1967 (8) TMI 37 - SC - Income Tax

Supreme Court Upholds Return of Seized Items, Clarifies Search Warrant Requirements

Commissioner Of Commercial Taxes And Others Versus Ramkishan Shrikishan Jhaver And Others

The Supreme Court upheld the High Court's decision to return seized items while differing on the interpretation of Section 41(2) and the constitutionality ... Whether sub-section (4) of section 41 of the Act can be upheld read along with the second proviso thereof? Whether sub-sections (2) and (3) of section 41 of the Act which have been struck down by the High Court on the ground that they are unreasonable restrictions on the right to hold property and to carry on trade have been correctly struck down? Held that:- Clearly it is clause (a) in the proviso which under the circumstances must fall, for we cannot hold that the entire Act must fall because of this inconsistency with respect to recovery of tax under clause (a) of the second proviso even before the taxable event occurs in the large majority of cases which would be covered by the Act. We are therefore of opinion that clause (a) of the second proviso being repugnant to the entire scheme of the Act, in so far as it provides for recovery of tax even before the first sale in the State, which is the point of time in a large majority of cases for recovery of tax, must fall on the ground of repugnancy. Considering the fact that the legislature added this cornpulsory proviso later, it is clear that the legislature intended that the main part of the section and the second proviso should go together. It is difficult to hold therefore that after the introduction of the second proviso in 1961, the legislature could have intended that the main part of sub-section (4) should stand by itself. We are therefore of opinion that sub-section (4) with the two provisos must fall on this narrow ground. We therefore agree with the High Court and strike down sub-section (4) but for reasons different from those which commended themselves to the High Court. Cannot agree with the High Court that sub-sections (2) and (3) of section 41 of the Act are unreasonable restrictions on the right to hold property or carry on trade for reasons indicated. We are of opinion that they are reasonable restrictions which are protected by clauses (5) and (6) of article 19 of the Constitution. Thus the final order of the High Court allowing the writ petitions must stand, though we do not agree with the interpretation of the High Court with respect to sub-section (2) and the finding of the High Court that sub-sections (2) and (3) are unconstitutional on the ground of their being unreasonable restrictions on the right to hold property and to carry on trade. Appeal dismissed. Issues Involved:1. Authority of officers under Section 41 of the Madras General Sales Tax Act.2. Legislative competence of the State Legislature under Item 54 of List II of the Seventh Schedule to the Constitution.3. Constitutionality of Section 41 in light of Article 19(1)(f) and (g) of the Constitution.4. Validity of search warrants issued by Magistrates.Issue-wise Detailed Analysis:1. Authority of Officers under Section 41 of the Madras General Sales Tax Act:The main contention was whether Section 41 of the Madras General Sales Tax Act authorized officers to search premises and seize goods and documents. The High Court had held that Section 41(2) did not allow for searches, only inspections. However, the Supreme Court disagreed, stating that the power to inspect accounts, goods, and premises inherently includes the power to search. The Court reasoned that the empowered officer's right to enter and inspect premises for accounts and goods implies the authority to search these premises. The proviso to Section 41(2), which refers to searches, further supports this interpretation.2. Legislative Competence of the State Legislature under Item 54 of List II of the Seventh Schedule to the Constitution:The respondents argued that Section 41(4), which allows for the seizure and confiscation of goods, was beyond the legislative competence of the State Legislature under Item 54 of List II, which pertains to taxes on the sale or purchase of goods. The Supreme Court acknowledged that while the legislature has the power to enact provisions to prevent tax evasion, the specific provision in Section 41(4) was problematic. The second proviso to Section 41(4) required the officer to recover tax even before the taxable event (first sale) occurred, which was repugnant to the scheme of the Act. Consequently, Section 41(4) was struck down as it was inconsistent with the Act's overall framework.3. Constitutionality of Section 41 in Light of Article 19(1)(f) and (g) of the Constitution:The High Court had found that Sections 41(2), (3), and (4) were unconstitutional as they imposed unreasonable restrictions on the fundamental rights under Article 19(1)(f) and (g). The Supreme Court, however, held that Sections 41(2) and (3) were reasonable restrictions. The Court emphasized that searches under Section 41(2) must comply with the provisions of the Code of Criminal Procedure, particularly Section 165, which provides safeguards such as recording reasons in writing and specifying the items to be searched. These safeguards ensure that the power to search and seize is not arbitrary, thus making the restrictions reasonable.4. Validity of Search Warrants Issued by Magistrates:The High Court had invalidated a search warrant issued by a Magistrate for the search of a residential house, noting that the Magistrate had not applied his mind, as evidenced by unstruck columns and unfilled gaps in the printed form. The Supreme Court upheld this finding, emphasizing that a search warrant must reflect the Magistrate's application of mind. Consequently, any search conducted under such a defective warrant was invalid, and the items seized during such a search had to be returned.Conclusion:The Supreme Court dismissed the appeals, upholding the High Court's order to return the seized items. However, the Supreme Court differed from the High Court on the interpretation of Section 41(2) and the constitutionality of Sections 41(2) and (3), finding them to be reasonable restrictions. The Court struck down Section 41(4) due to its inconsistency with the Act's scheme. Each party was ordered to bear its own costs.