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The Collector, Central Excise, Allahabad and ors. Vs. L. Kashi Nath Jewellers - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtAllahabad High Court
Decided On
Case NumberSpecial Appeal No. 447 of 1971
Judge
Reported inAIR1972All231
ActsGold (Control) Act, 1968 - Sections 55, 66, 66(1) and 87; Constitution of India - Article 19(1)
AppellantThe Collector, Central Excise, Allahabad and ors.
RespondentL. Kashi Nath Jewellers
Appellant AdvocateTej Narain Sapru and ;J. Sarup, Advs.
Respondent AdvocateS.N. Kacker, Adv.
DispositionAppeal dismissed
Excerpt:
.....his capacity as licensed dealer or refiner, either own or have in his possession, custody or control any gold which has not been included in the accounts referred to in sub-section (1)'.12. there must, therefore, exist a belief in the mind of the officer concerned that there was a failure to maintain accounts as required by section 55 of the act, in respect of the entire stock seized on 27-4-1971 and that there were reasons to support that belief. in our opinion the initial seizure being bad, retention of any portion of the gold so seized will be illegal on the principle that this part of the stock was also not seized under a reasonable belief as required by section 66 of the act. (1) failure to maintain any account; and (2) failure to maintain accounts in the relevant g. the failure to..........to harass the petitioner-respondent.2. the petitioner-respondent is a licensed dealer in gold, gold ornaments and articles of gold. it is authorised to acquire, possess and dispose of gold and gold ornaments and other articles of gold in accordance with the provisions of the gold (control) act, hereinafter referred to as the 'act'.3. the assistant collector. central excise received information that the petitioner was dealing in foreign gold and that it had in its possession such gold. a raiding party, consisting of the superintendent, central excise, lucknow, and a few other officers conducted a search of the petitioner-respondent's business premises at 20, jhandewala park. lucknow, on 27-4-1971. the officers found that forms nos. g.s. 10, 11 and 12 were not maintained by the.....
Judgment:

Gopi Nath, J.

1. This Is a special appeal against the judgment of a learned Single Judge dated August 10, 1971, allowing a writ petition filed by the petitioner-respondent. The Collector. Central Excise and others, the opposite parties in the writ petition are the appellants and Lala Kashi Nath Seth, Jewellers is the petitioner-respondent. The writ petition challenged an order of seizure made by the Superintendent, Central Excise, Lucknow and other officers of the Department. The officers seized 2583 pieces of ornaments weighing 22151.370 grams of gold which was the entire stock in trade with the petitioner-respondent on 27-4-1971. This was challenged on the ground that it was illegal and arbitrary and was meant to harass the petitioner-respondent.

2. The petitioner-respondent Is a licensed dealer in gold, gold ornaments and articles of gold. It is authorised to acquire, possess and dispose of gold and gold ornaments and other articles of gold in accordance with the provisions of the Gold (Control) Act, hereinafter referred to as the 'Act'.

3. The Assistant Collector. Central Excise received information that the petitioner was dealing In foreign gold and that it had in its possession such gold. A raiding party, consisting of the Superintendent, Central Excise, Lucknow, and a few other officers conducted a search of the petitioner-respondent's business premises at 20, Jhandewala Park. Lucknow, on 27-4-1971. The Officers found that Forms Nos. G.S. 10, 11 and 12 were not maintained by the respondent from 19th to 26th April, 1971. They found that Form No. G. S, 10 was maintained upto the 18th April, 1971; Form No. G.S. 11 was maintained upto the 17th of April. 1971 and Form No. G.S. 12 was maintained upto 1st April, 1971 in respect of 71 items upto 11th of April, in respect of two items, upto 17th of April, in respect of two items and upto the 18th of April, 1971 in respect of four items. It might be observed that Form No. G.S. 11 is not material for this case: The officers thereupon seized the entire stock-in-trade which consisted of 2583 pieces of ornaments as mentioned above. According to the petitioner-respondent the Munim of the respondent Firm was ill and the period in dispute being a marriage season, and there being rush of business, Forms G.S. 10, 11 and 12 could not be posted although the corresponding vouchers of receipt and issue during this period were available and the Department in fact seized the quantity of gold mentioned above on the basis of the vouchers for the period 19th to 26th April, 1971.

