Whether when Revenue has issued restraint order against goods seized u/s 132(1), HC is right in directing official to make inventory of goods and then quash search proceedings on basis of Report submitted by official - NO: SC

THE issue before the Apex Court is - Whether when the Revenue has issued restraint order against goods seized u/s 132(1), the High Court is right in directing a particular Revenue official to make inventory of goods and then quash the search proceedings on the basis of the report submitted by the official. NO is the answer.

Facts of the case

The assessee is engaged in the manufacture of C.I. pipes, fittings and manholes and had obtained the licence under the Central Excise Act. The assessee had been filing income-tax returns regularly. On 16.2.2000 the Income Tax Department conducted a search & seizure operation on the residential and business premises of the assessee. The assessee filed a writ

against the action of the Revenue and contended that there was no information in possession of the officer which could have persuaded any reasonable person to form an opinion about the existence of undisclosed assets of the assessee. It was further urged that the warrant of authorization was issued mechanically, arbitrarily and there was total non-application of mind and moreover there was no formation of opinion about the existence of undisclosed assets as contemplated under Section 132(1) of the Act. On this foundation, the search and seizure were sought to be quashed.

Countering the assessee the counsel for the Revenue alleged that the productions declared by the assessee in the official record was not even 1/5th of the actual production revealed by the seized documents.

The High Court directed an official to prepare an inventory of the goods in question in respect of which the restraint order was passed. The said official submitted a report which was taken on record. The HC finally held that:

"From the aforesaid reply it is clear that there is no specific denial of the averments made in Para 40 of the writ petition. Order 8 Rule 5 of the Code of Civil Procedure provides that every allegation of fact in the plaint if not denied specifically or by necessary implication or stated to be not admitted in the pleading of the defendant shall be taken to be admitted except against the person under disability. In view of this provision in absence of a specific denial in the counter affidavit to the assertions made in the writ petition, it can safely be concluded that there is no denial of the facts stated in the writ petition. We are aware that the explanation to Section 141 of the Code of Civil Procedure provides that the provisions of Code of Civil Procedure shall not be applicable to the writ petition. However, the principles as stated in the Code of Civil Procedure are also applicable to the writ proceedings.”

On appeal, the Supreme Court held that,

++ we have no hesitation in opining that the reasons ascribed in the aforesaid paragraphs, leaves us absolutely unimpressed. We really cannot comprehend how an Assistant Commissioner was appointed to take inventory of the goods in respect of which the restraint order was passed by the revenue under the Act. That apart, it is difficult to appreciate how the denial in the counter affidavit filed by the revenue could be treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure and, therefore, action taken under Section 132 of the Act was illegal. The relevant confidential file, if required and necessary could have been called for and examined. Revenue in the counter affidavit was not required to elucidate and reproduce the information and details that formed the foundation;

++ in this context, we may profitably refer to the decision in Pooran Mal V. The Director of Inspection (Investigation), New Delhi and others 2002-TIOL-907-SC-IT, wherein the Constitution Bench, while upholding the constitutional validity of Section 132 of the Act opined thus:

“Search and seizure are not a new weapon in the armoury of those whose duty is to maintain social security in its broadest sense. The process is widely recognized in all civilized countries. Our own Criminal Law accepted its necessity and usefulness in Sections 96 to 103 and Section 165 of the Criminal Procedure Code. In M.P. Sharma v. Satish Chandra AIR 1954 SC 300 the challenge to the power of issuing a search warrant under Section 96(1) as violative of Article 19(1)(f) was repelled on the ground that a power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That, however, is only temporary and for the limited purpose of investigation”.

++ thereafter, proceeding with the ratiocination, the Court ruled that the provision has inbuilt spheres;

++ the provision contained in Section 132(1) of the Act enables the competent authority to direct for issue of search and seizure on the basis of formation of an opinion which a reasonable and prudent man would form for arriving at a conclusion to issue a warrant. It is done by way of an interim measure. The search and seizure is not confiscation. The articles that are seized are the subject of enquiry by the competent authority after affording an opportunity of being heard to the person whose custody it has been seized. The terms used are ‘reason to believe’. Whether the competent authority had formed the opinion on the basis of any acceptable material or not, as is clear as crystal, the High Court has not even remotely tried to see the reasons. Reasons, needless to say, can be recorded on the file and the Court can scrutinize the file and find out whether the authority has appropriately recorded the reasons for forming of an opinion that there are reasons to believe to conduct search and seizure. As is evincible, the High Court has totally misdirected itself in quashing the search and seizure on the basis of the principles of non-traverse.

++ in our considered opinion, the High Court would have been well advised to peruse the file to see whether reasons have been recorded or not and whether the same meet the requirement of law;

++ in view of our foregoing analysis, we allow the appeals, set aside the impugned order passed by the High Court and remand the matter to the High Court for fresh disposal in accordance with law. The revenue shall produce the file before the High Court, whereafter the High Court shall proceed to adjudicate the lis. There shall be no order as to costs.