Power of Inspection, search and seizure

[Mr. M. GOVINDARAJAN]

Section 67 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) is with regard to the power of inspection, search and seizure.  Section 67(2) of the Act provides that where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out 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.

Where it is not practicable to seize any such goods, the proper officer, or any officer authorized by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such office.

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(4) of the Act provides that the officer authorized under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.

Issue

The issue to be discussed in this article is whether the GST Authorities can seal the premises of a person which have been given on rental basis to the business entities with reference to decided case law.

Case law

In ‘ANOPSINH KIRITSINH SARVAIYA VERSUS STATE OF GUJARAT [2020 (2) TMI 529 - GUJARAT HIGH COURT], the writ petitioner is the agriculturist.  The petitioner owns a godown which was given on rent to five distinct entities.  The said godown is used by the said entities for the purpose of storing agricultural produce like cotton bales and cotton yarn.  The relationship between the said entities and the petitioner is the tenant and the landlord.

The GST Authorities on 17.11.2018 visited the godown.  The Authorities applied seal on the godown.  Against this sealing of the godown the petitioner filed the writ petition before the High Court.  The writ petitioner prayed for the following reliefs-

• quash and set aside the sealing memos in relation to the Godown No.14 situated at Makerting Yard, Gondal;
• pending the admission, hearing and final disposal of this petition, stay the implementation and operation of the impugned sealing memos in relation to the Godown No.14 situated at Marketing Yard, Gondal.

The petitioner submitted the following before the High Court-

• There is no point in keeping the godown sealed for an indefinite period.
• The authorities ought to have undertaken the search by breaking open the lock as they are empowered to do so under Section 67(4) of the Act,
• In the course of the search or inspection, if they would have found goods liable to confiscation, then such goods could have been seized.
• Since 2018 till this date, there has been no further action on the part of the Department.
• The petitioner is ready and willing to cooperate.
• If the authorities would like to look into the documents of ownership etc., then he is ready and willing to produce those documents.
• The seal should be now removed from the godown without prejudice to the right of the Department to proceed against the occupants or the users of the godown, i.e., the dealers.

The State Authorities submitted the following before the High Court-

• The action which has been taken by the GST Authorities is in accordance with law.
• The five dealers, who are jointly in occupation of the godown and who have stored their goods in the godown, have contravened the provisions of the Act and the Rules and, therefore, they are liable to be proceeded in accordance with law.
• The authorities have the power under Section 67(4) of the Act to affix the seal on the premises.
• There being no merit in this writ application, the same be rejected.

The High Court heard the submissions put forth by both the parties.  The High Court observed that the plain reading of the contents of the sealing memos would indicate that after the seal was affixed, the authorities had to stop further action for the reasons recorded in the memos.  It has also been stated that the place of business is found to be closed and no authorized person was found to be present.  It is not the case of the respondents that the writ applicant is also involved along with the dealers in one way or the other.

The High Court observed that if it is the case of the Department that the five dealers have stored goods or other articles which are liable to confiscation, then the authorities could have seized such goods and documents long time back. Once the goods and other articles are seized from the premises, then there could be no good reason to keep the godown in a sealed condition. In the case on hand, the writ applicant, being the owner of the godown is concerned with the seal which has been affixed and which continues as on date.  The proper officer did not show anything that they had any reasons to believe that the goods stored in the godown in question are liable to confiscation.  The High Court wanted to find a way out, by which, the seal can be removed without prejudice to the rights of the department to proceed against the dealers in accordance with law.

The High Court directed the Authorities to make a Statement that-

• The officials of the Department will visit the place where the godown in question is situated on 10th February, 2020 at 2:00 p.m.
• They will break open the seal and undertake the search of the godown by drawing appropriate Panchnama.
• If there are reasons to believe that the goods stored in the godown are liable to confiscation or any documents or books or things, which in their opinion, may be useful or relevant to any proceedings under this Act, then they may seize such goods, documents etc.

The High Court directed that once the aforesaid exercise is completed, it shall be open to the petitioner to take over the possession of the godown.  The petitioner would remain present on 10th February, 2020 at 2:00 p.m. at the place where his godown is situated with the documents evidencing ownership.

The High Court observed that the authorities cannot insist for such documents. If they want to proceed against the five dealers, they may proceed. They should be concerned with the goods or other articles stored in the godown which may be liable to confiscation. There is no point in keeping the godown closed with a seal affixed on it.