SEARCH AND SEIZURE UNDER SERVICE TAX LAW
1. INTRODUCTION:
The Central Excise authorities who are entrusted with the task of implementation of the service tax law enjoy wide and sweeping powers in respect of search and seizure of documents or books or things. The purpose of this article is to make a brief study of the provisions of search and seizure which are contained under section 82 of the Finance Act 1994 as amended by Finance (No2) Act 2014. Provisions dealing with search and seizure can be found in section 18 of the Central Excise Act 1944 (CE Act),under section 105of the Customs Act 1961, section 132 of the Income Tax Act (IT Act) , sections 93, 100 and 165 etcof the Code of Criminal Procedure 1973 (CCP) etc. The said provisions were subject matter of litigation before various courts including the Hon Supreme court and hence the author may rely on some of those decisions during the course of this discussion.
The provisions relating to search and seizure require strict interpretation taking into consideration the fact that the power involves serious invasion or ingression into the personal freedom, liberty and privacy of a person as man by his very nature is freedom loving. It is a trespass into the privacy of a person. The author feels that a person who has undergone the painful process of search and seizure would definitely support and subscribe to the above view. Let me quote Lord Denning. He says “No one would wish that any of those who defraud the revenue should go free. They should be found out and brought to justice. But it is fundamental in our law that the means which are adopted to this end should be lawful means. A good end does not justify a bad means”. So let us discuss.
2. SEMAYNE AND JOHN WILKES CASE
The earliest case that is related to the power of search may be Semayne’s case reported by Sir Edward Coke in (1604) 5 coke rep.91 whose observations have become very famous. He stated thus
The house of everyone is to him as his castle and fortress, as well for his defense against injury and violence as for his repose.”.
It was held that the King did not have unbridled authority to intrude on the dwellings of his subjects but recognized that government agents were permitted to conduct searches and seizures under certain conditions when their purpose was lawful and a warrant had been obtained. This is the basis of the “castle doctrine” or “knock and announce” rule in U.S.
Yet another early sensational case on search and seizure may be perhaps that of R v John Wilkes (1763) 2 Wils 151.John Wilkes, the publisher of “North Briton” was arrested on 30th April 1763 on the basis of a general arrest warrant (without naming any person) issued by the Secretary of state Lord Halifax. Everybody knows that the warrant was issued to catch Wilkes for criticizing the government in Issue No 45 of North Briton. The search team took all the papers and documents.
On a challenge against the action Chief Justice Pratt struck down the warrant and said “To enter a man's house by virtue of a nameless warrant, in order to procure evidence, is worse than the Spanish Inquisition; a law under which no Englishman would wish to live an hour; it was a most daring public attack made upon the liberty of the subject.”.
Then within two years came similar decisions in Huckle v Money (1763) 2 Wils 205 and Entick v Carrington (1765) 2 Wils 275.
3. THE GREAT DENNING HIMSELF
The author is yet to find a better description of the rights of a person subject to search than those given by the greatest 20th century common law judge Lord Denning. It was in R v IRC Ex Parte Rossminster Ltd (1979) 2 ALL ER 385 CA. He explained the law in his inimitable style as follows.
“ When the officers of the Inland Revenue come armed with a warrant to search a man's home or his office, it seems to me that he is entitled to say: "Of what offence do you suspect me? You are claiming to enter my house and to seize my papers." And when they look at the papers and seize them, he should be able to say: "Why are you seizing these papers? Of what offence do you suspect me? What have these to do with your case?" Unless he knows the particular offence charged, he cannot take steps to secure himself or his property. So it seems to me, as a matter of construction of the statute and therefore of the warrant - in pursuance of our traditional role to protect the liberty of the individual - it is our duty to say that the warrant must particularize the specific offence which is charged as being fraud on the revenue.
If this be right, it follows necessarily that this warrant is bad. It should have specified the particular offence of which the man is suspected. On this ground I would hold that certiorari should go to quash the warrant.”
4. WILLIAM PITT’S FAMOUS QUOTE ON PRIVACY
Let me now quote William Pitt, Earl of Chatham, who eloquently expressed the principle on the occasion of debate in Parliament in 1763 on the searches incidental to the enforcement of an Excise on cider( a kind of alcohol made from apple juice).
