Case Law Details
Bhagat Ram Om Prakash Agro Private Limited & Anr Vs Commissioner Central Tax GST Delhi- East (Delhi High Court)
Delhi HC quashes GST search on Bhagat Ram Agro, cites errors in authorization and lack of statutory basis. Emphasizes the importance of legal adherence in GST proceedings.
1. Background: The petitioners challenge the search authorization dated 22.08.2023, summonses under Section 70 of the CGST Act, and subsequent proceedings. The search was initiated based on directions from a Special Judge, raising suspicions about the source of Rs. 50,00,000 received by the petitioners.
2. Search Authorization: A search under Section 67(1) of the CGST Act was conducted on 08.2023, guided by the Special Judge’s order to check the source of funds. The DIG & Head of Branch, CBI, directed the Principal Chief Commissioner, Delhi CGST, to take action based on the order.
3. Invalid Authorization: The record shows that no further investigation was conducted before the inspection authorized under Section 67(1) of the CGST Act on 22.08.2023. The Commissioner, Central Tax GST, issued an authorization citing grounds that were not substantiated, rendering it erroneous.
4. Lack of Statutory Basis: Serious reservations are raised about the Special Judge’s directions, suggesting a roving inquiry by the GST authority without proper reference to the CGST Act’s statutory provisions. The court questions the legitimacy of such directions.
5. Return of Documents: The court directs the return of documents collected during the search, emphasizing that conditions for inspection under Section 67(1) were not satisfied, making the collection of documents unwarranted.
6. Summons under Section 70: No specific directions are issued concerning the summons under Section 70 of the CGST Act. The court clarifies that GST authorities can continue or initiate proceedings as per the Act but cautions against further action solely for compliance with the Special Judge’s order.
7. Conclusion: The Delhi High Court quashes the GST search authorization, highlighting errors in grounds and lack of statutory basis. The case underscores the importance of adherence to legal provisions in GST proceedings and raises questions about the scope of inquiries directed by non-GST authorities. The court’s decision provides clarity on returning collected documents and emphasizes compliance with statutory requirements.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioners have filed the present petition, inter alia, praying that the records of the search authorization dated 22.08.2023 issued by the respondent, for conducting the search at the premises of the petitioner, be re-called and that the same be quashed. The petitioners also impugn summons dated 09.2023 issued under Section 70 of the Central Goods & Services Tax Act, 2017 (hereafter ‘the CGST Act’) and the proceedings initiated pursuant thereto. Additionally, the petitioners pray that the respondent be directed to return the documents belonging to the petitioner company along with the photocopies, which were collected during the search/inspection conducted on 22.08.2023.
2. A search under Section 67(1) of the CGST Act was conducted at the premises of the petitioners on 08.2023.
3. We have perused the original file produced by the respondent and it substantiates the petitioners’ case that the said inspection was conducted pursuant to the order dated 04.2023 passed by the Special Judge (P.C. Act) in M. No. 139/2022 and 140/2022, whereby the learned Special Judge had directed the Income Tax Department, GST Department and Enforcement Directorate to check the source of Rs. 50,00,000/- received by the petitioners.
4. It is stated that petitioner 2 – Prem Shankar Verma had purchased a property from one Mr. Rajesh Kumar Anand for a sum of Rs. 50,00,000/-. Mr. Rajesh Kumar Anand deposited the said consideration in a Fixed Deposit Receipt (hereafter ‘FDR’) and furnished the FDR as a collateral for securing bail of one of the accused in another matter pending before the learned Special Judge. It is apparent that the learned Special Judge suspected the source of the funds that were furnished, in the form of a FDR, as a security. Accordingly, the learned Special Judge had issued the aforesaid directions. The relevant extract of the order dated 05.04.2023 is set out below:
“16) Applicant in his reply has alleged that all these above persons/entities are related to purchaser M/s Baikuntham Agro Foods and Beverages Pvt. Ltd. and he had no reason to suspect as to the source of money at the hands of the purchaser cannot be believed and the role of applicant in these transactions is also highly doubtful especially when the version of the Sh. Prem Shankar Verma referred above is not matching with his own documents. Accordingly, I am of the view that matter is also required to be referred to Income Tax Department, GST department and ED to check the source of Rs. 50 lakhs which was received by the applicant as well as whether this amount was genuinely earned by Sh. Prem Shankar Verma or it is a unaccounted black money or is a part of the proceeds of banks which was embezzled by Wadhawan Brothers.
