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Judgment
W.P.No.17286 of 1994
This petition is for writ of declaration that the search conducted by the officer attached to the first respondent on 23.1.1990 from the place of
residence of the petitioner and seizure of Indian currency totalling to Rs.83,42,070/- from the residence of the petitioner as illegal and without
authority of law.
W.P.No.17287 of 1994: This petition is for issue of writ of declaration that Notification No.68/63 dated 4.5.1963 as amended and issued u/s 12
of the Central Excises and Salt Act, in so far as it seeks to make Section 121 of the Customs Act applicable to the Central Excise Act as ultra
vires and without authority of law and not applicable to the petitioner for the purpose of confiscating or seizing the cash from the petitioner.
The averments made in both the writ petitions are one and the same which are as follows: The petitioner is a registered dealer in camphor. He
was assessed under Tamil Nadu General Sales Tax and Central Sales Tax. He was assessed to Sales Tax upto 1988-89. After 23.1.19 90, he
was not doing any business; He was an income tax assessee also having agricultural income. The petitioner was not manufacturing any products.
Therefore, he has not obtained any licence under the Central Excise Act. The petitioner was the sole distributor for M/s. Twin City Organics and
M/s. Dye Distributors India Limited, Bombay who are the manufacturers of camphor. The petitioner''s assessment for sales tax was completed
based on the books of accounts and receipts and Gate Passes issued by the manufacturers outside the State of Tamil Nadu. According to the
market situation, prices are fixed and sold to small dealers who manufacture and sell camphor tablets in small scale, to the manufacturers of
Ayurvedic medicines and for temple uses. When it is sold to the manufacturers of Ayurvedic medicines, the percentage of profit is higher. While so,
on 23.1.1990, the first respondent'' officers searched the residence of the petitioner and recovered Indian currency totalling to a sum of
Rs.83,47,070/-; statements were obtained by coercion. In fact, the petitioner told the officers that Indian currency was the unaccounted cash
accumulated by the sale of camphor and also Isoborneol; profit was earned by sale at a higher price than the invoice price. The officers seized the
cash on the allegation that the petitioner violated the provisions of Excise and Salt Act. Immediately on 31.1.1990, the petitioner informed the
Income Tax Department that he did a substantial business yielding a profit of Rs.80 lakhs. While he was planning to pay advance tax which was
due on 15.3.1990, the search was conducted. By letter dated 31.1 .1990, the petitioner requested the Income Tax Department to move the
Central Excise Department to transfer of funds of Rs.43 lakhs as advance tax payable by him by 15.3.1990. Accordingly, the Assistant Director of
Income Tax (Investigation), Coimbatore issued a warrant and requested the officers of the first respondent by letter dated 20.3.1 990 u/s 132(A)
(1)(c) of the Income Tax Act for the delivery of assets and books of accounts to them. The Assistant Commissioner of Income Tax, Special
Investigation, Circle-II, Coimbatore passed assessment order for the assessment year 1990-91, u/s 143(3) of the I.T. Act on 18.3.1993; thereby,
the Income Tax was assessed to Rs.83,67,510/- and levied income tax and surcharge of Rs.43,37,7 49/- and also levied interest under the
Sections 234-A, 234-B and 234-C, a sum of Rs.60,92,277/- totalling to Rs.1,06,05,026. Against that order, appeal was filed to the
Commissioner of Income Tax (Appeals) and the appellate authority has held that when the cash has been fully assessed u/s 69 of the Act, in the
absence of positive evidence for the source of cash, no set-off could be granted. The liability to Excise Duty, if any, will be that of the manufacturer
and not that of the agent. Therefore, the assessment was confirmed by the Commissioner. With regard to the levy of interest, the petitioner filed
W.P.13527 of 1993 and interim stay was granted. The Income Tax Department''s reasoning is to the effect that the liability under the Central
Excise Act is only on the manufacturer; the petitioner has nothing to do with the activities of the manufacturer; he is not liable to pay any Excise
Duty; the Excise Duty on such goods had already been levied and it cannot be levied once again.
