Search & Seizure under mvat Act, 2002

The powers of inspection, search and seizure are necessary
for the purpose of effective administration of taxation laws, like Sales Tax. It
is, therefore, valid as per the Constitution also, subject to reasonable limits.

In Maharashtra, the Bombay Sales Tax Act, 1959 (BST Act) was
in operation till 31st March 2005. The Maharashtra Value Added Tax Act, 2002 (MVAT
Act) has come into operation from 1st April 2005.

Under the BST Act, section 49 was providing for necessary
powers of search and seizure. Similar powers have been provided through section
64 of the MVAT Act. The provisions of both the Acts are almost the same.
Therefore, the precedents and circulars issued in relation to the BST Act will
also remain applicable in that relation to the MVAT Act. At present, there are a
number of search operations. Therefore, the provisions of Search and Seizure are
briefly discussed herein.

“64. Production and inspection of accounts and documents and
search of premises.

(1) The Commissioner may, subject to such conditions as may
be prescribed, require any dealer to produce before him any accounts or
documents, or to furnish any information, relating to stocks of goods of, or to
sales, purchase and delivery of goods or to payments made or received towards
sales or purchase of goods by the dealer, or any other information relating to
his business, as may be necessary for the purposes of this Act.

(2) All accounts, registers and documents relating to stock
of goods of, or to purchases, sales and delivery of goods, payments made or
received towards sale or purchase of goods by any dealer and all goods and cash
kept in any place of business of any dealer, shall at all reasonable times, be
open to inspection by the Commissioner, and the Commissioner may take or cause
to be taken such copies or extracts of the said accounts, registers or documents
and such inventory of the goods and cash found as appear to him to be necessary
for the purposes of this Act.

(3) If the Commissioner has reason to believe that any dealer
has evaded or is attempting to evade the payment of any tax due from him, he
may, for reasons to be recorded in writing, seize such accounts, registers or
documents of the dealer as may be necessary, and grant a receipt for the same,
and shall retain the same for so long as may be necessary in connection with any
proceedings under this Act or for any prosecution:

Provided that, on application of the dealer, the Commissioner
shall provide true copies of the said accounts, registers or documents.

(4) For the purposes of sub-section (2) or
sub-section (3), the Commissioner may enter and search any place of business of
any dealer or any other place where the Commissioner has reason to believe that
the dealer keeps or is for the time being keeping any accounts, registers or
documents of his business or stocks of goods relating to his business.

(5) Where any books of accounts, other documents, money or
goods are found in the possession or control of any person in the course of any
search, it shall be presumed unless the contrary is proved, that such books of
accounts, other documents, money or goods belong to such person.

Explanation: For the purposes of this section, place of
business includes a place where the dealer is engaged in business, through an
agent by whatever name called or otherwise, the place of business of such an
agent, a warehouse, godown or other place where the dealer or the agent stores
his goods and any place where the dealer or the agent keeps the books of
accounts.”

2.2. As per section 64(1), the Commissioner (which also
includes his deputy if so authorized) can call for any information or ask to
produce before him any accounts or documents relating to stock of goods or
sales/purchases, deliveries or any other information relating to the business as
may be necessary for the purpose of the Act. Thus above information, etc. can be
called in any proceedings. Since other information can also be called, even
ledger, cash/bank book, though not specifically mentioned, can be asked for
under the above provision. As per Rule 70 of MVAT Rules, 2005, notice for above
purpose shall be in Form 603.

2.3. As per section 64(2), the Commissioner can take
inspection of the above mentioned accounts or documents kept at any place of
business of dealer at any reasonable time and also take extracts/copies of the
same.

2.4. As per section 64(3), the Commissioner, if he has reason
to believe that the dealer is attempting to evade payment of any tax due from
him, he can seize the above mentioned accounts/documents, etc. He shall grant
receipt for the same. The said accounts can be retained so long they are
necessary in connection with any proceedings under this Act or for a
prosecution.

2.5. As per Rule 69, such seized books cannot be retained for
more then 21 days without recording reasons. However, if any longer retention is
required, and, if the authority seizing the books is below the rank of Jt. Comm.
of Sales Tax, then he can retain the same for a longer period by obtaining
permission from the higher authority. The Joint Commissioner can give permission
only up to one year, at a time, and it should be given after recording reasons
for the same. The time limit can be further extended, but only one year at a
time. However if the seizure is by a Joint Commissioner or any higher authority,
then no such permission is required.

2.6. If any accounts, documents, stocks or money is found at
any such place where visit is given then they shall be deemed to belong to the
person in whose possession they are found, unless the
contrary is proved. [Section 64(5)]. This is with a view to safeguard interest
of Revenue and to see that the dealer does not come out with false excuses.

2.7. By explanation to section 64(5), a Special meaning is
given to the ‘place of business’. Thus the authorities have very wide coverage.