“The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail—its roof may shake—the wind may blow through it—the storm may enter—the rain may enter—but the King of England cannot enter—all his force dares not cross the threshold of the ruined tenement." So be it—unless he has justification by law.”
5. UNITED STATES LAW ON SEARCH
provisions to secure the privacy and personal liberty of a person and appears to be rather stringent compared to other constitutions of the world. Article [IV] (Amendment 4 - Search and Seizure) provides as follows:
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
6. DUE PROCESS OF LAW CLAUSE
The author of the view that no other clause than the “due process of law” have engaged the attention of courts and legal scholars in the 20th century. The 5th and 14th amendments to the US constitution deals with the “due process” clause. The 5th amendment states that no person shall be deprived of life, liberty, or property, without due process of law. The 14th amendment provides that the state shall not deprive any person of life, liberty, or property, without due process of law.
It is these clauses which acts as a safeguard against arbitrary denial of life, liberty etc. It envisages procedural due process of law as well as substantive due process of law. Readers may refer to the cases of Murray v Hoboken Land and Improvement Co 59 US 272 (1856) ( which traces the history of “due process” clause to Magna Carta signed by King John at Runneymade, Englandon 15th June 1215) and Mugler v Kansas 123 US 623 (1887). The central theme is that any invasion into the life or liberty of a person should be fully supported by rule of law.
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7. INDIAN LAW ON PRIVACY
Right to privacy is recognized under Article 21 of the constitution of India as well as under the Human Right Act 1993. Article 21 provides that no person shall be deprived of his life or personal liberty except according to procedure established by law. In A.K Gopalan v State of Madras AIR 1950 27 (SC) decided by the Supreme Court on 19-05-1950 rejected the plea that the expression “procedure established by law” should encompass both procedural and substantive law and held that Article 21 deals with “procedural due process” only.
But after 27 years the very same court in the landmark judgment in Maneka Ghandhi’s case 1978 1 SCC 248 has interpreted the expression “procedure established by law” very widely and held that it encompasses both procedural as well as substantive laws. The citizens of this country shall be grateful to the Supreme Court for rendering such a progressive landmark judgment.
In Kharak Singh v State of UP AIR 1963 SC 1295, Subba Rao, J. defined personal liberty, as a right of an individual to be free from restrictions or encroachment on his person whether these are directly imposed or indirectly brought about by calculated measure. In Maneka Ghandhi case (supra) the Hon court expanded the scope of the term” liberty” in Article 21 and held that fundamental rights under Article 19 are only supportive of the liberty mentioned in Article 21 and thus the term should have wider connotations in Article 21.
Attention is invited to the decision of the Apex court in Rathinam/Nagbhusan Patnaik v. Union of India and Another (1994) 3 SCC 394 wherein the court observed as follows.
“Article 21 has received very liberal interpretation by this court. It was held: "The right to live with human dignity and same does not connote continued drudging. It takes within its fold some process of civilization which makes life worth living and expanded concept of life would mean the tradition, culture, and heritage of the person concerned."
At this juncture it is appropriate to quote from Para 71 of the judgement of the Hon Supreme court in Siddaram Santlingappa v State of Maharashtra AIR 2011 SC 312 reproduced below.
“The object of Article 21 is to prevent encroachment upon personal liberty in any manner. Article 21 is repository of all human rights essentially for a person or a citizen. A fruitful and meaningful life presupposes full of dignity, honour, health and welfare. In the modern "Welfare Philosophy", it is for the State to ensure these essentials of life to all its citizens, and if possible to non-citizens. While invoking the provisions of Article 21, and by referring to the oft-quoted statement of Joseph Addison, "Better to die ten thousand deaths than wound my honour", the Apex court in Khedat Mazdoor Chetana Sangath v State of M.P and Others (1994) 6 SCC 260 posed to itself a question "If dignity or honour vanishes what remains of life"? This is the significance of the Right to Life and Personal Liberty guaranteed under the Constitution of India in its third part.”
Thus the Apex court has taken a very wide view of Article 21 and thus any kind of ingression or invasion into a person’s liberty or freedom as a person must be viewed seriously and can be upheld only if performed with sufficient justification and support of law.
