1985 (1) TMI 281 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the seizure of books of account and documents.
2. Prolonged retention of seized materials beyond the statutory period.
3. Non-communication of the approval for extended retention.
4. Use of information obtained from seized documents.
5. Return of copies, extracts, and notes made by authorities from seized materials.

Detailed Analysis:

1. Legality of the Seizure of Books of Account and Documents
The petitioners, registered dealers under the Karnataka Sales Tax (KST) and Central Sales Tax (CST) Acts, challenged the seizure orders made by the Assistant Commercial Tax Officer (Intelligence) on 28th October 1983, and 9th August 1984. They contended that the search and seizure were conducted in a high-handed and arbitrary manner, and that numerous irrelevant documents were indiscriminately seized. They also alleged that cheques worth Rs. 60,000 each were collected by force and threat.

2. Prolonged Retention of Seized Materials Beyond the Statutory Period
The petitioners argued that the retention of books beyond 60 days, as prescribed by Section 28(3) of the KST Act, was illegal and unlawful. They claimed that the prolonged retention had paralyzed their business operations and exposed them to potential prosecution for failing to file statutory returns under the Companies Act.

3. Non-Communication of the Approval for Extended Retention
The central issue was whether the retention of books beyond 60 days without communicating the approval of the next higher authority rendered the retention unlawful. The petitioners relied on the Supreme Court's decision in Commissioner of Income-tax, West Bengal v. Oriental Rubber Works [1984] 145 ITR 477 (SC), which held that non-communication of such approval made the retention invalid and unlawful.

4. Use of Information Obtained from Seized Documents
The petitioners sought a writ of prohibition against the respondents from using the information obtained from the seized documents in proceedings under the KST and CST Acts. The Court referred to the Supreme Court's ruling in Pooran Mal v. Director of Inspection (Investigation), Income-tax, New Delhi [1974] 93 ITR 505 (SC), which upheld the validity of using information gathered from documents even if the search and seizure were illegal.

5. Return of Copies, Extracts, and Notes Made by Authorities from Seized Materials
The Court examined whether the authorities should return copies, extracts, and notes made from the seized materials. Citing the Supreme Court's decision in Pooran Mal's case and a later case by the Madras High Court, the Court held that the authorities could use the information gathered from the seized documents for completing assessments and other purposes in accordance with the law.

Conclusion:
The Court declared that the retention of books of account and documents beyond 60 days without communicating the orders of the next higher authorities rendered their retention illegal. Consequently, the petitioners were entitled to the return of the seized materials. However, the Court allowed the authorities to retain copies, notes, and extracts made from the seized documents for use in assessments and other legal proceedings.

The respondents were directed to return all seized books of account and documents to the petitioners within 10 days from the date of receipt of the Court's order. The writ petitions were disposed of with each party bearing their own costs. The order was to be communicated to the respondents within 7 days.