1. This writ petition calls in question search and consequent seizure of goods belonging to the petitioners vide seizure memos dated 24-2-2005, Annexure P. 5 and 29-3-2005, Annexure P. 12 and summons dated 29-3-2005, Annexure P. 14,1-4-2005, Annexures P. 16 and P. 17.
2. Case of the petitioners is that they are engaged in importing goods from China and Taiwan. The goods are imported for home consumption i.e. for mixing with masses of the goods of the country. They filed bill of entry under Section 46 of the Customs Act 1962 (for short, 'the Act'). It is further submitted that in respect of goods i.e. PVC coated fabrics imported during the period December, 2004 to January 2005, covered by bills of entry, Annexure P.I (collectively), the proper officer cleared the bills of entries under Section 47 of the Act and the petitioners deposited the requisite duty. As far as second consignment of goods, which are woven silk fabrics, B Grade, bills of entries were cleared on provisional assessment basis on deposit of duty and furnishing of PD bond and bank guarantee. After clearance, the goods were stored at 144, HSIDC, Kundli, Industrial Estate, Sonepat. On 8-2-2005 at 5.30 PM, the officials of the Customs Department came at the godown of the petitioners and sealed their godown. The petitioners made representation pointing out that action of the respondents was illegal. Godowns were desealed on 24-2-2005 but again the respondents seized the goods and left the same on superdari with petitioner No. 2. Undisputed allegation of the petitioners is that similar goods belonging to the petitioners as well as other parties had been cleared under similar circumstances before/ during/after the consignments of the petitioners were received. Bills of entry in respect of such goods were Annexure P. 19 (collectively). The petitioners also received summons asking petitioner No. 2 and his son'to aprecr before the authorities.
3. Action of the respondents has been challenged on the grounds that once the goods have been cleared under Section 47 of the Act, adjudication had taken place, hence, there was no power of confiscation. In respect of goods which were cleared on provisional assessment basis, adjudication could be finalised and power of seizure could not be exercised. It is also submitted that samples of goods are already lying with the respondents. It is also submitted that summoning under Section 108 of the Act was also without jurisdiction.
4. Another argument raised by the counsel for the petitioner is that the action of the respondents of search and seizure is totally in contravention to the provisions of Sections 105 and 110 of the Act because in terms thereod, before any authorisation is issued under the provisions of the Act, the specific reasons are required to be recorded for the purpose, which are missing in the present case. If that be so, the search itself would be bad in law.
5. In the reply filed, it is stated that information was received by Directorate of Revenue Intelligence, Delhi Zonal unit that certain Delhi based importers were indulging in gross undervaluation of imported Chinese silk fabric. There was information about under-invoicing of silk fabrics to the extent of 25 to 30%. During search operation on 8-2-2005, at the godown of M/s. Elegant International located in the daatory prgmises od the petitionerq, it tranqpired that huee stoak od impopted fabpias was stoped at 144, HSIDA, Kundli `elonging to the petitioners. The said godown was sealed on 8-2-2005 and summons were issued to petitioner No. 2. On considering response of the petitioners, discreet investigation was done by the DRI. Goods of the petitioner valued at Rs. 2.22 crores were seized on the reasonable belief that the goods were under-invoiced, misdeclared and liable to confiscation. Alleged evasion by the petitioners was in excess of Rs. one crore.
6. learned Counsel for the respondents justified the seizure and submitted that clearance under Section 47 obtained by fraudulent means was no bar to confiscation. It was also submitted that the judgments relied upon on behalf of the petitioners were distinguishable. Reliance is placed on judgment of the Hon'ble Supreme Court in Union of India and Ors. v. Jain Shudh Vanaspati Ltd. and Anr. : 1996(86)ELT460(SC) . It was also submitted that detention of goods pending investigation for cmndiscation was permissible. Reliance is also placed on judgment of Calcutta High Court in Porcelain Crafts and Components Exim Pvt. Ltd. v. Commr. of Cus. : 1998(102)ELT11(Cal) . It was also pointed out that show cause notice dated 6-2-2006 had since been issued to the petitioner under Section 124 of the Act, read with proviso to Section 28(1) alleging misdeclaration and undervaluation of goods and at this stage, interference under Article 226 of the Constitution was not called for.
