1988 (6) TMI 306 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Delay in filing Writ Appeal No. 467 of 1988.
2. Legality of the seizure of documents and books during inspection.
3. Distinction between "inspection" and "search" under Section 28 of the Karnataka Sales Tax Act.
4. Validity of the seizure orders.
5. Relief to be granted to the appellants.

Detailed Analysis:

1. Delay in filing Writ Appeal No. 467 of 1988:
The court addressed the delay of 3 days in filing Writ Appeal No. 467 of 1988. After hearing the learned counsel for both the appellant and the respondent, the court was satisfied with the appellant's explanation provided in the affidavit for condoning the delay. Consequently, the court allowed the condonation of the delay.

2. Legality of the seizure of documents and books during inspection:
The respondent and his team entered the business premises of the appellant on March 13, 1987, and seized several documents and books. The respondent's case was based on information that the appellant was effecting stock transfers of goods to various showrooms outside Karnataka. The inspection aimed to verify these transactions and compliance with the Karnataka Sales Tax Act. However, it was unclear whether the seized documents were the same as those made available by the appellant's officer.

Similarly, in Writ Appeal No. 104 of 1988, the respondent visited the appellant's premises on November 20, 1986, found discrepancies, and seized a large number of books and documents. The seizure orders were challenged on the grounds that the seizure was preceded by a search, not an inspection, without following the mandatory legal requirements under Section 28(2) of the Karnataka Sales Tax Act.

3. Distinction between "inspection" and "search" under Section 28 of the Karnataka Sales Tax Act:
The court examined the distinction between "inspection" and "search" as established in previous cases. The Supreme Court in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver [1967] 20 STC 453 and this court in G.M. Agadi & Bros. v. Commercial Tax Officer, Belgaum [1973] 32 STC 243 elaborated that "all searches are inspections, but all inspections are not searches." A search implies a thorough inspection with the objective of discovering material evidence of guilt, whereas an inspection does not involve prying into hidden places.

4. Validity of the seizure orders:
The learned single judge initially held that the seizure of books and documents resulted from an inspection and not a search, dismissing the writ petitions. However, the appeals court disagreed, finding that the facts and circumstances indicated a search rather than an inspection. The court noted that the seizure orders did not clarify who produced the documents and that the seizures were carried out in the guise of inspection without following the mandatory requirements of Section 28. Consequently, the seizures were deemed invalid.

5. Relief to be granted to the appellants:
The court considered the appropriate relief for the appellants. It referenced previous decisions where even if the search or seizure was invalid, the documents and books were returned, but the department could retain extracts and notes made from them. The court cited the Supreme Court's ruling in Dr. Partap Singh v. Director of Enforcement, Foreign Exchange Regulation Act AIR 1985 SC 989, which held that evidence collected during an illegal search does not necessarily have to be returned, but the court or authority must be cautious in dealing with such evidence.

Following the decision in W.A. No. 513 of 1980 (Commercial Tax Officer v. Habib and Sons), the court directed that the respondents return the seized documents and books but allowed the department to retain the extracts and notes. The appeals were allowed, and the writ petitions were granted in the manner indicated. The court granted the learned Government Advocate four weeks to return the documents.

Conclusion:
Appeals allowed. The court directed the return of the seized documents and books to the appellants, with the department retaining the extracts and notes.