"Fishing Expedition" in audit is not illegal

EXPERT EYE

Fishing expedition is an expression coined by the Courts and is an rhetorical expression for "lack of reasonable belief". It is not exactly known when it was first used. Calcutta High Court used it in the case of PK Ghosh vs. KM Mazodia 2000(117)ELT14(Cal), to denote such a meaning.

Catching fish by throwing a net in a river 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 they would ultimately tumble upon some offence.

Therefore, such activity of mounting a search or general audit has been described as fishing expedition in judicial parlance. The question is, of its legality.

In respect of searches, in all fiscal laws such as laws of income tax, customs, excise, 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 has been viewed adversely by the Courts.

In one of the more recent judgments in the case of Commissioner of Central Excise, Hyderabad-II vs. ALDEC Corporation - 2005(188) ELT. 241 (SC), the Supreme Court has found no fault with the seizure of some excisable goods in transit when the officers found that excise duty had not been paid on goods.

This was considered to be sufficient by the Supreme Court to form a reasonable belief before seizure. This concept has earlier also been propounded in several judgments such as Mohammad Serajuddin vs RC Misra "� 1983(13) ELT 1370(SC) etc.

The Supreme Court and High Courts have disapproved seizure or search without the proper reasonable belief. In the case of PK Ghosh vs KM Mazodia (supra) the Calcutta High Court has held that the Customs Officers cannot search and seize goods in the hope of ultimately discovering some grounds to justify the search.

In the case of Innovation, Secunderabad vs CBEC "� 1984(15)ELT91(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 to justify the search or seizure.

In respect of audit, there is legal provision in VAT laws and in Central Excise Rules 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 violation of law . Therefore, a routine audit is permitted.No specific information about violation of a law is needed.

The conclusion is that fishing expedition is legal in respect of audit and illegal in respect of search or seizure. This legal tenet is a vaccine against indiscriminate search.

smukher2000@yahoo.com