Every fiscal statute provides power to the officer for inspection of the records to ascertain the proper payment of tax. These measures are provided in the statute to prevent the evasion of tax. All the Act, Income Tax Act, Erstwhile Central Excise Act and Customs Act, Every State Law and Now Goods and Services Tax Act makes provision relating to inspection, search and seizure. The Sections 67 to 72 of GST Act makes provision in this regard. The provisions under these sections along with the general principle in this regard based on judgments rendered in context of provisions in other statute are discussed as under:
1. Access to Business Premises
2. Power to Inspection, Search and Seizure
3. Inspection of goods in movement
4. Power to summons to give evidence
5. Power to arrest
6. Other officers to assist
Access to Business Premises
Section 71 of the GST Act, any officer not below the rank of Joint Commissioner as authorised by proper officer shall have access to any business premises to inspect books of account, documents, computers, computer programmes, computer software and such other things which may require. The purpose of having access to business premise is carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
This section further provides that the person in charge of the premises shall on demand made by authorised officer or by the Audit Party or by cost Accountant or Chartered Accountant nominated under section 11 provide the following:
(i) The records as prepared or maintained by the registered person and declared to the proper officer as may be prescribed
(ii) Trial balance or its equivalent;
(iii) Statements of annual financial accounts, duly audited, wherever required;
(iv) Cost audit report, if any, under section 148 of the Companies Act, 2013 (18 of 2013);
(v) The income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 (43 of 1961); and
(vi) Any other relevant record.
The above records will be presented for scrutiny by authorised person within a period not exceeding fifteen working days from the date when such demand is made or further period as may be allowed Joint Commissioner.
Power to Inspection, Search and Seizure
The power of the authorised person to inspect, search and seize the goods or documents are provided in Section 67 of the GST Act. These are discussed below:-
(a) Power to inspection
(b) Search and Seizure
(c) Return of seized goods
(d) Applicability of code of criminal procedure
(e) Seizure of account, register etc.
(f) Purchase of sample
Power to Inspection
The clause (1) of the Section 67 provides that when proper officer not below the rank of Joint Commissioner has reasons to believe that: A taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made hereunder to evade tax under this Act; or
(a) Any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act. He may authorise in writing to the officer to inspect any place of business of taxable person or the persons engaged in transportation of goods or owner or operator of warehouse or go down.
Thus, the officer shall have reason to believe about suppression of information leading to suppression of tax amount. The identical word appears in Section 132 of Income-tax Act. The various authorities have interpreted the said words “reason to believe” in various judgments. These are discussed below:
• Has reason to believe – The words “has reason to believe” in section 132(1) postulate belief and existence of reasons for that belief. The belief must be held in good faith: it cannot be merely pretence. It does not mean a purely subjective satisfaction of the officer ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437 (SC)].
The expression “reason to believe” is both subjective and objective but the area of objectivity is limited. Its existence is subject only to a limited scrutiny and the court cannot substitute its own opinion for that of the authority specified in the section [Balwant Singh v. R.D. Shah, (1969) 71 ITR 550, 562 (Delhi).
• Formation of belief – The formation of the belief within the meaning of section 132(1) is an important step and a condition precedent to the authorisation of search and seizure. It is nevertheless basically a subjective step. It is one essentially making up one’s mind as to whether on the information presented he had or had not formed the reason to believe. This belief, of course, cannot be a mere pretence nor can it be a mere doubt or suspicion. It is something much more than that. Section 132(1), in its opening paragraph, speaks of “reason to believe” and not “reason to suspect or reason to doubt”. “Reason to believe” is thus a higher test to be fulfilled. It is, however, not necessary for the authorising authority to reach that belief by a process akin to judicial process. His reasons and his belief do not constitute a judicial or quasi-judicial act nor is issue of authorisation a judicial or quasi-judicial function. And the matter, though to an extent justifiable, extremely limited and circumscribed are the court’s power of scrutiny and review in that behalf. One may not like the belief of the authorising authority.
But if the belief is bona fide, if the same is in good faith, if it is not a pretence and if it is cogently supported by the information, the Court will not interfere therewith or sit in appeal over it. Indeed there would, in such circumstances, be no jurisdiction to interfere [Jain & Jain v. Union of India (1982) 134 ITR 655, 661-62 (Bom.)
• The principle for determining the reason to believe can be summarized as below:
(a) The authority must be in possession of information and must form an opinion that there is reason to believe that the article or property has not been or would not be disclosed for the purposes of the Act.
(b) The authorised person must on the basis of information with him shall form opinion whether there is reason to believe or not.
(c) The opinion must be based on the material which is available and it should not be formed on the basis of extraneous or irrelevant material.
(d) The court would examine whether the authorised person had material before it on which he could form the opinion whether there is rational connection between the information possessed and the opinion formed.
(e) The court cannot go in to the question of aptness or sufficiency of the grounds upon which the subjective satisfaction is based.
Communication of the reason to the person is not necessary as there is no provision in the Act which requires the reasons to be communicated to the person.
Authorisation should be in writing and shall provide the same and address and place of business of the taxable person or the person engaged in business of transporting goods or owners of operator of the warehouse or any other place.
