27 September 2008
I have a case study and I hereby invite opinions of experts.
In the state of Assam, one officer along with few colleagues entered in to the residential premises of a Dealer and seized some goods and books of accounts. The dealer had never disclosed his residence as place of business. His shops and Godowns are situated at other places in the city. Queries are:-
01. Is any search warrant from Magistrate is necessary for such search? If it is so, what will be the consequences of such search procedure if no search warrant was obtained and produced before the dealer? 02. Can an officer, without written authorisation of the Commissioner can conduct such search? [Please refer section 74 (4) given below]. If it is so, what will be the consequences of such search procedure if no such authorisation was obtained and produced before the dealer? 03. It has been said that Hon’ble Supreme Court has laid down that “that even if the search and the seizure were illegal, the documents or materials obtained on the search or seizure could be looked into and relied on for the purpose of making the assessment”. Whether on this ground, can some officers continue with conducting such unauthoised search ?
For the ready reference of our experts, Sections 2(35) & 74 are reproduced below.
Section 2(35) "place of business" means any place where a dealer carries on the business and includes,- (i) any shop, ware-house, godown or other place where a dealer stores his goods; (ii) any place where a dealer produces or manufactures goods; (iii) any place where a dealer keeps his books of accounts; (iv) in any case where a dealer carries on business through an agent (by whatever name called), the place of business of such agent; and (v) any vehicle or vessel or any other carrier wherein the goods are stored or which is used for transporting the goods;
Section-74: Production and inspection of accounts and documents and search of premises.-
(1) The Commissioner or any authority appointed under sub-section (1) of section 3 to assist him may, subject to such conditions as may be prescribed, require any dealer or any other person to produce before him any accounts, registers or documents, or to furnish any information, relating to stocks of goods, or to sale, purchase and delivery of goods or to payments made or received by the dealer, or any other information relating to his business, as may be necessary for the purpose of this Act.
Comment:- [The words “sub-section (1)” was substituted in place of the words “sub-section (2)” by Assam Act No. XIII of 2005 brought in to force from 01.05.2005 vide Government Notification No. FTX.55/2005/2 dated 28th April, 2005. Prior to the substitution, sub-section (1) read as under
“The Commissioner or any authority appointed under sub-section (2) of section 3 to assist him may, subject to such conditions as may be prescribed, require any dealer or any other person to produce before him any accounts, registers or documents, or to furnish any information, relating to stocks of goods, or to sale, purchase and delivery of goods or to payments made or received by the dealer, or any other information relating to his business, as may be necessary for the purpose of this Act.”
(2) All accounts, registers and documents including electronic records relating to stocks of goods, or to purchase, sale and delivery of goods, or to payments made or received by any dealer, and all goods and cash kept in any place of business of any dealer, shall at all reasonable time be open to inspection by any authority referred to in sub-section (1), and the dealer shall render all possible assistance to such authority in carrying out the inspection. Explanation.— Such authority may take or cause to be taken such copies or extracts of the said accounts, registers or documents and such inventory of the goods and cash found as appears to him necessary for the purpose of this Act. (3) (a) If any authority referred to in sub-section (1), has reasons to believe that any dealer has evaded or is attempting to evade the payment of any tax due from him and is keeping or has kept his accounts in such a manner as is likely to cause evasion of tax payable under this Act, such authority may, for reasons to be recorded in writing, seize such accounts, registers, documents including electronic records or computer of the dealer, as may be necessary, and shall grant a receipt for the same and obtain acknowledgement of the receipt so given to him: Provided that if the dealer or person from whose custody the books of accounts, registers, documents including electronic records or the computer are seized refuses to give an acknowledgement, such authority may leave the receipt at the premises and record this fact. (b) The authority referred to in sub-section (1), shall keep in his custody the books of accounts, registers, documents including electronic records or the computer seized and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or for the prosecution of the dealer, under any law and shall thereafter be returned to the dealer or any other person from whose custody they were seized, in the prescribed manner: Provided that the authority seizing any books of accounts, registers, documents including electronic records or the computer is any authority other than the Commissioner, such authority may, for reasons to be recorded by him in writing and with the prior approval of the Commissioner, retain such books of accounts, registers, documents including electronic records or the computer for a period exceeding one hundred twenty days: Provided further that on application of the dealer, the Commissioner shall on payment of fees as may be prescribed, provide him with true copies of the said books of accounts, registers or documents including electronic records.
