Search & seizure proceedings invalid in absence of reasons to believe: SC

Union of India & Ors. Vs  Magnum Steel Ltd. (Supreme Court of India)

Search & Seizure proceedings cannot be initiated unless there is sufficient material against the assessee

The Hon’ble Supreme Court in Union of India & Ors. v. M/s. Magnum Steel Ltd. [Civil Appeal Nos. 9597-9599 of 2011 dated March 2, 2023] has held that, the person authorizing the search must express its satisfaction that the material is sufficient for it to conclude that search is necessary. Further held that, there should exist something to show what is such material. Furthermore, stated that, the concerned official of the Revenue Department, who authorized the search did not refer to any information or any report on the record which was produced before the Hon’ble Madhya Pradesh High Court.

Facts:

This appeal has been filed by the Revenue Department (“the Appellant”) against the order dated December 1, 2009 (“the Impugned Order”) passed by the Hon’ble Madhya Pradesh High Court, wherein, the initiation of search and seizure proceedings dated August 20, 2009 and all consequential proceedings, launched against M/s. Magnum Steel Ltd. Etc. (“the Respondent”) were quashed, on the grounds that there were “no reasons to believe” as per Section 110 of the Central Excise Act, 1944 (“the Central Excise Act”) read with Section 123 of the Customs Act, 1962 (“the Customs Act”).

Issue:

Whether the Impugned Order is sustainable, whereby, the initiation of search and seizure proceedings and all consequential proceedings, were quashed, on the grounds that there were “no reasons to believe”.?

Held:

The Hon’ble Supreme Court in Civil Appeal Nos. 9597-9599 of 2011 held as under:

• Noted that, the Hon’ble Madhya Pradesh High Court relied on the judgment of State of Rajasthan v. Rehman [AIR 1960 (SC) 210] & Durga Prasad and Ors. v. H.R. Gomes, Superintendent (Prevention) Central Excise, Nagpur and Anr. [AIR 1966 (SC) 1209], wherein, the High Court had called for the original record and the Revenue Department had produced the warrant of seizure which had mentioned about some information, placed before the concerned officer, leading the officer to conclude that the goods were liable to confiscation.
• Analysed Section 105 and Section 123 of the Customs Act, and noted that, the Customs Act provides the Assistant Commissioner or Deputy Commissioner of Customs the power to search premises if they have reasons to believe that goods liable for confiscation or relevant documents are hidden in any place and if the goods are seized on reasonable belief that they are smuggled goods, the burden of proof shifts to the person in possession of such goods to prove that they were not smuggled goods.
• Stated that, the concerned official of the Appellant, who authorized the search did not refer to any information or any report on the record which was produced before the High Court.
• Opined that, the mere recording that the person concerned is satisfied, without the supportive materials, is not sufficient to trigger a lawful search.
• Held that, the person authorizing the search must express its satisfaction that the material is sufficient for it to conclude that search is necessary.
• Further held that, there should exist something to show what is such material.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

The revenue is aggrieved by the impugned judgment of the Madhya Pradesh High Court which had quashed the initiation of  search and seizure proceedings and all consequential proceedings, launched against the respondent /assessee. The respondent’s premises were subject to search and seizure proceedings conducted on 20^th August, 2009 which had drawn up a Panchnama listing out materials and documents seized in the course of the proceedings. The assessee had impugned the action contending that there were “no reasons to believe” in terms of Section 110 of the Central Excise Act, 1944 read with Section 123 of the Customs Act, 1962”.

The High Court had, in its impugned judgment relied upon “State of Rajasthan vs. Rehman” reported in AIR 1960 (SC) 210 and “Durga Prasad Etc. vs.   H.R.   Gomes, Superintendent (Prevention) Central Excise, Nagpur and Another etc.” reported in AIR 1966 (SC) 1209. In those judgments, the Court had ruled that although the power to search is wide, to do so validly, it is necessary that the conditions required by law i.e. officer concerned is to satisfy himself that there are reasons to believe, that the assessee was evading tax, to authorize a legal search should be available on the record.

On an application of the principles spelt out in the two decisions, the High Court had called for the original record. The revenue had produced the warrant of seizure which had mentioned about some information, placed before the concerned officer leading the officer to conclude the goods were liable to confiscation existed. He, therefore, had authorized the search. However, the file itself did not contain any material to disclose what was placed before the officer – nor was there any noting on it to link the nature of the materials (however briefly) with the decision to search to legitimize the search proceedings.

Learned senior counsel appearing for the appellant urged that there were intelligence reports which resulted in the authorized official concluding that a search was essential. He relied upon the pleadings in these proceedings by way of grounds to urge that such intelligence report existed as a matter of fact.

The power of search which in this case was resorted to, can be gathered from Section 105 of the Customs Act. Section 105 confers power to search premises if the Assistant Commissioner of Customs or Deputy Commissioner of Customs “has reasons to believe” that goods liable to confiscation or documents relevant for such proceedings are secreted in any place. In such event, the search proceedings can be authorized by the Assistant Commissioner or other official. Section 123 on the other hand enacts a burden of proof which is that where any goods to which that provision applies are seized under the Act on the reasonable relief that they are smuggled goods, the burden of proof would then shift to the person in possession of such goods to prove that they were not smuggled goods.

The basic premise of Section 105, and indeed search proceedings is the reasonable belief that some objective material exists on the official record to trigger searches. The person authorizing the search must express his satisfaction that the material is sufficient for him to conclude that search is necessary; further there should exist something to show what is such material. The mere recording that the person concerned is satisfied, without the supportive materials, therefore, is insufficient to trigger a lawful search.

In the present case the concerned official who authorized the search did not refer to any information nor indeed any report on the record which was produced before the High Court.

Having regard to these facts this Court is satisfied that there is no merit in the appeals which are accordingly dismissed.

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