2. Search and Seizure
Sub-section (2) provides that either pursuant to an inspection carried out or otherwise the officer not below the rank of Joint Commissioner has reason to believe that any goods is liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorize in writing any other officer to search and seize or may himself search and seize such goods, documents or books or things
As per rule 139( I ),such authorisation shall be issued in form GSTINS-01 Thus, the premises can be searched as result of inspection if it is ascertained that goods are liable for confiscation or any documents is relevant for any proceeding under the Act are hidden in premises. The seizure of goods and documents are normally made by drawing of panchnama. The list of documents or goods are specified in the panchnama. As per Rule 139(2) the Proper Officer shall make an order for seizure in Form GSTINS-02. Sub-section (5) further provides that the person shall be entitled to make copies of the documents or take extract of the documents. The officer undertaking the search has power under sub-section (4) to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied. Thus, search of the premises can be made either as the result ol inspection or otherwise.
First proviso to sub-section (2) of section 67 provides that where it is not practical to seize any goods, the proper officer or any officer authorised by him may serve on the owner or custodian of goods an order that he shall not part with or otherwise deal with the goods except with the permission of such officer. Such order shall be served in form GSTINS-03 as provided in rule 139(4).
Second proviso to section 67(2) provides that the document or books which have been seized shall be retained by the proper officer only if it is necessary for the examination and enquiry or proceedings. Normally, after seizure of books or documents, the proper officer will examine the records and thereafter the officer take statement on oath from the relevant person. Complete enquiry results in serving of show cause notice under section 73 or section 74. The show cause notice refers to the documents which are relied upon for alleging recovery of the amount.
As per section 67(3) after issuance of show cause notice all documents which are not relied shall be returned back to the taxable person within a period not exceeding 30 days from the date of issue of show cause notice. Thus, it creates obligation on the part of the officer to ensure that the documents have been returned back.
As per Rule 139(3) the Proper Officer shall provide custody of such goods or things for safe upkeep to the person.
3. Return of seized goods
Sub-section (7) provide that any seized goods shall be returned if no notice in respect thereof is given within six months of the seizure. The goods shall be returned to the person from whose possession they were seized. The period of six months can be extended for a further period not exceeding six months.
Sub-section (8) of section 67 empowers the Government having regard to perishable, hazardous nature of goods, depreciation in view of goods with passage of time, constraints for storage of space for goods etc., specify that the goods which have been seized shall be disposed of by proper officer. Rule 141 provides that where the goods are of perishable or hazardous nature and if the taxable person pays—
(a) Amount equivalent to market price: or
(b) The amount of tax, interest and penalty whichever is lower
Such goods shall be released forthwith by an order in Form GST-INS-1 on proof of payment. However, where the taxable person fails to pay the amount in respect of such goods the Commissioner shall dispose of the goods. The amount realised thereby shall be adjusted against tax, interest, penalty or any other amount in respect of such goods.
PROVISIONAL RELEASE – Section 67(6) specifically provides that the seized goods shall be provisionally released upon execution of bond and furnishing of security. The bond to the extent of value of goods is required to be executed which is supported by bank guarantee. However, in case the taxable person accepts the contravention, he may pay tax, interest and penalty and obtain release of goods permanently.
As per Rule 140 applicants seeking release of goods provisionally shall execute bond in Form GSTINS-04 for the value of goods. He shall furnish security in the form of bank guarantee equivalent to the amount of tax, interest and penalty. The explanation given in rule 140(1) provides that applicable tax shall include central tax and state tax or central tax and union territory tax, cess payable under Goods & Services Tax Compensation to States) Act 2017. It is the responsibility of the person to whom the goods are released provisionally to produce the goods on the appointed date at the place indicated by the proper officer. In case the goods are not produced, security furnished by the applicant shall be encashed and adjusted against tax, interest, penalty and fine payable in respect of goods.
Applicability of code of criminal procedure
Sub-section 67(10) provides that the provision of code of criminal procedure relating to search and seizure shall apply to search and seizure under this Act. It is provided that the only modification in the provision contained in code is that the word “Magistrate” appearing in Section 165(5) of code of criminal procedure shall be replaced with Principal Commissioner/Commissioner of CGST/Commissioner of SGST.
Section 165 of Code of Criminal Procedure, 1973 specifies the procedure ol making search and seizure. As per sub-section (3), if the police officer is unable to conduct the search of person, he shall require any officer subordinate to him to make the search. The officer shall deliver to such subordinate an order in writing specifying the place to be searched and as far as possible, the thing for which search is to be made. Subordinate officer shall thereupon search things mentioned in the order. Sub-section (5) further provides that the copies of record shall be sent to the nearest Magistrate, empowered to take cognisance of the offence, and to the owner or occupier of the place on application, be furnished free of cost. The proper officer shall draw panchnama at the time of withdrawing of record after the search. The Panchnama must mention the details of record or goods seized by the officer. The copy of the same shall be provided to the jurisdictional Commissioner.
Seizure of account, registers etc.
Sub-section (11) of section 67 authorises the proper officer for reason to be recorded in writing to seize accounts, registers, documents etc. which are produced before the officer if he has reason to believe that such person has evaded or has made an attempt to evade taxes. Thus, during scrutiny of records or any other proceedings, the documents are produced before the proper officer and on examination he finds that the person has evaded the tax or is trying to evade tax, he may seize such documents and provide receipt for the same. The documents shall be retained as long as it is necessary for the purpose of examination.