8. HUMAN RIGHTS ACT 1993
The human Rights Act 1993 actually supplements and gives additional support to Article 21 in the protection of personal liberty. But the author feels that it goes beyond the scope of Indian constitution and embraces international covenants related to human rights and liberties. Section 2(d) defines “human rights” as follows.
(d) “Human rights” means the rights relating to life, liberty, equality and dignity of the individual guaranteed by the Constitution or embodied in the International Covenants and enforceable by courts in India. The applicability of Universal declaration of Human rights 1948 and ICCPR 1966 are clearly approved in the decisions of the Hon Supreme court in ADM Jabalpur v Shukla AIR 1976 SC 1207 and Ram Deo Chuahan v Bani Kanta Das AIR 2011 SC 615.
9. ABOUT SEARCH AND SEIZURE IN GENERAL
When we discuss about search and seizure it is apt to quote the famous observations of Justice S.K Kapur in Balwant Singh v Director of Inspection (1969) 71 ITR 550(Del)/ AIR 1969 91(Del)
“Search” means “an examination of a person’s body, property, or other area that the person would reasonably be expected to consider as private, conducted by a law enforcement officer for the purpose of finding evidence of a crime. (Black’s Law Dictionary- 7th Edition)
“The executive power of search and seizure is a necessary concomitant of a welfare state. It tends to promote the well being of the nation”. (See Bishamber Dayal Chandra Mohan Etc v Sate of UP AIR 1982 SC 33).
According to the decision in Hiralal Chaganlal v State AIR 1968 Raj 188 of the Hon Rajasthan High court search implies an expiratory examination or probe or into seeking out something which is hidden, sealed, suspected and not open, exposed or demonstrated.
10. PROVISIONS UNDER THE FINANCE ACT 1994
Now after elaborately discussing generally about the relevance and importance to protect life, liberty etc let us discuss the specific provisions under the service tax law. It may be immediately taken note by readers that provisions contained under Central Excise and Customs laws are not entirely similar to that of service tax law.
The provisions relating to search and seizure can be found in section 82 of the Finance Act 1994(as amended by Finance No 2 Act 2014) and is reproduced below.
"82. Power to search premises –
“(1) Where the Joint Commissioner of Central Excise or Additional Commissioner of Central Excise or such other Central Excise officer as may be notified by the Board has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Chapter, are secreted in any place, he may authorize in writing any Central Excise officer to search for and seize or may himself search and seize such documents or books or things.”.
(2) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches, shall, so far as may be, apply to searches under this section as they apply to searches under that Code. (Emphasis supplied by author)
11. CONDITIONS FOR SERACH AND SEIZURE
On a close analysis of the provisions u/s 82 it becomes clear that three essential conditions are to be met in order to validate the action of search and seizure.
Firstly, the named authorities must have reason to believe that some documents or books or things are secreted in some place- be it any place.
a. in the opinion of named authorities such documents books or things must be useful or relevant to proceedings under the Act.
b. If the above two conditions are satisfied he may himself or authorize the any central excise officer to search and seizure such documents, books or things as mentioned above.
Let us discuss the emphasized expressions and words for a better understanding and appreciation of the law.
1. REASON TO BELIEVE
The first condition to validate a search is that the named authorities should have “reason to believe” that certain documents, books or things which will be useful or relevant to “proceedings” under the Finance Act 1994 are secreted in a place. The expression “reason to believe” is not defined in the Finance Act 1994. Section 26 of the Indian Penal Code, however, contains a definition which is as follows - We may also have to look up for the true scope and meaning of that expression in the decisions of various courts in India.
“Reason to believe" is an expression which appears very often in taxing statutes. Its function is to have a check on the exercise of the power by the authorities and can be considered as the most salutory safeguard.
The word “Reason” means cause or Justification and the word "believe" means to accept as true or to have faith in it (see Assistant Commissioner of Income Tax v Rajesh jhaveri stock brokers ltd (2007) 291 ITR 500(SC). It is a statement of fact employed as an argument to justify or condemn some act. When information is received or the basic facts are harnessed in support of an argument the resultant fact assumes the shape of a “reason” and when a number of reasons are considered in relation to each other, the final result to this consideration assumes the shape of “belief”. Please see Deputy Director of Income Tax v Mahesh Kumar Agarwal (2003) 262 ITR 338(Cal).
