1

SURVEY, SEARCH AND SEIZUREUNDER THE INDIRECT TAX LAW

By: MUKUL GUPTA, Tax AdvocateR-13/24, Raj Nagar, GhaziabadTel :0120-2820380, 2821407E-mail: mukuladv@hotmail.com

Provisions for survey search and seizure has been enactedwith a view to enable the state, in the interest of the generalpublic as well as to safeguard the interest of the state in thematter of collection of tax. At the same time the interests ofthe assesee are also sought to be protected. In other words,while the officers have a duty to exercise their powersconferred by the law and thereby safeguard the publicinterest, they must also respect the restrictions imposed bythe very law, which gives them the power.

Power welding officers have been known to show scantrespect for law of procedures. To borrow the phrase of LordDenning, searches have become ‘the military style ofoperation’.

(Please see the Pictorial Depiction of a Survey by LordDenning at the end of this Article.)

POWER TO ENTER & SEARCH:

The Hon’ble Supreme Court of India in the caseCommissioner of Commercial Taxes vs. RamkrishanShrikishan Jhaver and Others, 1966 27STC 305 has observedas under: -

“While making a law under any entry in the Schedule to theConstitution it is competent to Legislature to make all suchincidental and ancillary provisions as may be necessary toeffectuate the law; particularly, in the case of a taxing statute,

2

it is open to the Legislature to enact provisions which wouldcheck evasion of tax.”

It is under this power to check evasion of tax, the provisionhas been made for search and seizure in almost all the taxingstatutes may it be for lawful collection of Central Excise orService Tax or erstwhile Sales tax or VAT.

Such provisions are reasonable restrictions on thefundamental right to hold property and to carry on tradeunder Article 19(1) (f) and (g) of the Constitution and areprotected by clauses (5) and (6) of Article 19.

The power of search is implicit both to the accounts etc.maintained by the dealer and the goods in the possession ofthe dealer. But in most of the provisions for indirect taxespower has not been conferred to the officer to suo-motosearch the residential premises of the dealer.

Further, the provisions of the Code of Criminal Procedure, sofar as may be apply to all searches made under the indirecttaxation and therefore Section 100 of the Code of CriminalProcedure would apply mutates-mutandis to searches madeunder the indirect tax law. The safeguards U/s 100, whichapply to searches, are: -

i) the empowered officer must have reasonablegrounds for believing that anything necessary forthe purpose of the recovery of tax may be found inany place within his jurisdiction.

ii) he must be of the opinion that such thing cannot beotherwise got without undue delay.

iii) he must record in writing the grounds for his belief,and

iv) he must specify in writing, so far as possible thething for which search is to be made.

3

(Please see the complete text of Section 100 and 165of CrPC at the end of this Article)

Under existing Section 13 of U.P. Sales Tax Act and theproposed provisions under the VAT Act in U.P. as well as ofmany other States, it has been provided that the provisions ofSection 100 and 165 of the Code of Criminal Procedure, shallas far as may be applied in relation to any entry, survey orinspection under these provisions as they relate to inspectionor survey under Code of Criminal Procedure.

If in relation to a search under the provision the safeguard isnot followed, anything recovered on such a defective searchmust be returned.

The provisions of Survey and Seizure should not be ahindrance in carrying on the business activities.

ILLEGAL RETENTION OF ACCOUNT BOOKS ANDOTHER DOCUMENTS:

The Hon’ble High Court Allahabad in the case M/sPrasadamal Saktuman, Saharanpur Vs State of U.P. 1982 50STC 49 has observed as under: -

“The requirements of the law thus, are that the officersauthorized by the State Government in this behalf shouldhave reasonable grounds for believing that there is an attemptto evade the liability for tax and other dues under this Act onthe part of any dealer. If that is so, the officer can seize theaccount books and other documents of the dealer. He is,however, bound to return them to the person from whosecustody they were seized within a period prescribed fromseizure.”