4. The case of the Department was that the Department received information that the petitioner-respondent was dealing in smuggled gold, a raid was accordingly conducted and it was found that Forms G.S. 10. 11 and 12 were not posted from 19th to 26th April, 1971; that on the basis of the vouchers the Department found that a certain quantity of gold consisting of ornaments was received and issued during this period by the respondent; Forms G.S. 10 and 12 having not been posted for the period, an equal number of ornaments carrying the same weight, though not the same as were actually received were seized by it. This position was clarified by the Department by means of a supplementary counter-affidavit of Sri Cyan Charan Misra filed on 30-6-1971. Paragraph 9 of that affidavit stated that articles received between 18-4-1971 to 26-4-1971, not being capable of identification, an equivalent number of unaccounted for ornaments were seized. It is to be noticed that the Department has not explained as to what it meant by unaccounted for ornaments. The vouchers being available in respect of the entire stock seized and there being no case of discovery of any excess gold in stock nor there being any allegation that the stock seized was not referable to Forms G.S. 10 and 12 already in existence the allegation about the ornaments being unaccounted for remains vague. The Department's case on its ultimate analysis seems to be that the petitioner-respondent received ornaments of gold during 19th to 26th April, 1971, and the total weight thereof was gathered from the vouchers for that period. Those ornaments could not be seized for lack of identification but since in the opinion of the Department the petitioner had contravened the provisions of Section 55 of the Act by not filling Forms G.S. 10 and 12 from 19th to 26th April. 1971 an equivalent number of other ornaments carrying the same weight were liable to seizure and were accordingly seized. The ornaments, so seized, might at the time of seizure, have been accounted for or might not have been accounted for; but according to the Department they attracted the liability of seizure because an equal quantity of gold actually liable for seizure was not identifiable in the stock. It is relevant to notice the proceedings of the writ petition at this stage.

5. Sri T.N. Sapru, learned counsel for the Department, at the time of the admission of the writ petition, stated that the Department had not checked the accounts and gave an undertaking that the Department would return such ornaments which, after verification, were found to have been properly accounted for. The statement made by the learned counsel clearly suggested that at the time of the seizure the entire stock of the petitioner-respondent was seized without any verification of the accounts: The Bench then issued a direction that the Department will return such of the ornaments as had been properly accounted for. It further directed the checking to be done within ten days from the date of the order, i.e., the 18th of May, 1971. Sri R.N. Mulla. an Advocate, of this Court, was appointed as Commissioner for this purpose. The Commissioner submitted his report on the 27th of May, 1971: According to the Commissioner, on the basis of the material available, almost the entire stock seized by the Department was accounted for except four items. The Department agreed that a major portion of the ornaments seized were accounted for but a quantity of 3770.015 grams of gold remained unaccounted for. The Department accordingly returned the major portion of the gold seized but retained 3770.015 grams of gold. The seizure and the retention of the gold under, seizure was sought to be justified by the Department on the basis of the provisions of Section 66 of the Gold (Control) Act.

6. The petitioner-respondent challenged the seizure and the detention of the articles on the ground that there existed corresponding vouchers for the entire stock of gold seized and the same, as such, was accounted for; that the major portion having been admitted to be accounted for retention of any portion of the articles seized was unjustified, as there existed no reasonable belief that any part of the stock was contraband, that the act of seizure and the retention being part of one transaction if there existed no reasonable belief as required by Section 66 of the Act for the major portion of the gold seized, there could not exist any reasonable belief for the small portion detained, that in any case there was no warrant for the seizure of substituted ornaments in place of original ones. The learned Single Judge allowed the writ petition on the ground that the seizure of the respondent's entire stock in trade which included, according to the Department's own admission, accounted for gold was beyond the scope of the powers conferred under Section 66 of the Act. It further held that in respect of 3770.015 grams of gold which had been retained by the Department it had not been established that it was such gold in respect of which the provisions of the Gold (Control) Act had been contravened. The learned Single Judge held that the seizure of substituted ornaments in place of original contraband articles, if any was unwarranted. In his opinion there did not exist any reasonable belief for the seizure of any part of the stock. The seizure of the entire stock including the 3770.015 grams of gold sought to be detained was accordingly held illegal and without jurisdiction.

