Kerala High Court
Joseph Antony And Anr. vs Deputy Commissioner Of Agricultural ... on 29 June, 1994
Equivalent citations: [1994]95STC146(KER)
JUDGMENT P.A. Mohammed, J.
1. Both these writ petitions relate to the inspection and search of two business premises and seizure of documents under Section 28 of the Kerala General Sales Tax Act, 1963 (for short "the Act"). The validity of the said proceedings is challenged in these petitions as originally framed.
2. On December 17, 1993, at about 3 p.m. respondents 1 to 4 who are the officers of the sales tax department, inspected the business premises of Supreme Hardwares, Palace Road, Changanacherry, and after conducting search, prepared a shop inspection report. During the search the officers seized certain documents in the presence of two witnesses. Simultaneously the officers conducted a similar search in the business premises Of "A.J. Traders", a sister concern of Supreme Hardwares. After the search, a shop inspection report was prepared in relation to that inspection also. Joseph Antony, owner of these business units was absent during the inspection. However, the accountant was present during the inspection and seizure of the documents. Representations were filed before the authorities for return of the documents seized from the above business premises. However, the documents were not returned and hence these two writ petitions were filed. O.P. No. 1239 of 1994 is filed on behalf of Supreme Hardwares and O.P. No. 1474 of 1994 is on behalf of A.J. Traders. Though the search and seizure was sought to be quashed on different grounds, during the course of the hearing the petitioners restricted their prayers for a direction to the authority concerned for return of the documents seized during the inspection.
3. On behalf of fourth respondent, the Government Pleader has submitted a statement on February 23, 1994, in O.P. No. 1239 of 1994, which is common to both the cases. Exhibits R4(a) and R4(c) produced along with the said statement, are the shop inspection reports and exhibits R4(b) and R4(d) are the mahazars prepared while effecting the search and seizure of the documents. Various allegations contained in the writ petitions were denied in the aforesaid statement. As far as return of seized documents, the case of the fourth respondent is, those records are required for the purpose of proceedings of penal action. The petitioners allege that no decision has been taken to initiate prosecution proceedings against them as required under Section 28(6) of the Act and at any rate no order has been communicated to them so far.
4. The only question that requires to be decided in this case is whether the documents seized on December 17, 1993, are liable to be. returned to the petitioners at this stage ? Section 28 of the Act authorises power of inspection and search of the business place and seizure of the documents by the Officers of the department not below the rank of assessing authority. The power to retain seized documents and its return to the dealers is included in Sub-section (3) of Section 28, as it stood before its amendment in the year 1976. The relevant provision as it stood then was thus : "The officer who seizes such accounts, registers, or documents shall return them within thirty days frorn the date of seizure unless they are required for a prosecution". This provision was amended vide Act 11 of 1976 with effect from August 30,1975. The provision as now stands after the aforesaid amendment is provided in an independent sub-section, namely, Sub-section (6), which reads thus :
"(6) The accounts, registers, records or other documents seized under Sub-section (5) shall not be retained by the officer seizing them beyond a period of thirty days from the date of the seizure except with the permission of the next higher authority, unless they are required for any prosecution under this Act. "
The rule regarding return of documents to the dealer is now contained in Sub-rule (9) of Rule 34 of the Kerala General Sales Tax Rules, 1963. The said rule is thus :
"(9) If on search, such officer finds any accounts, registers or other documents which he has reasons to suspect that the dealer is maintaining with a view to evading the payment of any tax or tee due from him Under the Act, he shall, for reasons to be recorded in writing, seize such accounts, registers arid documents of the dealer as may be necessary arid shall give the dealer a receipt for the same. The accounts and registers so seized shall be returned to the dealer within thirty days and in cases where permission of the next higher authority under Sub-section (6) of Section 28 has been obtained within sixty days from the date of seizure unless they are required for a prosecution."