The Hon Supreme court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 observed as follows -"The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence.” The Hon Delhi High court in R.S Chiranjilal v CIT (1958) 36 ITR 407 (Del) stated as follows The words "reason to believe" suggest something more than the satisfaction of the Income-tax Officer. The expression suggests reasonable grounds on which the Income-tax Officer may take action. Power under this section cannot be exercised on mere rumors or suspicion.
Yet another decision relevant to the point under discussion is that of A.K.Sen v ITO (1981) 132 ITR 707 (Del) It was held that “the belief contemplated by s. 147(a) must be the belief of an honest and reasonable person based upon reasonable grounds. The ITO may act under this section on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The words "reason to believe" do not make conclusive the officer's own honest opinion that he has reasonable cause for the prescribed belief: the matter is justiciable.”
It was further held by the Hon Supreme court in CIT v Kelvinator India Ltd 2010 320 ITR 561(SC) that there must be tangible material for the formation of the belief in the context of search under section 132 of the Income Tax Act.
What emerges from the above discussion is that the Joint commissioner and the authorities before the issue of search warrant should have tangible reasons and should be in possession of honest belief and not mere suspicion. Readers can find a plethora of decisions in support of this contention which are not reproduced here for want of space. Needless to say the absence of “reasons to believe” would invalidate the search.
2. SECRETED IN ANY PLACE
The next condition for a valid search is that some documents or book or things are secreted in any place and the named authority is of the opinion that they are relevant or useful to proceedings under the Act. The meaning of the word “secreted” is very pertinent here since if books etc are not secreted in any place then such books etc cannot be the subject matter of the search warrant. Therefore we shall consider the meaning of “secreted”.
The word “secreted” is the simple past tense of “secret”. According to free dictionary it means “to conceal in a hiding place”.The Hon Supreme court had an occasion to consider the meaning of the term in Durga Prasad v H.B.Homes, Supt (prev) Central Excise- 1983(13) ELT 1501. The court held that the meaning of the term “secreted” should receive a contextual meaning and means “documents which are kept not in the normal or usual place with a view to conceal them’ or it may even mean `documents or things which are likely to be secreted’. In other words, documents or things which a person is likely to keep out of the way or to put in a place where the officer of law cannot find it”. This decision of the Hon court is squarely applicable to searches under the Finance Act 1994 since court in that case was interpreting section 105 of the Customs Act 1962 which is almost similarly worded.In Garner’s dictionary of legal usage there is a mention which aptly gives us the clear meaning of the word which is reproduced below:
“Defendant committed perjury during his trial and then attempted to secrete assets in order to frustrate the collection of a fine or restitution”. (3rd Edition-page 802). P.Ramanatha Iyer’s Law lexicon 4th Enlarged Edition 2010 at page 6162 Vol. 6 contains the following observations- the word “secret” in a statute making it a ground for attachment that the debtor has secreted his property with an intend to defraud creditors, means to hide it or put it where officer of the law will not probably be liable to find it.
In the light of the above discussion it is to be concluded that the search should be at a place where a reasonable person would expect that such a place is likely to be used as a hiding place where the hands of law may not in the normal course would reach. Hence an office or work place cannot be said to be a place where one can expect documents, books etc to be secreted or concealed.
3. SUCH DOCUMENTS
It is to be noted that as a first step the named authorities will have to form a belief that some useful or relevant documents, books or things are secreted in some place. Since in his opinion such documents etc are useful or relevant for proceedings under the 1994 Act, he is empowered to issue a search warrant authorizing central excise officers to search and seize such documents etc. It appears that the section has got restricted application on a strict interpretation of the language used therein. Thus it is a matter of discussion for us whether the superintendent ( central Excise Officer) has the power to seize other documents, books or accounts not useful or relevant for proceedings. It may be noted that Joint commissioner ( named authority) himself can do the search as expressly provided in the section. But the pertinent question is whether the Superintendent can seize other documents, books etc which are not believed by Joint commissioner to be secreted in a place? It is because the section authorizes the Joint Commissioner alone to form an opinion regarding the usefulness or relevancy of documents, books etc. For example assume that Joint Commissioner issued search warrant on the ground that the books of accounts of Mr. A are secreted in the house of his wife. If during the course of such a search some books and documents relating to his friend Mr.B have been found, whether the Superintendent can seize those documents which were never in the contemplation of the Joint Commissioner? Will it make any difference if, instead of Superintendent, Joint Commissioner himself has conducted the search and found the documents of Mr.B? These are questions thrown open for discussion.