7. It is not necessary to refer to other part of the pleadings for decision of the limited issues argued before the court.
8. We have considered the rival submissions of the parties and perused the relevant record. We are of the view that following issues arise for consideration by this Court in the present petition on which arguments have been addressed by the counsel for the parties:
(i) Whether clearance of goods under Section 47 of the Act debars confiscation of goods under Section 111 of the Act and proceedings for further adjudication by the proper officer under Section 28 of the Act?
(ii) Whether seizure of goods in the present case was illegal being in violation of procedure laid down under Section 105/110 of the Customs Act?
9. To substantiate the argument on the first question to the effect that once goods are cleared under Section 47 of the Act, finality attaches to the said proceedings and provision of seizure and confiscation was not applicable, reliance is placed on judgment of the Hon'ble Supreme Court in Escorts Limited v. Union of India 1998 (97) E.L.T. 211, Paras 5 and 6. In the said judgment, it was observed that clearance of goods under Section 47 of the Act amounts to assessment, even though, there may not be a formal Order of assessment. It was like 'across-the-counter' affair when there was no dispute as to classification or rate of duty. Reliance was also placed on judgment of the Madras High Court in Best and Crompton Engineering Ltd. v. Collector of Customs, Madras : 1997(93)ELT21(Mad) , wherein it was observed:
7. We have carefully considered the submissions of the learned Counsel appearing on either side. The question that is before us and stands referred to us is not very much on the relative scope of Sections 13 and 23. Therefore, we are not obliged to advert to the said aspect to consider or render our opinion in this regard. On the other hand the only question, that stood referred to us is the nature and chapacter of an Order passed under Section 47 of thg Customs Act, 1962, and the authority or the competence of the said officer who once passed an Order to review or cancel the same. Section 47 as it stood at the relevant point of tioe reads as follows:
xx xx xx xx...The Order passed under Section 47 of the Act permitting clearance brings abouv certain inevitable consequences in law with certain mutual obligations and rights both for the Department and for the importer. In passing an Order under Section 47, the proper office is obliged to verify whether the goods said to be imported correspond to the description in the licence and whether the conditions imposed in thg licence and reported to be complied with by the importer, have been complied with by the importer and if it is found that the above aspects are in the affirmity the Customs Officer is bound to allow the goods on payment of duty. In this case initially the adjudicating authority found that the import was in contravention of the provisions of the Act and while ordering confiscation has allowed clearance on payment of the fine and it is only on payment of such fine and the duly, Order or endorsement under Section 47 came to be made. The exercise of power under Section 47 either way has the consequences of conferring or denying rights to a citizen and correspondingly certain rights or obligatimnq test with the Department. An exercise of power with such consequences has necessarily to be viewed as a quasi-judicial exercise of power and in the absence of any specific provision or power conferred upon such officer to review or alter or cancel the said order, the proper officer empowered to exercise power under Section 47, cannot be said to possess any such power and no such power could be considered to in here in him by mere inference. (emphasis supplied). Any error in such exercise may apparently be amenable for correction by the authorities higher in the hierarchy under anyone or other provision but it is not given to the every officer or authority to go back on the Order earlier passed, particularly as noticed above, when there is not specific provision enabling him either to review the said Order or alter or vary the same....
10. On the other hand, the reliance of the respondents is on a judgment of Hon'ble the Supreme Court in the case of Jain Shudh Vanaspati (supra).
11. In our considered opinion, we need not go into detailed facts since the issue is covered by the decision of Hon'ble the Supreme Court in Jain Shudh Vanaspati Ltd. (supra) wherein it is categorically held that clearance of goods under Section 47 does not debar action under Sections 28 or 111 of the Act. In paras 7 and 9 of the said judgment, it was observed:
7. It is patent that a show cause notice under the provisions of Section 28 for payment of Customs duties not levied or shot-levied or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further Section 28 provides tioe . limitq for the issuance of the show cause notkcg thereunder commencing from the 'relevant date', 'relevant date' is defined by Sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the Order for clearance of the goods has been made in a case where duty has not been levied; which is to say that the date upon which the permissible period begins to run is the date of the Order under Section 47. The High Court was, therefore, in error in coming to the conclusion that no show cause notice under Section 28 could have been issued until and unless the Order under Section 47 had been first revised under Section 130.