The seizure of the documents and retention of the same by the officers are restrictions imposed on the freedom to carry on any trade or business guaranteed to the citizens under the Constitution. The fundamental right guaranteed to the citizen to carry on any trade or business under Article 19(1)(g) of the Constitution is not an absolute right, but it is liable to be restricted under Clause (6) thereof. The restrictions which can be imposed in the interest of general public under Clause (6) shall be reasonable. It cannot be said that the provisions authorising inspection and seizure of documents are unreasonable restrictions in carrying on trade or business and such provisions can be sustained in the interest of general public. They are incidental or ancillary power of legislation under entry 54 of List II of the Seventh Schedule. These are the powers intended to check evasion of tax. The Supreme Court in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver [1967] 20 STC 453 held : "It is also not in doubt that while making a law under any entry in the Schedule it is competent to the Legislature to make all such incidental, and ancillary provisions as may be necessary to effectuate the law : particularly it cannot be disputed that in the case of a taxing statute it is open to the Legislature to enact provisions which would check evasion of tax. It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. It must therefore be held that the Legislature has power to provide for search and seizure in connection with taxation laws in order that evasion may be checked". The Supreme Court in the above decision held that the provisions of Section 41(2) and (3) of the Madras General Sales Tax Act are reasonable restrictions on the fundamental right to carry on the trade under Article 19(1)(g) of the Constitution. The provisions of Section 17(2A) of the Travancore-Cochin General Sales Tax Act authorising the seizure of the documents and retention of the same were challenged before this Court on the ground, those provisions offend Article 19(1)(f) and (g) of the Constitution. A Full Bench of this Court in M.P. Kannan v. State of Kerala [1966] 17 STC 543 ; AIR 1966 Ker 143 upheld the validity of those provisions. Section 28(3) of the Act as it stood then was challenged before this Court. The Division Bench of this Court in Raja Rice & Flour Mills v. Inspecting Assistant Commissioner [1973] 32 STC 131 held that those provisions are valid in a reasonable interpretation.
5. The question now this Court is faced with is whether the retention of the documents beyond the period prescribed in the provision contained in Section 28(6) will amount to unreasonable restriction in the freedom of trade or business. It is the function of this Court to examine whether the restriction imposed on a dealer in carrying on the trade and business is reasonable or not. The Privy Council in Emperor v. Vimlabai Deshpande AIR 1946 PC 123 observed, a question whether the ground alleged for an action is reasonable or not can be tested by the court. The court's power in examining the question of unreasonableness in an action is unlimited and it is always justiciable. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes the proper balance between freedom guaranteed in Article 19(1) and social control permitted by Clause (6) of Article 19, it must be held to be wanting in that quality. See Chintaman Rao v. State of Madhya Pradesh AIR 1951 SC 118. The courts are bound to examine not only the reasonableness of a provision but also every action of the officers exercising powers under the provision. There must be proper safeguards in the provision from the arbitrary action of the officers who exercise power under the provisions which impose reasonable restriction in the enjoyment of the fundamental right. The Full Bench of the Bombay High Court in Jeshingbhai Ishwarlal v. Emperor AIR 1950 Bom 363 observed : "It is not for the Legislature to determine whether the restrictions are reasonable or not. It is for the court of law to consider the reasonableness of the restrictions imposed upon the rights. 'Reasonable' is ah objective expression and its objectivity is to be determined judicially by the court of law. There is no limit placed upon the power of the court to consider the nature of the restrictions. The court must look upon the restrictions from every point of view. It being the duty of the court to safeguard fundamental rights, the greater is the obligation upon the court to scrutinise the restrictions placed by the Legislature as carefully as possible". The Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 2 SCC 343 ; AIR 1992 SC 1033 held : "The court must lift the veil of the form and appearance to discover the true character and the nature of the legislation, and every endeavour should be made to have the efficacy of fundamental right maintained and the Legislature is not invested with unbounded power. The court has, therefore, always to guard against the gradual encroachments and strike down a restriction as soon as it reaches that magnitude, of total annihilation of the right". After lifting the veil if the court comes to the conclusion that the abridgement is justified, then the restrictions are reasonable. On the other hand if the court finds such restrictions directly transgresses and inevitably affects the fundamental rights it becomes unreasonable. It is always the "duty of the court to be watchful to protect the constitutional rights of a citizen as against any encroachment gradually or stealthily thereon". In this process of analysis the court always leans in favour of fundamental rights and places the restrictions in a narrow ambit and scope.
