PERIOD OF LIMITATION FOR RETAINING THE SEIZED GOODS UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Inspection, search and seizure

Section 67 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) gives powers to the Department to cause inspection of certain premises and also to search the said premises and to seize the goods from the said premises. 

Section 67(1) of the Act gives powers to the Department to cause inspection of the premises of the registered person.  The said section provides that 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 the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made there under to evade tax under this Act; or
• any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,

he may authorize in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

Section 67(2) gives powers to the Department to cause search and seizure of the goods.  The said section provides that Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorize in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things.    The documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

Section 67(7) provides that where any goods are seized under sub-section (2) and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized.  The said period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.

Wrong availment of input tax credit

Section 74(1) of the Act provides that where it appears to the proper officer that input tax credit has been wrongly availed or utilized by reason of fraud, or any willful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

Section 74(2) provides that the proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

Section 74(10) provides that the proper officer shall issue the order within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within five years from the date of erroneous refund.

Limitation for retaining the seized documents

The issue to be discussed in this article is the limitation period for the Department to retain the laptop, computer and other documents seized in the course of inspection and search.  Section 67 of the Act deals with the retention of goods seized in search and seizure as discussed above.  In case of search for wrong availment of input tax credit, if laptop, computer and other documents are seized the limitation period is as per the provisions of section 74 of the Act.  In DHRUV KRISHAN MAGGU VERSUS PRINCIPAL DIRECTOR GENERAL, DGGI (HQRS.) , RK PURAM, NEW DELHI & ANR. - 2022 (12) TMI 654 - DELHI HIGH COURT, the High Court held that the Department may retain the laptop, computer and other documents up to four and half years from the date of seizure.

In the above said case the DGGI received a communication from the Chief Manager of Allahabad Bank, Delhi that certain high level transactions related to refund of GST credited to four bank accounts which were newly opened.  The said amount was immediately withdrawn from the accounts.  DGGI observed that the address of the four accounts is same.  The said four accounts were frozen.  The total amount of credit of refund is to the tune of Rs.10.32 crores.  The Department conducted searches in the said premises and found that the four entities are non existence and non functional.

The Department recorded the statements of the proprietors of all the entities.  They stated that they were not aware of any details.  They have given their identity cards to one Shri Mukesh Kumar and also signed in many documents.  DGGI observed that 23 firms were opened in the names of the laborers, drivers, cooks, street hawkers etc.  The DGGI found that certain individuals including Mr. Dhruv Maggu, the present Petitioner, Mr. Ramesh Wadera and Mr. Sanjeev Maggu and his brother Mr. Akhil Krishan Muggu were found to be involved in the process of availing IGST refunds and siphoning the same.  The GST refund to the extent of Rs.63 crores have been siphoned off by them. 

In the process of unearthing these transactions the search and seizure were conducted at B-773, Sushant Lok-1, Gurugram, Haryana in which computer, laptops, documents and other documents were seized on 28.08.2019.  The four firms and individuals filed writ petitions seeking defreezing of their bank accounts.   But the said writ petitions were withdrawn by them in the later period.  The petitioner in the present writ petition sought return of his laptop, computer, documents and other things which were seized by the DGGI in a search conducted on 28.08.2019 vide panchnama dated 28.08.2019.

The petitioner submitted the following before the High Court-

• Since the petitioner was involved in this case, his family is sought to be implicated.
• Despite substantial time having lapsed since 28.08.2019, when the seizure took place from the petitioner, computer, laptops, documents, etc., are not being released. 
• When such seizure is affected, within six months, the goods ought to be returned.
• There is no proper seizure which has been made in the present petition.
• Since the authorities have already taken the backup of the data the main laptop ought to be released to the petitioner.

The Department submitted the following before the High Court-

• Section 67(7) would not be applicable in the present case, as there were no goods which were seized.
• In the present case confiscation has taken place of ‘documents, books or other things’ which would be governed by Section 67(2) of the Act.
• As per second proviso of Section 67(2), so long as ‘the documents, books, or other things’ are required for enquiry or proceedings under the Act, the same can be retained by the officer. 
• Under Section 74 (10) of the Act, when a determination of tax is to be made in respect of Input Tax Credit which is wrongly availed of by reason of fraud or willful misstatement or suppression to evade tax, the proper officer has to pass an order within a period of five years.
• In the present case, Section 67(2) read with Section 67(3), Section 74(2) and Section 74(10) would show that the period as prescribed in these provisions have not yet lapsed and in view thereof, the respondents would proceed in accordance with law.
• It was able to unearth a scam involving GST refunds and the petitioner and his family was found to be complicit in the same.

The High Court considered the submissions of the parties to the present writ petition.  The High Court analyzed the provisions of section 67 and section 74 of the Act.  The High Court observed that there is a clear distinction between ‘inspection, search and seizure of documents or books or things’ and ‘seizure of goods’.  The first proviso of section 67(2) would apply to seizure of goods and the second proviso would apply in respect of documents or books or things.  As per Section 67(7) when goods are seized, the said seized goods have to be returned to the person who whom they were seized within six months of the seizure of goods, unless and until, the proper officer, on sufficient cause, extends the same for a further period of not exceeding then 6  months.  In the case of documents or books or things, the same can be retained by the officer for so long as it is required for examination and for inquiry of proceedings under the Act.

The High Court further observed that Section 74 of the Act deals with wrong availment of Input Tax Credit on grounds of egregious nature such as fraud, willful misstatement or suppression of facts.  The present case would be governed by Section 74 owing to the nature of the seizure made, the facts revealed and the investigation currently being conducted.  Section 74(2) requires the proper officer to issue a show-cause notice as per Section 74, at least six months prior to the time limit specified in Sub-section 74(10) for issuance of the order.   According to section 74(10) the proper officer has five years from the date of erroneous refund to, pass the order.

The High Court observed that by a conjoint reading of sections 67(2) second proviso, 67(3), 74(2), 74(10) the ‘documents or book or things’ can be retained for a maximum period of four and half years, within which period the notice has to be issued, plus thirty days from the date of erroneous refund. In the present case, the said period had not yet lapsed.   Therefore the High Court rejected the prayer of the petitioner for the return of laptop, computer and other documents to the petitioner.  The High Court further directed the authorities to proceed in accordance with law and adhere to the timelines which are prescribed in law.