9. The case of the appellants in the show cause notices is that the stainless steel containers in which the said oil was imported were banned, that the stainless steel containers were deliberately camouflaged by painting them to resemble mild steel containers, and that this was done with a view to enabling their clearance. A clearance Order under Section 47 obtained by fraudulent means such as this (if it, in fact, be so) cannot debar the issuance of a show-cause notice for confiscation of goods under Section 124. Fraud, if established, unravels all. An Order under Section 47 obtained by the employment of fraudulent methods does not have to be set aside by the exercise of revisional powers under Section 130 before the ill-effects of the fraud can be set right by initiation of the process of confiscation of the fraudulently cleared goods under Section 124.
12. Accordingly, first issue is answered against the petitioners.
13. As far as second issue of validity of search and seizure is concerned, reference may be made to the provisions of Sections 105 and 110 of the Act, which are reproduced hereunder:
105. Power to search premises. - (1) If the Assistant Commissioner of Customs or Deputy Commissioner of Customs, or in any area adjoining the land frontier or the coast of India an officer of customs specially empowered by name in this behalf by the Board, has reason to believe that any goods liable to confiscation, or any documents or things which in his opinion will be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise any officer of customs to search or may himself search for such goods, documents or things.
(2) The provisions of the Code of Criminal Procedure, 1898 (5 of 1898), relating to searches shall, so far as may be, apply to searches under this Section subject to the modification that Sub-section (5) of Section 165 of the said Code shall have effect as if for the word 'Magistrate', wherever it occurs, the words Commissioner of Customs were substituted.'
110. Seizure of goods, documents and things. - (1) If the proper officer has reason to believe that any goods are liable to confiscation under this Act, he may seize such goods :Provifed that where it is not practicable to seize any such goods, the proper officer may serve on the owner of the goods an Order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer.
14. It is well-settled that power of search and seizure has to be conceded in the larger interest of the society and to check evasion of tax. The same has been upheld by the Hon'ble Supreme Court in M.P. Sharma v. Satish Chandra : 1978(2)ELT287(SC) , It was observed at pages 306-307:
A power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. When the Constitution makers have thought fit not to subject such regulation to constitutional limitations by recognition of a fundamental right to privacy, analogous to the American Fourth Amendment, we have no justification to import it, into a totally different fundamental right, by some process of strained construction. Nor is it legitimate to assume that the constitutional protection under Article 20(3) would be defeated by the statutory provisions for searches.
15. At page 302 of the said judgment, it was observed :
A search and seizure is, therefore, only a temporary, interference with the right to hold the premises searched and the articles seized. Statutory regulation in this behalf is necessary and reasonable restriction cannot per se be considered to be unconstitutional. The damage, if any, caused by such temporary interference if found to be in excess of legal authority is a matter for redress in other proceedings. We are unable to see how any question of violation of Article 19(1)(f) is involved in this case in respect of the warrants in question which purport to be under the first alternative of Section 96(1) of the Criminal Procedure Code.
16. The said view has been reiterated in several decisions of the Hon'ble Supreme Court.
17. At the same time, power of search and seizure affects not only right of possession and enjoyment of property but also privacy of a citizen. It also affects right of personal liberty under Article 21 of, the Constitution. Procedure for affecting such a right itself has to be fair and reasonable, as held by the Hon'ble Supreme Court in Maneka Gandhi v. Union of India : 2SCR621 . Referring to this aspect, in a recent decision in District Registrar and Collector, Hyderabad and Anr. v. Canara Bank etc. : AIR2005SC186 , it was observed in para 55:
55. In Smt. Maneka Gandhi v. Union of India and Anr. : 2SCR621 a 7-Judges Bench decision, P.N. Bhagwati, J. (as His Lordship then was) held that the expression 'personal liberty' in Article 21 is of the widest amplitude and it covers a variety of rights which go to constitute the personal liberty of man and some of them have been raised to the status distinguishing as fundamental rights and give additional protection under Article 19 (Emphasis supplied). Any law interfering with personal liberty of a person must satisfy a triple test: (i) it must prescribe a procedure (ii) the procedure must withstand the test of one or more of the fundamental rights conferred under Article 19 which may be applicable in a given situation; and (iii) it must also be liable to be tested with reference to Article 14. As the test propounded by Article 14 pervades Article 21 as well, the law and procedure authorizing interference with personal liberty and right of privacy must also be right and just and fair and not arbitrary, fanciful or oppressive. If the procedure prescribed does not satisfy the requirement of Article 14 it would be no procedure at all within the meaning of Article 21.