4

DUTY OF THE ASSESSE TO CO-OPERATE:

The law contemplates that the assesee shall produce suchbooks and documents for the inspection of the surveyingofficer as he may demand. If the Surveying Officer wanted toverify some transaction with reference to stock book heshould have demanded the same. Anything, which is notdemanded for verification during the survey, cannot besubsequently alleged to be unavailable or deliberately notprovided by the dealer.

There is no provision in the Act, which casts a duty upon theassesee to voluntarily produce his account books beforeSurveying Officer.

SURVEY, INSPECTION AND SEIZURE IN CASE OFA PERSON OTHER THAN A DEALER:

The provisions relating to survey, inspection and seizure incase of a person other than a dealer were also introduced insome of the State VAT Acts, which are wholly un-imaginary.

Under the said provisions, it was proposed that a personwhen carrying on any activities which is ancillary orincidental to or in connection with the business of a dealerthen any officer may for the investigation of tax liability of adealer may also exercise the same powers against the personwho carries on any activity ancillary or incidental to or inconnection with the business as he can do against the dealer.

For this purpose, the person who shall be deemed to carry onactivities, ancillary or incidental to or in connection tobusiness of the dealer will include persons who possessesbooks of accounts or documents relating to business of adealer.

5

Take a case of Chartered Accountant to whom the dealer hasgiven his books of accounts for the purpose of audit U/s44AB of Income Tax Act. Then such Chartered Accountantshall be deemed to be a person carrying on the activity whichis ancillary or incidental to or in-connection with the businessof the dealer and his office and chamber can also be surveyedand inspected in the grab of the exercise of powers under theprovisions of VAT Act as well as U.P. Act and no safeguardhas been provided in such case.

PREPARING INCRIMINATING STATEMENTS ANDINSISTING UPON SIGNATURE THEREON:

There is no provision in the law of sales tax empowering anyofficer to prepare a statement in writing of any fact orcircumstances and compel a party to sign such a statementincriminating him, however slightly, against his will. It ishighly objectionable for the officers to prepare statementsthemselves and request for signature from parties whom theywant to charge sheet later on relying on such statements asevidence. Even Magistrates authorized to record confessionshave to observe many formalities and administer manywarnings and have to record what the party states and cannotprepare statements themselves and ask the parties to signthem. So far as is known, no such power is given to anyofficer in this country, under our law, least of all to TaxOfficers. It will be highly dangerous to the liberty andproperty of citizens if such statements prepared on the spotby Tax Officers and others have to be signed by them.(Mariyala Venkateswara Rao (1951) 2 STC 167(Mad)

A statement made by a dealer or his agent to an officer, at thetime of inspection at the place of business would not be aninadmissible document even though the evidentiary valuemay be in question. Such evidence only may not be sufficientto sustain a conviction (Deoralia Bros. V. state of W.B.(1982) 50 STC 113, 121 (Cal).

6

REASONS TO BELIEVE:

The expression ‘reason to believe’ means that the belief mustbe of a reasonable and prudent man. It must be based onsome relevant material, and not based on suspicion, gossip orrumour. Lit Light Co. vs CST (1979) 43 STC 449, 452 (All)following Sheo Nath Singh vs. Asstt. C.T.T. (1971) 82 ITR147(SC) and Chhungamal Rajpal Vs. S.P. Chaliba (1971) 79ITR 603 (SC).

Belief must be held in good faith and should not be a merepretence. CST vs.Bhagwan Industries Ltd (1973) 31 STC293,299 (SC).

It must be based on material, however meager. Deokinandanv. M.L. Gupta, (1969) 23 STC 481, 485 (ALL).

The reasons must have a rational connection or relevantbearing on the formation of the belief. There must be a directnexus or live link. I.T.O. vs. Lakhmano Mewal Das (1976)103 ITR 437 (SC) affirming (1975) 99 ITR 296 (Cal-FB).

In the case of Sheo Nath Singh vs. AAC (1971) 82 ITR 147(S.C), the expression ‘reason to believe’ has been judiciallyexplained in a number of cases under the Income Tax Actand the Sales Tax Acts, It is by now settled that

(i) ‘reason to believe’ is not the same as ‘reason tosuspect’

(ii) the belief must be that of an honest and reasonableperson based upon reasonable grounds, and

(iii) while direct or circumstantial evidence can berelied upon, the belief should not be based merelyupon suspension, gossip or rumour.

