SERVICE TAX: POWER TO SEARCH

[Dr. Sanjiv Agarwal]

The power to search the premises of the service providers are contained in section 82 of the Finance Act, 1994. This Chapter deals with provisions relating to search and seizure of articles, documents etc, as a consequence of search. 

A search process must satisfy the following requisites:

(a)      There must be reasonable grounds for believing that a serious offence has been committed;

(b)      There must be reasonable grounds for believing that assets possessed by an individual are the fruits of a crime, viz, undisclosed income;

(c)      There must be reasonable grounds to believe that the person in possession of the assets has himself committed the crime or is an accessory to it;

(d)     The seizure of the article or its removal should not be for any longer than is necessary;

(e)      The lawfulness of the conduct of the officers must be judged at the time and not by what happens afterwards. 

The above ideals of a search have, over a period of time, been diluted under the Income-tax Act. This has been in some cases, by a specific amendment to the law. In some others, it has been because of the latitude of the courts in approving transgressions of the due process of law.

 What is meant by Seizure

Seizure is the outcome of search. If any documents are found during the search which need to be seized, the official conducting the search can seize such documents etc. when power to seize exists, the power to release seized items is also implied. Once the investigation is completed, the department may retain or release the seized documents or papers or things. The investigation officer, if establishes that there has been an evasion of tax, notice under section 73 may be issued. 

In case of Service Tax, section 82(1) does not allow seizure of goods or capital goods. It only provides for seizure of documents, books or things. In case of search relating to Service Tax, goods can not be seized. Whenever a seizure is made, list or inventory of seized articles or documents is prepared, popularly known as panchnama, copy of which should be handed over to the person searched. 

Seizure is taking into possession of goods in pursuance of a legal right. In CIT v. Tarsem Kumar 1986 (7) TMI 110 - SUPREME COURT OF INDIA, Apex Court held that seizure implies forcibly taking something from its owner or who has possession and who was unwilling to part with such possession. 

In case of technical violations, no seizure should be resorted to. It is justified only when there is deliberate attempt to evade duties. 

The seized documents which are not relied upon in the show cause notice must be returned. [Prestige H.M. Poly Containers v. CCE 2000 (8) TMI 129 - CEGAT, COURT NO. I, NEW DELHI; Methodex Systems v. Union of India 2000 (1) TMI 61 - HIGH COURT OF MADHYA PRADESH AT INDORE; MM Exports v. Zonal DG FT 2001 (7) TMI 136 - HIGH COURT AT CALCUTTA. 

Power to Search (Section 82)

The power to search for documents, papers or things is contained in section 82 subject to the provisions of Code of Criminal Procedure, 1973. As per section 82,

(a)      Search may be conducted by Commissioner (Joint commissioner w.e.f. Finance Act, 2011) himself, or

(b)      Commissioner (Joint Commissioner w.e.f. Finance Act, 2011) may authorize search to be conducted by Assistant or Deputy Commissioner (Superintendent of Central Excise w.e.f. Finance Act, 2011) of Central Excise.

(c)      Search should be for any documents, papers or things.

(d)     Such search of documents etc. should be useful for or relevant to any proceedings

(e)      There must be reason to belief that such documents etc are secreted in any place. 

This section provides for search of documents, books or things by Commissioner of Central Excise or any other officer authorized by him. The pre-condition to search is that the CCE should have reason to believe that there are certain books etc. in secret possession at any place which may be useful for any proceedings under this Act. Such reasons may or may not be recorded in writing. Search can be done at any place which would include any house, office, building, vehicle etc. search is supposed to be an invasion into persons privacy and it must be guided by certain principles under normal human tendency. 

Finance Act, 2002 amended section 82 to provide specifically for the power to seize documents relevant to any proceedings under the service tax law. He may authorize Assistant or Deputy Commissioner of Central Excise to search for and seize or for himself search for and seize documents or books or things which in his opening may be useful for or relevant to any proceeding under the Act. 

Under section 82(1), the power for authorization for conducting search of any premises vests in the Commissioner of Central Excise. However, since under section 83 of the Finance Act, 1944 has been made applicable to service tax, provision of Customs Act, 1962 also become applicable to service tax matters. Accordingly, as per section 105 of Customs Act, the Assistant Commissioner or Deputy Commissioner of Central Excise is empowered to authorize any Central Excise Officer not below the rank of Sub-Inspector for search of any premises or he may himself search. 

Finance Act, 2011 amended the power to issue search warrant at the level of Joint Commissioner and the execution of search warrant at the level of Superintendent of Central Excise.