SEARCH, SEIZURE AND CONFISCATION UNDER THE CENTRAL EXCISE LAWS Applicability of the Provisions of Customs Laws (Notification No.

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1 CHAPTER -3 SEARCH, SEIZURE AND CONFISCATION UNDER THE CENTRAL EXCISE LAWS Introduction 2. Applicability of the Provisions of Customs Laws (Notification No. 68/63) 3. Clandestine Removal of Excisable Goods 4. Requirement and Pre-requisite for Search and Seizure 5. Inspection vis-;a-vis-search 6. Illegal Search and Seizure and Consequences thereof 7. Seizure and its relevant aspects 8. No Seizure Based on Technical Ground 9. Confiscation of Excisable Goods (a) Confiscation of Land, Plant and Machinery (b) Confiscation of conveyance (c) Seizure is sine-qua-non (d) Confiscation vis-a-vis forfeiture, (e) Redemption of fine in lieu of Confiscation and its quantum. 10. Show cause notice and its ingredients 11. Role of Judiciary in Excise Matters (a) Constitutional Remedies (b) Role of Civil Courts 12. Review

2 110 CHAPTER - III SEARCH, SEIZURE AND CONFISCATION UNDER CENTRAL EXCISE LAWS 1. Introduction Practically, excise laws came into force during the British Period with the introduction of Central Excise and Salt Act 1944.* Even before this Act the excise duty was levied by the British Government from the manufacturer. Not only this, the excise was applicable on manufacturer even in Mughal Period and Sikh Period. British Rulers tried to merge the various states into the British empire and they succeed in this direction. They made the source of income to salt. It was the only common product at that time on which East India Company levied the duty successfully. Lord Clive Monopolise the salt with the object of providing adequate emoluments from the profits of the principal persons. Under Muslim rule also the duty was imposed by the rulers on salt. The duty was levied from Muslims at the rate of 2.5 percent ad Valorem and from Hindus at 5 per cent." 1 Now, Central Excise Act Jain, R.K., Central Excise Law Guide", p Centax Publication Pvt. Ltd.

3 Ill Meaning of Excise duty According to the dictionary meaning of the term, excise,3 it is an indirect tax on commodities manufactured, produced, sold, used or transported within the country. The excise means and includes: 1. Any duty, toll or tax 2. Any inland duty or impost levied upon the manufacture, sale or consumption of commodities within the country. Also, a tax upon the pursuit or following of certain sports, trades or occupation, usually taking in this case the form of exactions for licences. In common parlance the duty of excise is more or less connected with home manufacture or production. No definition of excise duty is given in the Constitution or Central Excise and Salt Act In the absence of any statutory definition of the expression excise duty the question of its true construction has often been a subject matter for consideration of the courts. The Supreme Court of India has held that excise duty is essentially a tax on the production or manufacture of excisable goods produced or manufactured within the country and is unrelated to the sale of the same. Therefore, the notion of trade or commerce is foreign to it. The excise duty is attracted the moment the goods are produced or 3 Webster s New International Dictionary.

4 112 manufactured but its actual collection can be postponed to a subsequent date.4 * The excise duty is an indirect tax whose incidence generally falls on the consumption of goods. Though strictly speaking, the event of excise duty occurs at the time of the manufacture of goods, it is a tax on the consumption of the goods within the country of production. That is the well-known and wellaccepted concept of excise duty in fact as well as in law in this country.3 Gwyer C.J. of the Federal Court of India feels6 : But its (excise duty) primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that is also its primary and fundamental meaning in India, and no one has suggested that it has any other meaning in entry No. 45(of list 1 of 7th schedule7) 4 Chatta Bhai v Union of India AIR 1962 SC Tirunti Cigarettes (P) Ltd v. Collector of Central Excise 1989 (40) ELT 415 (Tri.) 6 In Re : Central Province and Bearer Act No. XIV of Excise and Customs Reporter, First Edition. (1982). 7 Ibid.

5 113 The Karanatka High Court held that excise duty is, primarily, a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty, which the manufacturer or producer passes on to the ultimate consumer i.e. its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost that it is a duty on the manufacture or production of goods is not lost.8 The taxable event in respect of duty of excise is the manufacture of goods and not their removal. But, it can be levied at any convenient stage so long as the essential character of the impost, i.e. it is the duty on manufacture or production, is not lost. Therefore, the method of collection does not affect the essence of excise duty, but only relates to the machinery of collection for administrative convenience.9 Section 3 of the Act provides that excise duty shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and at the rates set forth is the schedule. It is, therefore, clear that as soon as the goods in question are produced and manufactured, they will be liable to payment of excise duty. While Section 3 of Excise Act, lays down 8 Davangere Cotton Mills Ltd v. Union of India and Others 1986 (24) ELT 507 (Kar.) 9 R.C. Jail v Union of India AIR 1962 SC 1281.

