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2004 DIGILAW 585 (PAT)

Baijnath Prasad v. State Of Bihar

2004-06-22

NAGENDRA RAI, S.N.HUSSAIN

body2004
Judgment Nagendra Rai, J. 1. This Court in exercise of power u/s. 48(2)(b) of the Bihar Finance Act, 1981 by order dated 20.2.1992 directed the Commercial Taxes Tribunal (hereinafter referred to as the Tribunal) to refer the questions of law as mentioned in the order for opinion of this Court and in pursuance of which the Tribunal prepared the statement of facts and referred the questions of law as per the order of this Court for opinion of this Court. The questions of law referred by the Tribunal for opinion of this Court are as follows : "1. Whether in the facts and circumstances of the case, the finding that the seizure made even without recording that there is reason to suspect attempt on part of the dealer to evade payment of tax and without recording the same in writing, was legal? 2. Whether in the facts and circumstances of this case, the Tribunal is right-in holding the seizure to be legal because as held "the order of seizure reflects and supports the decision of the authority that there was evasion of tax" and whether such inference satisfied the condition laid down in Section 37(3) of the Act? 3. Whether in the facts of this case, the petitioner who was all along challenging the maintainability of the assessment as having proceeded on the illegal seizure, could be said to have submitted to the jurisdiction of the authorities? 4. Whether in the facts and circumstances of the case, the action of the authorities were illegal and ultra vires and the assessment following is fit to be quashed? 5. Whether in the facts and circumstances of the case it was necessary for the petitioner to go up in revision against the first appellate order of remand or the petitioner was right in reagitating the point of illegality after the remand assessment order before the appellate or revisional authority. 6. Whether in the facts and circumstances of the case, there could be estoppel against statute or waiver illegally applicable." 2. The factual matrix for deciding the said questions are that the petitioner is a dealer in foodgrains, salt, edible oils etc. Its place of business is at Piro in the district of Bhojpur. On 11.6.1975, the officers of the Commercial Tax Department (Intelligence Branch), Patna Division, Patna inspected the premises of the petitioner. The factual matrix for deciding the said questions are that the petitioner is a dealer in foodgrains, salt, edible oils etc. Its place of business is at Piro in the district of Bhojpur. On 11.6.1975, the officers of the Commercial Tax Department (Intelligence Branch), Patna Division, Patna inspected the premises of the petitioner. In course of inspection, certain documents including the Books of Accounts and papers containing financial transactions, which were suspected to have been maintained in order to evade sales tax, were seized for the purpose of detailed examination in exercise of the power u/s. 37(3) of the Bihar Sales Tax Act, 1959 and seizure list was prepared in terms of the provisions contained in the aforesaid section, which have been now replaced by the Bihar Finance Act, 1981 . The earlier Act will be referred to as the Sales Tax Act and the subsequent Act will be referred to as the Bihar Finance Act. The petitioner was asked to appear before the Superintendent of Commercial Taxes, Intelligence Branch, Patna Division, Patna, on 23.6.1975 with other Books of Accounts from the start of its business. The petitioner appeared and produced documents, which were examined and, thereafter, it was found that there was evasion of tax by the petitioner and, accordingly, a proceeding for assessment under sec. 16 of the Sales Tax Act was started for the composite period starting from 1.4.1971 to 31.12.1975 and the assessment order was passed on 7.4.1977 raising tax liability of Rs. 63,476.00 and imposing a penalty of Rs. 3,700.00 . The petitioner preferred an appeal before the Deputy Commissioner (Appeals), Patna Division, Patna, being Appeal Case No. STSH 15/1977-78 challenging the assessment order on the grounds including the illegality in the search and seizure as the same was in violation of sec. 37(3) of the Sales Tax Act and as such the assessment proceeding based on such illegal seizure was vitiated in law. The appellate authority by order dated 8.7.1989 set aside the order and remanded the case for reassessment on various grounds. With regard to the illegal seizure, the appellate authority while remanding the matter observed that though the seizure was not made in terms of sec. The appellate authority by order dated 8.7.1989 set aside the order and remanded the case for reassessment on various grounds. With regard to the illegal seizure, the appellate authority while remanding the matter observed that though the seizure was not made in terms of sec. 37(3) of the Sales Tax Act, but as the seized books of accounts and papers revealed that there was evasion of tax, the assessment proceeding could not be quashed in violation of Sec. 37 (3) of the Sales Tax Act. Thereafter, the assessing authority passed a fresh order of assessment reducing the tax liability as well as penalty to Rs. 39,656.35 ps. The petitioner again preferred an appeal before the Joint Commissioner, Commercial Taxes (Appeal), Patna, who by order dated 26.6.1982, dismissed the appeal. The petitioner, thereafter, preferred a revision before the Commercial Taxes Tribunal, Bihar, Patna and the Tribunal by order dated 18.11.1987 dismissed the revision application. 