Director Directorate of Intelligence & Investigation-Customs Vs Habib Ullah etc

Stereo. H C J D A 38.

Judgment Sheet

IN THE LAHORE HIGH COURT LAHORE

JUDICIAL DEPARTMENT

Customs Reference No.5289/2025

The Director, Directorate Versus Habib Ullah, etc. of Intelligence & Investigation

JUDGMENT

Date of hearing 26.10.2026 Applicant by Mr. Irtaza Ali Naqvi, Advocate Respondent by: Mr. Musa Hayat, Advocate.

MUHAMMAD AJMAL ZAHID, J.—Through this Customs Reference Application filed under Section 196 of the Customs Act, 1969 (“the Act”), the applicant-department, through the Director, Directorate of Intelligence & Investigation-Customs, has called into question the judgment dated 03.06.2024 passed by the learned Customs Appellate Tribunal, Bench-I, Lahore (“the learned Tribunal”), as resolved by the order dated 19.08.2024 passed by the learned Referee Judge/Chairman in Customs Appeal No.273/LB/2023. The controversy emanates from a difference of opinion between the learned Members (Technical) and (Judicial) of the learned Tribunal concerning the legality of the search and seizure proceedings conducted by the applicant-department and the consequential adjudication of the seized goods.

2.The relevant facts, in brief, are that on 19.12.2022, at approximately 1700 hours, the applicant-department received information that a substantial quantity of smuggled or non-duty- paid goods had been stored in a godown situated at Kacha Khiali Road, opposite Ali Sher Wala Gala, Gujranwala City, allegedly associated with Siddique Butt. The information further indicated

that any delay in taking action might result in the goods being shifted to an undisclosed location, thereby frustrating their recovery. Considering that obtaining a search warrant from the competent Judicial Magistrate under Section 162 of the Act might not be practicable in the prevailing circumstances, the Deputy Director, Intelligence & Investigation-Customs, Gujranwala, recorded the grounds for the proposed search and authorized Mr. Muhammad Arif, Intelligence Officer, accompanied by the requisite staff, to enter and search the premises under Section 163(1) of the Act.

3.Pursuant to the aforesaid authorization, the officials of the Intelligence & Investigation-Customs, Range Office, Gujranwala, reached the premises at approximately 1830 hours on the same day, after making an entry in the Roznamcha of Police Station Khiali, Gujranwala, vide Report No.48 dated 19.12.2022. A person identifying himself as Habib Ullah son of Muhammad Siddique was found present at the premises. The grounds of search were served upon him, whereafter the godown was searched in his presence and in the presence of witnesses. The search resulted in the recovery of 7,300 kilograms, net weight, of foreign-origin aluminium ingots. The person present at the premises allegedly failed to produce documents evidencing the lawful importation or purchase of the recovered goods when called upon to do so.

4.On the basis of the recovery, proceedings were initiated against Habib Ullah son of Muhammad Siddique, resident of Mian Sansi, Bazar No.1, Gujranwala, for the alleged contravention of Section 18 of the Act, attracting the confiscation provisions of Section 156(1)(90) of the Act, read with Section 3(1)(3) of the Imports and Exports (Control) Act, 1950. A Show-Cause Notice dated 27.01.2023 was accordingly issued, requiring him to explain why the seized goods should not be confiscated and the prescribed penalty imposed. Upon conclusion of the adjudication proceedings, the learned Additional Collector of Customs

(Adjudication), Lahore, through Order-in-Original No.151/2023 dated 14.04.2023, ordered release of the goods to their lawful owner against payment of redemption fine at the rate of 20% of the customs value, together with the leviable duties and taxes.

5.Feeling aggrieved, the respondent challenged the Order-in- Original before the learned Tribunal. The learned Member (Technical), through judgment dated 03.06.2024, set aside the Order-in-Original and remanded the matter to the original adjudicating authority for a fresh decision after consideration of the relevant documents and affording an opportunity of hearing to both parties. The learned Member (Judicial), however, expressed a dissenting opinion and held that the Order-in-Original was liable to be set aside and the appeal allowed.