6 114 the taxable event, Rule 9 and 49 (Old Rules) provides for collection of duty. If excise officer is of the opinion or there is reasonable belief that there is clandestine removal of goods, the officer can effect search seizure and confiscation of the goods. As per the notification no 68/63-CE10 dated searches and seizures are made under provisions of Section 105 of the Customs Act 1962 which have been made applicable to central excise duties. It will be applicable after observance of the procedure as laid down under Section 165 of the Code of Criminal Procedure.* 11 Under Rule 2212 and Rule 23 of Central Excise Rules 2002, an officer of central excise not below the rank of an inspector is empowered to enter and search at any time by day or by night, any land, building, enclosed place, premises, vessel, conveyance or other place in which he has reason to believe that contraband excisable goods are processed, sorted, stored or manufactured. The search warrant can be issued by the jurisdictional Assistant Commissioner of central excise. Searches are required to be conducted in the presence of two independent witnesses of the locality and articles seized should be listed in the Panchnama or Mahazar, copy of which should be supplied to the owner or person in charge of the premises searched. 10 See Appendix C. 11 Act No. 2 of See Appendix D. 13 See Appendix D.

7 Applicability of the Provisions of Customs Law Section 12 of the Central Excise Act 1944 makes the provision that the provisions of the Customs Act 1962 (Act No. 52 of 1962) will be applicable to the matters of Central Excise. The language of Section 12 as shown in Appendix D is very clear in this regard. The Punjab and Haryana High Court held that a perusal of the provisions of Section 12 shows that the Central Government can publish any notification in the official Gazette stating that the provisions of the Customs Act 1962 which relate to levy, exemption and drawback of duty, warehousing offences and penalties, confiscation and procedure relating to offences and appeals, shall be applicable in regard to like matters under the Central Excise Act, The provisions can even be altered or modified. The powers conferred by the Section are very wide. It is not confined to the particular chapters or provisions. The provisions have to be read like a Legislative entry. These have to be liberally construed. When so interpreted, the notification issued by the Central Government in the year 1963 and as modified from time to time cannot be said to beyond the jurisdiction conferred under Section 12. This notification since long, provides intrinsic ~ evidence of its efficacy and validity.14 The Bombay High Court held13 that searches for and seizures of documents and movable property are a part of procedure relating u Gian Castings Limited v. Union of India 1999 (1081 ELT (P&HV? Prakash Cotton Mills Pvt. Ltd, v. B.N. Rangwani, A.C.C.E. Bombay 2001 (138) ELT 40( Bom).

8 116 to offences in respect of duties imposed by Section 3 of the Central Excise Act. Rule 9(1) provides for time and manner of payment of duty. Sub rule (2) provides that if any excisable goods are in contravention of sub rule (1) deposited in or removed from any place specified in sub-rule, the producer or manufacturer thereof shall pay the duty levied on such goods upon written demand made by the proper officer and shall also be liable to penalty which may extend to Rs and such goods shall also be liable to confiscation. Sub-rule (2) provides for assessment of duty imposed by Section 3 which has been evaded and for payment of any duty payable under the Act an offence punishable with imprisonment which may extend for a term of six months or with fine which may extend to Rs or with both. Evasion of duty is an offence and also incurs a penalty apart from the prosecution. Under the Code of Criminal Procedure searches and seizures of goods and documents are a part of well recognized procedure relating to offences. Apart from this, searches and seizures are necessary for levy of customs duties and penalties and confiscation of goods. Therefore, Section 12 of the Excise Act would authorise the Central Government to apply by modification the provisions of the Customs Act to duties imposed by Section 3 of the Excise Act in respect of searches for and seizure of goods and documents16 16 Ibid.

9 Clandestine Removal of Excisable Goods Under Central Excise Laws, goods can be cleared from factory or a warehouse after payment of duty or under bond and as per the procedure laid down in Central Excise Act and Central Excise Rules.17 Rule 418 provides that no goods shall be removed from the manufacturing place unless the excise duty thereon has been paid. Rule 1119 lays down that no excisable goods shall be delivered from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorised agent. A person manufacturing excisable goods or keeping the same in a warehouse is also required to get himself registered under Rule 920 of Central Excise Removal of excisable goods from a factory or a warehouse in contravention of the provisions of Central Excise Rules and observing Central Excise procedure, amounts to Clandestine Removal and the goods so removed are liable to confiscation and the person who removes the goods otherwise than as provided in the rule is liable to penalty. As discussed above, the meaning of clandestine removal of goods is removal of excisable goods in contravention of the norms and rules while the goods are in movement from one place to another place. If, the revenue department wants to prove that the goods were removed clandestinely it has to prove with strong 17 Central Excise Rules i o See Appendix D. 19 See Appendix D. 20 See Appendix D.

10 118 evidence, not on conjectures and surmises.21 In this case there was a shortage of stock of finished goods. Appellant took the plea that the goods were lying in factory at various places for carrying out other processes as they followed practice of entering goods in RG-I immediately after such goods coming out of moulds, irrespective of such procedure being right or wrong. Further, the same goods were sent to the job worker under erstwhile Rule 57F(2) (old rule) of Central Excise Rules, The mistake of the appellant was the goods were not debited in RG-I (Statutory Register for Central Excise). It was held by the Tribunal that although the department has not taken it part of the stock of factory but the charges levelled by the authorities are not on the strong evidence it is just presumption. In case of clandestine removal of goods, charges must proceed on tangible and strong evidence and not on conjectures and surmises.22 It was laid down in the Kanpur Strips case23 In absence of direct admission of clandestine removal, the mere fact of the shortage found cannot sustain the charge of clandestine manufacture and removal. Fact of certain goods which should have been in existence as per records, not being in existence may become sufficient corroborative evidence where there is a direct admission by the concerned person of clandestine removal. But, 21 Rattan Re-rollers Ltd, v. Commissioner of Central Excise 2001 (137) ELT 1169 (Tri). 11 " Ibid 23 Kanpur Strips (P) Ltd v. Commissioner of Central Excise, Kanpur 2001 (137) ELT 1198 (Tri).