7. The order of the learned Single Judge has been challenged on the ground that the dispute now related only to the 3770.015 grams of gold which is under detention, that this quantity of gold is, according to the appellant, unaccounted for, that the burden of proving that it is accounted for is on the respondent, that there exist no Forms G.S. 10 and 12 in respect of this quantity and that is prima facie proof of the fact that they are unaccounted for. and that the retention of this part of the articles seized was thus justified in law. It was urged in this connection that the existence of reasonable belief as required by Section 66 of the Act is a matter of subjective satisfaction,

8. The Act was enacted to check the smuggling of gold Chapter 12 of the Act deals with the entry, search, seizure and arrest for the purposes of the Act. Section 66 of the Act provides for a power of seizure. Sub-section (1) (a) of Section 66 reads:--

'If any Gold Control Officer has reason to believe that in respect of gold any provision of this Act has been, or is being or is attempted to be, contravened then, he may seize-- (a) such gold along with the package, covering or receptacle, if any (and the contents thereof) in which the gold is found.'

9. The condition precedent for the application of Section 66 is the reasonable belief that the provisions of the Act have been or are being or are attempted to be contravened. The power then extends to the seizure of such gold in respect of which contravention has either been made or is about to be made. The provision is not designed to be used as a handle for indiscriminate seizures, nor does it permit capricious acts with a view to making a roving enquiry into the affairs of a dealer's business in order to fish out materials on the off chance of getting something to justify the act. The expression 'reason to believe' occurs in several statutes. Reference may be made to Section 34 of the Indian Income-tax Act, 1922; Section 21 of the U.P. Sales Tax Act. 1948; Section 178-A of the Sea Customs Act. 1878 and Section 110(1) of the Customs Act, 1962. This expression was interpreted in several decisions.

In Calcutta Discount Co. Ltd. v. Income-tax Officer, AIR 1961 SC 372 which was a case under Section 34 of the Indian Income-tax Act, 1922, it was held to mean a belief held in good faith and not a mere pretence. It was further held in that case that it did not mean a purely subjective satisfaction of the Officer concerned. See also S. Narayanappa v. Commr. of Income-tax : [1967]63ITR219(SC) . In Sheo Nath Singh v. Appellate Assistant Commr. of Income-tax (Central) Calcutta : [1971]82ITR147(SC) it was held that the words 'reason to believe' suggest that the belief must be of an honest and reasonable person based upon reasonable grounds and the Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour.' It was further held that if the officer concerned acts on material which Is irrelevant then he acts without jurisdiction. See also Chhugamal Raipal v. S.P. Chaliha : [1971]79ITR603(SC) .

In Assistant Collector of Customs v. Charan Das Malhotra : 1973ECR1(SC) a case arising under Section 110 of the Customs Act 1962 it was held by their Lordships of the Supreme Court that the expression 'reason to believe' in that section was not absolutely subjective inasmuch as the reasons for the belief have to be relevant and not extraneous and the principle enunciated in : [1967]63ITR219(SC) was applied. In Smt. Kantamani Venkata Satyavathi v. Income-tax Officer B-Ward, Rajamundry : [1967]64ITR516(AP) the Andhra Pradesh High Court held that a fishing or roving enquiry info the whole question as to how the capital has grown with a hope that it might land the Income-tax Officer somewhere wherefrom he can find out that income chargeable to tax has escaped assessment ... ... is not permitted under Section 147(a) of the Indian Income-tax Act. 1961.' Section 147(a) of the Income-tax Act 1961 corresponds to Section 34 of the Income-tax Act. 1922.

In Haji Ahmad Haji Esak and Co. v. Commr. of Income-tax, Bombay City : [1951]19ITR331(Bom) the Bombay High Court held that suspicion, or apprehension was not enough to attract the provisions of Section 34 of the Income-tax Act. 1922. It was further held in that case that mere possession of materials was not information. Information must be a knowledge or a mental awareness of the facts which are revealed by the materials.

