2014 (7) TMI 576 - HC - VAT and Sales Tax

Validity of Search and seizure - Validity of authorization - seizure of documents - search of business and residential premises of directors - Held that - Letter of authorisation was not shown to the officers/employees of the petitioner. Independent witnesses were not called during the search and seizure and the respondents took over the boxes, without issuing any receipt, from the premises of petitioner, which vitiates the entire search and seizure conducted by the respondents. The aforesaid provisions have been made to safeguard the interest of persons who are affected by such search and seizure. It was obligatory on the part of the officer about to execute the search warrant to call on two or more respectable inhabitants of the locality where the search was to be conducted, as has been held by the apex court in Sunder Singh v. State of Uttar Pradesh 1955 (11) TMI 33 - SUPREME COURT . It was the legal obligation on the part of the respondent to call two independent respectable inhabitants of the locality to attend the search and seizure, made by them. But it is apparent that the entire procedure was given go-bye by the respondents. Even they have not cared to call any of the witness at the time of search and seizure. It is not the case of respondents that no witness was available or attended the aforesaid search and seizure, in absence of which the entire seizure can be held to be illegal. The action of the respondents in respect of search and seizure cannot be approved by this court and it is held that the entire search and seizure was illegal - The respondents have seized various documents alleging evasion of tax by the petitioner. Though the entire search and seizure has been held to be illegal, but the respondents may proceed on the basis of documents seized by them to find out whether there was any evasion of tax by the petitioner. However, the evidence so collected by the respondents in respect of evasion of tax by the aforesaid search and seizure, which has been held to be illegal, the authority considering the matter shall evaluate the evidence with great caution, as per the law laid down by the apex court in Baldev Singh 1999 (7) TMI 630 - SUPREME COURT - Decided in favour of assessee.

Issues Involved:
1. Whether the authorisation/search letter was issued in accordance with law?
2. Whether before inspection/search such authorisation was shown to the persons in occupation of the premises of petitioner?
3. Whether independent witnesses were called at the time of search and seizure?
4. Whether any receipt was issued by the respondents before taking over seized documents from the premises of the petitioner, if not then, effect of aforesaid?

Issue-Wise Detailed Analysis:

1. Whether the authorisation/search letter was issued in accordance with law?
The court examined the documents and found that a report dated August 18, 2010, was submitted to the Commissioner, indicating that the petitioner was evading tax by showing intra-State sales as inter-State sales. Based on this information, the Commissioner formed a reasonable belief and issued an authorisation letter under section 55 of the VAT Act on August 25, 2010. The court concluded that there was sufficient material and proper application of mind by the Commissioner before issuing the authorisation letter. Therefore, the first contention of the petitioner was dismissed as having no force.

2. Whether before inspection/search such authorisation was shown to the persons in occupation of the premises of petitioner?
The court found no material evidence that the authorisation letter was shown to any of the employees of the petitioner before the search. The respondents failed to provide specific details or documentation proving that the authorisation was shown. The court noted that if the authorisation letter had been shown, a specific note or panchnama should have been prepared. The court accepted the petitioner's contention that the authorisation letter was not shown before the search.

3. Whether independent witnesses were called at the time of search and seizure?
The court observed that no independent witnesses were called during the search and seizure, as required under section 100 of the Cr. P.C. The respondents admitted that the documents were sealed for the purpose of effecting seizure but did not involve any independent witnesses. The court highlighted the statutory requirement to call two independent and respectable inhabitants of the locality to witness the search, which was not adhered to by the respondents. This non-compliance was considered a significant procedural lapse.

4. Whether any receipt was issued by the respondents before taking over seized documents from the premises of the petitioner, if not then, effect of aforesaid?
The court noted that no receipt was issued for the seized documents before they were taken from the petitioner's premises. The respondents were required to prepare a seizure memo and issue a receipt as per section 55(4) of the VAT Act and section 100 of the Cr. P.C. The lack of a seizure memo and receipt further vitiated the legality of the search and seizure process. The court held that the entire procedure adopted by the respondents was illegal and did not comply with the statutory requirements.

Conclusion:
The court declared the search and seizure conducted by the respondents as illegal due to non-compliance with statutory provisions, including the failure to show the authorisation letter, involve independent witnesses, and issue a receipt for the seized documents. However, the court allowed the respondents to proceed with caution, using the seized documents to investigate potential tax evasion by the petitioner, while emphasizing that the evidence collected during the illegal search should be evaluated with great caution. The petition was allowed in part, and no order as to costs was made.

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