Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF COMMERCIAL TAXES AND A OTHERS ETC.
Vs.
RESPONDENT:
R. S. JHAVER AND OTHERS ETC.
DATE OF JUDGMENT:
09/08/1967
BENCH:
WANCHOO, K.N. (CJ)
BENCH:
WANCHOO, K.N. (CJ)
BACHAWAT, R.S.
RAMASWAMI, V.
MITTER, G.K.
HEGDE, K.S.
CITATION:
1968 AIR 59 1968 SCR (1) 148
CITATOR INFO :
D 1971 SC 792 (5)
F 1971 SC1170 (25)
RF 1972 SC 787 (7)
R 1974 SC 348 (10)
E&R 1978 SC 851 (89)
R 1985 SC 582 (39)
D 1985 SC 989 (11)
ACT:
Madras General Sales Tax Act, 1 of 1959, s. 41--scope
of--subsec. (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 tax Plus an
additional amount before stage of first sale when tax
ordinarily becomes due--Whether repugnant to scheme of Act
and invalid--Sub-sec. (3) authorising seizure and sub-
section (4) authorising confiscation--Whether unreasonable
restrictions and violative of Art. 19 (1) (f) and (g) of the
Constitution.
HEADNOTE:
On August 19, 1964, officers belonging to the Department of
the appellant raided and searched the premises of a company
and foreibly removed certain accounts and goods. The
respondents challenged the department’s action by writ
petitions filed in the High Court under Art. 226 of the
Constitution praying that the articles seized should be
returned. It was contended by the petitioners that on a
proper construction of section 41 of the Madras General
Sales Tax Act, No. 1 of 1959, the officers of the Department
had no authority to search the premises and seize any
account books or goods found there; that if section 41(4)
authorised seizure and confiscation of goods, it was beyond
the legislative competence of the State Legislature, for it
was not covered by item 54 of List II of the Seventh
Schedule to the Constitution relating to "taxes on the sale
or purchase of goods"; and that if various provisions in S.
41 were capable of being construed as authorising search and
seizure, they were violative of Art. 19(1)(f) and (g) of the
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Constitution.
The High Court allowed the Petitions holding, inter alia,
that s. 41 (2) did not permit a search being made and only
provided for inspection; the power of seizure or
confiscation in s. 41(4) was beyond the legislative
competence of the State Legislature; and that subsections
(2), (3) and (4) of s. 41 contained unreasonable res-
trictions and were violative of Art. 19(1) (f) and (g). The
High Court also found with respect to one of the petitions
that the search warrant had been issued without the
application of Mind by the magistrate and was bad. On
appeal to this Court;
Held: dismissing the appeal,
(i)Anything recovered during the search must be returned
to the petitioners for the safeguards provided by s. 165 of
the Code of Criminal Procedure were not followed and in one
case the finding of the High Court that the search warrant
issued by the magistrate was bad on various grounds was not
challenged; furthermore anything confiscated must also be
returned as sub-section (4) of s. 41 must fall.[163 B-D].
Clause (a) of the second proviso to sub-section (4) gives
power to the officer ordering confiscation to give the
person affected an option to pay in lieu of confiscation, in
cases where the goods are taxable under the Act, the tax
recoverable and an additional amount and thus provides for
recovery of tax even before the first sale in
149
the State which is the point of time in a large
majority of cases for recovery of tax. As such it was
repugnant to the entire scheme of the Act and sub-section
(4) must therefore be struck down. As Clause (a) compels
the officer to give the option and thus compels recovery of
tax before the first point of sale, which cannot have
occurred in cases of goods seized from the dealer himself,
it is clearly intended by the legislature to go together
with the main part of the Section and is not therefore
severable. [159F-16OD].
(ii) Although generally speaking the power to inspect does
not give power to search, where, as in the case of s. 41 (2)
the power has been given to inspect not merely accounts
registers, records, goods, etc., but also to inspect the
offices, shops etc., these two powers together amount to
giving the concerned officer the power to enter and search
the offices etc. and if he finds any accounts or goods in
the offices, shops, etc., to respect them. The High Court
was therefore wrong in holding that there was no power of
search whatsoever under sub-section (2). [154H-155E].
The proviso to sub-section (2) in providing that all
searches under "this sub-section" shall be made in
accordance with the provisions of the Code of Criminal
Procedure, bears out the construction that the main part of
sub-section (2) contemplates searches. Similarly it is
clear from sub-section (3) which gives power to seize
accounts etc., in certain circumstances, that sub-section
(2) must include the power of search for a seizure under
sub-section (3) is not possible unless there is a search.
[156D-E. 158B-C].
