TMI Blog2021 (7) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... 67 cannot be exercised. The expression reasons to believe is found in various statutes concerned with revenue laws, and therefore, has undergone a forensic analysis, metaphorically speaking, by Courts, in several cases. What is clear is that before the proper officer not below the rank of Joint Commissioner decides to either conduct the search and seizure himself or authorize another person in writing to do the same, he should have, reasons to believe, that any goods are liable to be confiscated or any documents or books or things which, are useful or relevant to any proceedings under the CGST Act, are secreted in any place - In this case, the search and seizure was conducted by an Inspector of the CGST Delhi North Commissionerate based on the authorization of the Additional Commissioner of the same department i.e. CGST Delhi North Commissionerate. Admittedly, in the instant case, no investigations were carried out against RJT by the CGST Delhi North Commissionerate. The authorization, (and qua which there is no dispute) was based on the communication dated 05.03.2021 addressed by Joint Commissioner (AE), Gautam Budh Nagar to the Additional/Joint Commissioner, CGST Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. [in short RJT ] wherein, in effect, the reliefs sought are for issuance of the following directions. i. For setting aside and quashing the order of prohibition whereby goods inventoried in panchnama dated 05.03.2021 have been detained by respondent no. 5. ii. Issuance of a writ, order or direction, like a mandamus to the respondents to release the goods detained under the aforementioned prohibition order dated 05.03.2021. iii. To declare the search conducted on the premises of RJT as illegal since it did not align with the provisions of Section 69 [sic Section 67] of the Central Goods and Services Tax (CGST) Act, 2017 [in short CGST Act ]. iv. Lastly, award costs. 2. Before we proceed to adjudicate the writ petition, it would be relevant to advert to certain facts, circumstances, as also assertions, made in the pleadings by the parties. Background facts: - 3. RJT claims that it obtained registration with the GST department and was, accordingly, issued a registration certificate on 20.09.2020. 3.1. RJT also claims that it is inter alia in the business of trading in cigarettes which are supplied to it by authorised dealers of well-known manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sr.No. Description of books/documents/things seized No. books/documents/things seized/Period of Remarks/Page No./Invoice No. A-1 Purchase Invoice Box file - 1 to 779 A-2 Purchase Invoice Box file - 1 to 843 A-3 Purchase Invoice Box file - 1 to 911 A-4 Sales Invoice Box file - 1 to 873 A-5 Sales Invoice Box file - 1 to 963 A-6 Miscellaneous file Stock register details 1 to 219 3.5. As would be evident, the officers of DGGI (AZU), amongst the documents seized on 14.02.2021, resumed a miscellaneous file that contained stock register details . 3.6. It appears that on the very same date i.e. 14.02.2021, summon's were issued to one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to provide the stock register maintained at RJT s premises. Based on this, a conclusion appears to have been drawn, something which is also recorded in the panchnama, that the concerned officer had formed a reasonable belief that the goods i.e. the cigarettes packed in 190 corrugated boxes were meant for illicit trade/supply . [See page 138 of the paper book.] 4.1. Consequently, the concerned officer detained the 190 corrugated boxes (cartons) and left them in the custody of Mr. Jaskirat Singh under supurdnama of even date i.e. 05.03.2021. This apart, a seizure document was drawn up in Form GST INS -02 in respect of documents that had been seized. The seizure of documents in the exercise of powers under Section 67(2) of the CGST Act was prefaced by the following reasoning. [See page 141 of the paper book.] And on scrutiny of document/papers and goods found during the search, I have reasons to believe that certain goods liable to confiscation and documents useful/relevant to proceedings under this Act are secreted in [the] place mentioned above. 4.2. The premises referred to is the registered office of RJT where the search was conducted. 4.3. Besides this, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Aditya Singla represented respondent no. 3. 5.1. After giving an opportunity to the respondents to file a counter-affidavit in the matter, it was made returnable on 25.05.2021. In the very same order, it was recorded that RJT will move an application within 5 days of the said order and that the concerned officer will consider the same and if the request was found viable, would release the goods, on the terms deemed fit. A direction was also issued that an authorised representative of RJT would be heard and a speaking order will be passed within 3 days of the application being made, bearing in mind, that the goods were perishable. 5.2. It appears, although, an application was made, the same was not disposed of, which propelled RJT to file an application i.e. CM No. 15935/2021 before this Court seeking compliance of aforesaid directions. Given the fact that Mr. Singh informed us that a date had been fixed for disposal of the application, Mr. Manish chose not to press the application. Consequently, the main matter was re-notified for the date already fixed i.e. 25.05.2021. 5.3. On 25.05.2021, we were informed by Mr. Manish that respondent no. 3 had not filed its counter-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods valuing ₹ 43,82,38,044/- and out of which, they have received [the] payment through RTGS of ₹ 40,84,95,964/- till 11.03.2021 and since the goods valuing ₹ 2,03,66,354/- have been returned and as on date, ₹ 93,75,726/- is the remaining amount to be received from the said party in Delhi. The officers in presence of we the panchas withdraws the documents relating to returned goods from M/s R.J. Traders under the reasonable belief that the same will be helpful in the investigation of the case. The said documents are enclosed with this panchnama as GST INS 02. 