2019 (5) TMI 655 - HC - Central Excise

Court upholds legality of search by DGGSTI, dismissing petition challenging jurisdiction and procedural irregularities.

The court dismissed the writ petition challenging the search conducted by DGGSTI at the petitioner's premises, holding it was justified and within ... Search and seizure under Section 12F and Section 18 of the Central Excise Act, 1944 - application of Section 100(4) and 100(5) Cr.P.C. to search operations - reason to believe as threshold for authorising search - seizure versus resumption of documents and required inventory/marking - continuation of pre existing proceedings and saving under Section 174 of the Central Goods and Services Tax Act, 2017 - judicial review limited to prima facie justification of officer's belief; mistakes/irregularities not vitiating bona fide searchSearch and seizure under Section 12F and Section 18 of the Central Excise Act, 1944 - application of Section 100(4) and 100(5) Cr.P.C. to search operations - reason to believe as threshold for authorising search - seizure versus resumption of documents and required inventory/marking - judicial review limited to prima facie justification of officer's belief; mistakes/irregularities not vitiating bona fide search - Validity of the search and seizure conducted at the petitioner's premises on 27.08.2017 - HELD THAT: - The Court held that the legality of a search is to be examined by reference to whether there were prima facie grounds justifying the officer's belief, not by substituting the court's own view of adequacy of reasons. The material placed on record - antecedent intelligence, prior simultaneous searches on 30.01.2017 and investigative acts including statements and electronic evidence - furnished sufficient basis for the formation of reason to believe under Section 12F read with Section 18 of the Central Excise Act, 1944 and the provisions of Section 100 Cr.P.C. The Court accepted that certain procedural irregularities existed in the panchnama (use of the word 'resumed' at places, non sealing, non pagination, inadvertent blanks, description as photocopies), but held that an error in seizing documents which may ultimately prove irrelevant will not, by itself, vitiate the search where the officers acted bona fide. The possibility that some original title deeds were seized and later returned does not negate the prima facie justification for the search; seized documents will undergo scrutiny in subsequent prosecution and the court will not apply an over fastidious legal microscope at this stage. Consequently the challenge that the search was arbitrary, malicious or wholly without jurisdiction was rejected.Search and seizure at the petitioner's premises on 27.08.2017 upheld as not arbitrary or illegal; procedural irregularities did not vitiate bona fide action.Continuation of pre existing proceedings and saving under Section 174 of the Central Goods and Services Tax Act, 2017 - jurisdiction to carry out searches after commencement of CGST Act, 2017 - Whether the search on 27.08.2017 was without jurisdiction because the Central Goods and Services Tax Act, 2017 came into force on 01.07.2017 - HELD THAT: - The Court found that the search and seizure on 27.08.2017 were a continuation of proceedings which had been commenced prior to the enforcement of the Act of 2017 (notably the simultaneous searches conducted on 30.01.2017). In that factual matrix the Court held that the impugned action could be treated as part of the continuing investigation and accordingly was not barred by the coming into force of the Act of 2017. The contention that officers appointed under the Act of 2017 could not act under the erstwhile Act was not accepted on the facts, since the proceedings were in continuation of pre existing investigations and saved by the transitional provisions relied upon by the respondents.Challenge based on the commencement of the Act of 2017 rejected; impugned search treated as continuation of prior proceedings and not without jurisdiction.Return of seized documents and redundancy of prayer for their return - Whether prayer for return of seized original documents survives - HELD THAT: - The Court recorded that the documents sought to be returned in prayer clause (B) had already been handed over to the petitioner pursuant to an earlier order and receipt acknowledged. Consequently that relief no longer survived to be adjudicated. As the principal writ petition was dismissed on merits, earlier interim directions merged with this final judgment.Prayer for return of documents rendered infructuous as documents were returned; related interim order merged with final judgment.Disposition of review petitions upon dismissal of main writ petition - Fate of Review Petition Nos. 269/2018 and 270/2018 seeking review of earlier order