The petitioner filed a Criminal Miscellaneous Petition before this Court for return of currency. Since Criminal Procedure Code is not applicable,
the petitioner filed W.P.No.4836 of 1990 praying for mandamus to return Rs.40,44,858/- and balance of Rs.42,97,212/- to be paid to the
Income Tax Department. He also filed another W.P.5045 of 1 990 for a declaration that Notification No.68/63 issued u/s 12 of Central Excise
Act applicable to the Central Excise Act as ultra vires. The second respondent issued a show cause notice. Challenging that, the petitioner filed
W.P.12110 of 1990. The matter was heard at length before the Division Bench of this Court. Ultimately, the Division Bench dismissed the writ
petition as pre-mature holding that the adjudication proceedings will decide the issue. Since the issue has not been decided and there was no
finding on the legal issues raised by the petitioner, the petitioner filed the present writ petition. The search and seizure itself was illegal. The mahazar
shows that the Central Excise Officers seized the currency on the reasonable belief that it constituted material evidence to the enquiry conducted by
the officers and also on the reasonable belief that the petitioner violated the provisions of the Central Excise Act. The mahazar is vague and does
not spelt out any offence under the Central Excise Act. Further, the search and seizure was not valid as the reasonable belief was not with respect
to the violation of the specific provisions of the Central Excise Act; further, no provision under the Central Excise Act enables the search of the
residential premises of a dealer; that the currency was unaccounted was not a ground for seizure under the Central Excise Act. It must relate to
duty, u/s 3 of the Central Excise Act. The reason to believe must be corelated to any subjective satisfaction of the officers who conducts search to
a prima facie conclusion that there was evasion of payment of duty and that can be stopped by such search and seizure of available materials. The
expression, ""reason to believe"" is not synonymous with subjective satisfaction. If the manufacturer failed to pay Excise Duty or clandestinely
removed the goods without payment of Excise Duty, such duty cannot be recovered from the person who dealt with such goods. If such goods are
available with any person, the officer can seize the goods which were removed clandestinely. But the officer cannot seize the currency on the
reasonable belief that it was the sale proceeds of such goods. Therefore, the search and seizure itself is illegal and the currency seized has to be
returned. The Central Excise officers derive powers of the Customs officers by virtue of notification No.68/63, dated 4.5.1963 issued u/s 12 of the
Central Excise Act. Section 121 deals with confiscation of sale proceeds of the smuggled goods. Therefore, to the present seizure, Section 121 is
not applicable. The remedy available under the statute, viz., to approach the authorities under the Customs Act is not effective, but only illusory and
hence, the present writ petition has been filed.
In the counter, it is stated that action was initiated against the petitioner by D.I.G., New Delhi, based on intelligence of evasion of excise duty by
the manufacturers, viz., M/s. Twin City Organics ( P) Limited and M/s. Dye Distributors India Limited, Taloja with the active connivance of other
persons. Hence, nation-wide search operations were conducted in association with local Central Excise officials. The petitioner''s premises at
Coimbatore was also searched. Apart from the cash, non-duty paid clandestinely removed excisable goods weighing 1325 kgs. Valued at
Rs.1,08,751/- was also seized from the petitioner''s premises at Coimbatore and Madras; Excisable goods weighing 2000 kgs., of camphor
valued at Rs.1,68,647.75 consigned to the petitioners have also been seized at transporter''s godown in addition to several incriminating
documents. On the basis of the above documents, show cause notice was given. The petitioner was receiving excisable goods under GPIs and also
without cover of proper documents. Evidence to this extent was also unearthed. The search is not illegal. The currency has been seized by the
officer on the reasonable belief that it represented sale proceeds of excisable goods removed in contravention of the provisions of Central Excises
and Salt Act and the rules made thereunder. The petitioner did not provide any reasonable explanation for possession of Indian currency of Rs.83
lakhs; instead he admitted that the money was obtained by selling camphor and Isoborneol supplied by M/s. Twin City Organics (P) Limited and
M/s. Dye Distributors India Limited at higher rate. But, he was not able to produce any account for that. He was the sole distributor for the