(c) The authority referred to in sub-section (1) may, before returning such books of accounts, registers or other documents as aforesaid, place or cause to be placed such marks of identification thereon as appear to him to be necessary: Provided that such authority may, before returning the books of accounts, registers and other documents, require that the dealer or the person, as the case may be, shall give a written undertaking that the books of accounts, registers and other documents shall be presented whenever required by any competent authority for any proceedings under this Act:
Provided further that such authority shall not return such books of accounts, registers and other documents before expiry of ninety days calculated from the date of issuance of Demand Notice by such authority: Provided also that on application of the dealer such authority may release such books of accounts, registers and other documents before expiry of ninety days with prior approval from the Government.
Comments: Following amendments has been made by the Assam Value Added Tax Act (Third Amendment), 2005 (the Assam Act No. XLVII of 2005) w.e.f. 23-12-2005. i) The punctuation mark “:” has been substituted in place of the punctuation mark “.”appearing at the end of the first proviso. ii) The second and third provisos have been inserted.
(4) For the purposes of sub-section (2) or sub-section (3), the authority referred to in sub-section (1) may, enter and search any place of business of any dealer or any other place where such authority has reason to believe that the dealer keeps or is for the time being keeping any account, registers or documents of his business or stocks of goods relating to his business:
Provided that no such authority below the rank of the Commissioner shall enter and search any residential accommodation (not being a place of business cum residence) unless such authority is specifically authorised in writing by the Commissioner in this regard: Provided further that the power conferred by this subsection, shall include the power,— (i) to search any person who leaves or is about to enter such place of business, residence or any other place or the dealer or his agent and employees present, and if such person is a woman, the search shall be made by another woman, with strict regard to decency; (ii) to make a note or inventory of any thing including goods found as a result of such search; (iii) to record the statement of a dealer or any person connected with his business, and such statement may, after giving the affected person a reasonable opportunity of being heard, be used for the purpose of determining his liability to tax. (5) (a) The authority referred to in sub-section (1), shall have the powers to seize any goods,— (i) which are found in a dealer's place of business or vehicle; or (ii) which, such authority has reason to believe to belong to the dealer and which are found in any place of business or vehicle or any other building or place; but are not accounted for by the dealer in his accounts or registers or other documents maintained in the ordinary course of his business: Provided that a list of all the goods seized under this sub-section shall be prepared by such officer and be signed by the officer and not less than two witnesses. (b) The authority referred to in clause (a) shall as soon as possible, after seizure of the goods under clause (a), serve upon the dealer, a notice to show cause within a period of thirty days of service of such notice as to why a penalty equal to three times of the amount of tax as may be calculated on the price which such goods would have fetched on their assumed sale in the State, on the date of seizure, be not imposed on him for the dealer’s default in not making entries in respect of such goods in his books of accounts or registers or other documents, as the case may be, maintained by him in the course of his business. (c) The authority seizing the goods shall record the statement, if any, given by the owner of the goods or his representative. If the authority referred to in clause (a), after taking into consideration the explanation of the dealer and after giving him a reasonable opportunity of being heard, is satisfied that the entries relating to the said goods were not made in the books of accounts, registers or other documents of the dealer without any proper justification, such authority shall pass an order imposing penalty mentioned in clause (b) and direct him to deposit, in addition to the penalty, advance tax calculated on the deemed sale value of the goods at applicable rate of tax on sales of such goods which shall be adjustable with the liability to tax incurred on the purchase or the sale of such goods or the sale of goods manufactured therefrom and in case he finds otherwise, he shall order release of the goods.