directing departmental action against officers - HELD THAT: - Because the main writ petition was dismissed on merits by the Court's final judgment, the earlier Division Bench order of 09.08.2018 (which was the subject of review) merged into the final decision. The Court therefore disposed of the review petitions as not requiring separate determination on merits.Review Petitions Nos. 269/2018 and 270/2018 disposed of as merged with the final judgment dismissing the main writ petition.Final Conclusion: Writ Petition No. 2031/2018 dismissed on merits; the search and seizure conducted on 27.08.2017 upheld as not arbitrary or without jurisdiction, the return of documents prayer rendered infructuous, and the review petitions disposed of as merged with the final judgment. Issues Involved:1. Legality of the search conducted by DGGSTI at the petitioner’s premises.2. Return of the documents seized during the search.3. Jurisdiction of officers under the Central Excise Act, 1944 post-GST implementation.4. Validity of the search authorization and adherence to procedural requirements.5. Relationship between the petitioner and Mr. Natwar Lal Sharda.6. Relevance and handling of the seized documents.7. Malafide intent and arbitrariness of the search action.Detailed Analysis:1. Legality of the Search Conducted by DGGSTI:The petitioner argued that the search conducted on 27.08.2017 was arbitrary, malicious, and illegal, claiming it violated the Central Excise Act, 1944, and was conducted without jurisdiction. The respondents countered that the search was based on intelligence indicating evasion of central excise duty by an unregistered factory linked to Mr. Natwar Lal Sharda, a director in the petitioner company. The court held that the search was justified, as the respondents had sufficient material to form a 'reason to believe' under Section 12F read with Section 18 of the Act of 1944 and Section 100(4)(5) Cr.P.C.2. Return of the Documents Seized:The petitioner sought the return of all documents, including original sale/title deeds seized during the search. The court noted that all documents had been returned to the petitioner as per the court's order dated 26.09.2018, and thus, this issue did not survive for further consideration.3. Jurisdiction of Officers Under the Central Excise Act, 1944 Post-GST Implementation:The petitioner contended that the officers appointed under the Central Goods and Services Tax Act, 2017 (Act of 2017) could not exercise powers under the Act of 1944 post-GST implementation. The court rejected this argument, stating that the search and seizure were part of ongoing proceedings initiated before the enforcement of the Act of 2017, thus falling within the scope of Section 174 of the Act of 2017.4. Validity of the Search Authorization and Procedural Requirements:The petitioner argued that the search authorization was invalid due to procedural lapses, such as not sealing the documents and not recording the number of pages. The court held that minor procedural irregularities do not vitiate the search, provided the officers acted bona fide. The use of the term 'resumed' instead of 'seized' in the panchnama did not invalidate the search.5. Relationship Between the Petitioner and Mr. Natwar Lal Sharda:The court acknowledged the close connection between the petitioner company and Mr. Natwar Lal Sharda, noting that he was a director in the petitioner company and related to the director who filed the petition. The court observed that Mr. Natwar Lal Sharda was involved in multiple companies operating from the same premises, justifying the search.6. Relevance and Handling of the Seized Documents:The petitioner argued that the seized documents, including original sale/title deeds, were irrelevant to the investigation. The court found that certain incriminating materials were discovered, indicating Mr. Natwar Lal Sharda's involvement in the alleged illegal activities. The court held that the seizure of documents, even if some were later found irrelevant, did not invalidate the search.7. Malafide Intent and Arbitrariness of the Search Action:The petitioner alleged that the search was conducted with malafide intent and was arbitrary. The court, relying on precedents, held that the belief of the officers conducting the search could not be scrutinized under a 'legal microscope' and that the officers acted bona fide. The court dismissed the writ petition, finding no merit in the allegations of malafide intent and arbitrariness.Conclusion:The writ petition was dismissed, and the court held that the search conducted by the DGGSTI was justified and within jurisdiction. The procedural lapses did not invalidate the search, and the seized documents were relevant to the ongoing investigation. The review petitions were disposed of as the main writ petition was dismissed.