Anyway, on a plain reading of the section it appears that the search and seizure be restricted to such documents or books etc which are in some way relevant or useful to the proceeding which originally led the Joint Commissioner to form the belief. In other words the Joint Commissioner or Superintendent cannot during the course of the search form an opinion or belief even if found to be useful or relevant for proceedings under the Act for the simple reason that at that point of time “belief” is converted into “knowledge”. The author humbly submits that there is a vast difference between “belief” and “Knowledge” and section 82 concerns with “belief” only though one can possibly argue that “belief” is one of the attributes of “knowledge”. It may also be noted that in Dwaraka Prasad Agarwalla v Director of Inspection (1982) 137 ITR 456 (Cal), the Hon Calcutta High court held that the power of formation of the necessary belief cannot be delegated to subordinate authority.
Attention is invited to the passage from “Words and Phrases” Permanent Edition which is reproduced below.
“The distinction between “knowledge” and “belief” seems to be that knowledge is an assurance of a fact or proposition founded on perception by the senses, or intuition; while “belief” is an assurance gained by evidence, and from other persons. – Brooks v. Sessoms, 171 S.E. 222, 47 Ga. App. 554”.
The “Words and Phrases” Permanent Edition contains another useful passage given below which would throw more light on the matter under discussion. The meaning of the words “belief” and knowledge,” as defined by lexicographers, will show that there is a distinct and well-defined difference between them.
“Believe: To exercise trust or confidence.” Webster. “To exercise belief in; to be persuaded upon evidence, arguments, and deductions, or by other circumstances other than personal knowledge.” Cent.Dict. “knowledge: The act or state of knowing; clear perception of fact; that which is or may be known”. Webster. “Acquainted with things ascertained or ascertainable; specific information.” – Ohio Valley Coffin co. v. Goble, 62 N.E.1025, 28 Ind.App. 362.
Thus, there is a clear distinction in law between “belief” and “Knowledge”. If that be so the documents, books or things actually found during the course of search is a fact founded on real perception leading to “knowledge”. Therefore whether such a search and the consequential seizure can stand the test of law is a matter which is not entirely free from doubt.
4. RECORDING OF REASONS
The second essential condition noted above is that the documents, books or things must be useful or relevant to proceedings under the Finance Act 1994, in the opinion of the Joint Commissioner ( not that of the Superintendent). Though the section nowhere requires that the reasons for search should be recorded the said requirement is implicit in the provision itself since it provides that there should be a formation of opinion by Joint Commissioner. The Hon Supreme court has clearly laid down the law in this regard and readers may make a useful reference to the decision in Pannalal Binjraj v Union of India (1957) 31 ITR 565 (SC). The Hon court emphasized the need to record reasons in writing for two reasons. One the affected party may be in a position to know why the action has been taken against him and second the affected party can challenge the reason before the court. It will be easy for the court to decide the issue if reasons are recorded to test its validity.
It may further be noted that by sub section 2 of section 82 the provisions of Code of Criminal Procedure 1973, so far as may be, has been made applicable to search conducted under the Act. Therefore section 165 of the Code applies to searches under the Finance Act 1994. Section 165 provides that such authorized officer may, after recording in writing the grounds of his belief and specifying in such writing, so far as possible, the thing for which search is to be made, search, or cause search to be made, for such thing in any place within the limits of such station. The need to have recorded reasons has been emphasized by the Supreme Court in K.L.Subhayya v State of Karnataka AIR 1979 SC 711.