3. The petitioner, thereafter, filed a review application before the Tribunal, which was rejected by the Tribunal by order dated 8.8.1988. Thereafter, the petitioner filed an application before the Tribunal for making a reference under Sec. 48(1) of the Bihar Finance Act mentioning therein the important questions of law, but the Tribunal dismissed the same on 2.6.1989. 4. The petitioner, thereafter, filed an application before this Court for reference of the questions as mentioned above u/s. 48(2)(b) of the Bihar Finance Act and this Court directed for reference of the questions of law for opinion and, thereafter, the questions of law have been referred as stated above. 5. Learned counsel for the petitioner submitted that though six questions of law have been formulated for opinion of this Court but after compounding all the questions, in reality, two questions only arose for consideration in this case; firstly that as the search and seizure have been made in breach of the requirements contained in sec. 37(3) of the Sales Tax Act, the same are illegal and as a result of which the assessment proceedings based on the aforesaid illegal search and seizure are also vitiated in law and secondly that though the petitioner has not challenged the remand order passed by the appellate Court, whereby the submission with regard to the illegal seizure was rejected, he is not debarred from challenging the said point subsequently in appeal and revision filed against the fresh order of assessment. Learned counsel for the State fairly submitted that these are the only two questions, which arise for opinion of this Court. 6. Learned counsel for the petitioner submitted that according to sec. 37(3) of the Sales Tax Act, the authority having reason to suspect that the dealer is attempting to evade the payment of tax, may have reasons to be recorded in writing, to seize accounts registers or documents mentioned therein and, thereafter, shall grant a receipt. In the present case, no reasons have been recorded by the authority before the seizure for coming to a finding that there is a reason to suspect that the petitioner was making attempt to evade payment of tax and as such the mandatory requirement of sec. 37(3) of the Act has not been complied with. The search and seizure of the documents were illegal and the assessment orders passed on the basis of such documents are also vitiated in law. In support of his submission, he relied upon a decision of the Division Bench of this Court in Jib Narain Sao V/s. State of Bihar, reported in 34 STC 9. He also relied upon the judgment of the Apex Court in the case of K.L. Subhayya v. State of Karnataka, reported in AIR 1979 SC 711 . 7. Learned counsel appearing for the petitioner further submitted that non-challenge by the petitioner to the order of remand passed by the appellate Court, wherein the objection with regard to illegal search and seizure was rejected, does not preclude it from challenging the matter of illegal search and seizure subsequently in the proceeding after the remand by the appellate authority. 8. Learned counsel appearing for the State, on the other hand, combatted both the propositions and submitted that the requirements of sec. 37(3) of the Sales Tax Act were complied with as is evident from the finding of the Tribunal. Alternatively, he submitted that even if the requirements were not complied with, the petitioner did not challenge the illegal search and seizure. At the initial stage, the petitioner participated in the assessment proceeding resulting into the order of assessment and now he cannot challenge the proceeding on the ground of illegal search and seizure. Alternatively, he submitted that even if the requirements were not complied with, the petitioner did not challenge the illegal search and seizure. At the initial stage, the petitioner participated in the assessment proceeding resulting into the order of assessment and now he cannot challenge the proceeding on the ground of illegal search and seizure. He further submitted that even if the search and seizure were illegal, the petitioner does not deny that the documents seized belonged to it and as such the said documents can be taken into evidence for the purpose of assessment proceeding. He further submitted that the appellate Court has rejected the contention with regard to illegal seizure and the petitioner did not challenge the aforesaid order before the higher authorities, on the other hand, on the basis of the said order participated in the subsequent assessment proceeding and as such he cannot be allowed to challenge the search and seizure. In support of his submission that the document seized in a search, which is found to be illegal, is admissible in evidence at the subsequent stage, learned counsel for the State has relied upon the judgment of the Apex Court in the case of Pooran Mal V/s. Director of Inspection etc., reported in AIR 1974 SC 348 . 9. To appreciate the point, it is useful to refer to sec. 37 of the Sales Tax Act, which contains a provision with regard to production, inspection and seizure of accounts and documents and search of the premises. The same is as follows : "37. Production, inspection and seizure of accounts and documents and search of premises.-- (1) Subject to such rules as may be made by the State Government under this Act any authority appointed under Sub-sec. (1) of sec. The same is as follows : "37. Production, inspection and seizure of accounts and documents and search of premises.