This section also cast obligation on officer to substantiate that he has reason to believe that any person has evaded tax or attempting to evade tax. The reasons shall be based upon documents which have been produced before him.
Purchase of sample
As per section 67(12), the Commissioner or any officer authorised by Commissioner may cause purchase of any goods or services from the licenced premises of any taxable person to check whether taxable person issues tax invoice or bill of supply or not. Alter examination, if the Commissioner find that tax invoice or bill of supply has been issued, he may return to the taxable person. On returning the goods, the taxable person shall refund the amount after cancellation of tax invoice or bill of supply. This section further authorises the Commissioner to specifically make discreet enquiry about issuance of tax invoice or bill of supply by the taxable person.
Inspection of goods in movement
Section 68 provides that the Central or State Government may require the person in-charge of a conveyance carrying any consignment of goods exceeding such amount as may be specified to carry the prescribed documents. The said document shall be presented to proper officer at the time of verification of vehicle during the search. The officer may detain the vehicle if such documents are not produced for further investigation.
Power to summons to give evidence
Section 70 of GST Act provides that proper officer shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making for any of the purposes of this Act. Such inquiry will be in the same manner as provided in the case of Civil Court under the provisions of the Code of Civil Procedure, 1908.
Further sub-section (2) provides that it will be deemed to be “judicial proceeding within the meaning of Sections 193 and 228 of the 1PC.
Ratio of judgments under other Acts
The provision relating to power to issue summons are also provided in Central Excise Act and Custom Act. The ratio of many judgments rendered under those Acts are equally applicable to the provisions contained in GST Act also. These are summarised below:
SUMMONS SHOULD BE ISSUED ONLY WHEN INFORMATION CANNOT BE OTHERWISE EASILY OBTAINED – It is observed that summons is issued merely to obtain information or documents. Such information/documents can easily be obtained by telephonic request or writing letters. Harsh and legal language of summons causes unnecessary mental stress and embarrassment and instills fear. It may also become source of harassment or unethical practices. Hence, issue of summons should be resorted to only when above modes of communication are found ineffective or when it is essential to ensure personal presence of the person concerned to lend evidence or record statement. Summons should be issued after prior written permission of officer not below rank of Assistant Commissioner (earlier it was Deputy Commissioner) with reasons to be recorded in writing. If it is not possible to obtain written permission, oral/telephonic permission should be reduced in writing and intimated to the concerned officer. Where summons has been issued, officer issuing summons must submit a report of proceeding and ensure that no harassment is caused – CBE&C instruction F No. 137/39/2007-CX-4 dated 26-2-2007 [6 STR C25] – similar instruction* in MF(DR) Instruction No. 207/07/2014-CX.6 dated 20-1-2015.
Summons should BE issued to MD/Highest executive only in rare situations – Summons should not be directly issued to MD/Highest Executive. He may not be aware of all the details. Company can depute person who has full knowledge as its authorised representative. Summons should be issued to the authorised person of company who is’ acquainted with the case. Though enquiry officer has right to summon Managing Director or General Manager, he should not summon them unless required for enquiry – Sudhir Deoras v. CCF. (2012) 284 ELT 32o (Jhar HC DB).
SUMMONS FOR DOCUMENTS SHOULD SPECIFY THE DOCUMENTS CALLED – Summons for producing documents should specify which documents are required. Authority issuing summons should apply his mind with regard to necessity to obtain and examine documents mentioned in the order. – Barium Chemicals v. A. J. Rana – AIR 1972 SC 591 – in this case, summons was set aside on ground of vagueness. All documents pertaining to appellant were called, which were in custody of Registrar of Court and also those which had no bearing on the matter.
All useful and relevant documents to be produced – A person is bound to produce all useful and relevant documents asked. In UOI v. Telco 1997 AIR SCW’ 4262 = AIR 1998 SC’ 287 = 96 ELT 209 (SC), it has been held that Assistant Commissioner is entitled to call tor and examine whatever documents he considers relevant.
PROVISIONS REGARDING TAKING A STATEMENT – Statement can be recorded during such enquiry. It should be recorded before a Gazetted Officer. (Superintendent is the lowest rank of Gazetted Officer in excise department. Inspector is not a Gazetted Officer). Such statement can be used against the person during any legal proceedings. Statement should be signed by the person – Amba Lalx. UOIAIR 1961 SC 264 = 1984(13) ELT 1321′(SC).
The statement should be in writing and signed by the maker, as it safeguards interests of the maker as well as department and eliminates the possibility of making a complaint subsequently that the statement was not correctly recorded by the authorities – C. Sampath Kumar v. Enforcement Officer 96 ELT 511 = (1998) 92 Comp Cas 313 (SC).
Statement should be voluntary -Excise officer cannot compel a person to give incriminating statement without reasonable, care and just procedure. Statement should be voluntary and not under threat. However, a warning that giving false evidence will attract penalty under section 193 of Indian Penal Code does not amount to threat and that provision is made in the statute itself.
No right of silence – Section 14(2) of CEA and section 108(3) of Customs Act specifically provide that all persons summoned shall be bound to speak the truth upon any subject respecting which they are examined and to produce such documents and other things as may be required.
