Sukumar Mukhopadhyay: FishingEnquiry inFiscal Law

 

Does law allow fishing enquiry, also called roving enquiry ?  It is called fishing enquiry for a reason.   Catching fish by throwing a net in a river or in a big pond knowing that there must be some fish after all, is an activity which has been frequently likened in the judicial parlance with the activity of officers searching premises or vehicles or examining documents in the general belief that there must be some offence after all.  In a fishing expedition, there is no specific information about the existence of a particular fish at a particular point.  Therefore such activity of mounting a search or special audit without a specific information has been described as fishing expedition in judicial parlance.  The question is whether it is legal or illegal.  The answer is that it is legal in respect of audit and illegal in respect of searches.

            The legal provision in respect of searches in all fiscal laws such as laws of income tax, customs, excise is that there has to be specific information leading to a reasonable belief that a specific type of violation has been committed.  In the Customs Act, for example, there is provision in Sections 110 and 123 that the proper officer has reasonable belief before seizure of goods and the same is also true for search of premises as required under Sections 105 and 106 of the Act.  Any non-compliance of such requirement namely the non-existence of reasonable belief before search and seizure have been viewed very adversely by the Courts.  The Supreme Court in several judgements has reiterated this maxim. In the case of Mohammad Serajuddin vs. R.C. Misra – 1983(13) ELT 1370(SC), the Supreme Court observed the following. “A Magistrate acquires jurisdiction to issue search warrant under Section 172 of the Sea Customs Act, 1878 as well as under Criminal Procedure Code as soon as an application for warrant is made before him and

 proceedings on that application are started under the Code. Although the Magistrate is undoubtedly to be guided by the reasonable belief of the Customs authorities and is not required to make up his own mind independently of that belief, yet he can certainly refuse to issue the warrant to prevent undue harassment in cases where belief does not seem to be entertained by the Customs officer or his action is mala fide”. 

In the case of Gopal Kishan vs. R.N. Sen – 1983 (13) ELT 1434 (SC), the Supreme Court observed that the existence of reasonable belief is mandatory before the search can be held as valid.  “The words `Reasons to believe’ need not be present in the order authorising search; it is enough if the sense is apparent form the tenor of the order. Thus non-mention of the `reasons to believe’ does not vitiate the search authorisation order; nor the particulars and the nature of goods or the documents need be given, as they can only be known after the search. However, the concerned officer has to indicate broadly the nature of the documents and the goods in regard to which the officer authorised by him should make a search”.  The Supreme Court further said that Section 105 of the Customs Act gives unlimited and unguided powers to Assistant Collector does not offend Article 14 of the Constitution.   The reason for this is given in the following manner by the Supreme Court.  “It is true that under Section 105 of the Customs Act, 1962, the Assistant Collector of Customs need not give reasons, if the existence of belief is questioned in any collateral proceeding, but his action is controlled by Section 36(2) of the Customs Act where under he can be prosecuted for dereliction of duty if his action proves mala fide. Therefore, it cannot be said that he exercises an unlimited and unguided powers under Section 105 of the Customs Act which offend Article 14 of the Constitution”.

             In another judgement in the case of State of Gujarat vs. Mohanlal Porwal – 1987 (29) ELT 483 (SC), the Supreme Court held that the reasonable belief should not be based on mere presumption and there must be a prima facie material.   Without a properly formed reasonable belief it becomes a “fishing expedition”.  In the present case the question was about the scrutiny of the reasonable belief by the Court.  The Supreme Court held that a prima facie case for seizure should be enough to form a reasonable belief.  The Court said the following: “The circumstance that the chain was coated with mercury and given an appearance of having been made of silver though It was made of pure gold of 99.60 purity or 24 carat was sufficient even for a layman not to speak of Customs official to entertain the belief that it was smuggled gold. One might coat an article of silver to give an appearance of having been made of gold but no one would ordinarily take the trouble to incur expenditure to coat an article of gold in order to give it an appearance of having been made of silver. The conduct of respondent No. 1 in coating the article of pure gold to make it appear as if it was of silver was itself a conduct ‘which could have provided the basis for entertaining a reasonable belief being a relevant piece of evidence as per the law declared by this Court in the case of Inderdas Daulat Ram - AIR 1966 SC .1867. Therefore, the view taken by the Magistrate and confirmed by the High Court that the gold chain was an ornament and not primary gold is altogether unreasonable and therefore is not sustainable”.

In several judgements the courts have come down heavily against search and seizure on the basis of mere fishing expedition.  In the case of P.K.  Ghosh vs.  K M Mazodia – 2000 (117)ELT 14 (Cal.), the Calcutta High Court has held that the Customs Officers cannot search and seize the goods in the hope of ultimately discovering some grounds to justify the search and seizure nor they can go on fishing expedition to find out whether any irregularities are committed.  The High Court observed the following in a case of seizure of diversion of goods imported under export promotion schemes, “Customs Officers cannot search and seize the goods in the hope of ultimately discovering some grounds to justify the search and seizure nor they can go on fishing expedition to find out whether any irregularities are committed”.  However the Court found that the reasonable belief did exist in the case as there was specific information.

In the case of UWE Hoppe  vs. CCP – 1988 (37) ELT 561 (T), the Tribunal held that instead of following the procedure prescribed under the Tourist Baggage Rules the officers of Customs started indiscriminately rummaging the said van and went on a roving and fishing expedition.  The Tribunal, therefore, ruled that the seizure was invalid.  In the case of Innovation, Secunderabad  vs. CBEC – 1984 (15) ELT 91(AP), the High Court held that it is well settled that an officer cannot search any premises, or seize any goods, in the hope of ultimately discovering some basis or ground to justify the search or seizure, as the case may be, nor can they go on a fishing expedition to find out whether any irregularities are committed.

 My personal memory about reasonable belief is considerable. I worked as Under Secretary attached to the Finance Secretary for four years in early seventies. I used to put up files directly to the Finance Secretary .Finance Secretaries were all I C S officers at that time. He used to hear revision petitions   against orders in appeal passed by the CBEC. They were very difficult files and many of them were relating to preventive cases and one issue which came to be discussed was the existence of reasonable belief. The lawyers always used to argue that the seizure was without reasonable belief. So I had to scrutinize the files dig out whether there was reasonable belief or not. So when I made a seizure of diamonds of 58 lakhs of rupees in 1976 as deputy director in the DRI,(which case is still going on in the court even now and I had to appear eight times as a witness) in the airport, I took particular care to see that in the Panchnama there is clear record of the existence of the reasonable belief.

In respect of audit the position is somewhat different from the position in respect of search.  In regard to audit there is legal provision that the Revenue is entitled to audit the firms’ accounts.  There is no legal provision that there must be previous information that there is a violence of law committed.  Therefore a routine audit is permitted in law, say, after every six months.  There is no need to have specific information about the existence of a particular violation.  However for special audit mounted on the firm any time can be viewed as a fishing expedition although there is no legal decision in regard to a case involving audit.

The conclusion is that there must be specific information leading to reasonable belief before search or seizure is resorted to.  In respect of audit routine audit at intervals is permitted without any specific information.  In respect of special audit there should be a reason to belief that some evasion has taken place.  This legal tenet is a precaution against indiscriminate search.