Comments: Following amendments has been made by the Assam Value Added Tax Act (Third Amendment), 2005 (the Assam Act No. XLVII of 2005) w.e.f. 23-12-2005. i) The words “pass an order imposing penalty mentioned in clause (b) and” has been substituted in place of the punctuation mark “,” appearing between the words “such authority shall” and “direct”. ii) The words “calculated on the deemed sale value of the goods at applicable rate of tax on sales of such” has been substituted in place of the words “computed by multiplying the value of the goods with the rate of tax applicable on sale of”.
(d) The authority referred to in clause (a) may, at any time after the service of the notice under clause (b) and before passing an order imposing penalty and for payment of advance tax under clause (c), release the goods seized if the dealer or the person from whom the goods were seized furnishes security equivalent to penalty and advance tax in the form of call deposit receipt drawn on a Scheduled Bank or a Bank guarantee from such a Bank to the satisfaction of such authority, and on payment by the dealer of the penalty and advance tax under clause (c), the security furnished shall be released. (e) Where no security is furnished under clause (d), the dealer shall pay the amount of penalty and advance tax, within ten days of the service of the order imposing penalty and for payment of advance tax on him, and on payment of such amount the goods seized shall be released forthwith. (f) If the dealer fails to pay within the period specified in clause (e) the penalty and advance tax, the authority referred to in clause (a) shall, subject to other provisions of this section, dispose of the goods by way of sale in open auction in such manner as may be prescribed:
Provided that if the goods, in respect of which seizure is made, are of a perishable nature or subject to speedy and natural decay or when the expenses of keeping them in custody are likely to exceed their value, the same may be ordered to be auctioned as soon as it is practicable soon after an order of seizure of such goods is made. (g) The proceeds of sale of the goods referred to in clause (f) shall be applied in the prescribed manner for payment in the following order of priority,— first, for incidental charges, if any, relating to auction sale of such goods; secondly, for expenses, if any, for storage of such goods; thirdly, for advance tax and penalty imposed under clause (b) and clause (c); and the balance of the proceeds of sale, if any, shall be remitted to a Government account and shall be paid to the owner of the goods or, if his particulars are not available, to the persons from whom such goods were seized, upon application within one year from the date of sale or within such further period as may be allowed by the Commissioner for cause shown to his satisfaction.
Any amount of advance tax directed to be paid and penalty imposed under clause (c), which remains unpaid or which cannot be recovered in accordance with the provisions of this sub-section, shall be recoverable as an arrear of land revenue. (h) Any authority referred to in clause (a), seizing the goods shall take all the measures necessary for their safe custody. Where it is not feasible for such authority, to take possession of such seized goods, the said authority may, in writing, give custody of such seized goods to such person from whom the seizure of goods has been made on the express condition that he shall keep such seized goods,— (i) where the custody is given to the person from whom the goods are seized, in the warehouse or any other place where the seizure has been made or in any other place as may be indicated by such authority in the zimmanama; or (ii) where the custody is given to any other person, in the warehouse or place as may be indicated by such authority in the zimmanama and such zimmadar shall not dispose of such goods in any manner and that he shall remain personally liable to return the goods to the authority on demand in the condition in which the goods were at the time of giving zimma: Provided that the authority referred to in this sub-section may take physical possession of such seized goods from the custody of such person even before the conclusion of the proceedings where such person communicates, in writing, to such authority his difficulty in keeping such seized goods in his custody, or such authority finds it expedient to take custody of the goods or to transfer the custody from that person to some other person, for any reason. (6) Where any books of accounts, other documents, money or goods are found in the possession or control of any person in the course of any search, it shall be presumed, unless the contrary is proved, that such books of accounts, other documents, money or goods belong to such person. (7) (a) The authority referred to in sub-section (1), shall have the power to seal the place of business, goods vehicle or any box, locker, safe, almirah, or other receptacle found in such place of business or goods vehicle in which he