking Section 40A existed in the facts and circumstances of the present case and, with respect, both the high court and the tribunal erred materially in concluding otherwise.
The apex court agreed to the department's contention that Mega Tech case was incorrectly relied upon by the high court and the tribunal.
Copyright Business Recorder, 2019
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