The contention that as the main part of sub-section (2)
does not provide for search of a purely residential
accommodation and therefore the proviso is otiose must be
rejected. Although generally a provision is an exception to
the main part of the section, it Is recognised that in
exceptional cases, as in the present case, the provision may
be a substantive provision itself. [156D-F].
Bhonda Urban District Council v. Taff Vale Railway Co., L.
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R. [1909] A.C. 253: Commissioner of Income-tax v. Nandlal
Bhandari & Sons (1963) 47 I.T.R. 803, and State of Rajasthan
v. Leela Jain. [1965] 1 S.C.R. 276, referred to.
(ii)Sub-sections (2) and (3) of S. 41 are not violative of
Art. 19 as they are protected by clauses (5) and (6) of Art.
19 of the Constitution. [162F-G].
The High Court had wrongly assumed that the provisions of
the Criminal Procedure Code did not apply to a search under
s. 41(2). In view of the safeguards provided in s. 165 Cr.
P.C. and in Chapter VII of that Code, it cannot be said that
the power to search provided in sub-section (2) is not a
reasonable restriction keeping in View the object of the
search, namely, prevention of evasion of tax. [161EG].
The mere fact that the Act gives power to Government to em-
power any officer to conduct the search is no reason to
strike down the provision for it cannot be assumed that
Government will not empower officers of proper status to
make searches. [160-H],
To, exercise the power of seizure under sub-section (3) the
officer concerned has to record his reasons in writing, has
to give a receipt for the accounts seized, and can only
retain the items seized beyond a period of 30 days with the
permission of the next higher officer. These are sufficient
safeguards and the restriction, if any, on
150
the right to hold property and the right to carry on trade
by sub-section (3) must therefore be held to be a reasonable
restriction. [162-D-G].
While the court held that the Legislature has power to
provide for search and seizure in connection with taxation
law in order that evasion may be checked, it did not decide
the general question whether a power to confiscate goods
which are found on search and which are not entered in
account books of the dealer is an ancillary power
necessary for the purpose of stopping evasion of tax. [159C-
D].
K.S. Papanna and another v. Deputy Commercial Tax
Officer, Gunkakal, (1967) XIX S.T.C. 506; referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 150--154 of
1967.
Appeals from the judgment and order dated February 26, 1965
of the Madras High Court in Writ Petitions Nos. 1321, 1495,
1496 and 1553 of 1964.
S.V. Gupta, Silicitor--General, V. Ramaswamy and A.
Rangam, for the appellant (in C.As. Nos. 150, 153 of 1967).
K. N. Mudaliyar, Advocate-General, Madras, V. Raniaswaln
and A. V. Rangajn, for the appellant (in C.A. No. 154 of
1967).
N.C. Chatterjee and R. Ganapathy Iyer, for the
respondents (in C.As. Nos. 150, 151 and 154 of 1967).
A. G. Pudissery, for the intervener.
The Judgment of the Court was delivered by
Wanchoo, C. J.--These five appeals on certificates granted
by the Madras High Court raise common questions of law and
will be dealt with to-ether. We shall give brief facts in
one of the appeals (No. 150 of 1967) arising out of writ
petition No. 1321 of 1964 in order to understand the
questions that fall to be decided in the present appeals.
On August 19, 1964, at about 5.00 p.m, the officers of the
Commercial Tax Department (hereinafter referred to as the
Department) raided the premises of Zenith Lamps and
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Electricals Ltd., (hereinafter referred to as the Company).
It is said that the premises were searched and a Suit-case
was seized and forcibly removed by the officers who made the
raid, in spite of the fact that they were informed that the
box did not contain any papers or documents belonging to the
Company and its contents consisted merely of personal
effects of one of the Managing Directors, namely, Shri
Ramkishan Srikishan. Jhaver. The raid and search were made
by the authorities concerned on information that Shri
Geonka, one of the Directors of the Company, had removed a
box containing secret accounts relating to it. The main
contention of the petitioner in support of his prayer that
the articles seized should be returned to him was under
three heads. It was first contended that on a proper
construction of section 41 of the Madras General Sales Tax
Act, No. 1. of 1959 (hereinafter
151
referred to as the Act), the officers of the Department had
no authority to search the premises and seize either the
account books or the goods found therein. Secondly, it was
contended that if section 41(4) authorised seizure and
confiscation of goods, it was beyond the legislative
competence of the State Legislature, for it could not be
covered by item 54 of list II of the Seventh Schedule to the
Constitution relating to "taxes on the sale or purchase of
goods." Lastly, it was contended that if various provisions
in s.41 were capable of being construed as authorising
search and seizure. the provisions contained therein were
unconstitutional in view of Art. 19(1) (f) and (g) of the
Constitution.