In Deoki Nandan v. M.L. Gupta , a case arising under Section 21 of the U.P. Sales Tax Act, a Bench of this Court held that the existence of 'reason to believe' is a condition precedent for acquiring jurisdiction under Section 21 of the Act and the belief of the officer is not purely subjective but has to be based upon relevant materials. It was further held that Section 21 was not designed to launch a fishing and roving enquiry on the offchance of finding some escapement of tax. The officer concerned must have in possession some material pointing towards escapement of turnover before he can entertain a belief about the escapement and assume jurisdiction under Section 21 of the Act.

In Collector of Customs v. Sampathu Chetty, AIR 1962 SC 316 their Lordships while interpreting the provisions of Section 178-A of the Sea Customs Act, 1878. observed: 'It would, on the terms of the section, have to be satisfied that the seizure was made in the reasonable belief that the goods seized were goods that had been smuggled. At that stage the enquiry is not and cannot be confined to the question as to whether the seizing officer bona fide entertained the belief, but must necessarily extend to an examination of the grounds upon which the belief was entertained with a view to ascertaining whether the belief was reasonable'. It may be observed that Section 66 uses the words 'reasonable belief and not a belief which may subsequently be found to be reasonable.

10. Section 66 of the Act in our opinion does not permit an indiscriminate seizure with a view to fishing out material to form a belief and justify it by reasons culled therefrom.

11. The question, therefore, is whether the seizure of the entire stock of the petitioner-respondent on 27th April, 1971 was made in due exercise of the powers under Section 66 of the Act. The contravention alleged is the non-maintenance of accounts as required by Section 55 of the Act, Section 55 reads:

'55. Accounts -- (1) Every licensed dealer, every licensed refiner and every certified goldsmith shall keep, in such form and in such manner as may be prescribed, a true and complete account of the gold owned, possessed, held, controlled, bought or otherwise received or sold, delivered, transferred or otherwise disposed of by him in his capacity as such licensed dealer or refiner or certified gold-smith, as the case may be, and different forms and accounts may be prescribed for different classes of licensed dealers, refiners or certified goldsmiths.

(2) Every licensed dealer, every licensed refiner and every certified goldsmith shall as and when he buys or otherwise acquires or accepts or otherwise receives, or sells, delivers, transfers or otherwise disposes of any gold, enter in the accounts referred to in subsection (1) the prescribed particulars of such gold and the prescribed particulars of the person from whom such gold was bought, acquired, accepted or otherwise received or to whom such gold was sold, delivered, transferred or otherwise disposed of.

(3) No licensed dealer or refiner and no certified gold-smith shall, in his capacity as licensed dealer or refiner, either own or have in his possession, custody or control any gold which has not been Included in the accounts referred to in Sub-section (1)'.

12. There must, therefore, exist a belief in the mind of the officer concerned that there was a failure to maintain accounts as required by Section 55 of the Act, in respect of the entire stock seized on 27-4-1971 and that there were reasons to support that belief. The officers of the Department at the time of seizure having found that Forms G.S. 10. 11 and 12 were not duly filled seized the entire stock on the supposition that it attracted the liability of seizure, without checking the accounts. In fact they did not check the accounts at all. That is why Mr. T.N. Sapru, learned counsel for the Department, stated at the tune of the admission of the writ petition that such gold as was found after checking to be accounted for, would be returned. Moreover, the seizure was made on the basis of vouchers. If any belief could be entertained by the officers of the Department in respect of the gold seized it would have been based on the vouchers received by them from the dealer. The mere possession of the vouchers by the officers of the Department would be no knowledge, much less a belief, far less a reasonable one. that the contents thereof were fictitious or that the gold or ornaments mentioned therein were smuggled. It is neither suggested in the counter affidavit nor was it mentioned during the course of the arguments that because the officers reasonably believed that the vouchers, on the basis of which the seizure was made, were fictitious, therefore, the seizure was made. In fact Mr. T.N. Sapru, learned counsel for the Department, during the course of his reply in rejoinder stated that an enquiry would be made as to the correctness of the vouchers during adjudication proceedings. He further conceded that part of the gold ornaments under detention may be referable to a period prior to 18th April. 1971 in respect of which the G.S. Forms 10 and 12 exist. But this fact, according to him, would be checked during the adjudication proceeding. This further establishes that even in respect of the stock under detention the Department is still not clear whether the whole of it is unaccounted for. It would be seen that the Department was not sure of the contravention of Section 55 of the Act in respect of the entire stock at the time of seizure and is still not sure in respect of the gold under detention that the whole of it is unaccounted for. In such a situation it cannot be said that either the seizure of the entire stock or the detention of a part of it was made under a reasonable belief that the entire gold seized or detained was gold in respect of which any provision of the Act had been or was being or was attempted to be contravened. It will further be noticed that the seizure and detention of gold form part of one transaction and are links of a continuous process. It is not divisible in two stages. It cannot be said that the Department formed one opinion at one stage when it seized the goods and formed another opinion at another stage when it detained the goods. What was the state of affairs in the beginning continued throughout. It cannot be said that although there was no reasonable belief at the initial stage of seizure, there exists such a belief at the stage of the detention of the goods. The two stages being inseparable forming parts of a process of one transaction the case will have to be judged on the footing that either there existed a reasonable belief as required by Section 66 of the Act at the initial stage of the seizure or it did not exist at all in this case.

