Confiscation of Godown - Whether GST Authorities can arbitrarily confiscate Godown?

[RENGARAJ R.K]

Introduction:    Time and again from the very introduction of  GST, the  dealers are facing series of problems from the GST authorities, apart from filing of various GST Returns,  in transportation of goods, generating E way bills, detainment and seizure and confiscation of goods etc., Many dealers are now and then approaching the Hon’ble High Courts by filing writ petitions and get  relief for each such problem.  Now a question arises whether the GST authorities can arbitrarily confiscate and seal the Godown. Recently, the Hon’ble Gujarat High Court in the case of Anopsinh Kiritsinh Sarvaiya Vs State of Gujarat [2020 (2) TMI 529 - GUJARAT HIGH COURT] held that Godown of dealers cannot be sealed by Goods and Service Tax authorities without having reasons to believe that goods stored were liable for confiscation.

Facts of the case: The writ applicant claims to be an agriculturist. It is his case that he owns a godown bearing No.14, situated at the Marketing Yard at Gondal, District: Rajkot. According to him, the said Godown No.14, situated at the Marketing Yard has been given on rent to five distinct entities, namely, (I) Ajayraj & Co. (ii) Dharamraj Exports (iii) Kamani Exports (iv) R.L. Enterprise and (5) Ruturaj & Co. This particular godown is used by the above referred entities for the purpose of storing agricultural produce like cotton bales and cotton yarn. According to him, the relationship is that of landlord and tenant. According to him, the relationship is that of landlord and tenant. The GST authorities under the Central Goods and Service Tax Act visited the godown, and in exercise of power under section 67 of the Central Goods and Service Tax Act, applied seal on the godown.

According to Central Goods and Services Tax Act, 2017 & Gujarat Goods and Services Tax Act, 2017 search activity has been conducted in the case above dealer/transporter but due to reason given below, it is decided to cessation the search activity.

Reasons:

1	To avail Wrong ITC
2	Collected tax wrongly & not deposited to Govt. Treasury
3	Try to neglect searching team
4	Non-Co-operation in search process

The applicant contended “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 Central Goods and Service Tax (CGST) Act, and in the course of the search or inspection, if they would have found goods liable to confiscation, then such goods could have been seized.” Before the High Court, the applicant contended that if the Department have any suspicion that the five dealers have stored goods or other articles which are liable to confiscation, then the GST authorities could have seized such goods and documents a 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 division bench consisting of Justice J. B. Pardiwala and Justice Bhargav D. Karia held, “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.” The bench further said, “the High Court is trying 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.”

Section 67 of the Act, 2017 is with regard to power of inspection, search and seizure. Section 67(2), relevant for our purpose, reads as follows:

“(2) 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 authorise 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:

Provided that 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 officer:

Provided further that 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.”

8. Section 67(4), also relevant for our purpose, reads thus;

“(4) The officer authorised 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.”

After hearing the both sides arguments, the HC disposed of the W.P with the following directions

“(i) The officials of the Department, who are present in the Court today for the purpose of assisting the learned AGP, makes a statement that they will visit the place where the godown in question is situated on 10th February, 2020 at 2:00 p.m. They further make a statement that 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.

(i) Once the aforesaid exercise is completed, it shall be open for the writ applicant to takeover the possession of the godown. At the same time, we direct the writ applicant to remain present on 10th February, 2020 at 2:00 p.m. at the place where his godown is situated with the documents evidencing ownership. However, the authorities should not be more concerned with the contractual relationship between the writ applicant and the dealers. We are still not able to understand why the authorities, under the GST Act, are insisting for proof of ownership and rent agreement. We are of the view 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.”

Conclusion: It is implied from the above case law that unless there is reasons to believe that the articles stored in the godown is liable for confiscation, the GST authorities cannot arbitrarily confiscate and seal the Godown.

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R.K RENGARAJ, Advocate

The author is a director in Ms Lore Tax Professionals Private Ltd., Coimbatore and can be reached at [email protected]

Discussions to this article

[Rachit Agarwal]

Further as per Section 67(4)- Sealing of the Premises is allowed subject to where taxable has denied to authority to enter the place of business. In my Opinion where is no denail, sealing of the premises is not permissible as per the law.

The officer authorised 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.

Para 9 of the Judgement

[RENGARAJ R.K]

Dear Mr Agarwalji,

In this article i have pointed out and discussed the issue relating to particular issue, as per the HC decision. Opinion may differ case to case basis.

Any how thanks for your comments

rengaraj, advocate and tax consultant