Vigneshwara Transport Company Vs Additional Commissioner of Central Tax (Karnataka High Court)
Conclusion: Non-proper officers could not make any investigation, search, seizure and arrest on Good and Services Tax ( GST ) evasion and the same could not issue a notice under Section 74 on the ‘borrowed satisfaction’.
Held: Assessee was a transporter registered under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Karnataka Goods and Services Tax Act, 2017 (KGST Act), was accused of evading GST by supplying arecanut to Gutkha manufacturers without paying the applicable tax. Assessee challenged the show cause notice issued by the authorities, arguing that the investigation was conducted by an officer who lacked the jurisdiction required under the GST laws. It further contended that a payment of ₹50 lakh made during the investigation was under protest and sought its refund. While the authorities argued that the subsequent issuance of the show cause notice by a proper officer validated the proceedings and the precedent of Pooran Mal v. The Director of Inspection (Investigation), New Delhi, where the Supreme Court allowed the use of evidence gathered during an investigation by an improper officer. They argued that, based on this ruling, despite the investigation, search, and seizure being conducted by an improper officer, the evidence could still be used, and the show cause notice issued by a proper officer should not be set aside. In response, assessee argued that the decision did not render the search and seizure ab initio void, as it pertained to the use of evidence obtained from an illegal search in the context of income tax law, not GST. The question that arose for consideration in the instant writ petition was, when the investigation, inspection, search and seizure was substantially completed by an improper Officer, was the show cause notice issued by a proper Officer under Section 74 of the CGST Act and KGST Act liable to be set aside. It was held that admittedly, substantial part of the investigation including search and seizure of the materials had been done by respondent no.2 who was not the proper Officer and under the circumstances, the said investigation, inspection, search and seizure in respect of assessee herein had to be considered ab initio void. When the same was considered as ab initio void, notice issued under Section 74 of the CGST Act based upon search, seizure and the statements recorded from assessee which had been relied upon, had to be considered illegal and that there was no satisfaction on part of the proper Officer for issuance of the notice under Section 74 of the CGST Act. If respondent no.2 after investigation had transferred the case to respondent no.3, for issuance of notice under Section 74, respondent no.3 was required to redo the investigation and come to an independent conclusion as contemplated under Section 74 of the CGST Act and only thereafter a fresh notice requires to be issued. Respondent no.1 could not issue a notice under Section 74 on the ‘borrowed satisfaction’. Under the said circumstances, the impugned notice was liable to be set aside. Consequently, the respondents were required to be directed to refund the sum of Rs.50,00,000/- deposited by assessee and also return the seized documents and other goods which were seized by respondent no.2 to assessee.