7

The under mentioned judgments contains a good discussionson “reasonable belief” about undisclosed income; as also themeaning of ‘information’.

M A Associates Vs. Union of India (2005) 275 ITR 502(GAU)Sikkim Subba Associates Vs. Union of India (2005) 276ITR 456

POWER TO SEIZE UNDER SECTION 13-A OFU.P.TRADE TAX ACT:

Section 13-A is a special provision enacted to deal with aparticular kind of situation. The object and purpose of thissection is to reach goods which are dealt with by a dealeroutside his account books or which are not traced to anybonafide dealer. If the goods are properly accounted for by adealer, then this section will have no application. Whether ornot a dealer was attempting to evade tax, is not a questionwhich is required to be looked into at the stage of seizure.The entire enquiry under sub-section (1) and (1-A) of Section13-A is directed whether the goods are traced to a bonafidedealer and they have been duly accounted for by a dealer inthis account. The evasion of tax is not the sine-qua-non of aseizure order.

SEARCH & SEIZURE UNDER CENTRAL EXCISEPROVISIONS AS ALSO APPLICABLE TO SERVICETAX LAW:

The Central Excise Act provides the two essentialrequirements for search

(i) that the documents/books, things must, in theopinion of the Commissioner, be useful for orrelevant to any proceedings under the Act, and

8

(ii) that the Commissioner must have reason to believethat the said documents/books/things have been‘secreted’ in any place.

In the case of Durga Prasad V. H.B. Gomes, Superintendent(Prevention) Central Excise AIR 1966 SC 1209, the verb ‘tosecrete’ normally means ‘to hide’. However, in the presentcontext, it must be understood to mean ‘not kept in thenormal or usual place’.

Provisions of search and seizure are used as an exceptionwhen the direct physical intervention becomes necessary toenforce the provisions of the Central Excise Law.

The provisions relating to search are given in Section 18 ofthe Central Excise Act, 1944, which provides that allsearches should be made in accordance with the provisions ofthe Code of Criminal Procedure.

Moreover, Section 12 of the Central Excise Act, 1944,empowers the Central Government to apply the provisions ofthe Customs Act to the Central Excise also.

Rule 22 and 23 of the Central Excise Rules 2002 empowerthe authorized officer to enter and search any premises,conveyance or other place. Further, Rule 24 specificallyempowers such officer to affect a seizure or detention.

In terms of the said rules, an officer not below the rank of anSuperintendent of Central Excise, duly authorized byCommissioner by special or general order, can search atanytime, any premises or conveyance where he has reason tobelieve that excisable goods are manufactured, stored orcarried in contravention of the provisions of the Act or Rules.For a registered premises or for stopping and searching anyconveyance in transit no search warrant is required.

9

The power to release seized goods emanates from the powerto seize. The goods seized may be released provisionallyunder bond alongwith 25% security or surety by the officer,who is normally competent to adjudicate the case. Theadjudicating officer will also consider the importance of suchgoods for evidence, and will release the goods provisionallyif bond is furnished. Wherever necessary, sample may also bedrawn.

ARREST UNDER CENTRAL EXCISE PROVISIONS

Provisions for arrest are contained in Sections 13, 18, 19 and20 of the Central Excise Act, 1944. These provisions providefor power to arrest, search and arrests how to be made,disposal of persons arrested and procedure to be followed byofficer-in-charge of police station.

Any Central Excise Officer not below the rank of Inspectorwith prior approval of the Commissioner can arrest anyperson U/s 13 whom he has reason to believe that he is liableto punishment under the Central Excise Act or the rules madethereunder.

PROSECUTION UNDER CENTRAL EXCISEPROVISIONS

Besides, the departmental adjudication, prosecution may alsobe launched U/s 9 of the Central Excise Act 1944 prescribinga minimum imprisonment of six months against any person,Director, Manager, Secretary or other officers.

A minimum limit of Rs. 25 Lakhs of Excise Dutyinvolvement is necessary for launching prosecution.