No right to advocate’s presence – In Poolpandi v. Superintendent, C. Ex. (1992) 62 Taxman 447 — AIR 1992 SC 1795 = 60 ELT 24 = 75 Comp Case 504 = (1992) 3 SCC 259 = 1992 AIR SCW 2012 (SC 3 Member Bench) it has been held that person being interrogated is not an accused nor can he plead that there is a possibility of his being made an accused in future. Hence, he has no right to ask for his Advocate’s presence during the enquiry. Interrogating officer may permit presence of advocate end even in such case, the advocate cannot interrupt the investigations. This decision is applicable in all matters under Customs Act, FEMA Income-tax etc.) – quoted with approval in Ajiital Mohammad Ami.) Kasah v. Stale of Maharashtra (2012) 9 SCC 1.
In Senior Intelligence Officer v. Jugal Kishore Samra(2011)12 SCC 362 270 ELT 147(SC), it was reiterated that Advocate cannot be present at the interrogation. However, in this case, considering medical condition, it was ordered that interrogation may be held within sight of his advocate/authorised person seated not within hearing distance. No consultation will be allowed during interrogation.
Normally representation through a lawyer in any administrative proceeding is not considered an indispensable part of the rule of natural justice as oral hearing is not included in ‘he minima of fair hearing. N Kalindi v. Tata Locomotive & Engg. Co A.I.R 1960S.C.914. This denial of legal representation is justified on the ground that lawyers tend to complicate matters, prolong the proceedings and destroy the essential informality of the proceedings. It is further justified on the ground that representation through a lawyer of choice would give an edge to the rich over the poor who cannot afford a good lawyer. No research has so far been made to test the truth of these assertions, but the fact remains that unless some kind of legal aid is provided by the agency itself, the denial of legal representation, to use the words of Professor Allen, would be a ‘mistaken kindness’ to the poor people.
To what extent legal representation would be allowed in administrative proceedings depends on the provisions of the statute. Factory laws do not permit legal representation, Industrial Disputes Acts allow it with the permission of the Tribunal and some statutes like the Income tax Act permit legal representation as a matter of right.
Right to legal representation through a lawyer or agent of choice may be restricted by a standing order also. In Crescent Dyes and Chemicals Ltd. v. Ram Naresli Tripathi. (1930 2 SCC 115, the Supreme Court held that where a standing order restricted the right of representation to any employee of the factory only it would not be considered as a denial of natural justice as to vitiate an administrative enquiry. However, courts in India have held that in situations where the person is illiterate, James Bushi v. Collector of Ganjam, AIR 1959 Ori 152 or the matter is complicated and technical. Natya Ranjan v. State, AIR 1962 Ori 78or expert evidence is on record. Harishchandra v. Registrar, Co-op. Societies, (1966) 12 FLR 141 (MP) or a question of law is involved James Bushi v. Collector of Ganjam, AIR 1959 Ori 152 or the person is facing a trained prosecutor, C.L. Subramaniam v. Collector of Customs, (1972) SC 2178 some professional assistance must be given to the party to make his right to defend himself meaningful.
It is relevant to note at this stage that the Supreme Court in M. H. Hoskot v. State of Maharashtra (1978) 3 SCC 544: AIR 1978 SC 1548. while importing the concept of ‘fair procedure’ in Article 21 of the Constitution held that the right to personal liberty implies provision by the State of free legal service to a prisoner who is indigent or otherwise disabled from securing legal assistance where the ends of justice call for such service.
In Khatri v. Stale of Bihar (1981) 1 SCC 627: AIR 1981 SC 928, the Supreme Court further ruled that the State is Constitutionally bound to provide legal aid to the poor or indigent accused not only at the stage of trial but at the time of remand also. Such right cannot be denied on the ground of financial constraints or administrative inability or that the accused did not ask for it, the Supreme Court emphasized
In case of Nandint Satpathy v. P.L Dani (1978) 2 SCC 424: AIR 1978 SC 1025, the Court held that the accused must he allowed legal representation during custodial interrogation and the police must wait for a reasonable time for the arrival of a lawyer. However, the Court, who took the right step, did not take a long stride in holding that the State must provide a lawyer if the accused is indigent. The observation of the Court could well be inducted in the administration. In the area of criminal justice the Criminal Procedure Code now provides for legal aid to the accused.
Legal assistance in preventive detention cases poses a curious problem because on the one hand preventive detention laws disallow legal representation and on the other they seek to detain people for unproved crimes. However, it is gratifying to note that in this highly-sensitive area, judicial behaviour has shown some remarkable signs of improvement. In Nandlal Bajaj v. State of Punjab (1981) 4 SCC 327 AIR 1981 SC 2041, the Court allowed legal representation to the detainee through a lawyer, even when Section 11 of the Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act. 1980 and Section 8(e) of the COFEPOSA, 1974 denied legal representation in express terms, because the State had been represented through a lawyer. The Supreme Court observed that even when the law does not allow legal representation to the detenu, he is entitled to make such a request and the advisory board is bound to consider this request on merit, and the Board is not precluded to allow such assistance when it allows the State to be represented through a lawyer. Maintaining the same tenor, the court in A. K. Roy v. Union of India (1982) 1 SCC 271 : AIR 1982 SC 710 while deciding the constitutionality of the Nation Security Act, 1980 held that if the Act disallows legal representation to a detenu, the State also cannot take the help of a lawyer. In its eagerness to protect the interest of the detenu, the court in Phillippa Anne Duke v. State of Tamil Nadu(1982) 2 SCC 389 AIR 1982 SC 1178 and Devji Vallabhai Tandel v. Administrator, Goa, Damanand Diu (1982) 2 SCC 222: AIR 1982 SC 1029, conferred upon him the right to appear through his friend who in truth and substance is not a legal practitioner, and is also not a comrade-in-profession of the detenu for which he is detained. Therefore, even in the face of Constitutional and statutory denial of legal representation to a detene, he is entitled to a common law right of representation through a ‘friend’ ID., p. 1238 (AIR).