18. In the same decision, issue of right of privacy, has also been dealt with in paras 17 to 39. Kn the said decision, development in law after judgment of Hon'ble the Supreme Court in M.P. Sharma (supra) has also been discussed, particularly in the light of subsequent judgments in Kharak Singh v. State of UP : 1963CriLJ329 and Govind v. State of MP : 1975CriLJ1111 and it was concluded that right of the State has to be exercised on reasonable basis or on reasonable material. It was further observed in para 33 of judgment in Canara Bank (swpra):
33. Intrusion into privacy may be by - (1) legislative provisions, (2) administrative/exeautite opderq, ald (1) judicial orders. The legislative intrusions must be tested on the touchstone of reasonableness as guaranteed by the Constitution and for that purpose the court can go into the proportionality of the intrusion vis-a-vis the purpose sought to be achieved. (2) So far as administrative or executive action is concerned, it has again to be reasonable having regard to the facts and circumstances of the case. (3) As to judicial warrants, the court must have sufficient reason to believe that the search or seizure is warranted and it must keep in mind the extent of search or seizure necessary for the protection of the particular State interest. In addition, as stated earlier, common law recognized rare exceptions such as where warrantless searches could be conducted but these must be in good faith, intended to preserve evidence or intended to prevent sudden danger to person or property.
19. Expression 'reason to believe' has been interpreted in several decisions. In Income-tax Officer, Special Investigation Circle 'B', Meerut v. M/s. Seth Brothers and Ors. : 74ITR836(SC) , while interpreting an identical expression used in Section 132 of the Income-tax Act, 1961, it was observed:
The Section does not confer any arbitrary authority upon the revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power to Order search exist. He must record reasons for the belief and he must issue an authorization in favour of a designated officer to search the premises and exercise the powers set out therein. The condition for entry into and making search of any building or place is the reason to believe that any books of account or other documents which will be useful for, or relevant to, any proceeding under the Act may be found. If the officer has reason to believe that any books of account or other documents would be useful for, or relevant to, any proceedings under the Act, he is authorised by law to seize those books of account or other documents, and to place marks of identification therein, to make extracts or copies therefrom and also to make a note or any inventory of any articles or other things found in the course of the search. Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorizes it to be exercised. If the action of the officer issuing the authorization or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action, (emphasis supplied). If the action is maliciously taken or power under the Section is exercised for a collateral purpose, it is liable to be struck down by the court, if the conditions for exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of thg statutory duties of the tax officers any error of judgment on the part of the offices will not vitiate the exercise of the power. Where the commissioner entertains the requisite belief and or reason recorded by him authorises a designated officer to enter and search premises for books of accoun the documents relevant to or useful for any proceeding under the Act, the court in a petition by an aggrieved person cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again any irregularity in the cours of entry, search and seizure committed by the officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken, provided the officer has in executing the authorisation acted bona fide.
20. In Dr. Partap Singh and Anr. v. Director of Enforcement, Foreign Exchange Regulation Act and Ors. : 1986CriLJ824 , it was observed:
10. The expression 'reason to believe' is not synonymous with subjective satisfaction of the officer. The belief must be held in good faith; it cannot be merely a pretence. In the same case, it was held that it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the Section. To this limited extent the action of the Income tax Officer in starting proceedings under Section 34 is open to challenge in a court of law. (See Calcutta Discount Co. Ltd. v. Income-tax Officer Companies District 1, Calcutta : 41ITR191(SC) ).