13. The power of seizure is an in-road into the fundamental right to property of a citizen. The power of seizure has to be exercised strictly under an authority of law. See Wazir Chand v. State of Himachal Pradesh : 1954CriLJ1029 and Hamdard Dwakhana v. Union of India : 1960CriLJ671 . The power of seizure under Section 66 of the Act has, therefore, to be exercised strictly according to the provisions of that section. We have already held that the seizure of the entire stock in trade belonging to the petitioner-respondent was not under a reasonable belief by the officers of the Department as required by Section 66 of the Act. The major portion of the gold seized was returned by the Department on its own discovery that they were illegally seized. If that part of the gold had not been returned there could be no escape from the position that on the own showing of the Department the seizure of the entire stock was illegal. Will it make any difference in principle, so far as, the retention of a small portion of the stock illegally seized is concerned? In our opinion the initial seizure being bad, retention of any portion of the gold so seized will be illegal on the principle that this part of the stock was also not seized under a reasonable belief as required by Section 66 of the Act.

14. It was urged on behalf of the appellant that the case has now to be considered in respect of the stock under detention and not with reference to the stock originally seized. As we have already pointed out, the transaction was one and cannot be divided into parts and all we have to see is whether the power of seizure was validly exercised on the 27th April. 1971. It having been held that the power of seizure was not validly exercised when the entire stock was seized, the invalidity will attach to any portion of the stock seized. No distinction can be made between the stock released and the one retained.

15. It was then urged on behalf of the appellant that the burden of proving that the stock was accounted for lay upon the dealer. According to the Department since the dealer had not been able to give satisfactory account of 3770.015 grams of gold, that quantity could be retained. Before this stage arrived the Department had to satisfy the Court that its officers validly exercised the power of seizure by entertaining a reasonable belief that this stock was unaccounted for. They in fact seized the entire stock with a view to making a roving enquiry for the purpose of fishing out material on the off-chance of landing somewhere which suited their purpose. The question of burden of proof under such circumstances loses its importance. That stage arises when there is a proper seizure in law. Once the initital action of seizure is found to be invalid retention of any part of the. goods cannot be justified on the ground that the dealer has not been able to discharge its burden in respect of it.

16. The dealer's case on this aspect is that he has actually discharged the burden as he has maintained an account of all the goods seized including that portion of the stock which is under detention. The relevant vouchers have been produced and the Department has not made any allegation that the vouchers are either suspicious or fictitious.

17. The provisions of Section 55 of the Act will have to be examined in this regard. That section contemplates two situations; (1) Failure to maintain any account; and (2) failure to maintain accounts in the relevant G.S. Forms; the relevant vouchers on the basis of which the forms are prepared being maintained as required by Rule 13 of the Gold Control Rules, the respondent's case is, that although the G.S. Forms were not posted from 19th to 26th April 1971. the corresponding vouchers of the entire gold received or issued during that period having been maintained strictly in accordance with Rule 13 of the Rules and, their genuineness having not been doubted at the time of seizure there was no violation of the provisions of Section 55 of the Act. The failure to maintain accounts in the G.S. Forms is an offence punishable by a penalty under Section 87 of the Act. When the vouchers exist but the C.S. Forms are not posted the case might fall under Section 87 of the Act and the dealer may be punished for a breach thereof. The question, however, is whether the provisions of Section 66 of the Act would be attracted in such a situation.