In USA, a person has a right to legal representation which is guaranteed by the combined effect of the ‘Due Process’ clause of the Constitution and Section 6(a) of the Administrative Procedure Act. 1946.
In England, ordinarily, the right to be represented by a lawyer is not included in the principles of fair hearing. But where there is a right to appear in person or a technical matter of law and fact is involved, the denial of legal representation is considered as an antithesis of fair hearing. R. v. St Mary Assessment Committee, (1891) 1 QB 378 : Pett v. Greyhound Racing Assn., (1968) 2 WLR 1471. The Franks Committee has also recommended that the right of legal representation should not be curtailed save in exceptional circumstances.
Statement should be taken during reasonable time – Normally, statement should be recorded during working hours, but if the circumstances demand, interrogation and examination can be done in night. Statement should be completed as soon as possible after the search.
In many cases, the search and statements continue the whole night and even next day. This is humanly torturous and really assessee can refuse to give statement beyond a reasonable period and say that he will continue his statement after getting reasonable rest (However, generally, people are too scared to do this). Really confinement of a person beyond reasonable time is unlawful arrest of a person.
Taking statement continuously for two days is violation of human rights – in CCF v. State of Bihar  18 taxmann.com 70 (Patna), has indeed rightly held that Continuous interrogation/recording of Statement till late night on second day of search is violation of human right.
No summons after show cause notice is issued – Summons can be issued for making an enquiry for ascertaining whether any offence has been committed. If the show cause notice has been issued, it means that the investigation/enquiry has been completed and no summons can be issued.
Accepting duty liability in statement does not mean acceptance of liability by company – Even if duty liability is accepted while making statement, it does not mean company cannot challenge duty liability These cannot be stopped in matters of taxation – Dodsal P Ltd. v. CCE 2006 (193) ELT 518 (CESTAT).
Power to arrest
Section 69 of the GST Act provide that the Commissioner can arrest the person, it he has reason to believe that the person has committed an offence punishable under Clause (i) or (ii) of sub-section (1) or under sub-section (2) of Section 132. The provision regarding manner of arrest, granting of bail and related judgments are discussed in Chapter 31.
Other officers to assist
Section 72 provides all officers of Police, Railways, Customs and those officers engaged in collection of land revenue including village officers, officers of state and union territories are here bv required to assist the proper officers in the execution of this Act. The Government may issue notification regarding other class of officers to assist the proper officer in execution ol provisions of this Act.
Publicity of Search Cases in the Media
Should the existing practice of giving wide publicity of search in the media be continued, is another controversial issue. The Department’s view is that such publicity is necessary for creating a deterrent effect and is also not prohibited by law. On the other hand, the search casts a slur on the party searched and adversely affects his credit and business standing. In para 3.24 of the Report of the Kelkar Panel, it was recognized that “the social and economic cost of search and seizure activity is very high.” The Report goes on to add, “The concealed income is widely publicised but in judicial proceedings the additions made on that basis are not sustained.” It is high time this practice is stopped for which, in suitable cases, exemplary damages in torts be claimed and law on the subject developed in accordance with the requirements of protecting human rights.
Can the Office Premises of the Assessee’s Tax-representatve be visited?
Sometimes, not finding the account books at the assessee’s business premises and knowing their existence at his tax-representative’s office, the temptation is to visit his office. This is not permitted. Board’s Circular No.7-D (LXIII-7 of 1967) dated 3rd May 1967 clearly prohibits the visit to the assessee’s residential premises or the office premises of his chartered accountant or advocate. The authorised representative should, on being asked to produce the account books, do so or make them over to the assessee with the prior knowledge of and in his presence the income-tax authority.
Power of Search & Seizure
In M.P. Sharma v. Satish Chandra, District Magistrate 1954 AIR 300; (1954) 2 ELT 287 (SC). It was held that power of search and seizure in any system of jurisprudence is an overriding power of the State to provide security and that power is necessarily regulated by law.
In Parekh Prints v. Union of India (1992) 62 ELT 253; (1991) taxman.com 59 (Delhi), it was held that when a statute is constitutionally valid and its language is clear, there is no scope to refer to the objects and reasons of the enactment or deliberations in the Parliament to interpret the provisions of the Act concerned. The High Court held that when the party concerned had collected additional duties of excise from the ultimate consumers and had not repaid the same to the credit of the Central Government they cannot be permitted to make a profit at the cost of public revenue. Therefore, the petitioners must restore the advantage they had got to the detriment of the public revenue, due to the interim orders passed during the pendency of the matter, and to which advantage they were not entitled.
