Can cash money be seized during an investigation?

To conduct a business one needs cash. One needs it to buy raw material, to pay fares of transportation, to pay for many out pocket expenses needed to run the business. However often the cash received for the goods sold or services given is the most convenient method of exchange.

The involvement of cash in any business establishment is natural but at times it is found that the cash found in the business premises are seized by the department without examining the fact whether it should be detained or not .

The law provides that cash can be seized but only in exceptional circumstances and not in general particularly when the explanation for cash is available during such search and certainly not if the same is accounted.

The department should examine the nature of cash during investigation before seizing the same.

The power to seize of cash is available in the statute. The Central Excise Act, 1944 empowers a Central Excise officer to search a business premises and seize the goods if he has sufficient reason to believe that the goods are removed only to evade excise duty.
The power to search, retain or seize the goods is provided in Rule 22 and Rule 23 of the Central Excise Rules, 2002 which state as follows:

1. Rule 22 – Rules relating to access to registered premises:

The rule provides that an officer empowered by the Commissioner in this behalf can be allowed access to any premises registered under these rules for carrying out any scrutiny, verification, etc. that may be necessary to protect the interest of revenue.
It is also provided that every assessee and first and second stage dealer shall have to furnish to the officer empowered a list in duplicate, of –

(i) All the records maintained for accounting of transaction relating to the receipt, purchase, manufacture or delivery of the goods including inputs and capital goods;
(ii) All the records maintained for accounting of transaction relating to payment for input services; and
(iii) All the financial records and statements.

It is further provided that each assessee and first stage and second stage dealer shall upon demand furnish before the officer empowered or the audit party deputed by the Commissioner or the Comptroller and Auditor General or cost accountant or chartered accountant empowered under section 14A or section 14AA of the Act, –
(i) The records maintained by him in terms of sub-rule (2) of rule 22;
(ii) The cost audit reports under section 233B of the Companies Act, 1956 and
(iii) the Income Tax audit report under section 44AB of the Income Tax Act, 1961 for the scrutiny.
However for the purposes of the aforesaid rules ‘first stage dealer’ and ‘second stage dealer’ shall have the meanings provided in the CENVAT Credit Rules, 2004.

2. Rule 23 – Rules relating to power to stop and search:

Rule 23 provides that any Central Excise Officer may search any conveyance carrying excisable goods for which he has reason to believe that they are being carried for evading duty.

The afore said rules give power only to seize the goods. The officer of the Central Excise can detain them if there is a violation in payment of Central Excise duty.

The officer of the Central Excise can seize the cash found in the premises searched, under the Central Excise rules.
As no power is available to seize the cash under the Central Excise Act and Rules, normally the provisions of the Custom Act are invoked. Section 121 of the Custom Act, 1962 gives the officer of the department to seize the cash.

Judicial precedents:

• The Hon’ble tribunal at Ahmadabad in the case of M/S Standard Greese and Private Limited vs. Commissioner of Central Excise and S.T., Vapi 2014(303) E.L.T 434 set aside the confiscation of the cash that were duly accounted.

• The judgment of CESTAT, Kolkata in the case of Pandit D.P. Sharma v. CCE, Calcutta-II (supra) which was also upheld by the Apex Court speaks in similar terms.

• The judgment delivered in the case of Sipani Fibres Limited v. CCE., Bangalore reported in 2007 (212) E.L.T. 374 (Tri.-Bang.) equivalent to 2007 (6) S.T.R. 197 clearly stated that confiscation of currency cannot be sustained if there was nothing on record to prove that the currency was obtained out of the sale proceeds of smuggled liquor.

• The judgment of the Apex Court cited in 2003 (157) E.L.T. A201 (S.C.) also reflect similar views.

Read also: https://www.itrtoday.com/the-law-governing-survey-search-and-seizure-under-the-income-tax-act/

Provisions relating to search and seizure under the Income Tax Act