10

However, in cases where the duty involved is more than OneLakh or the offender has been convicted previously underthis section, the court can award maximum imprisonment fora term not exceeding seven years.

Prosecution proceeding in a Court of Law are generallyinitiated after departmental adjudication of an offence hasbeen completed. However prosecution may be launched evenwhere adjudication is not complete.

Confiscation and penalty in departmental adjudication andprosecution in criminal proceedings are independent of eachother and do not amount to double jeopardy.

Prosecution are launched incases of serious nature and wheresufficient evidence to prove fraudulent intention is available.

Under executive instructions, the Chief Commissioner ofCentral Excise or in specified cases, the Director General ofCentral Excise Intelligence, has power to sanctionprosecution. The Board can withdraw the sanction ofprosecution.

Sub-Section (2) has been inserted in Section 9A of CentralExcise Act, 1944, so as to provide for compounding ofoffences under Chapter-II of the Act by Chief Commissionerof Central Excise on payment of compounding amountprescribed by the rules.

DIFFERENCE BETWEEN SEIZURE ANDINSPECTION:

All searches are inspections, but all inspections are notsearches. A search is a thorough inspection of a man’s house,building or premises or of his person, with the object ofdiscovering some material, which would furnish evidence ofguilt for some offence with which he is charged. It implies a

11

prying into hidden places for that which is concealed. If theobject sought is always in plain sight, then there is no search.If the private account books had been kept in the counteropenly at all times and they could have been found oninspection at any time of the day, then the seizure of suchaccount books cannot be said to have been made after asearch. (G.M. Agadi & Bros. V. C.T.O. (1973) 32 STC 243,245 (Kar). See also S.Y. Modagekar & Sons V. C.T.O.(1978) 41 STC 298 (Kar); Harikishandas Gulabdas & Sonsvs State of Mysore (1971) 27 STC 434 (Kar).

Search for inspection implies taking possession of theaccount books for the purpose of inspection. “Seizure” meanssomething different, seizure means take into possession andtake them outside the possession of the assessee. (Mangatraivs. State of M.P. (1970) 26 STC 1 (SC)

It is not necessary that the reason to suspect must exist beforeany raid is made. During the course of inspection by theraiding party, if materials are found, which lead the authorityto suspect that the dealer is attempting to evade payment ofany tax, then also, after recording the reasons in writing,seizure can follow. Whether actually the dealer has evadedthe payment of tax or not is not a question to be decided atthe stage of seizure; only suspicion about the attempt of thedealer is sufficient.

Accounts, registers or documents or any other papers whichare not relevant for the purpose of making inspection orinvestigation cannot be seized.

In recording the reasons for the seizure, time of inspection orseizure is not one of the requirement of the law to bementioned, but any authority exercising its power under thesection would be well advised to put down the time also asdisputes are bound to crop up in regard to the time ofinspection or seizure.

12

The last requirement of the law is that a receipt has got to begranted by the authority enumerating therein the variousaccounts, registers of documents seized by it, whether arequest for it is made or not.

INDEPENDENT WITNESSES:

Section 100 of Criminal Procedure Code provides that anyperson with two independent witnesses of the locality mayconduct the search. The object of the provision is probablytwo-fold; to prevent from falsely implicating subject byplanting some material which may latter be demanded to beprohibited by law, second object is probably to ensure that incase of lawfully conducted search the person searched is notable to deny the recovery. This object is statutory.

COPY OF CONFIDENTIAL REPORT:

If the contents of the confidential report put up by theSurveying Officer, are being used against the dealer, he hasevery right to have its certified copy and cannot be denied forthe same.

NO POWER OF SEARCH OF THE RESIDENTIALPREMISES WITHOUT SEARCH WARANT:

The Tax Laws in the country does not invest the officers ofthe tax-departments with the powers of police officers or withgeneral and indiscriminate powers of entry into all places, orpowers of conducting search as such. The terms of provisionsof search are very restricted in scope and effect. The officerdoes not get a power, by means of this sub-section to enterdomestic premises, merely because he suspects that somebusiness is being carried on there. He may enter any placeostensibly used for the conduct of business as such, as anoffice, shop, godown etc. But if he is going to enter a private

13

house and to intrude on the privacy of strangers, he must bethoroughly satisfied that he can prove that the house is aplace in which business is being actually conducted.Otherwise, his entry into a private house will not beauthorized and will constitute civil trespass.