-- (1) Subject to such rules as may be made by the State Government under this Act any authority appointed under Sub-sec. (1) of sec. 8 or an Inspector may, either before or after assessment, require any dealer to produce before it or him any accounts, registers or documents or to furnish an information relating to the financial transactions of the dealer, the profits derived from such transactions and the stock of goods produced, raised processed, manufactured, bought, sold or delivered by such dealer; and the dealer shall complain with such requirement, (2) Subject as aforesaid, all accounts, registers and documents relating to the financial transactions of a dealer, the profits derived from such transaction and all goods kept in any place of business of any dealer shall, at all reasonable times, be open to inspection by any authority appointed under Sub-sec. (1) of sec. 8 or by an Inspector and the dealer shall render all possible assistance to such authority or Inspector in carrying out the inspection. Explanation.--Such authority or Inspector may take or cause to be taken such copies of, or extracts from the accounts, registers or documents as such authority or Inspector may consider necessary. (3) If any authority appointed under Sub-sec. (1) of sec. 8 has reason to suspect that any dealer is attempting to evade the payment of any tax such authority may for reasons to be recorded in writing, seize such accounts, registers or documents of the dealer as may be necessary and shall grant a receipt for the same. Such seized accounts, registers or documents shall be retained for long as may be reasonably necessary for examination thereof or for a prosecution u/s. 38 and shall thereafter be returned to the dealer in the prescribed manner : Provided that if the seized accounts registers or documents are retained by any authority other than the Commissioner, for more than ninety days, the reasons for doing so shall be recorded in writing and the approval of the Commissioner obtained by the authority so retaining them. (4) For the purposes of Sub-sec. (2) or Sub-sec. (3) any authority appointed under Sub-sec. (1) of sec. 8 or an Inspector may enter and search any place of business of any dealer." 10. In this case, Sub-sec. (3) of sec. (4) For the purposes of Sub-sec. (2) or Sub-sec. (3) any authority appointed under Sub-sec. (1) of sec. 8 or an Inspector may enter and search any place of business of any dealer." 10. In this case, Sub-sec. (3) of sec. 37 of the Sales Tax Act is relevant, which contains a provision with regard to seizure of documents, which can be done only at the time of search or inspection as provided under Section 37 of the Act. Sub-sec. (3) thereof provides safeguards, which are to be followed at the time of search and before seizure of the documents. The documents may be seized by the authority only when he has reason to suspect that the dealer is attempting to evade the payment of tax due from him under the Sales Tax Act. He has to record reasons in writing before the documents are seized. The authority is required to give a receipt for the same to the dealer at the time of seizure and, thereafter, the seized accounts, documents etc. shall be retained for the period necessary for examination and enquiry under the Sales Tax Act. This provision was considered by a Division Bench of this Court in the case of Jib Narain Sao (supra), wherein it was held that the requirement of sec. 37 of the Sales Tax Act has to be complied with before seizure of the documents. It was held as follows : "The first requirement for the exercise of the power is that the authority must have reason to suspect that any dealer is attempting to evade the payment of any tax. Coming in possession of reason to suspect may be assumed to be the subjective act of the authority, but it becomes objective and justiciable when we come to the second requirement for the exercise of the power and that is the recording of reasons in writing. I have no doubt in my mind that while recording the reasons in writing whatever else, which can be said to be a reason justifying seizure, may have to be recorded, the authority surely will have to record its reason to suspect that any dealer is attempting to evade the payment of tax. The reasons to be recorded in writing may include other reasons but surely they have got to include the reasons of suspicion. That is the sine quanon for the exercise of the power. The reasons to be recorded in writing may include other reasons but surely they have got to include the reasons of suspicion. That is the sine quanon for the exercise of the power. And, thus the reason to suspect has got to be decided from an objective standard and it becomes justiciable. The authority exercising the power cannot give an absurd or arbitrary reasons which may not satisfy the Court that it has justification for seizing the account books and other documents of the dealer but only such account, register or document as may be necessary for the purpose of inspection or investigation. Accounts, registers or documents or any other papers, which are not relevant for the purpose of making inspection or investigation obviously cannot be seized. I am, however, of the opinion that recording of reasons in writing and the act of seizure of accounts, registers or documents may be simultaneous and may be contained in the same paper. The last requirement of the law is that a receipt has got to be granted by the authority enumerating therein