It is not necessary to refer to the facts in the other
petitions which have resulted in the other appeals before
this Court because in those cases also there was search and
seizure by the officers of the Department and their action
is being attacked on the same grounds. All the petitions
were opposed on behalf of the State Government and its case
was--firstly. that s.41 authorised search and seizure;
secondly, that the State Legislature was competent to enact
s.41(4) under item 54 of list 11 of the Seventh Schedule to
the Constitution; and thirdly, that the provisions in
question did not offend Art. 19(1) (f) and (g) of the
Constitution and were in any case protected by Art. 19(5)
and (6).
The High Court held that s. 41(2) did not allow search being
made thereunder, as it only provided for inspection, and
that search was a different thing altogether from
inspection. The High Court further held that if s.41 (2)
provided for search it would be within the legislative
competence of the State Legslature. The High Court took the
view that the power of seizure and confiscation of goods
contained in sub-section (4) could not be said to be
ancillary and incidental to the power to tax sale or
purchase of goods and therefore this provision was beyond
the legislative competence of the State Legislature.
Finally, the High Court held that sub-sections (2), (3) and
(4) of’ section 41 were unconstitutional as they were
unreasonable restrictions on the fundamental rights
guaranteed under Art. 19(1) (f) and (g) of the Constitution.
Besides the above. the High Court also found with respect to
one of the petitions that the search warrant issued for the
search of the residential house by the magistrate disclosed
that the magistrate had not applied his mind at all to the
necessity of the search of he residential house, for columns
in the printed search warrant which should have been struck
out were not so struck out. Further the gaps in the printed
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form which should have been filled in before the warrant was
issued had not been filled in. From these two circumstances
the High Court concluded that the search warrant for the
residential house had been issued without the application of
mind by the magistrate to the necessity of the search of the
residential house. The High Court further found that
s.41(4) was not complied with strictly before confiscation
was ordered and no pro-
152
per opportunity was given to the dealer to show that the
goods seized and confiscated were not accounted for in his
accounts. In the result therefore the High Court allowed
all the petitions and directed that the documents, things
and goods covered by the petitions should be returned to the
petitioners along with photographs, negatives, translations
and notes made by the Department from the accounts etc. The
State of Madras then applied for and obtained certificates
from the High Court to appeal to this Court and that is how
the matter has come before us.
The same three questions which were raised, before the High
Court have been raised before us on behalf of the appellant.
Before, however, we deal with them we would briefly refer to
the provisions of the Act which are material for our
purposes.-Section 3 is the main charging section which
provides that "every dealer whose total turnover for a year
is not less than Rs. 10,000......... shall pay a tax for
each year at the rate of 2 per cent of his taxable
turnover." The point at which tax has to be paid on single
point taxable goods is indicated in the First Schedule to
the Act and that will show that in a large majority of cases
the tax has to be paid at the point of first sale in the
State, though in some cases it has to be paid at the point
of first purchase or of last purchase in the State. Section
4 is another charging section in respect of declared goods
and the Second Schedule to the Act deals with the point at
which tax has to be paid in respect of such goods. That
Schedule also shows that in a majority of cases the tax had
to be paid at the point of first sale in the State, though
in some cases it has to be paid at the point of first
purchase in the State or the last purchase in the State.
Certain goods are exempt from the tax under the Act as
provided in the Third Schedule and do not thus form part of
the taxable turnover, though they will be a part of the
turnover for purposes of calculating the total turnover per
year. The Act provides for registration of firms and of
dealers, for appointment of officers, for collection of tax,
for the levy of penalty, and for appeals and revisions. It
also casts a duty on dealers to maintain a true and correct
account. Then comes section 41 with which we are
particularly concerned. It is in these terms:
"(1) Any officer empowered by the Government
in this behalf may, for the purpose of this
Act. require any dealer to produce before him
the accounts, registers, records and other
documents and tot furnish any other in-
formation relating to his business.
(2)All accounts, registers, records and
other documents maintained by a dealer in the
course of his business. the goods in his
possession and his offices, shops, godowns,
vessels or vehicles shall be open to
inspection at all reasonable times by such
officer:
Provided that no residential accommodation
(not being a place of business-cum-residence)
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shall be entered
153
into and searched by such officer except on
the authority of a search warrant issued by a
Magistrate having jurisdiction over the area,
and all searches under this sub-section shall,
so far as may be, be made in accordance with
the provisions of the Code of Criminal
Procedure. 1898 (Central Act V of 1898).
(3)If any such officer has reason to
suspect that any dealer is attempting to evade
the payment of any tax, fee or other amount
due from him under this Act he may, for
reasons to be recorded in writing, seize such
accounts.. registers, records or other
documents of the dealer as he may consider
necessary, and shall give the dealer a receipt
for the same. The accounts, registers,
records and documents. so seized shall be
retained by such officer only for so long as
may be necessary for their examination and for
any inquiry or proceeding under this Act.