6. The reasonableness or otherwise of the proceedings of the officers for retention of the seized documents under Section 28(6) can only be evaluated by this Court in conformity with the principles discussed hereinbefore. In considering the reasonableness of a restrictive provision the court is bound to consider both the substantive and procedural aspects of the impugned provision. The Supreme Court in Kantilal Babulal and Bros. v. H.C. Patel [1968] 21 STC 174 ; AIR 1968 SC 445 held that in considering the reasonableness of laws imposing restrictions on fundamental rights both the substantive and procedural aspects of the impugned law should be examined from the point of view of reasonableness. This is the consistent view. (See : Dr. N.B. Khare v. State of Delhi AIR 1950 SC 211, State of Madras v. V.G. Rao AIR 1952 SC 196, L.N. Mukherjee v. State of Madras AIR 1961 SC 1601 and Maneklal Chhotalal v. M.G. Makwana AIR 1967 SC 1373). Therefore the provisions contained in Sub-rule (9) of Rule 34 attracts consideration by this Court. Rule 34(9) imposes an imperative duty on the officer to return the seized documents within a period of thirty-days from the date of seizure. On the other hand, Section 28(6) creates a prohibition on the officer in retaining the seized documents beyond a period of thirty days from the date of seizure. The cumulative effect of the provision contained in Section 28(6) and Rule 34(9) drives me to conclude that the documents seized by the officer under Sub-section (5) shall be returned to the dealer within a period of thirty days from the date of seizure. This can be adopted as a general rule in the interest of general public. However, this rule has got certain well-defined exceptions. The documents can be retained by the officer beyond the period of thirty-days if they are required for prosecution under the Act. The retention can also be had for a period of sixty days with permission of the next higher authority. The permission by next higher authority to retain the documents beyond thirty days has ho relevance in taking decision for prosecution. Even in the absence of a decision for initiating prosecution, documents can be retained for a period of sixty days with the permission of the next higher authority. But in case the officer who seized the document proposes to initiate prosecution against the dealer, the decision to that effect shall be taken within the period of thirty days from the date of seizure. This is one of the strong safeguards that is inbuilt in the provisions of Section 28(6) and Rule 34(9) to prevent the executive encroachment on the constitutional right of a dealer to carry on trade or business. Retention of documents beyond the period of thirty days will be unauthorised, in the absence of a decision: for prosecution within the period of thirty days from the date of seizure. The permission by next higher authority to retain the documents for a period of sixty days shall be obtained by the officer within thirty days from the dale of seizure. Ex post facto approval by the next higher authority is not permissible. The proviso to Sub-rule (6) prohibits the next higher authority in giving permission to the officer to retain the documents beyond sixty days. These requirements cannot be dispensed with as they are indispensable attributes so as to save the dealer from whims and fancies of the officers. After seizing the documents the dealer shall not be kept in suspense without knowing as to what happened to the documents seized from him. Even though the seizure of documents is a reasonable restriction in the interest of general public, continued retention of the same by the officer without taking a decision for prosecution or obtaining permission from the next higher authority within the period of thirty days, cannot be said to be reasonable. The documents seized by the officer may be required by the dealer in the day-to-day business. Sometimes it is practically impossible for a dealer to arrange new account books in the place of seized one, without adverting to the entries in the accounts seized by the officer. The documents seized by the officer sometimes may include cash book, ledger, way bill, etc., which are ordinarily used for daily transactions. If the documents happen to be the regular accounts the dealer may face with serious impediments in carrying on daily business transactions. It can even amount to a restriction in the enjoyment of the dealer's right guaranteed under Article 19(1)(g) of the Constitution. In order to make the restriction reasonable, the return of the documents to the dealer within the time stipulated in the section must be guaranteed. Therefore, taking a decision for prosecution of the dealer and obtaining permission from the next higher authority within thirty days of the seizure of the documents are pre-requisites for further retention. These requirements are sufficient safeguards available to a dealer from whose custody the documents are seized. Such safeguards can also be in the interest of general public inasmuch as the seizure of documents from a dealer would sometimes work against the public interest itself. It cannot be said, by seizure of documents the dealer alone is affected. Customers who are having transactions with such dealer would be faced with hurdles in the absence of regular accounts maintained by the dealer. The possibility of a section of the public being affected by the seizure of documents from a dealer cannot be totally ruled out. It may be so, because the words "in the interest of general public" contained in Clause (6) of Article 19 of the Constitution are required to be construed with wide ambit and scope.