In Dr. Nalini Mahanjan v. Director of Income Tax (Investigation) and Others, (2002 257 ITR 123 (Delhi), it was held that if the requirements of a statute which prescribe the manner in which something is to be done it shall be done in such a manner and in no other manner. Therefore, the search and seizure ordered by the authority concerned cannot be held to be valid, as the proceedings for passing such an order had not been followed.
In G.K. International v. Union of India (2008) 230 ELT 590 (Punjab & Haryana), since the investigation was continuing and the adjudicating authority had not determined any amount to be due and payable by the petitioner, it was held that the department had no legal or moral right to retain the amount deposited by the writ petitioner when no demand had been raised. As such, the department had been directed to refund the amount, along with the copies of the Panchnama drawn during the search and seizure, the other records and data collected from the petitioner.
In Chitra Construction Co. v. Addl. Commercial of C, CE & ST. Coimbatore (2013) 31 STR 385 (Madras), it was held that if there were some materials available for a reasonable and prudent man to believe the search was warranted, then High Court will not delve deeper into subtle and complex intricacies involved in process of formation of opinion in mind of concerned authority.
In V.V.V.R. Sathyam v. The Superintendent (STU) (2013) 29 STR 214. (2012) 276 ELT 318 (Madras), it was held that ‘search and seizure’ is not a new weapon in the armory of those whose duty is to maintain social security it its broadcast sense. The process is widely recognised in all civilised countries. A search and seizure is only a temporary interference with the right to hold the premises searched and the articles seized. Therefore, it cannot be a violation of the provisions of Article 19(1) of the Constitution of India.
Concept of ‘Reason to Believe’
In S. Narayanappa and Others v. Commissioner of Income Tax, AIR 1967 SC 523, it was held that it would be open to the Court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not irrelevant or extraneous to the purpose of section 34 of the Income Tax Act, 1922.
In Balwant Singh and Others v. R.D. Shah, Director (1969) 71 ITR 550 (Delhi), it was held that the information gathered as a result of illegal search and seizure can be used subject to the value to be attached to it or its admissibility, with regard to the law relating to evidence. However, the authority concerned should have information in his possession to give him are reason to believe that action under section 132 of the Income-tax Act, 1961, was necessary.
In ITO v. Seth Bros (969) 74 ITR 836 (SC), it was held that but where power is exercised bona fide and in furtherance of the statutory duties of the tax officers any error of the judgment on the part of the officers will not vitiate the exercise of the power. Reason to believe cannot be arbitrary, capricious or whimsical.
In Chhugamal Rajpatl v. S. P. Chaliha and Others, AIR 1971 SC 736 (SC), the Supreme Court had held that the report of the Income Tax Officer did not set out any reason for coming to the conclusion that it was a fit case for issuing of a notice, under section 148 of the Income-tax Act, 1961. The material that he had before him for issuing the notice under section 148 of the Act, had not been mentioned in the report. He had not mentioned the facts contained in the communications received by him, based on which he had issued the notice. A vague feeling that the transactions may be bogus in nature would not be sufficient for arriving at a decision for issuing such a notice.
In H. L. Sibal v. Commissioner of Income Tax, (1975) 101 ITR 112 (P&H), it was held that the facts constituting the information for the authority concerned to have a reason to believe that a search was necessary must be relevant to the enquiry. They must be such from which a reasonable and prudent man can come to a requisite belief or conclusion. If the said elements are missing, the action of the authority should be struck down on the basis of ‘legal malice’. It had also been held that, due to the applicability of section 165 of the Criminal Procedure Code to the searches and seizures, by virtue of sub-section (13) of Section 132 of the Income-Tax Act, 1961, the taxpayer has been provided with certain important safeguards against arbitrary action, as held by the Supreme Court in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver, (1967) 66 ITR 664.
In ITO v. Lakshman Mewal Das (1976) 103 ITR 437 (SC), it was held that the belief must be genuine and not a mere pretence, and has to be held in good faith and not a reason to suspect.
In Ganga Saran Sons Pvt. Ltd. v. ITO (1981) 130 ITR 111 (SC), it was held that the belief of the assessing authority is mandatory, reasons to believe is stronger than being satisfied. The belief entertained by the assessing officer must not be arbitrary or irrational and it must be reasonable.
In ACC v. Rasikal Chimanlal Shah (1995) 77 ELT 835 (CESTAT, Calcutta-DB), it was held that in search and seizure process, ‘reason to believe’ is important. The reason to believe is a pre-condition for exercising search power. Such a belief must be at the time of power and not at a subsequent state. [Also see: Shantilal Mehta v. Union of India (1983) 14 ELT 1715 (SC)].
In Dr. Partap Singh and Another v. Director of Enforcement, Foreign, Exchange Regulation (1985), AIR 989 (SC) It was held that the expression ‘reason to believe’ is not synonymous with the subjective satisfaction of the officer. The belief must be held in good faith and it cannot merely be pretence. It is open to the Court to examine the question to the limited extent whether the reason for the belief has a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section.