Provided that such accounts, registers and
documents shall not be retained for more than
thirty days at a time except with the
permission of the next higher authority.
(4)Any such officer shall have power to
seize and confiscate any goods which are found
in any office. shop, godown, vessel, vehicle,
or any other place of business or any building
or place of the dealer, but not accounted for
by tile dealer in his accounts registers
records and other documents maintained in the
course of his business.
Provided that before ordering the confiscation
of goods under this Sub-section the officer
shall give the person affected an opportunity
of being heard and make an inquiry in the
prescribed manner:
Provided further that the officer ordering the
confiscation shall give the person affected
option to pay in lieu of confiscation-
(a)in cases where the goods are taxable
under this Act, in addition to the tax
recoverable a sum of money not exceeding one
thousand rupees or double the amount of tax
recoverable, whichever is greater; and
(b)in other cases. a sum of money not
exceeding one thousand rupees.
Explanation-It shall be open to the Government
to empower different classes of officers for
the purpose of asking action under sub-
sections (1). (2) and (3)".
154
It will be seen from the above brief review of the
provisions of the Act that it mainly deals with sales tax to
be levied at the point of first sale in the State. though
there is also provision for purchase tax in certain cases.
It is in this background that we have to consider the
construction of s.41 of the Act. So far as sub-s(1) is
concerned, there is no difficulty. It empowers any officer,
empowered by the Government in this behalf, to require any
dealer to produce before him the accounts registers, records
and other documents and to furnish any other information
relating to his business. It may be mentioned here that the
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Government has empowered all officers of the Department not
lower in rank than the Assistant Commercial Tax Officer, all
officers of the Revenue Department not lower in rank than an
Inspector and all officers of the Police Department not
lower in rank than a Sub-Inspector. to act under s.41. sub-
ss. (2) to (4). Presumably. so far as sub-s. (1) is
concerned. only officers of the Department can act under the
provision. However, there is no dispute with respect to
that sub-section as the power has to he exercised for the
purpose of the Act i.e., with reference to assessment
proceedings at all stages including recovery of tax and
prosecution for offences. It is not disputed that the power
under sub-s. (1) can only be exercised to require a dealer
to produce accounts etc. relating to his business and not
that of any body else.
The main dispute centres round the interpretation of sub-
s.(2) of s.41. The contention on behalf of the respondents
is that that provision did not authorise search of premises
but merely provided for inspection thereof it all reasonable
times by the empowered officer. We shall first deal with,
the main part of sub-s. (2) to see what it provides without
reference to the proviso. Clearly Sub-s(2) provides for
three things, namely--(1) all accounts. registers, records
and other documents maintained by a dealer in the course of
his business ’,,hall be open to inspection at all reasonable
times, (ii) the goods in the possession of the dealer shall
also be open to inspection, and (iii) the dealer’s offices,
shops, godowns, vessels or vehicles shall also be open to
inspection. There is no doubt that there are no specific
words in sub-s. (2) giving power of search. But if we read
the three powers conferred by sub-s.(2) it should not be
difficult to hold that search is included therein. In sub-
s.(1) the dealer is required to produce his accounts etc.
and to furnish other information relating to his business
and it is left to the dealer to produce what accounts he
may say he has. The legislature was however cognizant of
the fact that a dealer may not produce all accounts or
furnish ill information even though required to do so, under
sub-s.(1). Therefore. sub-s.(2) provides that ,ill accounts
etc. of the dealer shall be open to inspection. It also
provides that the dealer’s offices. shops, godowns, vessels
or vehicles shall be open to inspection. It is true that
generally speaking a power to inspect does not necessarily
give power to search. But
155
where, as in this case, the power has been given to inspect
not merely accounts, registers, records and other documents
maintained by a dealer but also to inspect his offices,
shops, godowns, vessels or vehicles, it follows that the
empowered officer would have the right to enter the offices
etc. for purposes of inspection. Naturally his inspection
will be for purposes of the Act i.e., for the purpose of
seeing that there is no evasion of tax. If therefore during
his inspection of offices etc. the empowered officer finds
any accounts, registers, records or other documents in the
shop, those accounts etc. will also be open to inspection.
Reading therefore these two provisions together, it is clear
that the empowered officer has the right to; enter the
offices etc. and to inspect them, and if on such inspection
he finds accounts etc. he has also the power to inspect
them. Lind to see if they relate to the business. These
two powers taken together in our opinion mean that the em-
powered officer has the power to search the office etc. and
inspect accounts etc found therein. Though therefore the
word "search" has not been used in sub-s.(2) these two
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powers of entering the offices etc. for inspection and of
inspecting every kind of account maintained by a dealer with
respect to his business together amount to giving the
officer concerned the power to enter and search the offices
etc. and if he finds any account in the offices, shops etc.
to inspect them. Otherwise we can see no sense in the
legislature giving power to the empowered officer to enter
the offices etc. for the purpose of inspection as the
officer concerned would only do so for the purpose of
finding out all accounts etc. maintained by the dealer and
if necessary to inspect them for the purposes of the Act.