11 119 where there is no such admission, the mere shortage in intermediate products, does not become evidence of clandestine manufacture and removal. In the D.P. Sharma case,24 cash was recovered from different places and from possession of different persons. The Revenue Department has no strong evidence on record to show that the same is the sales proceed of the goods removed clandestinely. It is the burden on the Department to prove that the Indian currency in question is the sale proceeds of the clandestinely removed goods, which is required to be discharged by production of an affirmative tangible and positive evidence. In the Bidesh Plywood Ltd. case,25 imported timber logs were sold to various customers from the port and for which proper invoices/bills were issued. Department argued that the use of logs in the clandestine manufacture of plywood based upon some enquiry conducted by them. They argued that some fictitious bills were shown by the customers. One invoice shown by the customer is of final product also on payment of duty. It was held that the order under Rule 173Q (old rule) cannot be made because the charges of clandestine removal are only on suspicion. It is the burden of proof on the Department to prove that instead of selling 24 Pandit D.P. Sharma v. Commissioner of Central Excise, Calcutta 2000 (137) ELT 692 (Tri). 2 Bidesh Plywood Ltd, v. Commissioner of Central Excise Bolpur 2001 (136) ELT 1361 (Tri).

12 120 imported timber logs from port, himself utilized and manufacture commercial plywood. In the Metro Tyres Ltd. case26, the Court held that merely repairing of the goods or articles brought to the factory premises is not manufacturing. Repairing and reconditioning of old and defective electric fans by replacing parts, rewinding of motor, refixing of new/old number plates and selling of such repaired/reconditioned fans with new guarantee card does not amount to manufacture as it does not result in production of a new article. Hence the removal of reconditioned and repaired items is not clandestinely removal of goods. In the Uttkal Plyweave case27 Kolkatta Tribunal held that the burden of proving clandestine removal is always on the revenue authorities. Such an allegation should have some basis, which should be the receipt of raw materials manufactured, use of electricity, clandestine sale and receipt of sale revenue from the purchaser. Mere seizure of the private books maintained by the staff for internal movement of the goods or for carrying out the directions for clearance of the goods are not dependable records to establish the clandestine removal, unless the same is supported by other evidence. Such private records may give rise to some doubts against the assessee. But they do not establish sufficient nexus to 26 Metro Tyres Ltd v. Collector of Central Excise, Chandigarh 1996 (84) ELT 485 (Tri). 27 Uttkal Plyweave Industries (P) Ltd, v. C.C.E. & C. Bhubaneshwar 2001 (136) ELT 520 (Tri).

13 121 establish the charge of clandestine removal. If any notice issued to the staff in the shape of directions to supply a particular quantity which may not be cleared under one gate pass on one day. No adverse conclusion can be drawn upto the sole entries made in the said notice. Particularly, when the majority of the goods are being sold to the Government of India s undertaking.- While comparing the private accounts with the statutory records RG-I, if some discrepancy is found it cannot be held that the goods are removed clandestinely. Department required to prove beyond doubt through production of evidence.29 As regards to the standard of proof, it was held30 that in absence of direct, positive and documentary evidence, oral, circumstantial and corroborative material is sufficient. The statement is sufficient. The statement of number of supplies of assessee that out of fabrics sent for processing some quantity is received back after processing without gate pass. Private records of supplies showing more fabric sent than that showing grey challan and for which they were unable to produce gate passes. Entry in the dyeing note book, is spoken of by the suppliers, about the difference in quantity of fabrics supplied and processed to a larger extent strengthens the case of the department about the charge. *W* Collector of Central Excise Calcutta v. Tube Bend (Cal) Pvt. Ltd (136) ELT 839 (Tri). Begani Dyeing Mills Private Limited v. Commissioner of Central Excise & Customs Surat 2001 (136) ELT 508 (Tri).

14 122 Hence, even no direct evidence is available in this regard but circumstances shows that there was a clandestine removal of goods. The Calcutta Tribunal held in the Deepak Tandon case31 that charge of clandestine removal is required to be proved by production of affirmative, positive and tangible evidence. Demand solely based on a comparison of entries made in daily production account with the entries made in RG-1 register cannot be raised. Comparison cannot be made on day-to-day or on month-to-month basis. Such comparison is not sufficient evidence to sustain the charge of clandestine removal. The RG-1 entries are to be compared with the Finished Goods Transfer Challans. " The Tribunal in the Shree Dira Dye-Chemb case33 held that strict rule of evidence not being applicable to quasi judicial proceedings including proceedings for demand of duty and imposition of penalty under Central Excise Act. If no Panchanama is prepared by the Departmental authorities for recovery of private documents it is not fatal to the case of the Department. It may be only irregularity but does not vitiate the other evidence which is corroborated. 1 Deepak Tandon v. Commissioner of Central Excise, Bhubaneswar 2000 (126) ELTlG79(Tri). 22 Ibid. 3 Shree Dira Dye-Chemb v. Collector of Central Excise 2000 (125) ELT 734 (Tri).