the various accounts, registers or documents seized by it. As observed by the Allahabad High Court in Shri Shambhu Nath V/s. Sales Tax Officer, Jaunpur, such a receipt has got to be granted whether a request for it is made or not. The Allahabad High Court was considering the provisions in the UP. Sales Tax Act, 1948, similar to those contained in sec. 37(3) of the Act." 11. It was further held that two of the requirements, namely, that the authority has reason to suspect that the dealer is attempting to evade the tax and recording of reasons in support of the aforesaid conclusion are mandatory and if they are not fulfilled, the entire action will be illegal and ultra vires and it will have to be quashed and a writ of mandamus is to be issued directing return of the documents. In the said case, it was found that the aforesaid two requirements have been complied with and only receipt was not granted and this Court, accordingly did not quash the search and seizure and only directed to send the receipt to the petitioners of that case. 12. In the said case, it was found that the aforesaid two requirements have been complied with and only receipt was not granted and this Court, accordingly did not quash the search and seizure and only directed to send the receipt to the petitioners of that case. 12. From the facts of the said case, it appears that the petitioners in that case challenged the very seizure at the initial stage and it that context, it was held that if the two of the requirements, as stated above, were not fulfilled the entire action has to be nullified and a direction will have to be issued for the return of the documents. 13. In the present case, first it has to be decided as to whether there was violation of requirement of sec. 37(3) of the Sales Tax Act or not and in case it is found that there was violation then as to what will be its effect when the petitioner did not dispute the seizure of documents at the threshold, on the basis of which the authorities have found that there is evasion of tax and passed the order in the assessment proceeding. 14. At the time of search, admittedly, the recording of reasons has been made by the authorities. Unfortunately, the order is not a part of the record. However, the petitioner in paragraph No. 5 of the petition filed u/s. 48(2)(b) of the Act has stated that the concerned authority has recorded the following reasons : "In course of a surprise inspection of the business premises, the following books of accounts, memos, loose sheets were found. It is not possible to take extracts thereof immediately. I.R.P. Sinha, Addl. Superintendent of Commercial Taxes, Int. Br., Patna Division, do hereby seizure them for detailed examination, u/s. 37(3) of the Bihar Sales Tax Act, 1959 ".................". The dealer is directed to appear in the office of the Superintendent of Commercial Tax, Int. Br., Patna Division, on 23.6.1975 at 6.30 a.m. with other books of accounts from start of the business............" 15. The petitioner has put dots at some places. However, the Tribunal in order dated 8.8.1988 passed in a review case, observed that the order of seizure reflects and supports the decision of the authority that there was an evasion of tax. Br., Patna Division, on 23.6.1975 at 6.30 a.m. with other books of accounts from start of the business............" 15. The petitioner has put dots at some places. However, the Tribunal in order dated 8.8.1988 passed in a review case, observed that the order of seizure reflects and supports the decision of the authority that there was an evasion of tax. Although, it has been mentioned that since there were large number of documents, it was not possible to examine them and without doing so they are being taken away for proper examination. The Tribunal, thus, opined that the seizure was made on account of the fact that the authorities have reasons to believe that there was evasion of tax. 16. In view of the fact that the entire order recorded on that day is not brought on the record, there is no reason to disbelieve the finding recorded by the Tribunal that the requirements of sec. 37(3) of the Sales Tax Act have been complied with. Even assuming that the requirements of sec. 37(3) have not been complied with and the seizure was illegal as held by a Division Bench of this Court, the question arises as to whether subsequent assessment proceedings will be vitiated on this ground or not. 17. In the case of Jib Narain Sao (supra) the seizure was challenged at the very initial stage and in that context it was held by this Court that if the seizure is found to be illegal, then the entire proceeding has to be quashed and a direction will have to be issued for return of the documents etc. 18. In the present case, the question is different one. On the basis of the aforesaid seizure, the petitioner was asked to appear and produce further documents. He produced the documents, participated in the proceeding and assessment order was passed and that was challenged under the provisions of the Sales Tax Act up to the stage of the Tribunal. The petitioner has not challenged the factum of seizure of documents and has challenged only on the ground of non-compliance of the requirements of sec. 37(3) of the Sales Tax Act. Had he challenged at the earlier stage, the matter could have been different, but at this stage, on the said ground the assessment proceeding cannot be assailed. 