We cannot therefore agree with the High Court that there is
no power of search whatsoever in sub-s(2) because the
subsection in terms does not provide for search.
goods in the possession of the dealer. He has also the
power to enter the dealer’s offices etc. for the purpose of
such inspection, Combining these two powers together it
follows on the same reasoning that the officer has the power
to search for the goods also and to inspect them if found in
the offices etc. of the dealer. We have therefore no
hesitation in coming to the conclusion that the power of
search is implicit in sub-s.(2) with reference accounts etc.
maintained by the dealer and the goods in the ’)possession
of the dealer. It also seems to us that this power in Sub-
s. (2) is confined to offices, shops,godowns. vessels and
vehicles of the dealer and does not go beyond them. It is
urged on behalf of the appellant that as the officer is
entitled to inspect all accounts etc. maintained by the
dealer he can search for them even in the dealer’s
residential premises. But we do not agree with this conten-
tion. for we have found the power of search by reading the
power of inspection of offices etc. with the power of
inspection of accounts etc. and the power of inspection of
goods. Sub-s. (2) does not give any power of inspecting the
residential, accommodation
156
of the dealer and therefore it cannot be read as giving the
power of search of the residential house for purposes of the
Act. But whether it is a case of business-cum-residence,
the power of search will be there, for under sub-s.(2) all
offices, shops, godowns, vessels or vehicles of the dealer
are open to inspection.
Let us now see what light is thrown on the interpretation of
sub-s.(2) by the proviso and whether the interpretation we
have put on the main part of sub-s.(2) is supported by the
proviso. The proviso lays down that (i) no purely
residential accommodation shall be entered into and searched
by such officer except on the authority of a search warrant
issued by a Magistrate having jurisdiction over the area and
(ii) that all searches under this sub-section shall, so far
as may be, be made in accordance with the provisions of the
Code of Criminal Procedure, 1898. The latter part of the
proviso clearly shows that the main part of sub-s.(2) con-
templates searches, for it refers to all searches made under
this sub-section. If the reference in the second part of
the proviso was confined only to searches made under the
first part of the proviso, the words would have been "all
searches under this proviso shall be made in accordance with
the provisions of the Code of Criminal Procedure." The
proviso therefore bears out the construction that we have
put on the main part of sub-s.(2). But it is urged that a
proviso carves out something which is already contained in
the main provision and the main provision at any rate does
not provide for search of a purely residential
accommodation. Therefore the proviso is otiose. That is
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what the High Court also seems to have held. Generally
speaking, it is true that the proviso is an exception to the
main part of the section; but it is recognised that in
exceptional cases a proviso may be a substantive provision
itself. We may in this connection refer to Bhonda Urban
District Council v. Taff Vale Railway Co.(1), where s.51 of
the Act there under consideration was framed as a proviso to
preceding sections. The Lord Chancellor however pointed out
that "though s.51 was framed as a proviso upon preceding
sections, but it is true that the latter half of it, though
in form a proviso, is in substance a fresh enactment, adding
to and not merely qualifying that which goes before.".
Again in Commissioner of Income-Tax v. Nandlal Bhandari &
Sons(2) it was observed that ’though ordinarily a proviso
restricts rather than enlarges the meaning of the
provisional to which it is appended, at times the
legislature embodies a substantive provision in a proviso.
The question whether a proviso is by way of an exception or
a condition to the substantive provision, or whether it is
in itself a substantive provision, must be determined on the
substance of the proviso and not its form.".
(1) L. R. [1909] A.C. 253.
(2) [1963]47 1. T. R. 803.
157
Finally in State of Rajasthan v. Leela Jain(1) the question
arose whether the proviso in the Act under consideration
there was a limiting provision to the main provision or was
a substantive provision in itself. This Court observed that
"so far as general principle of construction of a proviso is
concerned, it has been broadly stated that the function of a
proviso is to limit the main part of the section and carve
out something which but for the proviso would have been
within the operative part." But it was further observed that
the proviso in that particular case was really not a proviso
in the accepted sense but an independent legislative
provision by which to a remedy which was prohibited by the
main part of the section, an alternative was provided.