18. Section 66 of the Act may cover two situations when a violation of Section 55 of the Act has been alleged: (1) Where no accounts exist, i.e., there are neither vouchers nor G.S. Forms; and (2) where vouchers exist but the G.S. Forms are not posted. In the first case the seizing officer may easily form an opinion which may be reasonable on the materials before him that there has been a contravention of the provisions of Act. In the second case the seizing officer will form a reasonable belief that the provisions of Act have been contravened when he comes to a conclusion that the vouchers on the basis of which the G.S. Forms would be prepared are suspicious. There Is absence of any allegation that the vouchers which furnished the date on which the seizure was effected were forged or fictitious or the Department suspected their genuineness at the time of seizure. There might be cases of bona fide omission in the posting of G.S. Forms. If the vouchers were genuine the stock in trade would be accounted for. The question would be whether the seizing officer in such a situation would be justified in seizing the stock in trade without checking the vouchers and satisfying himself as to the correctness of the accounts maintained therein. In our opinion the seizing officer would not be justified in seizing any stock in trade in such a situation without applying himself to the accounts maintained. The seizure was accordingly not in accordance with the provisions of Section 66 of the Act.

19. It has now to be seen whether the seizure of the substituted gold was justified under the provisions of Section 66 of the Act.

20. Section 66 of the Act provides for the seizure of 'such gold' in respect of which the Gold Control Officer entertains a reasonable belief that the provisions of the Act have either been contravened or were attempted to be contravened. In the instant case paragraph 9 of the supplementary counter affidavit states 'it was, therefore, not possible to identify and segregate the articles received under the vouchers after 18-4-1971 from the rest of the ornaments, and their weight and purity, in the absence of any mark of identification, an equivalent number of unaccounted ornaments were seized'. This shows that the seizure was effected in respect of ornaments which may or may not have been covered by the vouchers from 19th to 26th. The tenor of the statement rather suggests that the seizure was in fact not in respect of ornaments covered by the vouchers, that is why an equivalent number was seized. If the Department's case had been that there was an excess stock of gold or ornaments on the 27th exceeding the quantity covered by the G.S. Forms and the vouchers it might have been possible for it to contend that the quantity or number of ornaments which were in excess could be picked up from the entire stock. But that is not the case of the Department. It does not justify seizure on the basis of any excess in stock. It confines its case to the non-maintenance of G.S. Forms. 'Such gold' will not, in the circumstances, mean any gold. It will mean only unaccounted gold. The allegation is not that the substituted gold is unaccounted for. What it purports to state is that the original being unaccounted for the liability has devolved upon the substitute irrespective of whether it is accounted for or not. This we think is not the scope of the expression 'such gold' in Section 66 of the Act.

21. It had already been noticed that a large part of the stock seized was found accounted for. It has further been noticed that Sri T.N. Sapru, learned counsel for the appellant, conceded that out of the stock under detention some Part may still, on a closer scrutiny be found to be accounted for. Under such circumstances the appellant was not entitled to seize a stock in respect of which it was not clear that the accounts had not been maintained. From Annexure C to the affidavit of Kishan Chand Seth, dated 2nd of June. 1971 it is evident that there is a difference in the items seized and the items received under the vouchers. One such item is Item No. 7 in Annexure C. Ten sets, weighing 636.400 grams were seized while only eight sets, weighing 636.400 grams were received as per vouchers. This shows an uncertainty in the mind of the officers effecting the seizure. The Act does not authorise the seizure of any article or ornament except that in respect of which any provision of the Act had been contravened or was being contravened or was attempted to be contravened. The affidavits filed on behalf of the Department, the stand taken by the Senior Standing Counsel. Central Government, and the facts narrated above will show that the seizure was effected without due regard to the provisions of Section 66 of the Act.

22. The appeal fails and is dismissed with costs.


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