Where the entry of officers is an unwarranted intrusion, theoccupants of the house have a perfect right to ask the officersto get out of the house, and the officers cannot be heldprotected by the colour of their duties as public servants. TheOfficer should respect the rights of the citizen to the extentcompatible with the exercise of such power.

Democracy cannot function with health and safety, ifgovernmental agencies do not realize that, where they act inexercise of any statutory powers, they must strictly keepwithin the bounds of that power.

Where a search warrant issued by a Magistrate is shown to bedefective because he had not applied his mind to the questionof issuing it, anything recovered on the basis of such awarrant from the search of a residential house must bereturned.

ILLEGAL SEARCH AND SEIZURE AND IT’SOUTCOME:

The Bombay High Court in Diamond Star Exports Ltd Vs.DCIT (2005) 278 ITR 36 (Bom) held search proceedings asinvalid as there was no proper information for issuance ofwarrant.Other cases where search has been held to be illegalare: Mahesh Kumar Agarwal Vs. DCIT (2003) 260 ITR 67(Cal); Ravi Iron Industries Vs. DI (2003) 264 ITR 28 (All);Anita Sahai Vs. DI (2003) 266 ITR 597 (All); SureshchandAgarwal Vs. DCIT (2004) 191 CTR (All) 274.

14

It is not open to the officer under the provisions of law to seizeanything from a residential accommodation for he cannot enterand search it unless he has a warrant from a Magistrate to do so.

Where a search and seizure are found to be illegal, the dealer isentitled to the return of all the seized documents alongwith thecopies and notes made therefrom by any of the officials. Thereshould be a complete restoration of the property. It would be anabuse of law to permit an officer to retain the copies or notesmade from records seized illegally. Where retention of copies tobe permitted, the officers concerned could resort to illegalsearches, make copies of the documents seized and retain themwith impunity and return the originals when demanded.Harkishandas Gulabdas & Sons Vs. State of Mysore (1971) 27STC 434, 438 (Mys).

But at the same time there is also a view that in principle, nodistinction can be drawn from an order passed by the departmenton illegally seized documents not being rendered void andpermissibility of the user of such documents before such an orderis made and in the process of making it. There is no differencebetween the two, because user and its legality are entirelygoverned by the provisions of the Evidence Act.

Though search may be illegal, the material obtained there may beused for regular assessment as has been decided in CIT Vs.Krishna Swamy 249 ITR 794 (SC) and Balakrishnan Vs. CIT 237ITR 70.

The trend portrayed through above cases appears ominous. It isno doubt true that those who defraud revenue should not go free.A good end does not justify a bad means. No man can takeadvantage of his own wrong. A search, which is malafide,arbitrary, betrays application of mind; is without jurisdiction; isfor a collateral purpose; is patently erroneous should not besustained. In such circumstances, the “effects” of an illegalsearch should also be quashed.

15

TEXT OF SECTIONS 100 AND 165 OF CrPC

Persons in charge of closed place to allow search

100. (1) Whenever any place liable to search or inspectionunder this Chapter is closed, any person residing in, or beingin charge of, such place, shall, on demand of the office orother person executing the warrant, and on production of thewarrant, allow him free ingress thereto, and afford allreasonable facilities for a search therein.

(2) If ingress into such place cannot be so obtained, theofficer or other person executing the warrant may proceed inthe manner provided by sub-section (2) of Section 47.

(3) Where any person in or about such place is reasonablysuspected of concealing about his person any article forwhich search should be made, such person may be searchedand if such person is a woman, the search shall be made byanother woman with strict regard to decency.

(4) Before making a search under this Chapter, the officer orother person about to make it shall call upon two or moreindependent and respectable inhabitants of the locality inwhich the place to be searched is situate or of any otherlocality if no such inhabitant of the said locality is availableor is willing to be a witness to the search, to attend andwitness the search and may issue an order in writing to themor any of them so to do.