companies in Tamil Nadu and Kerala. Therefore, the reasonable belief of the officers is justified. Section 110(1) of the Customs Act was made
applicable to Central Excises and Salt Act. Therefore, by a combined reading of Section 2(2) of Customs Act which defines goods which includes
currency and negotiable instruments, the seizure effected is legal. The Collector of Central Excise duty issued show cause notice and directed the
petitioner to appear for hearing. But the petitioner did not appear for the hearing. The adjudication proceedings are in progress. Therefore, it is
premature to release the seized currency. The petitioner''s act of disclosing the same to the Income Tax Department after the seizure was only to
get back the portion of the seized currency. The petitioner could not give any account. In fact on 7.2.1990, he had admitted that the consignment
received through deluxe cargo movers was sold on cash basis and confirmed receipt of unaccounted goods. Further, he also admitted that the
sales tax was not paid on those goods. On the statement given by him on 8.2.1990, he further deposed that he was not doing any other business
other than selling camphor and Isoborneol despatched by M/s. Twin City Organics ( P) Limited and Dye Distributors India Limited and that he
had no other sources of income other than his commission in the business. He further stated that during the year 1989-90, 140 tons were received.
In the counter, it is further stated that the petitioner''s earlier writ petition challenging the notification 68/63 was heard by the Division Bench of
this Court and it was dismissed as premature holding that since show cause notice was issued, the matter would be decided in the adjudication
proceedings; the petitioner has to appear before the authorities; before confiscation of the sale proceeds of clandestinely removed excisable goods,
the department has to prove that the person concerned from whose possession the sale proceeds have been removed has the reason to believe
that the goods dealt with by him were non-duty paid. Since the adjudicatory proceedings are yet to be over; the present writ petition is premature.
Section 12 of the Act is legal and valid. The petitioner had admitted that the entire Indian currency was accumulated by the sale of camphor and
Isoborneol. Therefore, the officers had sufficient reason to believe that the unaccounted cash relates to sale proceeds of excisable goods. Further,
the entry and search itself was on the basis of information, to look out for contraband excisable goods. Even before the Income Tax authorities, the
petitioner had not given any supporting documents. The circumstances that existed at the time of dismissal of the previous of writ petition still
continues. There is no change of circumstance as stated by the petitioner. The officers exercised the powers conferred by the Act and the rules.
The officers had sufficient reason to believe that the unaccounted currency was directly connected with sale of goods supplied by M/s. Twin City
Organics (P) Limited and M/s. Dye Distributors India Limited. The notification No.68/63 issued u/s 12 of Central Excises and Salt Act makes it
applicable to the provisions of Sections 105, 110, 121 etc., of the Customs Act for the purpose of levy of collection and the duty of exercise and
also to other provisions pertaining to offences committed under the Central Excise Law. This enables the officers to search places where they have
reason to believe that there are goods liable for confiscation. If the goods manufactured are removed in contravention of the provisions of the
Central Excises and Salt Act, such goods are still to be characterised as excisable goods. Wherever such goods are stored or carried, the officers
have the power to search and seize such goods. It is an offence to remove excisable goods without payment of excise duty and it is also an offence
to connive or abet the commission of an offence involving evasion of duty. Therefore, the notification 68/63 is applicable not only to manufacturers,
but also to other persons who abet the offence. The excise duty is not levied on the "" manufacturer""; it is only levied on the goods ""produced"" or
manufactured"". In this case, the trader who has nexus with the manufacturer deals with the goods for which excise duty was not paid. When the
provisions of Section 121 of the Customs Act is extended to the Central Excise Act, the sale proceeds obtained out of sale of goods removed in
contravention of Central Excise Rules are liable for confiscation. It is clear that the entire sale proceeds obtained by sale of goods removed in
contravention of Central Excise Rules is liable for confiscation. Therefore, the writ petitions are to be dismissed.
