In order to carry business activities we need cash. It is required to purchase raw material, to pay for transportation, to pay for the numerous activities which are essential to run the business. Similarly, many a times the cash is received for the goods sold or services rendered and undisputedly it is the most acceptable and convenient mode of exchange. The presence of cash in any business establishment is natural and it should not be frown upon during investigation. Many a times it is found that the cash available in the premises are seized and taken away by the department without examining the fact weather the same is detainable or not . The cash can be seized only in exceptional circumstances and not in a routine manner particularly when the explanation for cash is available at the time of search and certainly not if the money is duly accounted. This paper is a humble attempt to examine the seizure of cash during investigation.
Before we proceed further we will examine the power to seize as available in the statute. The Central Excise Act, 1944 gives power to Central Excise officer to search premises and seize the goods if he has a reason to believe that the goods are removed with the intention to evade duty. The power to search, retain or seize the goods is enumerated in Rule 22 and Rule 23 of the Central Excise Rules, 2002 the same read as follows:
Rule 22. Access to a registered premises. –
(1) An officer empowered by the [Commissioner or Commissioner, as the case may be] in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
(2) Every assessee, [as importer who issues invoices on which CENVAT credit can be taken] and first stage and second stage dealer shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of –
(i) all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;
(ii) all the records prepared and maintained for accounting of transaction in regard to payment for input services and their receipt or procurement; and
(iii) all the financial records and statements (including trial balance or its equivalent).
(3) Every assessee, [an importer who issue an invoices on which CENVAT credit can be taken] and first stage and second stage dealer shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the [Principal Commissioner or Commissioner, as the case may be] or the Comptroller and Auditor General of India, or cost accountant or chartered accountant nominated under section 14A or section 14AA of the Act, –
(i) the records maintained or prepared by him in terms of sub-rule (2);
(ii) the cost audit reports, if any, under section 233B of the Companies Act, 1956 ( 1 of 1956); and
(iii) the Income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 ( 43 of 1961), for the scrutiny of the officer or audit party or the cost accountant or chartered accountant, as the case may be].
[Explanation. – For the purposes of this rule, “first stage dealer” and “second stage dealer” shall have the meanings assigned to them in CENVAT Credit Rules, 2004].
Rule 23. Power to stop and search. –
Any Central Excise Officer, may search any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with the intention of evading duty.
The above said rules give power to seize the goods only. The officer of the Central Excise can seize the goods or detain the goods if there is a violation in payment of Central Excise duty. But in no circumstances he has the power to seize the cash available in the premises searched, under the Central Excise rules.
As no power is available with the Central Excise officer to seize the cash as per statutory provisions of the Central Excise Act and Rules, usually the provisions available in the Custom Act are invoked. Section 121 of the Custom Act 1962 gives the officer of the department to seize the cash/ Indian currency. The same read as follows:
SECTION 121. Confiscations of sale-proceeds of smuggled goods.-
“Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods, the sale-proceeds thereof shall be liable to confiscation”.
Indeed the above said section authorise the officer to seize the cash but the same is to be exercised with great caution. The proceeds must be related to the sale of goods which are liable for confiscation. It is well settled mere possession of currency is no offence and cannot be seized when an explanation for the same is available. (Smt. Malhar vs.CCE(1988)33 ELT, Abdul Razak v.CC 1999(108)ELT 283).
It is trite law that for invoking section 121 of the Customs Act, the following ingredients must be available:
1. There is a sale.
2. Sale must be related to the goods liable to confiscation.
3. At the time of seizure the officer must be having reason to believe that currency seized is related to the goods liable for confiscation.
In this regard law is settled in the following judgements :
i. Indian Charge Chrome v. UOI(2003) 152 E.L.T 269 (Del HC DB).
ii. Pradeep Kumar Singh v. CC-1998 (104) E.L.T. 111.
iii. CC v. Bharat Kumar-1999 (109) E.L.T. 552.
iv. CC v. M Raja (2003) 151 E.L.T. 689.
v. J.K.S AIR TRAVELS VERSUS CHIEF COMMISSIONER OF CUSTOM 2016 (331) E.L.T 173(MADRAS).
The Hon’ble tribunal in the matter of M/S Sunrise Metal Industries Vs. Commissioner of Central Excise, Daman 2009(248) ELT 699 (Tri.- Ahemdabad) had anoccasion to deal with the seizure of cash which were duly accounted and held as follows:
“Tribunal in the case of Ramchandra v. CC reported in 1992 (60) E.L.T. 277 (Tribunal) has held that for invocation of Section 121 of the Customs Act, the ingredients of the same are required to be satisfied. The same are that there must be a sale, the sale must be of smuggled goods, the sale must be by a person, having knowledge or reason to believe that the goods are of smuggled origin and the seller and purchaser and the quantity of goods must be established by the customs authorities. In the case of Commissioner of Customs, Mumbai v. Sadashiv R. Lele reported in 2005 (191) E.L.T. 841 (Tri.-Mumbai), it was held that the onus to prove that Indian Currency under seizer is liable to confiscation is on the department. As such by observing that besides inculpatory statement there was nothing on record to prove that the currency was sale proceeds of smuggled liquor, benefit of doubt was extended to the appellant and confiscation was set aside. The facts of Sipani Fibres Limited v. CCE., Bangalore reported in 2007 (212) E.L.T. 374 (Tri.-Bang.) = 2007 (6) S.T.R. 197 (Tribunal) are more or less pari materia to the facts of the present case. Therein allegations were made about the unauthorized availment of Cenvat credit on the granules purchased but diverted and not utilized. Tribunal after observing that not a single instance stands given by the investigation for purchase of plastic granules from the appellant, confiscation of the currency cannot be sustained.