5.5. Furthermore, the transporter i.e. Shrinath Cargo (P) Ltd. who had transported the goods of M/s Mahadev Agencies to RJT's premises also had its premises searched on 13.03.2021. In the panchnama, drawn up at the time of the search, inter alia, the following was recorded. [See PDF page 551 of the paper book] On being asked about bills/invoices related to M/s Mahadev Agencies (GSTN: xxx) and M/s R.J. Trading Co. (GSTN: xxx) Shri Kirtan Pandya informs the officers that they don't keep any invoices because they return the original invoices along with goods and delivery sl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or things which, in his opinion, would be useful for or relevant to proceedings under the said Act are secreted in any place. The proper officer, in turn, under the provisions of Section 67(2) is authorised, albeit, in writing to confer upon any other officer of central tax to search and seize. Furthermore, under the first proviso, of Section 67(2), the proper officer or such officer as authorised by him has been given the power to serve an order either on the owner or custodian of goods, to not remove, where it is not practicable to seize any such goods, the officer or e, part with, or otherwise deal with the goods except with the previous permission of such office wherever it is not practicable to seize any such goods. iv. The exercise of powers under this provision was flawed on several counts. First, since goods and documents were found in the registered premises of RJT, they were not secreted in any place as contemplated under the said provision. Second, before exercising powers of search and seizure the proper officer was required to form reasons to believe that the goods were liable for confiscation or any documents or books or thing useful for or relevant to any procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Importantly, the CGST Commissionerate, Gautam Budh Nagar who ascertained the genuineness of the aforementioned transporter i.e. M/s New Star Cargo had requested the Superintendent, CGST Amritsar to conduct an enquiry. Upon summons being issued on 10.03.2021, a statement of the concerned person was recorded, whereby, he explained how goods were transported. Inter alia the following was recorded. Question: Is this GR issued by you/your firm? Answer : Yes. It can be seen from [the] Transport document/GR Booklet/Book which I have brought with me. Question : Please tell the type of vehicle used for transportation of goods in question. Answer : The vehicle is Bus bearing no. HR 68 B 1447. This bus belongs to me and is run from Amritsar-Delhi-Amritsar. Question : Are goods mentioned in GR No. 958 dated 04.03.2021 was[sic: were] actually transported to Delhi. Answer : Yes. All the goods mentioned in GR No. 958 dated 04.03.2021 [were] actually transported to Delhi from my Bus bearing HR 68 B 1447. Question : Do you know the supplier of goods M/s Blue Water Agencies? Answer : I know M/s Blue Water Agencies. The firm is my regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers] and recipient[s]. Question : Whether the permit of Bus allows to carry[sic: carrying] sensitive goods? Answer : [A] Bus permit is to carry [a] passenger. All buses commuting between Delhi: Amritsar: Delhi carry commercial goods. The restriction is only not to increase the height of bus with goods and we do not transport goods on roof of [the] bus. We always transport goods inside the bus. vi. The respondents have deliberately withheld the information that at the behest of GST Commissionerate, Gautam Budh Nagar, an enquiry was conducted by CGST Amritsar as indicated above on 10.03.2021 which revealed that goods supplied by M/s Blue Water Agencies had been delivered to RJT. Besides this, RJT has also placed on record, a video clip showing loading and unloading of goods. In a nutshell, the search and seizure and the resultant issuance of the impugned prohibition order and resumption of documents had no legal basis: the goods detained are supported by relevant documents i.e. e-invoices/tax invoices/e-waybills and transporter challans, and the respondents have made enquiries both with the suppliers as well as the transporters all of which only goes to es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase bills, GST challan files which were resumed during the search, prima facie, were not found relevant vis-a-vis the goods available in stock with RJT. The stock register which ought to have been maintained by RJT at the premises was not provided. Therefore, based on a reasonable belief that the goods found lying at RJT s premises were not backed by corresponding purchase documents, they were seized . iv. The officer who conducted the search and seized the goods and documents had been conferred with the necessary authorization in the prescribed form [GST INS 01] by one, Mr. Rajender Jindal, Additional Commissioner. The authorization was given on 05.03.2021 in favour of one, Mr. Naveen Sharma, Inspector CGST. v. The investigations conducted into M/s Mridul Tobie Inc. s affairs gave the Additional Commissioner, who authorized the search at RJT s premises, reasons to believe that the goods that may be found therein were liable to be confiscated. Therefore, the exercise of power under Section 67(2) of the CGST Act was in consonance with the provisions of law. vi. RJT was required to maintain the stock register on a real-time basis. The obligation to maintain a stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling cigarettes. The cigarettes are purchased by RJT, from what appears to be wholesale dealers of manufacturers, such as ITC Ltd. ii. On 14.02.2021, DGGI (AZU), paid a visit at the RJT's principal place of business to conduct a