Learned counsel appearing for the petitioner submitted that the search conducted in the premises of the petitioner was illegal. In support of that,
the counsel submitted that warrant of search was issued by the Assistant Collector. Exercising the powers of Section 12 of Central Excise Act,
notification No.68/63 was issued. In that notification, references to ""Collector of Customs"" shall be deemed to be a reference to ""Collector"" as
defined in clause (ii) of rule 2 of the Central Excise Rules, 1944"". The Assistant Collector of Central Excise is lower in rank. Above him, are
Deputy Collector of Central Excise, Additional Collector of Central Excise and above them only, is the Collector of Customs. Therefore, the
Assistant Collector of Central Excise cannot be equated with the Collector of Central Excise and he cannot exercise the power of Collector of
Central Excise. In view of the above, the issue of warrant of search issued by the Assistant Collector is not legal and the search conducted in
pursuance of the execution of that warrant is illegal.
Learned counsel for the petitioner relied upon a judgement of this Court in Kwality Dyes and Chemicals Vs. Collector of Central Excise and
Customs, Madurai, in which it has been held that,
If reasonable belief is formed by the Superintendent of Central Excise who is subordinate to the Collector, the seizure is invalid. Reasonable belief
as envisaged by Section 110 of the Customs Act must be formed by the proper officer who must be the Head of the Department, i.e., the
Collector. Reasonable belief formed by the Superintendent will not justify seizure. Section 110 of the Customs Act, 1962 as made applicable to
the Central Excises Act and Rule 2(xi) of the Central Excise Rules, 1944 and NotificationNo.69/59. The pre-requisite condition for the application
of Section 110 of the Customs Act, 1962 as applicable to the Central Excises Act, is the reasonable belief of the proper officer to the seizure of
the goods in respect of which contravention has been made. In the instant case, the warrant for search was issued by the Preventive Assistant
Collector of Central Excise and search was made by the Superintendent of Central Excise and others. According to Rule 2(xi), the proper officer
is the officer in whose jurisdiction, the land or premises of the producer of any excisable goods is situate. In view of this, it is the Head of the
Department, who will be the proper officer. Since, the Head of the Department in the instant case is the Collector of Central Excise at Madurai,
the seizure was within his jurisdiction. The reasonable belief on the part of the proper officer is sine qua non for the exercise of the power in
seizure. In view of this, unless the said Collector entertained any reasonable belief that the excisable goods are liable to be confiscation, there can
be no valid seizure. Therefore, in this case, the reasonable belief was not of the Collector, but only of the Assistant Collector and therefore, the
search is invalid as it is not in conformity with the rules.
Therefore, the counsel for the petitioner argued that inasmuch as the search warrant was not issued by the person authorised under the Act, the
search is illegal; and inasmuch as the reasonable belief of the Assistant Collector is not the reasonable belief of the ""proper officer"" and therefore,
the entire search as to such reasonable belief of the officer who is not the proper officer is non est in law. Therefore, no consequences would flow
out of the search; which was illegal from the beginning and hence the entire procedure is null and void.
By the Notification No.68/63, the provisions inter alia of Sections 105(1) of the Customs Act, 1962 were made applicable to like matters in
respect of duties levied under the Central Excise Act. Reading Section 105(1) of Customs Act and the Notification 68/63 issued u/s 12 of the
Central Excise Act, it would mean that where the Assistant Collector of Central Excise has reason to believe that any goods liable for confiscation
or any document or things in his possession will be useful or relevant to any proceedings under the Central Excise Act, he may authorise any officer
of Central Excise not inferior in rank to Sub-Inspector to search for such goods or things. In this case, the warrant of search has been issued by the
Assistant Collector Central Excise authorising the Superintendent of Central Excise to conduct search. Therefore, the search was conducted in
accordance with the procedure prescribed by the Act. In the case of Durga Prasad v. Superintendent, Central Excise A.I.R.1966,`C. 1209 the
Apex Court held that the power of search granted u/s 105 of the Customs Act is a power of general search. In this case, the Assistant Collector
had such a reason to believe that documents or things relevant for proceedings under the Central Excise Act were in possession of the petitioner
and therefore issued the warrant of search of premises of the petitioner. Therefore, the warrant of search issued by the Assistant Collector is valid
in law.