(5) The search shall be made in their presence, and a list ofall things seized in the course of such search and of theplaces in which they are respectively found shall be preparedby such officer or other person and signed by such witnesses;but no person witnessing a search under this section shall be

16

required to attend the Court as a witness of the search unlessspecially summoned by it.

(6) The occupant of the place searched, or some person in hisbehalf, shall in every instance, be permitted to attend duringthe search and a copy of the list prepared under this section,signed by the said witnesses, shall be delivered to suchoccupant or person.

(7) When any person is searched under sub-section (3), a listof all things taken possession of shall be prepared, and a copythereof shall be delivered to such person.

(8) Any person who, without reasonable cause, refuses orneglect to attend and witness a search under this section,when called upon to do so by an order in writing delivered ortendered to him shall be deemed to have committed anoffence U/s 187 of the Indian Penal Code (45 of 1860)

SEARCH BY POLICE OFFICER: -

165(1) Whenever an officer-in-charge of a police station or apolice officer making an investigation has reasonablegrounds for believing that anything necessary for thepurposes of an investigation into any offence which he isauthorized to investigate may be found in any place withinthe limits of the police station of which he is Incharge, or towhich he is attached, and that such thing cannot in hisopinion be otherwise obtained without undue delay, suchofficer may, after recording in writing the grounds of hisbelief and specifying in such writing so far as possible, thething for which search is to be made, search, or cause searchto be made, for such thing in any place within the limits ofsuch station.

(2) A police officer proceeding under sub-section (1), shall, ifpracticable conduct the search in person.

17

(3) If he is unable to conduct the search in person, and thereis no other person competent to make the search present atthe time, he may, after recording in writing his reason for sodoing, require any officer subordinate to him to make thesearch, and he shall deliver to such subordinate officer anorder in writing, specifying the place to be searched, and sofar as possible, the thing for which search is to be made; andsuch subordinate officer may thereupon search for such thingin such place.

(4) The provisions of the Code as to search-warrants and thegeneral provisions as to searches contained in Section 100shall, so far as may be, apply to a search made under thisSection.

(5) Copies of any record made under Sub-Section (1) or sub-section (3) shall forthwith be sent to the nearest Magistrateempowered to take cognizance of the offence, and the owneror occupier of the place searched shall, on application, befurnished, free of cost, with a copy of the same by theMagistrate.

It is highly unbecoming of the officers of the department toconduct illegal search and seize documents or accounts andmake it appear that they are voluntarily handed-over to them.The parties against whom search is to be conducted areentitled to the protection given under the provisionscontained in Chapter VII and in particular of those in Section165 of the Code of Criminal Procedure 1898. Any attempt tocircumvent those provisions by the authorized officers shouldnot be permitted, as it is a serious invasion upon the rights,privacy and freedom of the citizens of India. The power ofsearch must be exercised strictly in accordance with law andno deviation should be tolerated.

18

The Pictorial Depiction of a Survey:

The practical process of a search is beautifully depicted byLord Denning in his book ‘The Due Process of Law’ asfollows:-

“It was a military style operation, it was carried out byofficers of the Inland Revenue in their war against tax frauds.Zero hour was fixed for 7.00 a.m. on Friday, 13th July 1979.Everything was highly secret. The other side must not beforewarned. There was a briefing session beforehand. Some70 Officers or more of the Inland Revenue attended. Theywere given detailed instructions. They were divided intoteams each with a leader. Each team had an objective allottedto it. It was to search a particular house or office, marked, Iexpect, on a map; and to seize any incriminating documentsfound therein. Each team leader was on the day to be handeda search warrant authorizing him and his team to enter thehouse or office. It would be empowered to use force if needbe. Each team was to be accompanied by a police officer.Sometimes more than one. The role of the police waspresumably to be silent witnesses; or may be to let is beknown that this was all done with the authority of the law;and that the householder had better nor resist- or else!”