15 123 It was laid down by the Tribunal that charges of clandestine removal based only on private records maintained by workers for their own purpose not sustainable when consumption of raw material to produce goods alleged to be clandestinely removed not actually proved and the fact of clandestine removal not otherwise established,34 The New Delhi Tribunal laid down in the Kashmir Vanaspati case35 that notebook maintained by labourers containing un-authenticated entries and over writings not a dependable record to establish clandestine removal unless some supported by other evidence such as raw material consumed, goods actually manufactured and packed etc; There many of the entries were not authenticated by the signature of anybody. There is over-writing in the entries without proper attestation and the note book was maintained by the labourers and not personally by the contractor working with the appellant. It was held that this is not a dependable record to establish clandestine removal of vegetable products manufactured by appellant unless the same is supported by other evidence, such as raw material consumed, goods actually manufactured and packed etc.'16 If the record is maintained by the supervisors of assessee s factory and the same record is indicating only day to day production and despatch of the goods. The goods 4 Bearing Manufacturing Company v. Commissioner of Central Excise Vadodra 2000 (123) ELT 1148 (Tri). 3? Kashmir Vanaspati (P) Ltd, v. Collector of Central Excise 1989 (39) ELT 655 (Tri). -

16 124 were sent to cold storage room for solidification and not removal of these goods from the factory. And the statements recorded, related to, of Directors and Supervisor is not incriminating at all. It cannot 37 be held that there was a clandestine removal of the goods. In the same series of cases, on the same point, New Delhi Bench held that burden of proof of clandestine removal is always on the Department Central Excise Department raised a demand based on the allegation that the appellant had clandestinely removed the molasses. There was no record in proof of such allegation, nor there was any finding of clandestine removal either in the order of adjudication in the order passed by the Commissioner (Appeals). Moreover, the appellant is a public sector undertaking. So, it cannot be presumed that an organisation would indulge in clandestine activities. The burden is all the more on the Department to establish the veracity of the allegation of JO clandestine removal. But, in the Superior Steel Product case39 if once it is proved that the gods are moved from the premises clandestinely penal action by the Department can be taken in this regard. If Department has established the case on the basis of number of heats, electricity consumed, raw material purchased, it can make the case fool proof. 37 Ashwin Vanasnati Industries Pvt. Ltd, v. Collector of Central Excise 1992 (59) ELT 175 9Tri). 38 U.P. State Sugar Corporation Ltd, v. Commissioner of Central Excise, Allahabad 2000 (117) ELT 83 (Tri). 39 Superior Steel Products v. Collector of Central Excise. Delhi 1999 (109) ELT 712.

17 125 Looking to the facts and circumstances of the case that there was a register which contained information about heats and the admission of the appellants as to production per heat, the quantity had been calculated. This production is supported by more consumption of electricity. The technical literature of ingots and castings of one ton in induction furnace, 650 units of electricity are consumed. Further also, the Department is also able to show that sufficient raw material had been procured by the appellants which was not shown in the records and which was used for clandestine manufacture and clearance of ingots/castings. This evidence is sufficient to show that product was being manufactured clandestinely and removed clandestinely and transactions thereof were being recorded in the private records and the amount received was recorded in the private 40 registers. If the version of the RG-I register and the stock of the business premises are different, it cannot be established that there was a clandestine removal of the goods or there was preparation of the goods to remove clandestinely. Only penalty can be imposed for the non-maintaining of the accounts. As the goods is still lying in the premises of the assessee and there is no attempt so far, proved by the Department. So, it can be held only the imposition of penalty is justified Ibid. Balls and Cylpebs Ltd, v. Collector of Central Excise, Allahabad 1997 (92) ELT 496 (Tri).

18 126 To prove that there is a removal of goods clandestinely a particular standard has to be accepted. First, it has to be established as a standard. In this case, the authority seems to have principally relied upon the electricity consumption, to work out the probable production. It was argued that electricity consumed may not by itself be sufficient criteria to assess the production. No data is available on record to indicate that ratio of 4.9 L mts. Per unit in one case and 4.87 L. mts per unit in another case, was the standard and not a one time achievement and if the production is worked out only on that basis, there are probabilities that the figures worked out may not be correct one.42 If the Department has recovered octroi receipts from the assessee premise, regarding the receipt of biris. And the same cannot be rebutted by the assessee it was held43 that there was a clandestine removal of the goods from the contractor. I this case all the octroi receipts were in the name of the appellant company. This establishes that the appellant was in charge of the biris at the time of passing through the octroi gate. Moreover, only two contractors are available in the municipal area and their biris need not pass through octroi gates. Those biris which are recorded in excess of the octroi. This possibility cannot be ruled out. Therefore, the biris covered under the octroi receipts for which there are no corresponding transit notes, prima facie reveals that these biris have 42 Padamanabh Dyeing & Finishing Work v. Collector of Central Excise 1997 (90) ELT 343 (Tri). 43 A.N. Guha & Co. v. Collector of Central Excise 1996 (86) ELT 333 (Tri).