The contention of the counsel for the petitioner is that only the ""proper officer"" under the Central Excise Act, viz., the Collector of Central Excise
is competent to effect any seizure, but in this case, since the seizure has been effected by the Superintendent, the seizure is invalid. As per Section
18 of the Central Excise Act, all searches and arrests under this Act shall be carried out in accordance with the provisions of Criminal Procedure
Code, relating to search and seizure under the Code. During search, suspected things and documents can be ""taken possession of"" by the officer
who conduct the search. That is not ""seizure"" within the meaning of Section 110 of Customs Act. Seizure u/s 110 of the Customs Act can be made
only after following the procedure under Sub-Section (2) of Section 110 of the Act; for that show cause notice has already been issued. The
currency and goods were only ""taken possession"" of during the search made u/s 105. They are yet to be seized. Therefore, contention of the
counsel for the petitioner that the Superintendent had seized the currency and other documents is not correct.
Further, in the case of State of Gujarat v. Mohanlal Jitamalji Porwal and another reported in 1987 (29) ELT 483, it has been held by the
Supreme Court that, ""whether or not the official concerned has seized article in the "" reasonable belief"" that the goods were smuggled goods is not
a question on which the Court can sit in the appeal. Further, if prima facie, there are grounds to justify the belief, the Courts have to accept the
officer''s belief regardless of the fact whether the Court of its own might or might not have entertained the same belief. Section 123 of the Customs
Act, 1962 does not admit of any other construction. Under the circumstances, whether the officer entertained the reasonable belief is not a matter
which can be placed under legal microscope, with an overindulgent eye which sees no evil nowhere within the range of its oversight.
Therefore, whether the officer had materials to arrive at a reasonable belief or not before the search was conducted need not be tested under legal
microscope.
From the counter-affidavit filed by the respondent, it is seen that during the search not only a sum of Rs.82 lakhs was taken possession of, but
also large quantities of excisable goods weighing 1 325 kgs. valued at Rs.1,08,751/- were also taken from the premises at Coimbatore and
Madras. Also excisable goods weighing 2000 kgs. of camphor valued at Rs.1,68,647.75 consigned to the petitioners have also been taken
possession at transporter''s godown; Several incriminating documents were also taken possession. The officer suspected that non-duty paid
excisable goods were found in possession of the petitioner; 2000 kgs. of camphor which were transported to the petitioner were also impounded
as no documents to prove the payment of the excise duties were produced. From this, it appears that, the authorities had reason to believe that the
petitioner was receiving excisable goods without cover of proper documents. The Supreme court in the case of Indru Ramchand Bharvani and
Others Vs. Union of India (UOI) and Others, has held that at the time of search, it can be presumed that there are adequate materials to form
reasonable belief, u/s 110 read with Section 123 of the Customs Act, 1962. Therefore, it cannot be contended that the Assistant Collector did not
have ""reasons to believe"" when the search warrant was issued. Therefore, the search as well as all acts in pursuance of such search are valid. The
warrant issued by ""Assistant Collector of Central Excise"" u/s 105(1) of the Customs Act is valid. As per the Notification No.68/63, nonduty paid
excisable goods can be seized wherever it is found. When it is found that duty was not paid on the excisable goods, such goods can be taken
possession of from any person including a dealer. The argument that the sale proceeds of such goods cannot be taken from a dealer is not
acceptable.
The counsel for the petitioner next submitted that the petitioner was only a dealer; he was not a manufacturer; Central Excise Act applies only
to the manufacturers, and therefore, the Notification No.6 8/63 which extends the provisions of the Customs Act to Central Excise Act is not
applicable to the petitioner as the petitioner was not a manufacturer. Excise duty is levied on the goods; it is not a duty on the manufacturer. The
onus to prove that it was excise duty paid goods was on the petitioner who was found to be in possession of Excisable goods. Section 120 of the
Customs Act read with the Notification No.68/63 u/s 12 of the Central Excise Act confers power of confiscation of excisable goods removed in
contravention of the provisions of the Central Excise Act and Rules. Such a power of confiscation is available, even to confiscate the sale proceeds
of the goods; therefore, currency can also be taken possession during search.