6.Owing to the difference of opinion, the matter was referred to the learned Referee Judge/Chairman for determination in accordance with Section 194-C(5) of the Act. The following points of difference were referred for determination: “i) Whether search and seizure as conducted by the detecting agency was in consonance with the procedure provided under Section 163 of Act IV of 1969 and the peculiar circumstances of the case make room dispensing the requirement of Section 162 of ibid?

ii)Whether non-service of Notice under Section 171 of Customs Act, 1969 renders the seizure of goods illegal?

iii. Whether the Appellant has purchased the subject goods from Anayat Ullah s/o Israr Ahmed who purchased these goods from auction held on 25.10.2022 vide D.O No. 2548 dated 22.11.2022 issued by Auctioneer Business Line Indicators Quetta?”

The learned Referee Judge/Chairman concurred with the opinion of the learned Member (Judicial), set aside the Order-in-Original dated 14.04.2023 and allowed the respondent’s appeal. Dissatisfied with the decision, the applicant-department invoked the reference jurisdiction of this Court under Section 196 of the

Act. Vide order dated 29.01.2025, the Reference Application was admitted for regular hearing on the following questions of law:

“C. Whether the learned Appellate Tribunal failed to consider the fact that a furnace/burner was installed adjacent to the godown for transforming the aluminum ingots into utensils, pots, and pans, thereby justifying the immediate action taken under Section 163 of the Customs Act, 1969, especially considering that the Judicial Magistrate's court was closed at 17:00 hours? D. Whether the learned Appellate Tribunal erred in disregarding the immediate danger of the potential transformation of aluminum ingots into utensils, thereby justifying the invocation of Section 163 of the Customs Act, 1969, and rendering the impugned order unlawful and liable to be set aside?

E. Whether the learned Appellate Tribunal erred in law by ignoring the fact that the information regarding the smuggling of goods was received after the District Court's working hours had expired, and whether the need for rapid action to prevent the transformation of goods into marketable items justified the actions taken by the detecting agency?”

7.Learned counsel for the applicant-department contends that the learned Members of the Tribunal differed on the legality of the search and seizure proceedings, but the learned Referee Judge/Chairman failed to appreciate the circumstances necessitating immediate action. It is submitted that a furnace or burner was installed adjacent to the godown and that the aluminium ingots could readily have been converted into utensils, pots, pans and other marketable articles, thereby altering their form and potentially complicating their identification and recovery. Learned counsel further submits that the information was received at approximately 1700 hours, when the competent court was allegedly no longer available for obtaining a search warrant. According to him, the detecting agency was, therefore, justified in invoking Section 163 of the Act, and the impugned

decision suffers from an error of law warranting interference by this Court.

8.Conversely, learned counsel for the respondent supports the impugned decision and submits that the learned Referee Judge/Chairman correctly resolved the difference of opinion in favour of the respondent. It is contended that the exercise of search powers without first obtaining a warrant must strictly conform to the statutory conditions prescribed by law and that a general assertion of urgency cannot validate an otherwise unlawful search. Learned counsel further submits that the applicant-department has failed to demonstrate any legal infirmity in the impugned decision warranting interference within the limited scope of the reference jurisdiction of this Court.

9.We have heard learned counsel for the parties and examined the available record with their assistance.

10.The principal controversy arising from the questions of law admitted for hearing concerns the scope and application of Sections 162 and 163 of the Act. These provisions regulate the exercise of search powers by the customs authorities, while prescribing distinct procedures for circumstances in which a search warrant is obtained and those in which a search is undertaken without a warrant.

11.Section 162 contemplates a search warrant issued by the competent Judicial Magistrate in accordance with the statutory requirements. Section 163(1), on the other hand, provides a mechanism for a warrantless search in circumstances falling within its prescribed conditions. The latter provision is not an unrestricted alternative to the warrant procedure. Its exercise depends upon the existence of the requisite reasonable grounds and compliance with the safeguards expressly stipulated by the legislature.

12.The material consideration under Section 163(1) is whether the authorized officer had reasonable grounds for believing that the relevant goods, documents or things were concealed or kept at a particular place and were in danger of being removed before a search could be effected under Section 162. The provision further requires the grounds of belief, together with the particulars of the goods, documents or things sought, to be recorded in writing before the search is undertaken. The subsequent requirements prescribed by Section 163, including those concerning the signed statement and the manner of conducting the search, must also be observed in accordance with law.