19. The petitioner has not challenged the factum of seizure of documents and has challenged only on the ground of non-compliance of the requirements of sec. 37(3) of the Sales Tax Act. Had he challenged at the earlier stage, the matter could have been different, but at this stage, on the said ground the assessment proceeding cannot be assailed. 19. In Pooran Mats case (supra), the seizure was made u/s. 132 of the Income Tax Act where the requirement is that the authorities will seize the documents only when they have reasons to believe that the person is in possession of undisclosed income or on other grounds mentioned in that section. The seizure was challenged on the ground that the authorization for the search, as also the search and seizure were illegal. The challenge was based on constitutional and unconstitutional grounds. One of the questions for consideration was as to whether the evidence obtained by illegal search and seizure can be used before the Income Tax authority against the person from whose custody it was seized, or not. A Constitution Bench in the said case dealing with the said matter held that even if search and seizure were in breach of sec. 132 of the Income Tax Act, still the material seized by the authority was liable to be used subject to law before the Income tax authorities against the person from whose custody document was seized. In this connection, it is useful to quote relevant portion of paragraph No. 25 and paragraph No. 26 of the aforesaid judgment, which are as follows : "25. It would thus be seen that in India, as in England, where the test of admissibility of evidence lies in relevancy, unless there is an express or necessarily implied prohibition in the Constitutional or other law evidence obtained as a result of illegal search and seizure is not liable to be shut out. 26. In that view, even assuming, as was done by the High Court, that the search and seizure were in contravention of the provisions of sec. 132 of the Income Tax Act, still the material seized was liable to be used subject to law before the Income Tax authorities against the person from whose custody it was seized and, therefore, no writ of prohibition in restraint of such use could be granted. 132 of the Income Tax Act, still the material seized was liable to be used subject to law before the Income Tax authorities against the person from whose custody it was seized and, therefore, no writ of prohibition in restraint of such use could be granted. It must be, therefore, held that the High Court was right in dismissing the two writ petitions. The appeals must also fail and are dismissed with costs." 20. The Constitution Bench judgment in Pooran Mats case (supra) was considered by the Apex Court in the case of State of Punjab V/s. Baldev Singh, reported in 1999 (6) SCC 172 while dealing with the question of seizure in breach of Section 50 of the Narcotic Drugs and Psychotropic Substances Act, 1985 and it was held that the judgment in Pooran Mals case (supra) has to be considered in the context, in which the judgment was rendered and the same is not an authority that an illicit article seized in breach of sec. 50 of the Narcotic Drugs and Psychotropic Substances Act may be used as evidence of unlawful possession of the illicit article on the person from whose possession the contraband had been seized in breach of the provisions of sec. 50 of the Act. The import of that judgment in Pooran Mats case (supra) can only be to the effect that the material seized during search and seizure, conducted in contravention of the provisions of sec. 132 of the Income Tax Act cannot be restrained from being used, subject to law, before the Income Tax authorities in other legal proceedings against the person, from whose custody that material was seized by issuance of a writ of prohibition. Thus, the subsequent Constitution Bench has not deviated from the law laid down in Pooran Mals case (supra) that the document seized in illegal search can be used in other legal proceedings against a person before the Income tax authorities for the Income Tax Act. 21. Thus, the subsequent Constitution Bench has not deviated from the law laid down in Pooran Mals case (supra) that the document seized in illegal search can be used in other legal proceedings against a person before the Income tax authorities for the Income Tax Act. 21. Thus, even it the search was held to be illegal, the documents, genuinesses of which has not been challenged, have admittedly been seized and they have been used by the authorities for the purpose of assessment under the Sales Tax Act and it has been found that the petitioner was engaged in sale, but evaded payment of tax under the provisions of the Sales Tax Act and as such the assessment order passed by the authorities is not vitiated on account of the aforesaid infirmities. 22. So far as the second point is concerned, no doubt the appellate authority while hearing the appeal against the first assessment order rejected the objection regarding the illegal search and seizure and the petitioner did not challenge the same, but on that ground it is not debarred from challenging the said infirmity in the assessment proceeding itself for the simple reason that the order of assessment is not a final order and it did not terminate the proceeding and the correctness of the said order can be challenged in subsequent appeal or revision proceedings. 23. In the result, the first question is answered against the assessee and in favour of the department and the second question is answered in affirmative i.e. in favour of the assessee and against the department. S.N.Hussain, J. 24 I agree.