These three cases show that in exceptional circumstances a
proviso may not be really a proviso in the accepted sense
but may be a substantive provision itself. It seems to us
that the proviso under consideration now is of this
exceptional nature. As we have already held, there is no
provision in the main part of the sub-section for searching
purely residential premises. Therefore when the proviso
provides for such search it is providing for something in-
dependent of the main part of the sub-section. Further the
second part of the proviso which talks of searches made
under this sub-section shows that the power of inspection
provided in the main part of the sub-section is tantamount
to a power of search. We have already come to that
conclusion independent of the proviso. All that we need say
here is that the proviso also shows that that interpretation
is correct. We may add that we are not precluded from
looking at the proviso in interpreting the main part of the
sub-section. We may in this connection refer to the
following passage in Maxwell on Interpretation of Statutes,
Eleventh Edition, at p.155 where it is observed-
"There is no rule that the first or enacting
part is to, be construed without reference to
the proviso. ’The proper course is to apply
the broad general rule of construction, which
is that a section or enactment must be
’construed as a whole, each portion throwing
light, if need be, on the rest’.
"The true principle undoubtedly is that the
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sound interpretation and meaning of the
statute, on a view of the enacting clause,
saving clause and proviso, taken and construed
together is to prevail."
But as we have said already even without looking at the
proviso, our conclusion is that the main part of sub-s.(2)
provides for searches and the proviso merely enforces that
conclusion. We therefore cannot agree with the High Court
that subsection(2) does not provide for search of the
business premises of a dealer, in the shape of offices etc.
(1) [1965] 1 B.C. R. 276
158
Then we come to sub-section(3). That provides for the
seizure of accounts etc., if the empowered officer has
reason to suspect that any dealer is attempting to evade the
payment of any tax. fee or other amount due from him under
the Act. If he has such reason he may for reasons to be
recorded in writing seize such accounts etc. Now if sub-
s.(2) gives power of search, sub-s.(3) merely provides
further power to seize the accounts etc. found on such
search. We have already held that sub-s.(2) gives the power
of search and in that case sub-s.(3) is merely complementary
to sub-s.(2) and gives the ,empowered officer the power to
seize the accounts found in certain circumstances. If
anything, sub-s.(3) also bears out that sub-s.(2) must
include the power of search for a seizure under sub-s.(3) is
not possible unless there is a search. Reading therefore
sub-s (2), its proviso and sub-s.(3) together we are of
opinion that they provide for search and seizure without
warrant except that if the place searched is a purely
residential accomodation it cannot be searched without a
search warrant from a Magistrate. It naturally follows that
if it cannot be searched without a search warrant it is not
open to the empowered officer to seize anything from a
residential accommodation for he cannot enter and search it
unless he has a warrant from a Magistrate to do so.
The next question relates to the legislative competence of
the State, legislature to enact sub-s.(4). This subsection
provides for seizure and confiscation of any goods found in
any office etc.. including purely residential accommodation
after search if they are not accounted for in the accounts
maintained in the course of the dealer’s business. The sub-
section thus completes the process which starts with sub-
section (1) and gives authority to the empowered officer to
seize and confiscate goods of the nature indicated therein.
The contention on behalf of the respondents is that the
power of confiscation provided by sub-s.(4) was not within
the competence of the State Legislature under item 54, List
II. of the Seventh Schedule relating to tax on sales and
purchase of goods. On the other hand. the appellant
justifies the power to seize and confiscate goods on the
round that it is ancillary and incidental to the power to
tax, for it is necessary to have such power in order to
check evasion of tax and make it unprofitable. The High
Court held that the Act was not a law on goods and that a
provision for confiscation of goods found on search was
neither incidental nor ancillary to the power to tax
contained in item 54. List II of the Seventh Schedule. Now
it has not been and cannot be disputed that the entries in
the various Lists of the Seventh Schedule must be given the
widest possible interpretation. It is also not in doubt
that while making a law under any entry in the Schedule it
is competent to the legislature to make all such incidental
and ancillary provisions as may be necessary to effectuate
the law; particularly it cannot be disputed that in the case
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of a taxing statute it is open to the legislature to enact
provisions which
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would check evasion of tax. It is under this power to
check- evasion that provision for search and seizure is made
in many taxing statutes. It must therefore be held that the
legislature has power to provide for search and seizure in
connection with taxation laws in order that evasion may be
checked. It is further urged on behalf of the appellant
that confiscation of goods which are not entered in accounts
is merely a provision of ancillary nature to check evasion
of tax by making it unprofitable for dealers to secrete
goods in which they are dealing. Reliance in this connec-
tion is placed on K. S. Papantna and another v. Deputy
Commercial Tax Officer, Guntakal,(1) where the Andhra
Pradesh High Court upheld an analogous provision in the
Andhra Pradesh General Sales Tax Act, (No. 6 of 1957). in
s.28 (6).
