THE COMMISSIONER OF COMMERCIAL TAXES AND OTHERS ETC. vs. R. S. JHAVER AND OTHERS ETC.

CIVIL APPEAL No. 150/1967Supreme Court[1968] 1 S.C.R. 14809 August 1967Bench: 5 JudgesAuthor: K.N. WANCHOO, R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER, K.S. HEGDE16 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, holding as follows: (i) Regarding Issue 1: The Court held that while generally inspection does not imply search, Section 41(2), by empowering inspection of offices, shops, etc., and its proviso requiring searches to be made in accordance with the Code of Criminal Procedure, does grant the power to search. Section 41(3), which allows seizure, further supports the interpretation that search is implicit in Section 41(2). (ii) Regarding Issue 2: The Court struck down Section 41(4) in its entirety. It found the clause allowing an option to pay tax plus an additional amount in lieu of confiscation repugnant to the Act's scheme, as it permitted recovery of tax before the first sale, which is the usual point of taxation. This clause was deemed not severable from the main part of the sub-section. (iii) Regarding Issue 3: The Court held that Sections 41(2) and 41(3) are not violative of Article 19. It reasoned that the safeguards provided by Section 165 of the Code of Criminal Procedure, which apply to searches under Section 41(2), make the power to search reasonable, especially considering the object of preventing tax evasion. Similarly, the safeguards in Section 41(3) regarding recording reasons for seizure, providing receipts, and limiting retention periods with higher officer permission were considered sufficient, making the restrictions reasonable and protected by Article 19(5) and 19(6). The Court also noted that anything recovered due to a defective search warrant or from a search where safeguards of Section 165 Cr.P.C. were not followed must be returned. The general question of whether confiscation of goods not entered in account books is an ancillary power was left undecided.

What were the facts?

On August 19, 1964, officers of the Commercial Tax Department searched the premises of Zenith Lamps and Electricals Ltd. and seized accounts and goods. The respondents challenged this action via writ petitions, arguing that Section 41 of the Madras General Sales Tax Act, 1959, did not authorize search and seizure, and that if it did, the provisions were beyond the State Legislature's competence and violated Article 19(1)(f) and (g) of the Constitution. The High Court allowed the petitions, finding Section 41(2) only permitted inspection, not search; that Section 41(4) was beyond legislative competence; and that subsections (2), (3), and (4) imposed unreasonable restrictions violating Article 19(1)(f) and (g). The High Court also found a search warrant in one case to be defective. The appeals were filed against these High Court orders.

What were the issues?

1. Whether Section 41(2) of the Madras General Sales Tax Act, 1959, empowers tax officers to search premises, or only to inspect. - Assessee's contention: Section 41(2) does not authorize search, only inspection. - Revenue's contention: Section 41(2), read with its proviso and Section 41(3), implies a power of search. 2. Whether Section 41(4) of the Act, authorizing seizure and confiscation, is beyond the legislative competence of the State Legislature, as it pertains to "taxes on the sale or purchase of goods" (Item 54, List II, Seventh Schedule). - Assessee's contention: Section 41(4) is beyond legislative competence. - Revenue's contention: Not explicitly recorded, but impliedly that it is within competence. 3. Whether Sections 41(2), 41(3), and 41(4) of the Act impose unreasonable restrictions and are violative of Article 19(1)(f) and (g) of the Constitution. - Assessee's contention: These provisions are unreasonable restrictions and violate Article 19(1)(f) and (g). - Revenue's contention: These provisions are reasonable restrictions protected by Article 19(5) and 19(6).

Which sections of the Income-tax Act were involved?

Section 41,Section 165

AI-generated summary — verify with the full judgment below

148 THE COMMISSIONER OF COMMERCIAL TAXES AND A OTHERS ETC. [K. N. v ... R. S. JHA VER AND OTHERS ETC.

August 9, 1967 WANCHOO C. J., R. S. _BACHAWAT V. RAMASWAMJ, B G. K. MITTER AND K. S. HEGDE, JI.] Madras General Sales TlllX' Act, l of 1969, •. 41-ocope of-sub- sec. (2) granting power to inspect-Whether includes . power . of search-sub-section (4) giving power to officer confiscating to give dealer an option to pay too: plus an additional amount before stage of first sale when ~ ordinarily becomes due-Whether !'epugnant to scheme of Act and invalid-Sub-sec. (3) authorising seizure and C sub-6<?ction (4) authorising confiscation.-Whether unreasona~le . res- trictions and violative of Art. 19 (1) (f) and (g) of the Constitution.

On August 19, 1964. officers belon~g to the Department of th_e appellant raided and searched the premises of a company and fore1- blv removed certain accounts and goods. 'I'he respondents challenged the department's action by wrU petitions filed in the High Court under Art. 226 of the Constitution praying that the articles seized D should be returned. It was contended by the petitioners that on a proper construction of section 41 of th

The order continues below.

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