“The main attack was reserved for the offices at No. 1Hanover Square of the Ross Minister group of companies ofwhich Mr. Plummer and Mr. Tucker were directors. Therewas lot in by one of the employees. Many officers of theInland Revenue went in accompanied by police officers. Itwas big set of offices with many rooms full of files, papersand documents of all kinds. They took large quantities ofthem, pushed them into plastic bags, carried them down inthe lift, and loaded them into a van. They carried them off tothe offices of the Inland Revenue at Melbourne House in theAldwych. Twelve van loads. They cleared out Mr. Tucker’s

19

office completely; and other rooms too. They spent the wholeday on it from 7.00 a.m. till 6.30 p.m. at night. They didexamine some of the documents carefully, but there were somany documents and so many files that they could notexamine them all, they simply put a number on each file,included it in a list, and put it into the plastic bag. Againsteach file they noted the time they did it. It looks as if theyaveraged one file a minute. They did not stop at files. Theytook the shorthand notebooks of the typists, I do not supposethey could read them. They took some of the financialnewspapers in a bundle. In one case the “top half” drawerwas taken in the first installment and the balances of thedrawer was taken in the second.”

The process followed in India today is not different. We areaware of and have repeatedly experienced the same.

20

INTERESTING PRESS REPORT:Date : Friday, July 21, 2006Big guns on payoff list of liquor lobbySource : TIMES NEWS NETWORK

...jain hawala verdict in which the Supreme Court ruled that adiary recording financial transactions can be treated as a"book of account" only if it is "regularly kept" and, secondly,that nobody can be convicted solely on the basis of suchdiaries. The diary entries, it said, must be corroborated byindependent evidence of the payment concerned

NEW DELHI: It has all the makings of a high-profile briberyscam. The income tax department has lists of "Hon'bleVVIPs" figuring in diaries that suggest that they havereceived huge payments from a body of liquor manufacturers,Uttar Pradesh Distiller’s Association.

The I-T department has in its possession two separate lists.One is from a diary recovered when the department itselfraided UPDA's Delhi office on April 26; the other is from adiary recovered in a raid by the UP excise department onUPDA's Lucknow office on January 5. Interestingly, thereare several 'names' common to both lists.

The entries in both diaries mention specific amounts againsteach name. No name is spelt out in full. The references are asinitials, first names or in some cases just nicknames.

Yet, the allusions apparently were clear enough for revenueofficials at the Centre and in UP to draw up separate listsculling out entries that, in their assessment, refer toprominent politicians and bureaucrats or their relatives.

The list prepared by I-T department is titled, "Hon'ble VVIPs'names figuring in the Diaries." Similarly, the UP excisedepartment's list in Hindi bears the title, "Sammanneeya

21

VVIPs ki Labharthi Soochi" (List of Honourable VVIPbeneficiaries).

The names, even in their abbreviated form or colloquial usage,suggest a veritable list of who's who - top political leaders fromboth ruling and opposition camps in UP as well as the Centre,and top bureaucrats in both governments. If true, the lists arepotentially explosive.

The sums allegedly paid to these VVIPs vary. They range fromamounts as high as Rs 85 crore in one case to a few lakhs in someothers; several were paid in crores.

In some cases, the diaries also make references to the specific useof payments made. For example, some entries have "elections"against them, others have "hotel expenses", "personal expenseson purchasing" or "treatment". In one interesting case, the entrynotes "work not done" despite payment.

The I-T department forwarded both lists to the law ministry foradvice. Its dilemma was that it could not have booked the liquormanufacturers for revenue evasion without bringing this issue ofpayoffs to VVIPs into the public domain.

It, therefore, wanted to know whether the diaries could form thebasis for initiating legal action against the apparent bribe takersas well as the bribe givers. The law ministry wrote back to thedepartment saying they could not.

The law ministry's advice drew on the 1998 Jain Hawala verdictin which the Supreme Court ruled that a diary recording financialtransactions can be treated as a "book of account" only if it is"regularly kept" and, secondly, that nobody can be convictedsolely on the basis of such diaries.

The diary entries, it said, must be corroborated by independentevidence of the payment concerned.