19 127 been received by the appellant and they were clandestinely removed by them. It is noted in 79 instances, the transit notes as well as the octroi receipts tallied but in the other cases there was no corresponding transit notes with respect to the octroi receipts which was seized from the possession of the Appellants.44 In the Kamal Plywood case45 it was laid down that cutting, over writing, alterations and corrections in respect of entries relating to production of block-boards in the relevant production slips although creating a suspicion about correct production of items but it does not establish that the clandestine removal is made. Though the correction over-writings in respect of entries relating to the production of block board in these slips create a suspicion about the correct production of items not having been reflected in the production slips, these alterations/corrections only give rise to doubt/suspicion and cannot be taken as conclusive evidence of the items having been produced on the relevant date in excess of the quantity shown in the relevant production slips and clandestinely removed without payment of duty. In absence of any other evidence, it cannot be held that these goods are removed clandestinely Kamal Plywood & Allied Industries (P) Ltd, v. Collector of entral Excise Meerut 1996 (82) ELT 323 (Tri). See also Pratibha Silk Mills Suratb v. Collector of Central Excise 1989 (39) ELT 118 (Tri). Ibid.

20 Excess consumption of raw material is no evidence of clandestine removal of the goods. It was held47 by the Calcutta Tribunal that department made the case on strict assumption that not more than 40% of Sulphuric Acid of the Super Phosphate manufactured can be consumed. This assumption cannot be very strictly applied. It was observed that different consumption is there for different batches and for different months. Demand entirely is made on assumption and inferences drawn on the basis of excess consumption of Sulphuric Acid, which is wrong because there is no other corroborating evidence related to it.48 The Bombay High Court held49 that if the removal of the goods is in the knowledge of the Central Excise authorities already then it cannot be held that there is a clandestine removal of the goods. It was held that when the petitioners filed the classification lists from time to time setting out the process of manufacture and percentage of cotton and twinkling nylon yarns in the weff yarn in the ratio of 82% and 18% respectively and obtained the permission to avail of the special procedure set out in Rules 96A, 96L and 96 V of the Central Excise Rules 1944 (old rules), it was sufficient disclosure of the relevant facts. The Court observed that in these 47 Phosphate Company Ltd, v. Collector of Central Excise Calcutta 1995 (80) ELT 579 (Tri). See also Roy Biri Factory v. Collector of Central Excise and Customs 1992 (59) ELT 584 (Tri). 9 Union of India v. Piramal Spinning and Weaving Mills Ltd (31) ELT 618 (Bom).

21 129 circumstances, removal of goods could not be termed as clandestine removal of the goods.50 It is now settled law that sub rule (2) of Rule 9 applies to those cases only where the manufacturer was guilty of removal of excisable goods without payment of duty. But, if the goods were removed either under bonafide belief that they were not excisable or under intimation to the Department with their consent and approval, then such removal was beyond the penal provisions of Rule 9(2) of the Central Excise Rules It was held in the Sulara Chemicals Ltd. Case52 that confiscation of goods in excess of the recorded balance not sustainable in absence of any evidence on record that such goods intended to be removed without duty. Further it was held that demand of duty based on consumption of raw material and consequent assumption of clandestinely removal not sustainable. 4. Requirement and Pre-Requisite for Search and Seizure The Central Excise Act 1944 is not a complete Code for search and seizure. It does not provide any complete and effective machinery for conducting search and seizure. Section 18 of the Act only provides that all searches should be made in accordance with Ibid. Aggarwal Pesticides & Chemical Industries v. Union of India and Others 1988 (33) ELT 681 (All). Sulara Chemicals (P) Ltd, v. Commissioner of Central Excise Bolpur 2002 (145) ELT 230 (Tri).

22 130 the provisions of the Code of Criminal Procedure.33 Rule 201 (old rule) of the Central Excise Rules 1944 empowers, the authorised officer to enter and search any premises, conveyance or other place but this rule does not specifically empower such concerned officer to effect a seizure. Section 12 of the Central Excise Act 1944 empowers the Central Government to enforce the provisions of the Customs Act to the Central Excise also. In exercise of such powers the Central Government had issued Notification No. 68/63 dated modifying and extending application of various Sections of Customs Act 1962 to Central Excise matters. These Sections are 105 (1), 110, 115 [excluding Clauses (a) and (e) of Sub Section (1)], Clause (a) of Sections 118, 119, 120, 121, 124 and Clause (b) of Sub Section (1) of Section 142 relating to search, seizure, confiscation and recovery of sums due to Government. One of the most important pre-requisite is that the seizing officers must have a reason to believe that violation of law has in all probability taken place or is likely to take place, That apart the grounds on which the seizure is proposed to be made or is made should be clear and tangible and must be made known to the person concerned at the time of seizure itself. Search and seizure cannot be made merely on the suspicion itself Act No. 2 of See Appendix C. Shree Baidvanath Ayurved Bhavan (P) Ltd, v. Collector of Central Excise 1990 (50) ELT 553 (Tri).