The validity of the search has to be judged based on recorded reasons prior to the search and fresh reasons cannot be supplied by affidavit etc as held in Mahalakshmy polyplast (p) Ltd v State of UP (1995) 96 STC 78 (All). Similarly in Tepcon International v Inspectors of Commercial Taxes (1997) 104 STC 433 (WBTT), it was laid down that reasons must be recorded prior to the issue of search warrant and this requirement is to safeguard against the arbitrary exercise of power by authorities.
In the case of Union of India v. Mapsa Tapes Pvt. Ltd (2006) 201 ELT 7(P&H), a Special leave Petition against the said decision was dismissed by the Supreme Court. The Hon Punjab and Haryana High Court in its impugned order had held that while existence of power of seizure may be justified but its exercise will be liable to struck down unless ‘reasons to believe’ were duly recorded before action of search and seizure is taken. The High Court held as nothing was produced before the Court to show as to whether reasons were recorded or not before search was authorized as seizure took place, action of search and seizure is liable to be quashed. See (2008 (225) E.L.T. A95 (S.C.).
5. USEFUL AND RELEVANT TO PROCEEDINGS
The law has taken extreme care to guard against exercise of unbridled and uncontrolled powers by Joint Commissioner. The search is clearly linked to some proceedings under the Act. In the absence of an express provision the term “proceeding” should be understood as “pending or existing proceedings” and not contemplated proceedings in future. Attention is invited to the decision of the Hon Supreme court in Pratap Singh v Director of Enforcement1966 AIR SC 1 wherein it was held that “proceedings” should have been commenced before the power to issue search warrant was issued.
If the law makers intended to include future proceedings nothing prevented them from expressly providing for it. For example section 131(1A) of the Income Tax Act provides for exercise of power even if no proceedings are pending. But the Hon Bombay High court in DBS Financial Services (p) Ltd v Smt. M. George, Second ITO (1994) 207 ITR 1082 held that power u/s 133(6) cannot be invoked to collect information which would enable the ITO to commence proceedings. The Hon court rightly held that proceedings must be pending. In view of the clear legal position the author is of the view that there must be some proceeding pending before the search warrant could be issued.
The term “useful” carries its natural meaning and anything which is capable of putting to use is “useful”. The term “relevant” denotes some logical connection between the documents, books or things and the proceeding which is in existence. The said documents etc should have an appreciable probative value and should be of some help to prove or disprove a matter in issue.
6. POWER TO SEARCH AND SEIZE
The third condition is that if all the above two conditions are satisfied then the Joint commissioner ( named authority) must either himself do the search and seizure or authorize the Superintendent to carry out the same. But the search cane be only in the place specified in the warrant and can search and seize only such documents, books or things which are useful or relevant and are really in search of by the Joint Commissioner. It is not permissible to search and seize anything according to the whims and fancies of the search authority. Though it is not practical to pin point or exactly identify the documents books etc yet sufficient protection must be provided to see that totally unconnected documents etc are not the subject matter of search and seizure. In the example given in Para above Mr. B’s documents cannot be searched or seized since no proceedings are pending against him and his documents are not at all useful or relevant to the proceeding against Mr. B.
7. WHO CAN SEARCH?
This appears to be an interesting question and the author invites the learned readers to come out and offer their valuable suggestions. The section 82 clearly authorizes only named authorities to do search. But it is a matter of common knowledge that Inspectors and other subordinate staff also enter, search and seize. Is it not unauthorized? Is it not a case of trespass liable for action under law? Under what authority an Inspector enter the premises? Is there any law which supports their action? The author took some pains to go through many search cases under different enactments but could not find anything which dealt with the issue now raised.
8. CRIMINAL PROCEDURE CODE 1973 APPLIES
We can find in almost all the statutes of India in the provisions relating to search/seizure that the procedure as per Code of Criminal Procedure 1973 should be followed by the authorities to the extend applicable. It leads to the conclusion that if any procedure is not laid down in the Finance Act 1994 for search and seizure then one must have a look at the CCP 1973 for aid. Let us have a quick glance at some of the relevant provisions of CCP 1973 which would apply to service tax law.
Section 93 provides when a search warrant may be issued. It lays down the rule that a warrant may be issued only if there are reasons to believe that a person to whom a summons or requisition etc are issued will not produce the document or thing. But it is to be clearly noted that Section 93 comes into operation only when a summons or demand for production of documents or things have not been complied with by the person concerned.This requirement is an additional safeguard and applies to service tax searches also.