has reason to believe that any books of accounts, registers or other documents or goods are kept or contained, if the owner or other person in occupation or in-charge of such office, shop, godown, vessel, goods vehicle or box, locker, safe, almirah or other receptacle leaves the place or is not available or fails or refuses to open it when called upon to do so: Provided that the power to seal shall be exercised in presence of two witnesses. (b) Where any place of business, godown, warehouse, goods vehicle or any box, locker, safe, almirah or other receptacle has been sealed, the authority referred to in sub-section (1), on an application made by the owner or the person in occupation or in-charge of such place of business, godown, warehouse, goods vehicle or any box, locker, safe, almirah or other receptacle, may order desealing thereof on such terms and conditions as may be directed. (8) The authority referred to in sub-section (1), shall also have the power to break open the lock of any door, box, locker, safe, almirah or other receptacle where the owner or other person in occupation or in-charge of the office, shop, godown, vessel or goods vehicle or the box, locker, safe, almirah or other receptacle found in the place of business or vehicle, is present but leaves the place or after a reasonable opportunity having been given to him to do so, fails to open such office, shop, godown, vessel or goods vehicle or the box, locker, safe, almirah or other receptacle as the case may be. Such authority shall prepare a list of the goods and documents found therein which shall be signed by such authority and not less than two witnesses. (9) The Commissioner or any authority appointed to assist him may requisition the services of any police officer or any public servant, or of both in making search and seizure or for safe custody of goods seized under this Act and such public servant or police officer shall render necessary assistance to him. (10) The Commissioner or any authority appointed to assist him while making entry, search and seizure under this section shall, as far as may be, follow the procedure prescribed in the Code of Criminal Procedure, 1973 (Central Act 2 of 1974).
01 October 2008
With respect to query 1 Serach Warrnat issued by the appropriate Magistrate is necessary for the followng reasons
Sub-section (10) of section 74 of the Assam Value Added Tax Act, prescribes that, the search and seizure under this section, as far as procedures are concerned should follow the Code of Criminal procedure.
Chapter VII of the CrPC deals with three things A] summons to produce doucmetns or things B] Search warrnt C] General provisions relating to searches
It means the first step is to give an opportunity to produce the required things [ie., summons]
If the person failed to obey the summons then a search can be made
Section 165 of the CrPC deals with search by the police office [for the time being under this law an authorised] as per this provision a search and seizure under this provision shall follow the general provisions as mentioned under section 100 of the CrPC
Section 100 of the Code prescribes that; (a) Whenever any place liable to search or or inspection under this chapter is closed, any person residing in, or being in charge of, such place, shall, on demand of the officer or other person executing the warrant, and on production of of the warrant, allow him free ingress thereto,
the expression "on demand of the officer or ther person executing the warrant" in the above provision makes mandatory to get warrant for search.
Warrant shold be issued by the appropriate Magistrate only.
If no search warrant was obtained it will be a fit case of criminal offence liable for punishment.
With respect to query 2 Any person below the rank of the commissioner to do searh of residential preimises requires authorisation in writing by the commissioner. For other person i.e., commissioner and euqal to the commissioner rank no authorisation requried
Again this provision is subject to the procedures to be followed under Cr.P.C i.e,. obtaining a Search Warrant from appropriate Magistrate.
Supreme Cort on the case of Commissioner of Commercial Taxes and Others Vs Ramkishan Shrikishan Jhaver and Others [1967] 20 STC 453 (SC) held that, All the provisions of Code of Criminal Procedure relating to searches would be applicable to searches made under the Sales Tax Act.
If no such authorisation and search warrant is obtained becomes an illegal entry liable for criminial liability.
With respect to query 3
May be the documents seized under the illegal search can become an evidence for the evasion of tax. But based on this i don't think any office will move without getting a Search Warrant where such entry becomes a criminal offence and liable for punishment.
Hope the other eperts add any value additions and comments in this regard
01 October 2008
Thanks Mr. Vasanth & Mr. Srinivasaragavan for your valued replies. I am really impressed with replies. Mr. Vasanth is s jewell, I am becoming his fan.
CAclubindia