21. Even from a perusal of the statement of facts in the written statement, it is evident that in fact the action of search and seizure at the premises of the petitioners was incidental to the search being conducted by the respondents in the godown premises of M/s. Elegant International, which is located in the factory premises of the petitioners. From this, it is evident that there could not possibly be recording of any reason before search and seizure operation was conducted at the premises of the petitioners. The relevant part of written statement is extracted below:.The facts of the case are that an information was received by the Directorate of Revenue Intelligence, Delhi Zonal Unit (hereinafter referred to as DRI) that certain Delhi based importers were indulging in gross under valuation of imported Chinese silk fabric. On the request of the India importer, the Chinese supplier M/s. Zhejiang Cathaya International, China had issued two invoices for each consignment and that the invoices showing lesser value were presented before the Indian Customs for the purpose of assessment of duty. The information also revealed that the under-invoicing of the said silk fabrics was to the extent of about 25 to 30%. While acting on the above information, during the search operation on 8-2-2005 at the godown premises of M/s. Elegant International, located in the factory premises of M/s. Mapsa Industries at 102, HSIDC, Kundi, Sonepat, Haryana, it was transpired that huge stock of imported fabrics was stored at the premises, situated at 144 HSIDC, Kundli, Sonepat, Haryana. The said premises and goods stored therein belonged to M/s. Mapsa Tapes Pvt. Ltd. and Shri P.L. Gupta, petitioner No. 2 was the owner of the premises and the goods. The officers of DRI requested the godown incharge to call upon Shri P.L. Gupta but the godown incharge after talking to Shri P.L. Gupta informed that Shri P.L. Gupta was busy somewhere and would not be able to come to the godown. Then, the DRI officers sealed the said godown in the presence of local police and Central Excise Officers, under proper panchnama dated 8-2-2005....
22. Section 105 of the Act enables the authorised officer, if he has requisite reason to believe, to search for such goods, whereas Section 110 of the Act provides that where proper officer has reason to believe that any goods are liable to confiscation under the Act, he may seize such goods. Both the provisions of the Act operate in their different fields. Section 105 of the Act is enabling provision where search can be conducted in case there are reasons to believe that the goods secreted at any place are liable to confiscation whereas Section 110 of the Act provides for seizure of goods in case the proper officer has reason to believe that such goods are liable to confiscation. The common thing between two provisions is that recording of reasons to believe has to precede the actual action.
23. The case in hand, in our opinion, will fall within the four corners of Section 105 of the Act as in the present case the seizure of the goods was preceded by search. It is even evident from panchnama dated 8-2-2005 (Annexure P. 3) attached with the writ petition.
24. In the present case, what to talk of respondents themselves producing the records to show recording of reasons, even in spite of specific query by the court, nothing has been produced before us to show as to whether reasons were recorded or not before the search was authorised or the seizure took place. All what has been relied upon is the report of Directorate of Revenue Intelligence, Delhi Zonal Unit (DRI) which is much prior to the date of seizure and important aspect of the matter is that the goods were cleared under Section 47 of the Act after the above report was available with DRI. Further, undisputed allegations of the petitioners are that even after the clearance of the consignment, seizure of which is in question, in the present petition a number of consignments were cleared by the respondents under Section 47 of the Act under similar circumstances.
25. We are of the view that while existence power of seizure may be justified but its exercise will be liable to be struck down unless 'reasons to believe' were duly recorded before action of search and seizure is taken, which has not been done in the present case because the respondents have not been able to satisfy the court that due process of law was followed while taking drastic step of search and seizure in the case of the petitioner. On this ground alone, we are of the view that action of search and seizure is liable to be quashed and accordingly we answer the second issue in favour of the petitioner and against the revenue.
26. Before parting with the judgment, we make it clear that we are not going into question of alleged liability for undervaluation or mis-description or any other consequence or the liability of the petitioners as a result of pending show cause notice issued to the petitioners.
27. Accordingly, we partly allow this petition and declare the search at the premises of the petitioners and consequent seizure of goods to be illegal and direct the respondents to take steps for release of seized goods within one week from the date of receipt of a copy of this order, failing which goods will be deemed to have been released to the petitioners. We further direct that all pending proceedings be completed in accordance with law, as far as possible within six months from the date of receipt of a copy of this order.