17) In view of the above discussions, both the applications of the applicant are disposed Though surety bond of applicant is ordered to be cancelled but FDR deposited by him cannot be released unless clearance is received from all the concerned departments. In case, these departments after inquiry find prima facie that money of Rs. 50 lakhs transferred in the account of applicant was unaccounted or black money or was a part of the amount which was cheated or embezzled by Wadhawan Brothers from the banks qua which this case is registered, then the concerned departments can get this amount released from court after encashment of FDR in question and also can take legal action against the person at fault as per law.
18) IO is directed to serve the copy of this order upon SHO Police Station I.P. Estate, concerned competent authorities of Income Tax Department, GST Department and Enforcement Department for compliance and for further appropriate actions and submit report to this court within 6 months regarding action taken and status of investigation/inquiry. The file of both these applications be consigned to record ”
5. On the basis of the aforesaid directions, a letter dated 04.2023 was issued by the DIG & Head of Branch, CBI to the Principal Chief Commissioner, Delhi CGST to take appropriate action in compliance of the order dated 05.04.2023.
6. The record does not indicate that any further investigation was conducted prior to authorizing the inspection under Section 67(1) of the CGST On 22.08.2023, the Commissioner, Central Tax GST issued an authorization (in FORM GST INS-01) for conducting inspection under Section 67(1) of the CGST Act at the premises of the petitioners.
7. A perusal of the said authorization indicates that all grounds as stated in Clause ‘A’ of the requisite form were recorded as reasons for authorizing the Clause ‘A’ of FORM GST INS-01 is set out below:
“A.
M/s.
₹ has suppressed transactions relating to supply of goods and/or services
₹ has suppressed transactions relating to the stock of goods in hand,
₹ has claimed ITC in excess of his entitlement under the Act
₹ has claimed refund in excess of his entitlement under the Act
₹ has indulged in contravention of the provisions of this Act or rules made thereunder to evade tax under this Act;”
8. It is clear from the record that apart from the directions issued in terms of the order dated 05.04.2023, there were no reasons for the respondent to initiate the search against the petitioners under Section 67(1) of the CGST Act. The authorization issued is thus, patently erroneous as none of the grounds as set out in the said authorization are borne out from the information or material on the record of the Concededly, the inspection was conducted pursuant to the order dated 05.04.2023, passed by the learned Special Judge.
9. We have serious reservations as to whether any such directions could have been issued by the Special Judge for conducting a roving and fishing inquiry by the GST authority. It is clear that the said directions were given without reference to the statutory provisions of the CGST Act and without being cognizant of the powers of the GST authorities to conduct inspection, search and seizure operations under the said Act.
10. This Court is informed that Mr. Rajesh Kumar Anand has also filed a petition impugning the order dated 05.04.2023 passed by the Special Judge and the same is pending adjudication before a learned Single Judge of this Court. We are refraining from making any further observations in regard to the order dated 05.04.2023, passed by the Special Judge as the same is the subject matter of a petition pending adjudication before the learned Single Judge.
11. Insofar as the petitioners’ prayer that the documents be returned to the petitioners, is concerned, it is stated on behalf of the respondent that no documents have been seized, however, certain photocopies of the documents / documents were collected. Clearly, since the conditions for inspection under Section 67(1) of the CGST Act were not satisfied, the said documents are required to be returned to the petitioners. It is so directed.
12. Insofar as the summons issued under Section 70 of the CGST Act are concerned, we do not consider it apposite to issue any directions. The GST authorities are not precluded from continuing or initiating proceedings in accordance with the provisions of the CGST Act. Thus, if any information is available with the Department that requires an inquiry to be conducted against the petitioners, the respondent authorities are not impeded to do so. However, we clarify that no further inquiries or action is required to be conducted or taken by the GST authorities, for complying with the order dated 05.04.2023 passed by the Special Judge.
13. No further orders are required to be passed in the present The same is disposed of.
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