7. In Mubarak Stores v. Intelligence Officer [1974] 33 STC 526 ; 1974 KLT 327, a learned single Judge of this Court said : "Seizure and retention of a dealer's books of account by an officer are serious inroads into his fundamental rights. But that is permitted by the above statutory provision in the interest of the general public under certain special circumstances. Any such restriction on the fundamental rights can be permitted only to the extent clearly provided by the statute". However, in that case the learned Judge while interpreting Sub-section (3) of Section 28 as contained in the unamended section observed : "............the words 'required for a prosecution' can mean only 'required for an existing prosecution'. It may include a prosecution existing at the time of the seizure and also one which the authority may institute within the period of 30 days for which he is entitled to retain the records". This interpretation was not approved by the Division Bench of this Court in M.C. Jacob v. Intelligence Officer [1976] 37 STC 14 ; 1975 KLT 626. According to the Division Bench, Sub-section (3) of Section 28 does not contemplate "the prosecution itself must be commenced within the period of thirty days from the date of seizure". In that view of the matter the Division Bench overruled the decision Mubarak Stores case [1974] 33 STC 526 (Ker) ; 1974 KLT 327. However, the Division Bench observed : "The words 'required for a prosecution' would necessarily involve the concept of a decision being reached within thirty days that these are required for the purpose of a prosecution to be lodged". This decision was relied on by this Court in Sree Rajvel and Company v. State of Kerala [1993] 88 STC 551. That was a case where Sub-section (6) of Section 28 as it stands now came up for consideration. The learned Judge held that Sub-section (6) of Section 28 empowers the officer seizing the documents in exercise of the powers under Sub-section (5) to retain the same beyond a period of thirty days from the date of seizure, provided he takes a decision to prosecute within thirty days from the date of the seizure. I respectfully agree with this view expressed by the learned Judge. Therefore, my conclusion is that, if there is failure to take a decision by the officer who seized the documents whether they are required for prosecution or not within thirty days of the date of seizure, further retention beyond thirty days would be unauthorised. Therefore, continued retention of the documents by the respondents in this case is only to be declared illegal.
8. Learned counsel, Sri R. Krishnaraj, further argued that the communication of the decision to the dealer by the officer whether the seized documents are required for prosecution is a necessary requirement to be complied with. He also pleads that such communication shall be made within the period of thirty days from the date of seizure. The provision contained in Sub-section (6) of Section 28 does not in terms authorise the communication of the decision to the dealer. When the officer seizing the documents is empowered to take a decision within thirty days it is difficult to countenance a plea that such decision shall be communicated to the dealer within thirty days from the date of seizure. Therefore, the question remains to be examined is whether the non-communication of the decision would be an unreasonable restriction on the dealer's right to carry on the business and trade. Can it be said the communication of the decision to the dealer is a necessary requirement or an essential pre-requisite for the continued retention of the documents ? It can be said so. The Supreme Court in Commissioner of Income-tax v. Oriental Rubber Works [1984] 145 ITR 477 had occasion to consider the question whether the reasons recorded for retaining the documents for a period exceeding one hundred and eighty days as authorised under Section 132(8) of the Income-tax Act should be communicated to the assessee. The provision contained in Section 132(8) does not contemplate communication of the order to the assessee while retaining the books of accounts or other documents seized, for a period exceeding 180 days from the date of seizure. This provision was construed by the Supreme Court as below :
"...........It is true that Sub-section (8) does not in terms provide that the Commissioner's approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfilment of either of the conditions, it is obligatory upon the Revenue to communicate the Commissioner's approval as also the recorded reasons to the person concerned. In the absence of such communication the Commissioner's decision according his approval will not become effective."