By applying the ratio of the above precedent judgments to the facts of the present matter, I find that the Revenue has not produced even an iota of evidence to show that the currency in question is consideration for sale of the imported but diverted material. Even the allegations of diversion is the subject matter of another proceedings which have not attained finality. Shri Mehta, Administrative and Finance Controller of the trading firm has accepted and claimed the ownership of the Indian Currency of Rs. 4 lakhs and has also produced accounts and statement of cash balance, which stand rejected by the authorities below on the ground of after thought, without examining the same. In any case having held that there is no evidence of any sale purchase of the imported raw material, the ingredients of Section 121 do not stand fulfilled justifying confiscation of Indian Currency or imposition of penalties upon the appellants. As a result, the impugned orders are set aside and all the appeals are allowed with consequential relief to the appellants.”
The Hon’ble tribunal again in the matter of M/S Standard Greese and Private Limited Vs Commissioner of Central Excise and S.T., Vapi 2014(303)E.L.T 434 (Tri.-Ahemdabad) set aside the confiscation of the cash which were duly accounted and observed as follows:
“So far as confiscation of cash of Rs. 30,62,500/- is concerned, it is observed that appellant did produce the records before the adjudicating authority to justify that the cash recovered from the residential premises of Shri Bharat Vyas was reflected in the cash book of the appellants and other firms. If the evidence produced by the appellants were not acceptable then the same could have been countered on the basis of some positive evidence collected during investigation and cannot be brushed aside on presumption or due to the fact that appellants did not furnish any plausible explanation at the time of seizure of the cash as has been attempted by the adjudicating authority in Paras 73.2 and 73.3 of the adjudication order. Appellants relied upon the judgment of CESTAT Kolkata in the case of Pandit D.P. Sharma v. CCE, Calcutta-II (supra) which was also upheld by the Apex Court. In Para 12 of the above Kolkata Bench order, the following observations were made by the Tribunal, which have also been upheld by the Apex Court [2003 (157) E.L.T. A201 (S.C.)]:-
We find force in the above submissions of the learned Advocate. It has been laid down time and again in various judgments that the onus to prove that the Indian currency in question is the sale proceeds of the clandestinely removed goods is upon the Revenue, which is required to be discharged by production of an affirmative tangible and positive evidence. In the instant case, we find that the cash was recovered from different places and from the possession of different persons. Nothing has been placed on record to show that the same is the sale proceeds of the goods removed clandestinely during February, 1994 to August, 1994, when the same were recovered in the month of October, 1995. As such, we fully agree with the submissions of Dr. Chakraborty, learned Advocate for the appellants, that it is highly improbable that the cash seized would represent the sale value of the goods made during February, 1994 to August, 1994. Accordingly, we hold that the condition precedent for confiscation of Indian currency does not stand satisfied in the instant case. We accordingly set aside the portion of the Order confiscating the Indian currency and order its release to the appellants.”
In the present proceedings also it is not established by the investigation that the cash seize represent the sale proceeds of clandestinely removed inputs/finished goods either by way of a statement or by a documentary evidence. On presumptions alone it cannot be held that cash seize from the residential premises represent the sale proceeds of clandestinely removed inputs/goods in the absence of any affirmative, tangible and positive evidence. Accordingly, cash of Rs. 30,62,500/- is ordered to be released to the appellant by setting aside the confiscation.”
The Hon’ble Tribunal, again in the matter of Imtiyaz Iqbal Pothiawala vs Commissioner of Customs, 2016(335) E.L.T. 747 (Tri. Del.) reiterated the above said view and set aside the confiscation of cash once its not related with the smuggling activities. The relevant para is as follows:
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“15. The Indian currency of Rs. 21 lakhs was seized on the ground that it is in respect of the sale proceed of smuggled gold as we are setting aside the confiscation of the gold on the ground that it is the lawfully purchased by Imtiaz Iqbal Pothiawala and the sale is out of that legally procured gold. Therefore, confiscation of currency is also set aside. Consequently, the confiscation of jeep from which the gold is recovered and penalties are also set aside. Appeals are allowed”.
Once the cash is seized and punchnama is drawn one should approach the department with proper explanation of the cash duly supported with the documents and if not returned then one has the remedy under law which must be exercised.
The cash is a vehicle to run the business and an unwarranted seizure only put breaks on the movement of the business. Not only this has the seizure of cash also affected individual liberty so unless and until there is prima facie strong nexus between available cash and excisable goods sold clandestinely the cash should not be seized. The seizure of cash certainly can’t be a means to pressurize the business for any demand which is legally unsustainable.
(Author Details- Prabhat Kumar, Advocate, Rajesh Kumar & Associates, Mob: 9312315121, Email: [email protected], Web: www.rajeshkumar.co.in)
