Taxation regimes (direct or indirect) duly recognize the concept of search and seizure as a legal mechanism to avoid tax evasion and to protect the interest of legitimate taxpayers. Any officer so authorized under a taxing statute may search a premise and seize such goods, tax on which he believes has not been paid. The search and seizure provision as contained in s.67(2) of the Central Goods & Services Tax Act, 2017 (“CGST”) & s. 110 of the Customs Act, 1962 (“Customs Act”) empowers the proper officer to seize any goods which he has reasons to believe are liable to confiscation under the Act. A joint reading of the above provisions indicates that mere suspicion on the part of the authorized officer is enough to effectuate seizure, and no actual contradiction or evasion is to be proved.
However, the subjective satisfaction of the proper officer is not absolute. Upon seizure of any goods, documents, books or things the proper officer is required to undertake an inquiry into the materials and issue a show-cause notice(“SCN”) within the statutory time limit
It is a settled position of law that detention of seized goods beyond the statutory limit is unlawful and there is a statutory obligation to return the goods to the person from whom they were seized. It is in this light, that the present article analyses the legality and limitation of confiscation of goods beyond the statutory limit by interpreting key legal provisions and discussing relevant judicial pronouncements.
Seizure beyond Statutory Limit
The seizure of goods of an assessee by the taxing authorities is executed on apprehensions. The veracity and scope of such apprehension are crystallized in the form of SCN, through which the department puts the assessee to notice of relevant materials, documents, & evidence available with the Department in support of its apprehensions and allegations. It is for this purpose that the statutory limit of six months is stipulated u/s 67(7) of the CGST. If the Department fails to issue the requisite SCN within the stipulated period of six months it has to return the seized goods to the assessee. The use of the phrase ‘shall be retuned’ in s. 67(7) signifies that the assessee becomes entitled as of right to the return of the goods.
Extension of the Statutory Time Limit
The proviso to s.67(7) provides that the period of six months from the date of the seizure can be extended by the proper officer for a further period not extending six months. Further extension of six months can only be granted on sufficient cause being shown by the proper officer. In the case of Assistant Collector of Customs v. Charan Das Malhotra,[1] (“Charan Das Malhotra”) the apex court held that the Collector of Custom is expected not to pass extension order mechanically or as a matter of routine. Before passing such an extension the Department has to establish by facts that investigation could not be completed for bona fide reasons within the statutory time limit. The burden of proof is on the Department to show that an extension has become necessary. Moreover, while passing the order of extension there are certain established legal principles that the taxing authorities have to abide by. The below legal positions are significant to be considered while passing an order of extension:
i. Quasi-Judicial Proceedings– The power to grant an extension under the proviso of s.67(7) of the CGST or s. 110(2) of the Customs Act is quasi-judicial. This means that before passing an order for extension the assessee must be given an opportunity of being heard. In Charan Das Malhotra, SC observed that the words “sufficient cause to be shown” in the proviso of s. 110(2) (unamended) meant that the Collector had to decide an application for extension judicially while considering the pros and cons of the question and he has no jurisdiction to grant an extension without giving the assessee an opportunity of being heard. Furthermore, in Gaunir Impex P. Ltd. v. Commissioner of Custom, the hon’ble Madras HC held that an ex parte order for the extension of the time limit u/s 110(2) of Customs Act passed without giving an opportunity of personal hearing to the assessee violates principles of natural justice.
ii. Principle of Natural Justice– The proceedings for an extension being quasi-judicial are to be conducted while adhering to the principles of natural justice. One of the principles of natural justice requires that an effective notice must be served by the Department on the assessee according to him an opportunity of being heard before passing any adverse order. In the case of I.J Rao v. Bibhuti Bhushan Bagh,[2] (“I.J Rao”) hon’ble Supreme Court held that natural justice requires that notice proposing the extension of the show cause period should be issued to the owner of goods before the extension is ordered under S. 110(2) of the Customs Act, 1962. It was further held that the order of extension should have been communicated to the owner and as that was not done the order was ineffective.
iii. Extension to be granted before the expiry of six months– It’s pertinent to note that the extension can only be granted before the expiry of the initial six months from the date of seizure. The above legal position was upheld in the case of Shimnit Kiwalite Industries v. Commissioner of Customs.[3]
Recent Amendment to Customs Act
The proviso to s. 110(2) of the Customs Act was substituted by the Finance Act, 2018. Post amendment the requirement of ‘sufficient cause to be shown’ has been omitted. The amended proviso casts a dual-duty on the proper officer to record the reason in writing as to why the extension should be granted and to communicate the intimation of extension to the assessee. In a recent order of the Madras High Court in Kannan Ramadurai Iyer v. Commissioner of Customs, Chennai II,[4] the court observed that the rigour of unamended section 110(2) has been softened as now the person whose goods are seized can claim provisional release. The court further opined that it is apparent that a textual reading of Section 110 (2) would lead one to conclude that no separate notice is necessary, before extending the period of limitation by a further six months.
A similar view has been undertaken by the Kerala High Court & Rajasthan High Court in the cases of M.M. Hassan v. Superintendent of Custom, Thrissur[5], and Commissioner of Customs (Preventive), Jodhpur v. Swees Gems and Jewellery[6] respectively. The above high courts in the impugned cases have held proviso under Section 110(2) does not require an opportunity of hearing before the extension is effected.
A contrary view is undertaken by the Calcutta HC in DEC Agrotech Pvt. Ltd. v. Union of India.[7] The Calcutta HC held that any proceeding before the adjudicating authority is to be undertaken adhering to the principles of natural justice. The court further relied upon the judgment of the hon’ble Supreme Court in Charan Das Malhotra (Supra) & I.G Rao (Supra) where it was held that proceedings for the extension of statutory time limit u/s 110(2) are quasi-judicial in nature and order of extension of issuance of SCN in a seizure case cannot be passed mechanically. The court observed that the impugned amendment does not make an order under s.110(2) as quasi-judicial in nature nor does it do away with taking a judicial approach while exercising it. While quashing the extension order for being violative of the principle of natural justice the HC observed that the two criteria as laid down in the proviso are only additional in nature.
Conclusion
The law as contained u/s 67(7) of CGST is clear to the extent that for an extension to be legal, sufficient cause is to be shown. This will require the Department to issue a notice of such extension to the assessee and grant him an opportunity of being heard. If the goods are detained beyond the statutory period such sezure will be completely unlawful. However, with regards to the post amendment s. 110(2) of Customs Act, there seems to exist a difference of opinion among the High Courts. Hence, to ensure legal certainty the issue needs to be addressed and settled by the hon’ble apex court.
[1] AIR 1972 SC 689.
[2] AIR 1989 SC 1884.
[3] 2007 (212) E.L.T. 523 (Tri. – Mumbai).
[4] 2021 (377) ELT 276 (Mad.).
[5] 2021 (375) E.L.T. 81 (Ker.).
[6] 2019 (368) E.L.T. 455 (Raj.).
[7] 2020 (374) E.L.T. 668 (Cal.).
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