2025 (6) TMI 660 - HC - GST

Search and seizure - issuance of authorization in Form INS-01 and seizure list in Form INS-02 - HELD THAT - Prima facie it would transpire that the seizure and search proceeding was conducted sometime in July 2024 and the petitioner did not approached this Court immediately thereafter. After more than 8 months the petitioner has approached this court. The e-mail seeking copy of the INS-1 and INS-2 have also been issued after more than 8 months from the date of search and seizure operations. At this stage only a notice in DRC 1A has only been issued. No show cause has yet been issued on the petitioner. At present the petitioner claims to be a registered taxpayer. At this stage the petitioner is not entitled to any interim order. The matter is made returnable in the Monthly List of June 2025. The petitioner is given opportunity to apply if occasion arises. Any steps taken by the respondents shall abide by the result of the writ petition.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the search and seizure operation conducted on July 12, 2024, at the petitioner's business premises complied with the procedural requirements under Section 67 of the WBGST & CGST Act, 2017, read with Rule 139(1) of the WBGST and CGST Rules, 2017, specifically regarding issuance of authorization in Form INS-01 and seizure list in Form INS-02.
• Whether the failure to provide copies of the authorization (INS-01) and seizure list (INS-02) to the petitioner amounts to a violation of statutory procedure, thereby rendering the search and seizure invalid.
• Whether the initiation of proceedings under Section 74 of the said Act by issuance of notice in DRC-01A dated March 24, 2025, is legally sustainable, especially given the petitioner's claim of exemption from GST registration due to turnover below Rs. 20 lakhs as per GST Circular No. 10/2017.
• Whether the ordinary procedure for assessment of unregistered persons under Section 63 of the Act should have been invoked instead of search and seizure proceedings.
• Whether the delay of over eight months in approaching the Court after the search and seizure operation affects the petitioner's entitlement to interim relief or affects the merits of the challenge.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with procedural requirements of search and seizure under Section 67 and Rule 139(1)

The legal framework mandates that any search and seizure must be authorized by a proper authorization in Form INS-01 and that a seizure list in Form INS-02 must be prepared and handed over to the person searched. This ensures transparency and safeguards against arbitrary action.

The petitioner contends that the authorization was not issued at the time of search and seizure, and that the seizure list was not provided, which are procedural lapses. The petitioner further sought copies of these documents by written communication dated April 8, 2025, which remain undisclosed.

The Court notes these allegations but also observes that the petitioner did not approach the Court promptly after the search and seizure operation, which took place in July 2024, but only after more than eight months. The delay weakens the petitioner's claim of immediate prejudice.

While the Court recognizes the importance of strict compliance with procedural safeguards, it also notes that no final show cause notice or adjudication order has yet been issued, and the matter is at the stage of issuance of a notice under DRC-01A.

The Court did not conclusively determine the validity of the search and seizure at this stage but implied that the petitioner's delay and the ongoing nature of proceedings affect the entitlement to interim relief.

Issue 2: Validity of initiation of proceedings under Section 74 and applicability of exemption under GST Circular No. 10/2017

The petitioner claims exemption from GST registration based on turnover not exceeding Rs. 20 lakhs in the financial year, as per GST Circular No. 10/2017, and thus contends that the proceedings under Section 74 (which deals with determination of tax not paid or short paid or erroneously refunded) are a colourable exercise of power.

The petitioner argues that since the business was unregistered due to exemption, the proper procedure for assessment should be under Section 63, which deals with assessment of unregistered persons, rather than search and seizure or Section 74 proceedings.

The Court notes these submissions but does not rule on the merits at this stage. It observes that only a notice under DRC-01A has been issued and no adjudication or show cause notice has been served yet.

The Court's approach indicates that the petitioner's entitlement to challenge the initiation of Section 74 proceedings on the basis of exemption and procedural impropriety will be examined at a later stage, after the issuance of show cause notice and further developments.

Issue 3: Delay in approaching the Court and entitlement to interim relief

The petitioner's delay of over eight months in filing the writ petition after the search and seizure operation is a significant factor considered by the Court. The Court highlights that the petitioner also delayed seeking copies of the statutory forms (INS-01 and INS-02).

Given the delay and the fact that the proceedings are at a preliminary stage (only a notice under DRC-01A has been issued), the Court holds that the petitioner is not entitled to any interim relief at present.

The Court directs that any steps taken by the respondents shall abide by the result of the writ petition, indicating that the petitioner's challenge will be considered on merits in due course.

3. SIGNIFICANT HOLDINGS

The Court's reasoning includes the following crucial observations:

"Prima facie, it would transpire that the seizure and search proceeding was conducted sometime in July 2024 and the petitioner did not approach this Court immediately thereafter. After more than 8 months, the petitioner has approached this court."

"At this stage, only a notice in DRC 1A has only been issued. No show cause has yet been issued on the petitioner."

"Having regard thereto, I am of the view that at this stage, the petitioner is not entitled to any interim order."

"Any steps taken by the respondents shall abide by the result of the writ petition."

The Court establishes the principle that procedural compliance in search and seizure operations is essential but must be asserted promptly to be effective. Delay in challenging such actions may affect the availability of interim relief.

Further, the Court recognizes that the initiation of proceedings under Section 74 against an unregistered person claiming exemption is a matter requiring detailed adjudication and cannot be summarily quashed at the notice stage.

The final determination on the issues raised is deferred pending further proceedings and adjudication. The Court has not granted any interim relief but has allowed the writ petition to be listed for further hearing, providing the petitioner an opportunity to apply for relief as the