13.The statutory distinction is significant. Section 163 cannot be invoked merely because a customs officer considers immediate action convenient or desirable. Equally, the existence of the ordinary warrant procedure under Section 162 does not preclude recourse to Section 163 where the circumstances satisfy the conditions expressly prescribed for a warrantless search. The legislature has recognized that, in appropriate circumstances, the delay inherent in obtaining a warrant may expose goods liable to confiscation to the risk of removal. The law, therefore, balances the need for effective enforcement against the protection afforded by procedural safeguards.

14.It follows that the legality of a warrantless search must be determined by reference to the circumstances existing when the power was exercised. The officer’s belief must have an objective and reasonable foundation in the material available at the relevant time. The requirement is not satisfied by a bare assertion of urgency or by merely recording a conclusion in the authorization. At the same time, the officer is not required to establish retrospectively that removal of the goods would certainly have occurred. The question is whether the material and circumstances reasonably supported the belief contemplated by the statute.

15.In the present case, the applicant-department relies principally upon two circumstances: first, that the information regarding the suspected smuggled goods was received at approximately 1700 hours, allegedly after the ordinary working hours of the competent court; and, second, that a furnace or burner was installed adjacent to the godown, creating the possibility that the aluminium ingots might be converted into utensils, pots, pans or other marketable articles. These circumstances are relevant to the assessment of urgency, but their legal significance must be determined in the light of the precise statutory test.

16.The receipt of information after ordinary court hours does not, by itself, dispense with the requirements of Section 163. The mere fact that a court is stated to be closed at a particular time cannot automatically establish that the goods were in danger of removal before a search could be effected under Section 162. The applicant-department must demonstrate the connection between the prevailing circumstances and the reasonable belief required by the statute. The time of receipt of information, the availability of the warrant procedure, the nature and reliability of the information, the likelihood of delay and the risk of removal must be considered collectively rather than in isolation.

17.Likewise, the alleged presence of a furnace or burner adjacent to the godown may be relevant to the assessment of the risk of alteration or transformation of the recovered goods. Nevertheless, the possibility that aluminium ingots could be converted into finished articles does not, without more, establish the particular danger contemplated by Section 163(1). The statutory test concerns the danger of removal before a search can be effected under Section 162. The alleged risk of transformation may form part of the surrounding circumstances, where supported by evidence, but cannot replace the statutory requirement.

18.There is, moreover, a material distinction between the possibility that goods may be processed or transformed and the reasonable belief that they are in danger of being removed before a warrant-based search can be effected. The two circumstances may overlap in a given case, but they are not legally synonymous. The applicant-department was required to demonstrate that the circumstances relied upon satisfied the statutory condition for dispensing with a warrant. A generalized apprehension that the goods might be converted into marketable articles cannot, on its own, confer authority to conduct a warrantless search.

19.The contemporaneous record is, therefore, of central importance. The grounds of search recorded by the competent officer, the authorization issued before the search, the Roznamcha entry, the time and nature of the information received, the circumstances in which the officials proceeded to the premises, and the documents evidencing compliance with the requirements of Section 163 must be examined together. The fact that the search resulted in the recovery of 7,300 kilograms of foreign-origin aluminium ingots cannot, by itself, retrospectively validate the exercise of the search power. The legality of the action must be assessed on the basis of the authority available and the statutory conditions fulfilled at the time of the search.

20.Conversely, the absence of a warrant does not, in itself, render the search unlawful. Where the conditions of Section 163 are duly established and the prescribed safeguards are observed, a warrantless search may be legally sustainable. The issue is not whether one procedure is invariably preferable to the other, but whether the particular search complied with the procedure authorized by the Act. The applicant-department’s plea of urgency must be tested against that standard, just as the respondent’s challenge must be determined by reference to the relevant statutory requirements and the available evidence.