In this view of the matter, the Supreme Court held that such communication must be made as expeditiously as possible after the passing of the order of approval by the Commissioner and in default of such expeditious communication any further retention of the seized books or documents would become invalid and unlawful.
9. The above decision of the Supreme Court was relied on by a Division Bench of the Andhra Pradesh High Court in Sri Ramakrishna Talkies v. Income-tax Officer, F. Ward, Vijayawada [1985] 153 ITR 794 and held :
"..........In the event of the above officers not communicating the factum of approval or its date, it is open to the concerned person to approach the concerned officer seeking information as to whether the approval of the Commissioner for further retention has been in fact obtained or not or as to when it was obtained and we are sure that in such cases, the officer concerned will not hesitate to inform the concerned person in writing about the factum of the approval of the Commissioner and the date of such approval so that the concerned person may feel satisfied that such approval has been obtained within the mandatory period of 15 days."
The decision of the Supreme Court was applied by the Delhi High Court in Survir Enterprises v. Commissioner of Income-tax, Central Range, New Delhi [1986] 157 ITR 206 and in Thanthi Trust v. Commissioner of Income-tax [1987] 167 ITR 397 (Delhi). Earlier, the Madhya Pradesh High Court in Commissioner of Income-tax v. Karelal Kundanlal Trust and the Calcutta High Court in Commissioner of Income-tax v. Mahabir Prasad Poddar [1974] 93 ITR 215 expressed the same view.
10. After considering the scheme of the provisions contained in Sub-section (6) of Section 28, and Rule 34(9) of the Kerala General Sales Tax Rules, I am of the view that the officer who seized the documents under Sub-section (5) of Section 28 shall take a decision within a period of thirty days from the date of seizure whether such seized documents are required for any prosecution under the Act and such decision shall be communicated to the assessee. Such communication of the decision need not be within thirty days of seizure as noticed earlier ; it can be after the expiry of thirty days from the date of seizure but it cannot under any circumstances be delayed indefinitely. The ratio of the decision of the Supreme Court in Oriental Rubber Works' case [1984] 145 ITR 477 is that the decision shall be communicated expeditiously and non-communication will vitiate the order. That observation will equally apply in the case of Sub-section (6) of Section 28 of the Act. That would necessarily mean the decision whether seized documents are required for prosecution shall be communicated to the assessee as expeditiously as possible. At any rate it must be done within a reasonable period if there are sufficient reasons for non-communicating the order immediately. The communication of the decision to the dealer from whom the documents are seized is insisted for the reason that it is a reasonable safeguard from the executive arbitrariness.
11. In view of what I have said above, the retention of seized documents beyond the period of thirty days in this case is totally unauthorised in the absence of compliance of the requirements aforesaid. It is abundantly established in this case that no decision has been taken by the officer who seized the documents within a period of thirty days from the date of seizure that they are required for prosecution and if at all any such decision has been taken the same has not been communicated to the petitioners. Accordingly, I direct the respondents to return all the documents seized from the business places of the petitioners on December 17, 1993, as expeditiously as possible, at any rate within a period of two weeks from today. In case the respondents require any extracts of the documents they are allowed to take them as may be considered necessary, under Sub-rule (10) of Rule 34 of the Rules. The writ petitions are disposed of as above. No order as to costs.