23 131 Beside this Central Excise Officer can search any premises under Rule 197, 200 and 201, (old rule) as a matter of general practice but for conducting searches on unlicensed premises suspected to be used for growing, manufacturing or storage of excisable goods, a search warrant has to be obtained from the Assistant Collector under Section of the Customs Act, 1962 as made applicable to Central Excise matters under Section 12 of the Central Excise Act Furthermore, the search warrant has to be served on the person-in-charge of the premises by showing the same to him and obtaining his signature on the body of the warrant in token of having done the same. A list of things seized is also required to be prepared in triplicate and all copies have to be signed by the witnesses attending the search, the owner or person in charge of the premises searched and the officers who conducted the search. Duplicate copy of the search list is to be given to the owner or the person in charge of the premises and his acknowledgement obtained on the triplicate copy of the search list.57 It was held by the Rajasthan High Court that search and seizure besides being an inroad on fundamental right of citizen adversely effects his reputation and is bound to bring him disrepute and paralyze his business. Therefore, while exercising such See Appendix D. Supra n. 2 at 1294.

24 132 powers, the authorities should be rather careful and cautious and 58 must exercise them strictly under an authority of law. 5. Inspection vis-a-vis search Inspection is different from search. To find the authenticity and genuineness of RT-12 if some inspection is carried out by the officer concerned in the factory premises or in the manufacturing unit, it does not tantamount to search. The inspection of licensed premises or making of a physical verification of the stocks in order to satisfy about the truth of the information under Rule 197 (old rule) cannot be said to be a search. Application of the provisions of the Code of Criminal Procedure arises only when the premises is searched and not inspected.59 There is no need to obtain the search warrant from the Assistant Commissioner for inspection of the unit. 6. Illegal Search and Seizure and Consequences Thereof The Supreme Court in the Rehman s case60 held that the object of the search under the Act is only to ascertain whether there is contravention of the provisions of the Act or the Rules. Rule 201 (old rule) enables the authorised officer to make a search only for the investigation of an offence. The power of search given under the Code of Criminal Procedure is incidental to the conduct of ]8 Bawa Gopal Pass Bedis v. Union of India 1982 (101 ELT 351 (Rai.) 9 S.Y. Modagekar & Sons v. Commercial Tax Officer 1978 (4lj) STC 298 (Kar). 60 State of Rajasthan v. Rehman AIR 1960 SC 210.

25 133 investigation which the police officer is authorised by law to make. Searches made by a police officer during the course of an investigation of a cognizable offence can properly be approximated with the searches to be made by the authorized officer under Rule 201 (old rule) of the Rules for, in the former case, the police officer makes a search during the investigation of a cognizable offence and in the latter case the authorised officer makes the search to ascertain whether a person contravened the provisions of the Act or the Rules, which is an offence. The Legislature, by stating in Section 18 of the Act that the searches under the Act and the Rules shall be carried out in accordance with the provisions of the code relating to searches, clearly indicated that the appropriate provisions of the code shall govern searches authorised under the Act and Rules. Therefore, the provisions of Section 165 of the code must be followed in the matter of searches under Rule 201 of the Rules. Section 165 of the code lays down various steps to be followed in making a search. The recording of reasons is an important step in the matter of search and to ignore it is to ignore the material part of the provisions governing searches.61 As regards to the material collected during the searches which are held illegal, the different views are expressed by the different courts. Even the Supreme Court itself has given the contradictory views on this point. Some time it declared the 61 Ibid.

26 134 material collected during the illegal search is valid and admissible in evidence but some time not,62 In the Rehman s ease the Supreme Court has held that assuming that the search and seizure are illegal, it does not necessarily follow that the material collected as a result of that search and seizure could not afford evidence for reaching to conclusion. But later on, the Supreme Court took the separate view that because of illegality of search, the court may be inclined to examine carefully the evidence collected during an illegal search.6* The Kerala High Court has given the opinion that the mere circumstance that there was an infirmity or illegality in the matter of non-compliance with the provisions of Section 165 of the Code of Criminal Procedure would not, by itself, invalidate the entire proceedings which resulted in the conviction of the party on the basis of the materials discovered in the course of search. In this case, the oil godown of the appellant was searched by the Central Excise Officers on the basis of powers conferred on the officers under Rule 201 (old rule) of the Central Excise Rules 64 On the same point, the Kerala High Court again held that illegality of search will not affect the validity of the seizure of goods nor will it vitiate the recovery of the articles or the subsequent trial.63 It was further held that illegal search does not affect validity of seizure or 62 Ibid. 63 Radhakrishan v. State of U.P. AIR 1963 SC United Oil Mills v. Collector AIR 1963 Ker Assistant Collector v. Wilfred Sebastian 1983 (121 ELT 122.

27 135 subsequent trial.66 But, as far as, the adjudication proceedings are concerned, if the search is declared illegal due to non compliance of the provisions of the Section 165 of the Code of Criminal Procedure, it cannot be continue.67 In this series of contradictory opinions as regard to illegal search the Constitutional Bench of the Supreme Court consisting of five judges, held that every article during an illegal search must be 0 returned to the party concerned. The Tribunal laid down69 that if the seizure Memor or Mahazar is not properly prepared it will not vitiate the search because it is not a mandatory requirement. It was further stated by the Tribunal that a Mahazar is a contemporaneous document evidencing seizure. The mere fact that the averment in the Mahazar that the seizure was on the reasonable belief that they would be useful to them for proceeding under Customs Act 1962 will not detract from the acceptability of the Mahazar. Even, if, Mahazar suffers from any infirmity, it is settled law that the same would not nullify or invalidate the recovery much less the 7n authority s order of adjudication S. Nagaraian v. Vasantha Kumar 1988 (34)ELT- 571 (Ker). Nirma Chemical Works v. Union of India 1981 (8) ELT 617 (Guj). Commissioner of Commercial Taxes v. Ram Krishan Shri Krishan Jhaver AIR 1968 SC 59. Manjit Singh Chandoke v. Collector of Customs, Bombay (26) ELT 649 (Tri). Ibid.