21.Section 163 of the Act is not an independent power of search; rather, it is an exception to Section 162 of the Act. The officer who wants to dispense with the requirement of obtaining a warrant from a Magistrate must strictly comply with the statutory conditions (i) the search must be conducted by an officer not below the rank of Assistant Collector of Customs; (ii), the officer must record in writing the grounds for his belief (iii) a copy of the grounds so recorded must be left at the place searched, and a copy thereof must be served upon the occupier of the premises. (iv) the search must be conducted in accordance with the applicable provisions of the Code of Criminal Procedure, 1898 and failure to follow the mandatory statutory conditions governing the exercise of the power of search renders the assumption of jurisdiction under Section 163 as illegal and void. Reference in this regard may be made to Collector of Customs, Lahore and others v. Universal Gateway Trading Corporation and another (2005 SCMR 37), Khalid Mehmood v. Collector Of Customs, Customs House, Lahore (1999 SCMR 1881), Muhammad Sham and another v. Collector Customs and another (1997 SCMR 1975), Collector of Customs (Preventive) and 2 others v. Muhammad Mahfooz (PLD 1991 S.C. 630), Assistant Collector, Central Excise and Land Customs, Lahore-II and another v. Shafqat Shah and others (1991 SCMR 2525), Deputy Collector, Central, Excise and Land Customs, Lahore and 2 others v. Muhammad Munir and others (1989 SCMR 311). 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), Collector of Sales Tax and Central Excise (Enforcement) and others v. Messrs Mega Tech (Pvt.) Ltd. (2005 PTD 1933) and Chairman, Central Borad of Revenue and others v. Messrs Haq Cotton Mills (Pvt.) Ltd. Burewala (2007 SCMR 1039). The controlling consideration in the present matter

remains compliance with the express conditions governing the exercise of search powers under the Act.

22.The second point of difference before the learned Referee Judge/Chairman concerned the alleged non-service of notice under Section 171 of the Act. This issue must be distinguished from the requirement under Section 163 concerning the recording and delivery of the grounds of search. The two requirements serve related but separate purposes and compliance with one does not automatically establish compliance with the other.

23.The learned Member (Judicial) and the learned Referee Judge/Chairman found that the department had failed to establish service of notice under Section 171 upon the person concerned in connection with the seizure. The record, as described in the impugned decision, did not adequately disclose the identity of the person upon whom the requisite notice was allegedly served. The applicant-department’s position must, therefore, be examined against the statutory obligation and the evidence of compliance available on record.

24.Where service of a statutory notice is disputed, a general recital in a Show-Cause Notice or an adjudication order does not necessarily establish compliance. The relevant record must disclose, to the extent required by the statute, the identity of the recipient, the nature of the document served and the manner in which service was effected. Similarly, the fact that the grounds of search were allegedly served upon Habib Ullah, who was present at the premises, cannot without further examination conclusively establish compliance with the separate requirement under Section

25.The statutory requirement of notice must be applied in accordance with its actual language and purpose. Whether a particular omission renders the seizure unlawful depends upon the nature of the obligation, the circumstances of non-compliance and

the legal consequences prescribed by the Act. The department cannot claim automatic compliance merely by asserting that notice was served; equally, the legal consequence of an alleged defect must be determined by reference to the applicable statutory provision and the record.

26.It is, however, material that the questions of law admitted by this Court are confined to the circumstances relied upon to justify the warrantless search under Section 163. The issue of service under Section 171 formed part of the points of difference before the learned Referee Judge/Chairman, but it is not separately reproduced among the questions admitted for regular hearing. Accordingly, it is not appropriate in this reference to undertake a fresh factual determination of that issue as though the entire appeal had been reopened. Its relevance lies in understanding the basis of the decision under challenge and determining whether the questions of law actually admitted disclose a legal error warranting interference.

27.The third point of difference concerned the respondent’s assertion that the recovered goods had been purchased from Anayat Ullah son of Israr Ahmed, who had allegedly acquired them through an auction conducted on 25.10.2022, under Delivery Order No.2548 dated 22.11.2022 issued by Auctioneer Business Line Indicators, Quetta.

28.The evidentiary value of the asserted auction purchase depends upon the authenticity of the relevant documents and their connection with the goods recovered from the premises. The mere production of an auction document or an assertion of purchase does not, without verification, conclusively establish the lawful importation or acquisition of the particular goods in question. Conversely, such documentary material cannot be disregarded without proper consideration merely because the goods were of foreign origin.

29.This issue, too, formed part of the points referred to the learned Referee Judge/Chairman. Its independent determination in the present proceedings must remain within the scope of the questions of law admitted by this Court. The claim of lawful acquisition cannot substitute for examination of the legality of the search, nor does the legality of the search by itself conclusively determine the evidentiary value of the respondent’s purchase documents. The two issues are distinct and must be addressed in accordance with their respective legal and evidentiary requirements.