In State of Gujarat v. Shri Mohanlal Jitamljiporwal and Another CDJ (1987) SC 280; (1987) 29 ELT 483 (SC), it was held that “The circumstances have to be viewed from the experienced eye of the officer, who is well-equipped to interpret the suspicious circumstances and to form a reasonable belief in the light of such circumstances. The Supreme Court had stated an economic offence is committed with cool calculation and deliberate design, with an eye on personal profit, regardless of the consequences to the community. A disregard for the interest of the community can be manifested only at the cost of forfeiting the trust and faith of the community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest.”
In Indru Ramchand Bharvani and Others v. Union of India and Others. CJ (1988) SC 247; (1992) 59 ELT 201; (1998) taxman.com 601 (SC), it was observed that the gist of the two sections, namely, sections 110 and 123 of the Customs Act, 1962, is that there must be materials to form a reasonable belief that the goods in question are smuggled. The officer concerned should have a reasonable belief that the goods in question are smuggled goods. The Court cannot sit on appeal on the formation of such a belief by the officer concerned.
In Nenmal Shankarlal Parmer v. Assistant Commissioner of Income Tax, (Investigation) (1992) 195 ITR 582 (Karnataka), it was held that the search proceedings could be challenged and held to be invalid on the ground that no proper information was available for issuing the search warrant. Further, assessee had submitted that if any proceedings had been initiated based on incorrect information, it could be categorised as ‘legal malice’, as held in H. L. Sibal v. Commissioner of Income Tax; (1975) 101 ITR 112 (P&H).
In L. R. Gupta v. Union of India (1992) 194 ITR 32 (Delhi), it was held that ‘reason to believe’ should be backed by adequate material and not based on whims and assumption. ‘Reason to believe’ is wider than ‘reason to suspect’.
In Union of India v. Shyamsunder, (1994) 74 ELT 197 (SC), the Apex Court had reiterated that whether or not the officer concerned had entertained a reasonable belief under the given circumstances is not a matter which can be placed under a legal microscope, with an over indulgent eye which sees no evil anywhere within the range of its eye sight. The circumstances have to be viewed from the experienced circumstances and to form a reasonable belief in the light of such circumstances.
In Praful Chunilal Patel v. Assistant CIT (1999) 5 DTC 270 (Gujarat); (1999) 236 ITR 832 (Gujarat), it was held that the words, reason to believe cannot mean that assessing officer should have finally ascertained the fact by legal evidence, they mean that he forms a belief on the basis of examination he makes and if he likes, from any information that he receives.
In Mapsa Tapes Pvt. Ltd. v. Union of India (2006) 201 ELT 7 (P & H), it was held that power of search and seizure has to be concealed in the larger interest of the society and to check evasion of tax. Exercise of power of seizure is liable to be struck unless ‘reason to believe’ were duly before action of search and seizure was taken. The search and seizure was declared illegal where nothing was produced before the Court to show as to whether reason were recorded or not before search was authorised or seizure took place.
In Jai Hotels Co. v. ADIT (2009) 184 Taxman 1 (CESTAT, Bombay-DB), it was held that a change in opinion is not a reason to believe. If there is no new material, then a mere change of opinion is not a ‘reason to believe’.
In CIT v. Kelvinator India Ltd. (2010) 320 ITR 561 (SC), it was held that there must be tangible material for the formation of the belief in the context of search.
In Y. J. Enterprises v. Commissioner of Customs, Chennai (2017) 350 ELT 383 (Madras), it was held that the Customs Officer can seize an article only when he has reason to believe it is liable to confiscation. The expression reason to believe has been defined in the Indian Penal Code as follows:
“A person is said have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.”
The expression ‘reason to believe’ is distinct from ‘reasonable believe’ and ‘suspicion’. The Customs Officers cannot also act in haste and spoil the export possibilities of an exporter by indiscriminately seizing the goods; based on mere suspension and surmise.
In Commissioner of Commercial Taxes v. R. S. Jhavar and Others, AIR 1988 SC 59 (SC), it was held that all searches must be made in accordance with the provisions of the Code of Criminal Procedure to the extent to which they may apply. Anything confiscated, based on a defective warrant, must be returned to the person concerned.
In Seth Durgaprasad Erc. v. H.R. Gomes (1983) 13 ELT 1501; (1966) 2 SCR 99 (SC), it was held that the object of the grant of power under section 105 of the Customs Act, 1962, is not to search for a particular document but for documents or things which may be useful or necessary for the proceedings, either pending or contemplated, under the Customs Act. 1962. At that state it would not be possible for the officer concerned to predict or to even know in advance what documents could be found in the search and which of them may be useful or necessary for the proceedings. It is only after a search is made and the documents found therein are scrutinised that before the power is exercised, the preliminary conditions required by the section must be strictly satisfied.
• In Abdul Rajah Haaji Muhammad v. Union of India (1986) 25 ELT 305; (1989) taxmann.com 455 (Bombay), it was held that even if a lawyer is present, he cannot interrupt the proceedings during the interrogation/investigation.
• In Southern Herbals Ltd. v. Director of Income Tax, (1994) 207 1TR 55 (Karnataka), it was held that the search warrant issued by the first respondent is not proper, as it had not been issued against any person. The warrant of authorisation must specify the person in respect of whom it is issued, as held. Further, the search of the premises of a partner of a company, firm or concern should have been specifically authorised, as held in Nenmal Shankarlal Parmer v. Assistant Commissioner of Income Tax. (1992) 195 ITR 582 (Karnataka).