2.8. Reference can be made to the judgment in case of Bhowal
Traders & Others (131 STC 145), wherein Gauhati High Court has held that when
there is no prohibition under the Act for searching the residential premises,
there can be valid search of residential premises also, if there is reason to
believe that the documents are lying there. From the above provisions in section
64(5), it appears that the authorities can search residential premises under the
MVAT Act, provided that other
conditions are fulfilled.

3.     It is expected that a search will be conducted only after having reasonable bonafide belief. (Har Kishandas Gulabdas & Sons – 27 STC 434). Reason for belief should be recorded before hand. (Hari-harajan Singh 98 STC 208 and Tapcon Int. (I) Pvt. Ltd. 104 STC 433).

    ‘Reason to believe’ means that the belief must be of a reasonable nature and as a prudent man. It must be based on some relevant material and not based on suspicions, gossip or rumours [Lit light Co. 43 STC 449 and Shree Nath Singh 82 ITR 147, Bhagwan Ind. Ltd. 31 STC 293, Lakhamani Mewal Das 103 ITR 437 (SC) and Laxman Das Saraf 103 STC 385].

    At all Reasonable Times means that it is normally not allowable for an hour or a day that is not a working hour or a working day respectively, even though the place of business is found open. (Mariyala Venkateswara Rao 2 STC 167). No entry is possible at odd or unearthly hours. (Deoralia Bros. 50 STC 113).

    Under the present provisions under the MVAT Act, there are no powers to seize goods or to ask for making advance payment of tax. The Enforcement authority (i.e. visiting officer), after inspect-ing books, etc., shall assess the dealer on the basis of materials found. As per section 23(5) of MVAT Act, such assessment can be qua transaction also. After passing such order, the tax may become due which then can be recovered as per provisions of law. The dealer can also prefer appeal, if aggrieved. However, practically, dealers are forced to make an advance payment.

Under the present MVAT Act, it is noticed that there are more issues about Input Tax Credit. The department, on the ground, that vendor of the purchaser has not paid taxes, claims the said amount from the purchaser. In fact, such ITC can be reduced only by passing the necessary statutory order. However the department tries to get the ITC difference paid without passing such order and insists upon revi-sion of returns by the dealers themselves. Legally, it appears to be an unjustified action, which the dealer can resist as per the law. The practice is neither justified nor according to the law.

    Documents seized as a result of illegal seizure.

Though search is found illegal, as per the view held by various High Courts, the materials can be used as evidence. [M.K. Annamalai Chetiar & Co. (16 STC 687) Purshottam Rangta 79 STC 39, Poornmal (93 ITR 505) and Kusanlata Singh (185 ITR 56(SC)]. However, it is worth noting that in cases where courts are satisfied about wrongful seizure action, heavy costs can be levied by the court on the De-partment. Reference can be made to judgment in case of Director General of I.T. v. Diamond Stone Export Ltd. & Others (291 ITR 438)(SC).

8. Procedure of Search and Seizure

No procedure for search action is provided in the Act itself. This will be governed by other normal provisions. Enforcement Authorities normally take a statement of the person searched. The person can reply to the extent possible. If he subsequently finds that the statement given by him was not correct or was under duress, he can retract the same. The retraction should be as early as possible. It is also held that admission in the statement is not conclusive. The retracted statement is to be read together to evaluate weight of admission for appreciating evidence. Also admission should be of concerned dealer/person and not of any other person on his behalf. Reference in this respect can be made to the judgment in case of C.I.T. v. Ashok Kumar Soni (291 ITR 172)(Raj).

    The Commissioner of Sales Tax has issued a Trade Circular bearing No.1T of 1995 dated 21.1.95, explaining the rights and duties of the dealer visited by the Enforcement Officer. The said circular will be useful under the MVAT Act also.

    “Mini Enforcement”

Under the MVAT Act, there is one more provision, which is not exactly like search/seizure, but allows the departmental authorities to visit place of business of a dealer. This provision is contained in section 22 of MVAT Act i.e. Business Audit. The business audit contemplates audit of records of a dealer by sales tax authorities at the place of business of the dealer. As per the provisions of law, it has to be by prior intimation and cannot be a surprise visit in the nature of search/seizure.

However, the Commissioner of Sales Tax has issued a Trade Circular bearing No.25T of 2008 dt.23.7.2008, in which the scope of Business Audit is explained. From the said Circular, it is clear that this provision can be treated as relating to search/seizure, if the department wants to do the same. From the above circular, it is also clear that the powers are almost the same as search except that the authorities cannot seize the records. However they can call for the investigation team and convert the ‘business audit’ into ‘search and seizure’ action, ultimately the result will be same. This provision is, therefore, called “Mini Enforcement”.

Conclusion

Though the search/seizure provisions are necessary for effective implementation of the Act, we hope that the same will be utilised in a fair manner and with the utmost care. It should not become a tool in the hands of authorities to harass the dealers.