We do not propose in the present case to decide the general
question whether a power to confiscate goods which are found
on search and which are not entered in account books of the
dealer is an ancillary power necessary for the purpose of
stopping evasion of tax. Assuming that is so, we have still
to see whether sub-s.(4) of the Act can be upheld read along
with the second proviso thereof. It may be added that there
is no such provision as the second proviso in s.28 of the
Andhra Pradesh General Sales Tax Act. We do not therefore
propose to express any opinion as to the correctness of the
above decision of the Andhra Pradesh High Court. Sub-s(4)
of s.41, before it was amended by the Madras General Sales
Tax (Second Amendment) Act. from April 1, 1961, had only the
first proviso with respect to giving an opportunity of being
heard and making an enquiry in the matter before ordering
confiscation. By the amendment of 1961, the second proviso
was added. That provides that the officer ordering the
confiscation shall give the person affected option to pay in
lieu of confiscation. in cases where the goods are taxable
under the Act. in addition to the tax recoverable, a sum of
money not exceeding one thousand rupees or double the amount
of tax recoverable. whichever is greater. This provision
clearly requires the officer ordering confiscation to do two
things(i) to order the person concerned to pay the tax
recoverable. and (ii) to pay a sum of money not exceeding
one thousand rupees or double the amount of tax recoverable.
whichever is greater. We have already indicated that in a
large majority of cases covered by the Act the tax is
payable at the point of first sale in the State. But under
cl.(a) of the second proviso the tax is ordered to be
recovered even before the sale, in addition to the penalty
not exceeding Rs. 1,000 or double the amount of tax
recoverable whichever is greater. Therefore cl.(a) of the
second proviso is clearly repugnant to the general scheme of
the Act which in the majority of the cases provides for
recovery of tax at the point of first sale in the State. In
view of this repugnancy one or other of these two provisions
must fall. Clearly it
(1967) XIX S.T.C. 506.
160
is cl. (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 cl.(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 cl.(a) of the second proviso being repugnant to the
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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.
It is next urged that in any case the second provisio is
severable and therefore only this proviso would fall and not
the main part of sub-s.(4). We are however of opinion that
cl. (a) of second proviso is not severable. We have already
indicated that originally the second proviso was not there
in the Act. It was brought in by the amendment of 1961 and
it compels the officer to give the ’Option, and thus compels
recovery of tax even in those cases where the tax is
recoverable only at the first point of sale in the State
which naturally has not occurred in cases of goods seized
’from the dealer himself. Considering the fact that the
legislature added this compulsory 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-s.(4) should stand by
itself. We are therefore of opinion that sub-s.(4) with the
two provisos must fall on this narrow ground. We therefore
agree with the High Court and strike down sub-s.(4) but for
reasons different from those which commended themselves to
the High Court.
Then we come to the question whether sub-ss.(2) and (3) of
s.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. The main reason which impelled
the High Court to strike ,down sub-s.(2) was that there was
no safeguard provided for search made thereunder. The High
Court held that s. 165 of the Code of Criminal Procedure did
not apply to searches made under sub-s(2). It also held
that the State Government was given the power to empower any
officer to make a search under sub-s.(2) and this meant that
even an officer of low status could be empowered.
Consequently the High Court struck down sub-s.(2) on the
ground that it gave arbitrary power of search which could be
made even by an officer of low status. It is true that
search under this sub-section can be made by any officer
empowered by Government in this behalf, but we have no
reason to think that Government will not empower officers of
proper status to make searches. In this very case, we find
that the Government empowered an Assistant Commercial Tax
Officer, a Revenue Inspector and a Sub Inspector of Police
to make searches. Considering the
161
large number of dealers who are covered by the Act, it
cannot be said that these officers are of such low status
that they cannot be depended upon to make a search with due
care and caution. We cannot also forget that in a case of
this kind the Government cannot find sufficient number of
officers of what may be called high status to make searches,
for dealers who may be covered by the Act may be legion
throughout the State, and if such searches could only be
made by high officers there would not be enough officers
available to do so. The fact that the Act gives power to
Government to, empower any officer is therefore no reason to
strike. it down for, as we have said, the Government will
see that officers of proper status are empowered. Nor do we
think that an Assistant Commercial Tax Officer or an
Inspector of Revenue Department or a Sub-Inspector of Police
Department is not an officer of proper status to make
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searches under this provision.