28 136 If, there is some illegal search which is committed by the Central Excise Officers without observing the provisions of the Code of Criminal Procedure apd there is resistance and obstruction to such search being made, by manufacturer, then it will not be an offence and such a search will tantamount to trespass.71 9 In the Thakur Tanti case illegal search was conducted by the police officer and the police officer was assaulted by the person in charge of premises. But the assaulter was not convicted under the various provisions of the Indian Penal Code as the search was in contravention of the provisions of Section 165 of the Code of Criminal Procedure. It was further held that the proceeding can be initiated for damages also. The Patna High Court further held that to prove a charge of causing obstruction to a public servant in order to prevent him discharging his duties, it must be shown by the prosecution that the public servant was discharging his duties lawfully and in accordance with law. During the course of illegal search, if there are allegations that the accused has caused some resistance and injuries even by exceeding the right of private defence slightly, then such act on the part of the accused will not be an offence because the process of search as such was illegal right from the beginning.73 So, it is in their own interest that the officers should not ignore to comply with the requirement of Section 165 of the Code of Criminal Procedure. If, the officer concerned wants to Supra n Thakur Tanti v. State Bihar AIR 1964 Pat Id at 498.

29 137 conduct search and seizure without warrant it would be better to record all the reasons in writing in their record Seizure and its relevant aspects The implication of Notification No. 68/63 which extends the powers under Customs Act 1962 to Central Excise Act 1944 is that Section 110 of the Customs Act, 1962 which has been extended to Central Excise Licensees, empowers the proper officer to seize the goods, if, he has reason to believe that the goods are liable to confiscation under the Central Excise Act or rules made thereunder.75 The Tribunal in the Triputi Cigarettes case laid down that vehicles carrying any contravening goods can also be seized. But no plant and machinery can be seized under this Section. Any document, record or thing which can be useful as evidence in any proceeding under the. Central Excise Act can also be seized. Further, Rule 200 (old rule) of the Central Excise Rules empowers the Central Excise officer to seize any goods or articles while in transit in respect of which it appears to excise officer that the duty has not been paid on them. Rule 201 (old rule) empowers the Central Excise Authorities to search any premises but it does not empower them to seize any article. But now the goods can be Ibid. Union of India v. K. Ramula 1980 (6) ELT 24 (AP). Supra n. 5.

30 138 seized under Rule 201 of the Central Excise Rules as power to search includes power to seize. The Tribunal in the H.M.T. Ltd. case77 held that only such goods can be seized which in the opinion of the Central Excise Officer contravenes the provision of the Central Excise Act. The entire stock of the goods cannot be seized by the Departmental Authorities. The Tribunal held that, if, the manufacturer maintained statutory as well as private records viz. RG-23, Stock Control Card, despatch vouchers etc. The seizure of entire stock cannot be made. The seizure of the entire stock found in the unit on the basis of the excesses detected is harsh and unjustified for the reason that the units admittedly maintain statutory RG-23 account and stock control card for the materials received and also in view of the fact that the manufacturer were maintaining desptach vouchers showing indigeneous and imported and brought out components identifiably by stock numbers. In this regard it is important to note that seizure must be physical not symbolic. The seizure contemplated under the Excise Act must be both actual and physical and not fictional or symbolic. Seizure must always be according to the provisions of the law and by the officers empowered in this regard. 77 H.M.T. Ltd. Watch Factory and Others v. Collector of Central Excise Bangalore 1987 (32) ELT417A (Tri). 78 Ibid.

31 139 In the Ramula case79 it was held that on scrutiny of the account books and evidence adduced before him, a Central Excise officer comes to the conclusion that the licensee had contravened the provisions of the Central Excise Act and evaded payment of duty during the relevant period. It can be said that the Central Excise Officer had reason to believe that the goods were liable for confiscation he can seize such goods. But where it is not practicable to seize any goods because of their size, nature or for any other reason, the Central Excise Officer can serve the Detention Memo to the owner of the goods and thereafter, such owner cannot remove the goods without the permission of the Central Excise Officer. These provisions are embodied in Section 110 (1) of the Customs Act 1962 and are applicable to Central Excise also. Once the prohibitory order is issued by the Central Excise officer, it cannot be removed without permission of the authorities. This means the goods are in Custodia Legis No seizure based on technical grounds If the violation of the rules is purely technical in nature and the mistake committed by the Assessee on the face of it is not malafide and there is no evidence of any intention to evade payment of duty, it may be sufficient to book an offence and impose penalty (if necessary) without actually effecting a seizure of the goods involved. The decision as to whether seizure should be Supra n. 75. Shanti Lai Mehta v. Union of India 1983 (14) ELT 1715 (Del).

