Court clarifies exemption from excise duty, lawful search procedures, and return of seized goods

The Court held that the goods manufactured by the petitioners are not automatically exempt from excise duty, requiring a factual investigation. Reasons existed for conducting the search, approved by the empowered officer. Personal recording of reasons by the officer was not mandatory. Approval from the Director General, Central Excise Intelligence was not necessary for the search. While the search of some units was valid, the search of one unit was deemed illegal, necessitating the return of seized goods. The Department was directed to consolidate proceedings and decide on excisability after hearing the petitioners' objections.

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Issues Involved:
(i) Whether the goods manufactured by the petitioners are exempt from excise dutyRs.
(ii) Whether there is any reason to believe for conducting the searchRs.
(iii) Whether the reasons should be personally recorded by the empowered officerRs.
(iv) Whether the approval for search was to be obtained from the Director General, Central Excise Intelligence (DGCEI)Rs.
(v) Whether there was no application of mind for ordering searchRs.

Detailed Analysis:

1. Whether the goods manufactured by the petitioners are exempt from excise dutyRs.

The petitioners claimed that their product, Kattha, manufactured from Gambier, is exempt from excise duty as per the exemption notification dated 10-2-1986, which was amended on 1-3-2003 to exclude Gambier. The Department disputed this claim, leading to searches and subsequent notices requiring the petitioners to register their product under chapter sub-heading 1301.10. The Court held that the question of excisability requires an investigation into facts, which cannot be addressed in writ jurisdiction. The Department must adopt a consistent approach nationwide regarding the treatment of Kattha manufactured from Gambier. The petitioners were directed to present their objections and evidence before the Department, which should consolidate the proceedings and decide the matter through a reasoned order.

2. Whether there is any reason to believe for conducting the searchRs.

The Court confirmed that reasons to believe must exist and be relevant before a search is ordered. The Department produced records showing that doubts about the excisability of the petitioners' product existed even before the amendment of the exemption notification. A note by the Superintendent on 22-3-2003 cited multiple reasons, including clarifications from the Food and Adulteration Department and ISI specifications, indicating that the product from Gambier is not Kattha and is liable for excise duty. The empowered officer approved the search based on these reasons. The Court found the reasons to be relevant and existing prior to the search order.

3. Whether the reasons should be personally recorded by the empowered officerRs.

The petitioners argued, citing the Ramkishan case, that the empowered officer must personally record the reasons for the search. However, the Court distinguished this case from the Ramkishan case, noting that the latter dealt with the constitutionality of a different statute. The Court referred to the Gopikishan case, which held that the conditions of Section 165 CrPC do not apply to searches under the Customs Act, and by extension, the Excise Act. The Court concluded that it is sufficient for the empowered officer to approve the reasons recorded by another officer, provided there is evidence of application of mind.

4. Whether the approval for search was to be obtained from the DGCEIRs.

The petitioners contended that approval from the DGCEI was required for the search, as indicated in the Superintendent's note. The Court clarified that the note referred to informing the DGCEI to cover similar units nationwide, not for the search approval itself. The Court found no requirement for DGCEI approval for the search conducted by the Department.

5. Whether there was no application of mind for ordering searchRs.

The petitioners argued that the search order was a general one without specific application to individual units. The Court found that the Superintendent's note named three specific units, and the empowered officer approved the search for these units. However, there was no specific approval for searching Kanchan Udyog. The Court held that the search of M/s. N.K. Laminates and Brij Kattha Industries was valid, but the search of Kanchan Udyog was illegal. The Department was directed to return the seized goods and documents of Kanchan Udyog, retaining photocopies for use in proceedings.

Conclusions:

(a) The reasons to conduct the search existed and were relevant.
(b) The empowered officer need not personally record the reasons but must approve them.
(c) The search of M/s. N.K. Laminates and Brij Kattha Industries was valid; the search of Kanchan Udyog was illegal.
(d) The Department must return the goods and documents seized from Kanchan Udyog but may keep photocopies.
(e) The petitioners should appear before the relevant officers to present their objections and evidence, and the Department should consolidate the cases and decide the excisability issue through a reasoned order.

The writ petitions were disposed of with these observations.

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