GST UPDATE ON SEIZURE PROCEEDINGS TO BE VALID ONLY WHEN REASON TO BELIEVE EXISTS:-

The powers of search and seizure should be cautiously exercised by the officers as abuse of this power has far reaching adverse repercussions for the assessee. It is to be noted that as per the provisions contained in section 67 (1) of the CGST Act, 2017, where the proper officer , not below the rank of Joint Commissioner, has reasons to believe that a taxable person has suppressed any transaction relating to supply of goods or services or both, or has claimed higher ITC or has contravened the provisions of the Act, he may authorise in writing, any other officer of Central Tax to inspect any places of business of taxable person or engaged in transportation of goods or operator of godown or any other place. However, the above provision does not mean that mere suspicion can lead to initiation of proceedings under this section. The present update seeks to discuss the recent decision pronounced by the Hon’ble Delhi High Court in the case of M/S R.J. TRADING CO. VERSUS COMMISSIONER OF CGST, DELHI NORTH & ORS [W.P. NO. 4847/2021]. The premises of the petitioner was searched on the grounds that they were L2 supplier of goods being cigarettes which were purchased from M/s Mridul Tobie Inc. who defaulted in payment of GST under reverse charge mechanism on purchase of tobacco leaves from the farmers. The main ground for initiating search was to verify existence of the petitioner. Moreover, during the course of search proceedings, one of the employees was asked to produce the stock register maintained at the premises which he could not provide, which led to the formation of ‘reasonable belief’ that the said goods were meant for ‘illicit trade/supply’. The Hon’ble High Court held that the expression, ‘reason to belief’ has been examined by various Courts wherein it has been held that it does not the same connotation as say reason to suspect or belief that is based on surmises or conjectures or mere suspicion. On the contrary, the belief of the concerned authority should be based on some actionable material and there must be nexus with the formation of such belief. Reliance was placed on Supreme Court decisions in the case of ITO VS. LAKHMANI MEWAL DAS, 1976 3 SCC 757; GANGA SARAN & SONS PVT. LTD. VS. ITO, 1981 3 SCC 143; AND SYNFONIA TRADELINKS (P.) LTD. VS. INCOME-TAX OFFICER, [2021] 127 TAXMANN.COM 153 (DELHI)]. The Hon’ble High Court held that on perusal of the communication between the Joint Commissioner regarding authorisation for initiating search against the petitioner, it is found that there was no clue that ‘any’ goods of the petitioner liable for confiscation or ‘any’ documents which would be useful for proceedings had been secreted to a place, which was infact pre-requisite for initiating search proceedings. Hence, the very trigger for conducting the search, i.e., authorisation issued by the Additional Commissioner was flawed and unsustainable in law. Moreover, the stock file was also seized from their premises which indicate that there was no intention to make illicit supply of goods. It was also held that all the records were maintained including stock register by the petitioner in electronic form which is valid as per law. Furthermore, the stock found was supported with proper invoices, e-way bills, e-invoice, transporter’s challans etc. Accordingly, the search and seizure conducted by the authorities was declared as unlawful by the Hon’ble High Court. The above decision is an eye-opener for the departmental authorities as it is often observed that the provisions of statue are not complied with while exercising any of the intrinsic power assigned to them. The revenue authorities ought to be more cautious while forming ‘reason to believe’ for authorising inspection and search of the premises of the assessee. The above decision will act as a boon to the assessees.

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GST UPDATE ON SEIZURE PROCEEDINGS TO BE VALID ONLY WHEN REASON TO BELIEVE EXISTS:-

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