search. Upon carrying on a search, the officers found stored 1,08,000 cigarette sticks, that were duly accounted for. However, for further investigations, DGGI (AZU), amongst other documents, seized RJT's file containing stock details. iii. On 05.03.2021, a communication was addressed by Joint Commissioner (AE) Gautam Budh Nagar to the Additional/Joint Commissioner (AE), CGST Delhi North Commissionerate, seeking assistance in carrying out physical verification i.e. establishing the existence of L2 category supplier of an entity, which was being investigated by his office. The entity, which was being investigated, was M/s Mridul Tobie Inc. and its L2 supplier, whose existence was to be established, was none other than RJT. This communication also requested that a search be conducted at the principal place of business of RJT (as detailed out therein) since it would aid in investigating the affairs of M/s Mridul Tobie Inc. Pertinently, this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of documents seized. xxx xxx xxx e) Likewise, the order of prohibition dated 05.03.2021 qua the 190 cartons of cigarettes containing 22,26,000 sticks was also passed by the same person i.e., Mr. Naveen Sharma, Inspector, CGST Delhi North Commissionerate. This order also uses the same language, as is found in the order of seizure. 9. Given the aforesaid facts, one needs to examine, as indicated above, whether or not, the exercise of power by CGST Delhi North Commissionerate under Section 67(2) of the CGST Act can be sustained. 9.1. A careful perusal of Section 67 of the CGST Act would show that it confers, on the proper officer, not below the rank of a Joint Commissioner, power of inspection, search and seizure. Subsection (1) of Section 67 deals with, inspection. This power can be exercised only if the proper officer has reason to believe that eventualities provided in subclause (a) or (b) of subsection (1) of Section 67 have occurred. Subsection (2) of Section 67, on the other hand, confers, on the proper officer, not below the rank of the Joint Commissioner, the power to search and seize goods, documents or books or things, either pursuant to an inspecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd seizure at RJT's premises; was not conducted pursuant to an inspection carried out under subsection (1) of Section 67. The conduct of search and seizure, in this case, appears to have been carried out under the cover of the omnibus term otherwise provided in subsection (2) of Section 67. 9.5. However, what is clear is that before the proper officer not below the rank of Joint Commissioner decides to either conduct the search and seizure himself or authorize another person in writing to do the same, he should have, reasons to believe, that any goods are liable to be confiscated or any documents or books or things which, in his opinion, are useful or relevant to any proceedings under the CGST Act, are secreted in any place. In this case, as noted above, the search and seizure was conducted by an Inspector of the CGST Delhi North Commissionerate based on the authorization of the Additional Commissioner of the same department i.e. CGST Delhi North Commissionerate. Admittedly, in the instant case, no investigations were carried out against RJT by the CGST Delhi North Commissionerate. The authorization, as noticed above, (and qua which there is no dispute) was based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion, what was important for the respondents to ascertain: whether the goods, i.e., 190 cigarette cartons which were found in RJT s principal place of business, had been delivered there pursuant to a genuine purchase transaction. As is well-known, stock registers are not primary documents. 9.9. The case set up by RJT that primary documents evidencing the purchase transaction such as e-invoice, tax invoice, e-way bill and transporter challans, were made available, has gone unrebutted except, a vague plea that documents found were unrelated. Besides this, on behalf of RJT, it has been correctly submitted that Section 35 on which reliance was placed by the respondents in support of their plea that maintenance of stock register was mandatory, states in no uncertain terms, in the second proviso, that the registered person (in this case, RJT) may keep and maintain such accounts (which includes stock of goods) and other particulars in electronic form, in such manner, as may be prescribed. RJT claims [and there is no rebuttal qua this aspect], that details of stock were available, in electronic form. [See Annexure P-9 appended on page 100 of the paper book] 10. Furthermore, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dh Nagar conveyed through the communication dated 05.03.2021, was only to ascertain as to whether RJT, which was the L2 supplier of M/s Mridul Tobie Inc., was in existence. There was no independent application of mind by the Additional Commissioner, CGST Delhi North Commissionerate. 13. The officers concerned should bear in mind that the search and seizure power conferred upon them, is an intrusive power, which needs to be wielded with utmost care and caution. The legislature has, therefore, consciously ringfenced this power by inserting the controlling provision, i.e., reasons to believe . 14. Although it has been argued on behalf of RJT, that a perusal of both, the order of prohibition and seizure, would show that the inspector has exercised the power on his own and not based on the authority of the proper officer i.e. the Additional Commissioner, we need not delve on this aspect any further, as it appears, the concerned officer, i.e., the inspector used a prescribed form without taking the trouble of modifying having known that he was not the proper officer but someone who was authorised to act on behalf of the proper officer. Because we have concluded, that the authoriza ..... X X X X Extracts X X X X X X X X Extracts X X X X
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