• In Gian Castings Ltd. v, Union of India (1999)108 ELT 36 (P&H). it was held that visit by Central Excise Officers in the course of enquiry to cross-check some secret information does not tantamount to search or raid.
• In Harshvadan Rajnikant Trivedi Union of India (2014) 308 ELT 464 (Gujarat), where record/documents were seized under panchnama and assessee was demanding photocopies of seized records and documents and willing to bear cost thereof, it was held that such a request cannot be denied on ground that assessee was not cooperating in inquiry/investigation If assessee does not co-operate, they can be proceeded against ex parte It cannot be denied on basis of clause 55(m) of Central Excise Intelligence and Investigation Manual, which only confers certain right on assessee: time of search and seizure, and has no specific bar under which assessee can be denied photocopies of documents seized, and that too when they are willing to bear the cost.
• In Digipro Import & Export Pvt. Ltd. v. Union of India (2017) 353 ELT 3 (Delhi), where officers of anti-evasion team which had visited premises of assessee collected post-dated cheques on spot, it was held that ascertainment of duty and payment of such duty has to be preceded by orders in writing drawn up at the office of anti-evasion wing. It cannot and should not be ‘on the spot’. Conduct of team was held to be not acceptable. It was not part of their mandate to accommodate request of assessee and grant him indulgence of tendering undated cheques which they agree to hold over for possible encashment at a future date once his financial condition improved. [Also see: Digipro Import & Export Pvt. Ltd. v. Union of India (2017) 350 ELT 145 (Delhi)].
• In MGM Metallisers Ltd. v. Union of India (2016) 342 ELT 337 (Gujarat), it was held that search and seizure effected by the Central Excise Officers could not be held invalid mainly on the basis of the affidavits filed by the assessee alleging such search being with mala fide intent especially when such officers were duly authorised by the competent authority and no specific personal allegations were made against them. [Affirmed by Supreme Court as reported (201 7) 351 ELT A 179 (SC)].
• In CIT v. Tarsem Kumar (1986) 26 ELT 10 (SC), Apex Court held that seizure implies forcibly taking something from its owner or who has possession and who was unwilling to part with such possession. Seizure is taking into possession of goods in pursuance of a legal right.
• In Suhhas Dhanuka v. CCE (1998) 102 ELT 100 (CESTAT). it was held that seized documents should not be retained beyond 60 days if they are is relied upon in the departmental proceedings.
• In Indu-Nissan Oxo Chemical Industries Ltd. v. Commissioner of Customs (1998) 101 ELT 201; (1998) taxmann.com 256 (Madras), it was held that seizure under law means a deprivation of possession and not merely custody.
• In Naresh Kumar & Co. v. Union of India (2010) 28 STT 21; (2010) 19 STR 161 (Calcutta), it was held that revenue authority has no jurisdiction or authority to collect any amount at the time of raid, where it was alleged that on the date of search and seizure operation, it was compelled to hand over cheque of certain amount. Since there is no provision that one has to pay compulsorily tax in advance and also there was no ascertainment of liability, revenue department was to be directed to return principal amount of cheque to petitioner and also to return original books of account and records which had been seized.
• In Parmarth Iron Pvt. Ltd. v. CCE (2010) 255 ELT 496 (Allahabad), where the Department did not supply copies of all documents relied upon in the SCN and a final hearing was fixed and the petitioner was put to hardship since they were unable to cross-examine for want of copies, relying on the following decisions in favour of the petitioner.
– M/s. Bhushan Sled Strips v. Union of India W.P (Tax) 249/2007 decided on 1-3-2007.
– J &K Cigarettes Ltd v. CCS (2009) 242 ELT 189 (Delhi)
– Union of India v. Ex. Constable, Amirk Singh (1991) AIR 564 (SC)
– Roshanlal Agarwal v. Union of Indio (1994) 74 ELT 562 (Rajasthan)
The revenue was directed to return the non-relied upon documents to petitioners and to give inspection of documents seized for effective cross-examination.
• In Jatin Ahiya v. Union of India (2013) 287 ELT 3 (Delhi), where no show cause notice under section 110(2) of Customs Act, 1962 is issued within one year period (six months, if no extension is granted) after seizure of goods, it was held that upon the expiry of one year or six months, seizure ceases and seized goods are to be released unconditionally.
• In Manish Lalit Kumar Bavishi v. Addl. Director General, DRI (2013) 38 STT 116; (2012) 28 taxmann.com 62; (2012) 27 STR 203 (Bombay), it was held that as per section 110(4) of Customs Act. 1962, it is mandatory for the department to make available the copies asked for. Choice of asking for document or seeking extract is of the party and not that of the Department. The Department is bound to make available the documents asked for. The Department had said that the copies would be supplied after completion of investigation which may be impacted by the assessee but copies were not provided.
• In Kishen S. Loungani v. Union of India (2017) 352 ELT 433 (Kerala), it was held that search or seizure or arrest of a person need not necessarily lead to prosecution. It may end in confiscation of goods, imposing penalty in adjudication proceedings or end up in compounding of offence.