We are also of opinion that though sub-s.(2) itself provides
no safeguards and might have been open to objection on that
ground, there is a provision in the proviso to, sub-s.(2)
which lays down that all searches under this subsection
shall, so far as may be. be made in accordance with the
provisions of the Code of Criminal Procedure. Therefore,
the provisions of the Code of Criminal Procedure, so far as
may be, apply to all searches made under sub-s. (2). It
appears that in the High Court, the parties as well as the
Court assumed that s.165 of the Code of Criminal Procedure
would not apply to searches under sub-s.(2) We cannot see
any warrant for this assumption. The proviso clearly lays
down that all searches made under this sub-section, so far
as may be, shall be made in accordance with the provisions
of the Code of Criminal Procedure. Thus all provisions
contained in the Code of Criminal Procedure relating to
searches would be applicable to searches under sub-s.(2), so
far as may be. Some of these provisions are contained in
Chapter VII but one such provision is contained in s.165. It
is true that that section specifically refers to an officer
in-charge of a police-station or a police officer making an
investigation. But when the proviso applies the provisions
of the Code of Criminal Procedure to all searches made under
this sub-section, as far as may be possible, we see no
reason why s.165 should not apply, mutatis mutandis, to
searches made under sub-s.(2). We are therefore of opinion
that safeguards provided in S. 165 also apply to searches
made under sub-s. (2). These safeguards are-(i) the em-
powered officer must have reasonable grounds for believing
that anything necessary for the purpose of recovery of tax
may be found in any place within his jurisdiction, (ii) he
must be of the opinion that such thing cannot be otherwise
got without undue delay, (iii) be must record in writing the
grounds of his belief, and (iv) he must specify in such
writing so far as possible the thing for which search is to
be made. After he has done these things, he can make the
search. These safeguards, which in our opinion
162
apply searches under sub-s.(2) also clearly show that the
power to search under sub-s. (2) is not arbitrary. In view
of these safeguards and other safeguards provided in Chapter
VII of the Code apply so far as may be to searsee no reason
to hold that the restriction, if any, on the right to hold
property and to carry on trade by the search provided in
sub-s.(2) is not a reasonable restriction keeping in view
the object of the search, namely, prevention of evasion of
tax.
Next we come to sub-s.(3), which as we have already stated,
is complementary to sub-s.(2). It provides in addition to
the safeguards- which have to be complied with when a search
is made under sub-s.(2), that the officer may seize accounts
etc. if he has reason to suspect that any dealer is
attempting to evade the payment of any tax etc. due from him
under the Act. It also provides that he has to record his
reasons in writing and we are of opinion that these reasons
have to be recorded before the accounts are seize. It
further provides that the dealer shall be given a receipt,
and this means that the receipt must be given as and when
the accounts etc. are seized. Finally it provides that
these accounts etc. Shall be retained by such officer so
long as may be necessary for their examination and for any
enquiry or proceeding under the Act. These in our opinion
are sufficient safeguards and the restrictions iS any, on
the right to hold property and the right to carry on trade
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by sub-s.(3) must therefore be held to, be a reasonable
restriction. We may add that the proviso to sub-s.(3) has
fixed the period for which the officer seizing accounts can
keep them, namely,’ @o days at a time, and if he wants to
keep them for has to ’take the permission of the next
additional safeguard entitling the dealer accounts after
every 30 days,’unless’a higher officer has permitted the
retention of accounts for a period longer than 30 days. We
cannot therefore agree with the high High Court that sub-ss.
(2) and (3) of s. 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 cls. (5) and
(6) of Art. 19 of the Constitution.
We now proceed to consider what order should be passed in
the appeals in the view we have taken about the
interpretation and validity of sub-ss. (2) and (3) of s. 41
of the Act. We have already indicated that the High Court
held that the warrant issued by the Magistrate for search of
the residental accommodation was bad because it showed that
the Magistrate had not applied his mind to the question of
issuing it, inasmuch as there were portions which should
have been struck out from the printed form and gaps which
should have been filled in. But this was not done.
163
That conclusion of the High Court has xi(4 @re ,@n
challenged before us. The High Court has further held’that
a r pr6kr and reasonable opportunity was not given to the
persons concerned to show that the goods seized Were not
prpperly accounted for in their account-books, though this
findili’ is not material now for 9 we have held that sub-
s.(4) falls in its entirety. It follows therefore that
anything recovered from the search of the residential accom-
modation on the basis of this defective warrant must be
returned. It also follows that anything confiscated must
also be returned, as we have held that sub-s.(4) must fall.
As to the accounts etc. said tot have been seized, it
appears to us that the safeguards provided under s. 165 of
the Code of Criminal procedure do not appear to have
been followed when the search was made for the simple
reason that everybody thought that provision was not
applicable to a search under sub-s.(2). Therefore, as the
safeguards provided in s. 165 of the Code of Criminal
Procedure were not followed, anything recovered on a
defective search of this kind must be returned. It follows
therefor that 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 that sub-ss.(2) and (3)
are unconstitutional on the ground of their being
unreasonable restrictons on the right to hold property and
to carry on trade. The appeals therefore fails and are
hereby dismissed. In view of our decision on the main
question of law, we order parties to bear their own costs in
all the appeals.
Appeals dismisyed,, R.K.P.S.
164