Section 100 lays down the procedure to be followed while making a search. Section 100(5) provides amongst other matters that the search should be witnessed by two independent and respectable persons drawn from the locality of search.
Section 165 provides for search and seizure of anything which the investigating officer has reasonable grounds to believe that may be found in a place and such thing cannot be obtained without undue delay.
Section 99 provides that the provisions of sections 38, 70, 72, 74, 77, 78 and 79 shall, so far as may be, apply to all search-warrants issued under section 93. The readers may refer to sections 94, 95 and 97 also.
9. CONSTITUTIONAL VALIDITY OF SECTION 82
The question whether section 82 of the Finance Act especially after its amendment in 2014 can stand the test of constitutional validity is not a matter free from doubt. A similar challenge against the validity of section 132 has been turned down by the Hon Supreme court in 1974 in the landmark decision in Pooranmall v Director of Enforcement 1974 AIR 348 (SC).Much water has flown under the bridge after 1974. If the readers read the judgment carefully it can be noticed that the constitutional validity has been upheld because the Hon court was satisfied with the in-built mechanism to safeguard the citizen against abuse of power. But many of the safeguards are absent under service tax law for eg return of seized material within a reasonable period. There is no express requirement to record reasons for issue of search warrant and even comparatively lower level officers are authorized to do search. There are no guidelines. The provisions of section 132 and the connected Rules/circulars etc are entirely different from the provisions under service tax law. Even there is marked difference between the search powers under Central Excise Act and Service Tax law. In the light of the above discussion and such other points which may come to our notice on a close study, the author is of the opinion that time has come to test the constitutional validity before the courts especially in view of the changes that took place in the judicial attitude between 1974 and 2015.
10. USE OF SEARCH MATERIALS AGAINST PARTY
The issue for consideration is whether the materials or evidences obtained by a search declared as illegal can still be used against the assessee? It was held in Pooranmall case (supra) by the Hon Supreme Court that there is no law which prohibits the use of such materials. There are some decisions from England and US which supports the view. The author feels that many illegal searches were not challenged before courts just because of this position in law. What is the real use or benefit of challenging the illegal search? The courts would declare that search is illegal and would give a direction to return the seized materials with a liberty to take copies of them to be used against the party. So effectively what the party gets by way of benefit is the original documents etc. It may be noted that even otherwise he is entitled to take copies of the seized materials and hence nothing worth mentioning is forthcoming, the heavy cost of litigation especially before the Supreme Court notwithstanding.
An assessment made in pursuance of an illegal search would also be illegal as per decision in CIT v Chitra Devi Soni 313 ITR 374 and SLP dismissed by Supreme Court ( see 313 ITR (St) 28. Where due explanation for jewellery was ignored both search and assessment was declared illegal as per DGIT v Diamond star Exports Ltd 293 ITR 438(SC). The readers may turn to page 1997 of the celebrated book ‘The law and practice of Income Tax” by N.A Palkhivala Vol II Tenth Edition.
In US under what is known as “exclusionary rule” evidence obtained in violation of 4th Amendment right is excluded from any prosecution. The illegally collected material is also known as “fruits of poisonous tree” and in certain circumstances excluded from admission as evidence.
The materials collected etc are the property of the citizen and hence he cannot be dispossessed with the same unless there is a legal authority to do so. The authorities do not have any right to retain them. If they are allowed to do that then actually law indirectly support illegal actions. In the light of the above discussion author is of the view that time has come to bury the ghost of Pooranmall and it is respectfully submitted that it requires reconsideration.
11. CONCLUSION
As already indicated elsewhere the provisions relating to search and seizure should be interpreted very strictly, of course, keeping in mind the much needed balance between need to protect the basic rights of a person and the interest of the nation. It is a matter of common knowledge that a few officials really misuse their powers and exhibit a tendency to exceed their powers. Be that as it may, the provisions of law should be framed in such a way that the most valuable rights like liberty and privacy which are so fundamental for a dignified life are protected and should be insulated against any possible invasion into those inalienable rights.
SIVADAS CHETTOOR
B COM FCA LLM
Tags Service Tax
CAclubindia
