2006 (4) TMI 17 - HC - Central Excise

Central Excise Search and Seizure Power of search and seizure has to be approved in larger interest of society and to verify evasion of tax (2) Constitution (3) Validity (4) Illegal declaration

Issues Involved:
1. 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.
2. Whether seizure of goods in the present case was illegal being in violation of the procedure laid down under Section 105/110 of the Customs Act.

Issue-wise Detailed Analysis:

1. Clearance of Goods Under Section 47:
The petitioners argued that once goods are cleared under Section 47 of the Customs Act, 1962, finality attaches to the said proceedings, and the provision of seizure and confiscation is not applicable. They relied on the Supreme Court judgment in *Escorts Limited v. Union of India*, which observed that clearance under Section 47 amounts to assessment and confers certain rights and obligations. The Madras High Court in *Best & Crompton Engineering Ltd. v. Collector of Customs* also supported this view, stating that an order under Section 47 is a quasi-judicial exercise of power and cannot be reviewed or altered without specific provision.

However, the respondents relied on the Supreme Court judgment in *Union of India v. Jain Shudh Vanaspati Ltd.*, which held that clearance under Section 47 does not debar action under Sections 28 or 111 of the Act. The judgment emphasized that a clearance order obtained by fraudulent means does not prevent the issuance of a show-cause notice for confiscation of goods under Section 124. The court concluded that clearance under Section 47 does not bar further adjudication or confiscation proceedings if fraud is involved.

2. Legality of Seizure Under Sections 105/110:
The petitioners contended that the search and seizure were in violation of Sections 105 and 110 of the Act, which require specific reasons to be recorded before authorization. They argued that the absence of recorded reasons rendered the search and seizure illegal. The respondents justified the seizure, stating that the Directorate of Revenue Intelligence (DRI) had information about gross undervaluation and under-invoicing of imported silk fabric, leading to the search and seizure.

The court examined the provisions of Sections 105 and 110, noting that both sections require "reason to believe" to be recorded before action is taken. The court referred to the Supreme Court judgments in *M.P. Sharma v. Satish Chandra* and *District Registrar and Collector, Hyderabad v. Canara Bank*, which emphasized that search and seizure powers must be exercised in accordance with the law and based on reasonable material.

In this case, the court found that the respondents failed to produce any records showing that reasons were recorded before the search and seizure. The court noted that the seizure was incidental to a search at another premises and that the DRI's report was available before the goods were cleared under Section 47. The court concluded that the exercise of search and seizure without recorded reasons was illegal and liable to be quashed.

Conclusion:
The court answered the first issue against the petitioners, holding that clearance under Section 47 does not debar further adjudication or confiscation proceedings. However, the court answered the second issue in favor of the petitioners, declaring the search and seizure illegal due to the absence of recorded reasons. The court directed the respondents to release the seized goods within one week and complete all pending proceedings in accordance with the law within six months.

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