30.The jurisdiction conferred upon this Court by Section 196 of the Act is directed towards the determination of questions of law arising from the order under challenge. Although a question may involve consideration of the factual record, the reference jurisdiction does not ordinarily permit a wholesale reappraisal of the evidence as though this Court were exercising the original appellate jurisdiction of the learned Tribunal. Interference is, however, warranted where the decision under challenge proceeds upon an erroneous interpretation of law, disregards a mandatory statutory requirement, or rests upon a material misreading or non- reading of the record that gives rise to a question of law.

31.The principles governing reference jurisdiction have been considered by the Hon’ble Supreme Court of Pakistan in Interquest Informatics Services v. Commissioner of Income Tax (2025 SCMR 257), Commissioner Inland Revenue (Special Zone for Builders and Developers), Regional Tax Office, Islamabad v. Khudadad Heights, Islamabad (2025 SCMR 716), Collector of Sales Tax and Central Excises, Lahore v. M/s Qadbros Engineering (Pvt.) Ltd., Lahore (2023 SCMR 939), Commissioner Inland Revenue, Lahore v. Sargodha Spinning Mills (Pvt.) Ltd., Faisalabad (2022 SCMR 1082), Pakistan Match Industries (Pvt.) Ltd. v. Assistant Collector, Sales Tax and Central Excise, Mardan (2019 SCMR 906), Army Welfare Trust (Nizampur Cement

Project), Rawalpindi v. Collector of Sales Tax (now Commissioner Inland Revenue), Peshawar (2017 SCMR 9), F.M.Y. Industries Ltd. v. Deputy Commissioner Income Tax and another (2014 SCMR 907), Commissioner of Income Tax, Companies No.1, Karachi v. M/s Hassan Associates (Pvt.) Ltd., Karachi (1994 SCMR 1321), Commissioner of Income Tax, Central Zone-B v. Messrs Farrokh Chemical Industries (1992 PTD 523), and S.M. Ilyas & Sons v. Commissioner of Income Tax, Lahore Zone [(1982 46 Tax 113 (S.C. Pak.)]. These authorities must be applied in accordance with the statutory context and the legal propositions established in their respective judgments.

32.In the present case, the applicant-department’s principal contention is that the receipt of information after ordinary court hours, coupled with the alleged presence of a furnace or burner near the godown, justified immediate action under Section 163 of the Act. However, neither circumstance, considered in isolation, dispenses with the statutory requirement that the authorized officer must have reasonable grounds for believing that the goods were in danger of removal before a search could be effected under Section 162. The urgency asserted by the department must be demonstrably connected to that statutory condition and supported by the contemporaneous record.

33.The questions admitted by this Court do not invite a general endorsement of the department’s enforcement objectives; rather, they require determination of whether the circumstances relied upon legally justified the exercise of the exceptional power of warrantless search. The statutory safeguards cannot be diluted merely because the action was undertaken in the course of preventing smuggling or resulted in the recovery of a substantial quantity of foreign-origin goods. Effective enforcement of customs law and adherence to the procedure prescribed by the legislature are complementary requirements, not competing considerations.

34.Upon consideration of the submissions and the scope of the questions admitted for hearing, we find that the applicant- department has not established a sufficient legal basis for setting aside the impugned decision. The asserted closure of the competent court and the alleged risk of transformation of the aluminium ingots into finished articles do not, without the requisite connection to the statutory danger of removal and compliance with the prescribed safeguards, establish that the warrantless search was lawful. No error of law warranting interference under Section 196 of the Act has, therefore, been demonstrated in respect of the questions admitted for determination.

35.Consequently, the questions of law are answered against the applicant-department and in favour of the respondent. The instant Customs Reference Application is dismissed, and the order dated 19.08.2024 passed by the learned Referee Judge/Chairman shall remain undisturbed. There shall be no order as to costs.

36.The Office shall transmit a copy of this judgment to the learned Customs Appellate Tribunal, Lahore, in accordance with Section 196(10) of the Customs Act, 1969.

(Hassan Nawaz Makhdoom) (Muhammad Ajmal Zahid) Judge Judge

APPROVED FOR REPORTING

Judge Judge

M. Tahir*