According to the petitioner, he stopped his business in 1988-89 and admittedly, he was assessed to sales tax only upto 1988-89. Search was
made on 23.1.1990. But non-duty paid excise duty payable goods were found with the petitioner. The explanation of the petitioner is that he was
selling the camphor at a higher price than the invoice price and thereby he earned enormous profit, is not acceptable. Because, while the search
was made, he did not have any accounts. Only after the search, the petitioner wrote a letter to the incometax authorities stating that he did
substantial business thereby earned profit of Rs.40 lakhs. This appears to be an attempt to make the cash taken from him to appear as if it is the
sale proceeds of the goods. This appears to be an afterthought, only to get out of the clutches of the Central Excise Act. Admittedly, he has not
paid Sales Tax for that amount. Further, inasmuch as any excisable goods could be seized, when it is found that excise duty was not paid, the sale
proceeds of non-duty paid excisable goods can also be seized, u/s 110 of the Customs Act. Such a ""seizure"" can be made from any person
whether he is a manufacturer or not. Therefore, the argument that Notification 68/63 is not applicable to the petitioner, inasmuch as he is not a
manufacturer, is not acceptable. Since the petitioner was found in possession of excisable goods and since non-duty paid excisable goods were
consigned to him, the presumption is that the goods that were found in possession of the petitioner were non-duty paid excisable goods. The cash
which was found in his possession also has to be presumed to be the sale proceeds of non-duty paid excisable goods, because the petitioner did
not have any account and that the petitioner was the sole distributor for M/s. Twin City Organics (P) Limited and M/s. Dye Distributors India
Limited, the manufacturers of camphor and isoborneol which are excisable goods.
The counsel for the respondents submitted that against the search and seizure, the petitioner has got a right of appeal as provided under the
statute. The counsel for the petitioner replied that the appellate authority under the Central Excise Act is only the Collector of Customs and
therefore, appeal cannot be filed against the seizure. It is true that the Assistant Collector of Central Excise is the officer lower in rank than the
Collector of Central Excise. But, since in this case, the warrant of seizure was signed only by the Assistant Collector, against that order, appeal can
be filed before the Collector.
The counsel for the respondent further submitted that even assuming for the sake of argument that the search conducted was not legal or not in
accordance with law, yet the evidence collected by such seizure can be used against the petitioner. Therefore, the evidence collected cannot be
held to be inadmissible in any proceedings. The counsel for the petitioner replied that only Indian currency was seized and hence it has no other
evidentiary value, except, that if it all, it is an unaccounted money; The argument of the counsel for the respondents is acceptable. Even if the search
is illegal, still the evidence collected during such search is legally admissible in evidence. Illegally obtained evidence is not inadmissible in law.
Therefore, the evidence collected during the search can be used as evidence against the petitioner. Indian currency of Rs.83 lakhs of unaccounted
money over which a presumption has been raised that it represents the sale proceeds of non-duty paid excisable goods; therefore, it cannot be said
that such a currency cannot be taken possession during search and ultimately seized. Admittedly, notice has been issued u/s 110(2) by the proper
officer. Therefore, the money cannot be returned.
For the reasons stated above, i) the prayer in W.P.17286 of 1994 that the search and seizures made in the premises of the petitioner on
23.1.1990 cannot be declared as illegal. Therefore, the W.P. is liable to dismissed. (ii) The prayer in w.P.l7287 of 1994 that the Notification
68/63 dated 4.5.1963 be declared as ultra vires and that it is not applicable to the petitioner cannot be granted. The writ petition is devoid of
merits and hence liable to be dismissed.
In the result, W.P.No.17286 and 17827 of 1994 are dismissed.