32 140 affected or not a particular case will have to be made after taking into the consideration the circumstances of a case in their totality and not merely on the basis of one or two factors in isolation. The Central Board of Excise and Customs have issued the notification No. 207/37-M/77-CX-6 dated in which some illustrations were given on which the seizure can not be made. (i) Removal of goods which have been entered in the production records under cover of proper gate pass but without making a corresponding debit entry in P.L.A. provided there is adequate credit balance in P.L.A. (ii) Goods produced which have been entered in the production records and have been packed but not transferred to the storeroom and are lying in the finishing packing section and the fact has been mentioned in the production record also. (iii) Goods which have been duly accounted for in the production record and entered in the store room but have to be removed out of the store room with a view to avoid damage being caused to them by factors beyond the control of the licensee, for example, a leaking roof or wall collapse due to excessive rainfall etc. (iv) Non submission of RT-12 return.

33 141 (v) Non submission of classification list/price lists not involving evasion of duty. (vi) Removal of goods for loading in a vehicle outside the factory premises where the gate pass has been duly mae out but not actually delivered to the carrier, when there is reason to believe that loading was taking place outside the factory as the vehicle could not be taken into the licensed premises. (vii) Delay in sending intimation regarding cancellation of gate pass, or receipt of duty paid goods, provided necessary entries have been made in all the relevant records, and marks and numbers of the goods/packages tally with the entries in the relevant documents. (viii) Goods whose classification as non-excisable or non-dutiable has been has been approved, but subsequently a doubt has arisen in the mind of the departmental officer about their correct classification, and a revision of the classification list might be called for. (ix) When goods hereto treated as fully exempted/non-excisable are subsequently treated dutiable as a result of classification issued by the Board/Collector unless the assessee does not start paying duty even on receipt of intimation from the Range Officer regarding the duty liability of the goods, or in the absence of such intimation, does not start following the

34 142 normal excise procedure including payment of duty within a reasonable time after issue of the Trade Notice by the Collector. (x) Goods manufactured without a Central Excise Licence where the proper officer has a doubt about their excisability/duty liability. In such a case, the manufacturer should be asked to take out a licence and pay duty on further clearances. However, there is no objection in accepting a declaration from the manufacturer to the effect that he is taking out a licence but paying duty under protest without prejudice to his claim. He may then be allowed to clear the goods on provisional basis under Rule 9B pending finalisation of the dispute. (In such a case, seizure of the goods may not be resorted to). a t The Tribunal in the Shree Hari Fabric Limited case held that as far as the Panchnama is concerned related to the recovery of the documents or goods which conducting search and seizure, there is no requirement of law that person from whom the goods are seized must sign Panchnama. If that is so, proceeding can be frustrated by refusal to sign it. It does not effect on the validity of Panchnama whether it is signed or not signed by the person on whom search and seizure is conducted. 81 Shree Hari Fabrics Limited v. Commissioner of Central Excise Mumbai 2001 (132) ELT 278 (Tri).

35 143 No hard and fast rule is provided under the statute for effecting seizures. Some illustrations are like this. When there is no intent to evade payment of duty and if there is only violation of rules invoking technicalities, seizure should not be effected. It may be sufficient to book an offence case and impose a penalty, if necessary. (a) Manufactured goods entered in production records are packed but not transferred to the BSR the fact of which has been mentioned seizure is unwarranted. (b) Non-submission of RT-12 in time, failure to make debit entry in Personal Ledger Account (if adequate balance is there) also do not warrant seizure. (c) If the BSR goods are removed out of it to avoid damage due toa leaking roof, excessive rainfall or wall collapse (the factors beyond one s control) no seizure should take place. 9. Confiscation of Excisable Goods The goods in respect of which any contravention of the Central Excise Rules has been committed, are liable to confiscation under the provision of Central Excise Act and Central Excise Rules, in addition to other penalties. The power to confiscate goods can be exercised when it is proved that the duty on the goods has not

36 144 been paid. Only if there is contravention related to duty paid goods then penalty can be imposed. In the provision the words should be liable to confiscation is used, it means that goods must invariably be confiscated though in most of cases of confiscation, where there is no evidence of evasion of duty and there is no documentary proof that duty has been paid, confiscation should not be there. This provision is made only to meet the cases of evasion of taxes and not to impose penalty. Rule 173Q and 209 (old rules) are the relevant provision for confiscation. (Now Rule 25 of Central Excise Rule 2002).82 O 1 The Orissa High Court laid down that the logic behind the confiscation is to take the offending goods by the Government, the proceeding of confiscation is in rem. The owner of the goods is deprived of the property and it is appropriated in the public use. This provision is penal provision and it should be construed strictly. The principles of natural justice should also be followed like giving the opportunity to hear. If notice is not served to the person in charge of goods or the owner of the goods, the proceeding can be vitiated by the court and moreover it is void ab initio. As discussed in the preceding chapter initial period of six months provided in Section 110 (2) of the Customs Act 1962, expired without having been given by notice under Section 124 (9), the concerned person will be entitled to the return of the goods.84 " See Appendix D. 8j Nathu Ram Aggarwal v. Dy. Collector 1982 ECR 896 (Ori). 84 Ibid.