2019 (3) TMI 916 - HC - GST

Search and seizure operation carried out - UPGST Act - reasons to believe - whether the search and seizure was carried out by observing the 'substantive due process' as well as the 'procedural due process'? - Held that - As regards the substantive due process, which has to be followed before any search, can be carried out, is contained under sections 67(1) and 67(2) of the U.P. GST Act and prior to exercise of the said powers, it is essential that the officer authorizing the search should have 'reasons to believe.' The principles that are culled out from the catena of decisions referred above is that the 'reasons to believe' should exist and should be based on reasonable material and should not be fanciful or arbitrary. It is also established that this Court in exercise of its powers under Article 226 cannot go into the sufficiency of the reasons and should not sit as an appellate court over the reasons recorded. It is also well established that the reasons may or may not be communicated to the assessee but the same should exist on record. The petitioner has thus failed to even establish that the procedure followed during the search was illegal or tainted with mala fides. Thus, the writ petition fails and is liable to be dismissed. Validity of the confiscation order passed under Section 130 of the UPGST Act - Held that - In the present case, the petitioner had informed the authorities concerned to defer the adjudication on confiscation because the issue of validity of the search was engaging the attention of the High Court, despite the fact that there was no stay order restraining the respondents from passing the confiscation order but in all fairness as the hearing was going on at the High Court, the respondent authorities should have awaited the outcome of the challenge made to the search by the petitioner - the matter remanded before the said authority to adjudicate on the question of confiscation afresh.

Issues Involved:
1. Legality of the search and seizure operation.
2. Validity of the confiscation order.
3. Procedural irregularities during the search and seizure.
4. Existence of "reasons to believe" for conducting the search and seizure.

Detailed Analysis:

1. Legality of the Search and Seizure Operation:
The petitioner challenged the search and seizure conducted on 13th and 14th March 2018, arguing it was illegal, arbitrary, and a colorable exercise of statutory powers. The petitioner alleged that the search was conducted without proper "reasons to believe" as required under Section 67 of the U.P. GST Act. The respondents countered by stating that the search was based on valid reasons, including suspicious transactions and interception of goods on 11.3.2018. The court held that the Department had "reasons to believe" and conducted the search and seizure operations accordingly. The court emphasized that it could not question the sufficiency of the reasons but only their existence, which was established.

2. Validity of the Confiscation Order:
The petitioner also challenged the confiscation order dated 29.10.2018, arguing that it was passed ex parte without proper opportunity for the petitioner to present their case. The court noted that Section 130(4) of the UPGST Act mandates an opportunity of hearing before passing a confiscation order. The court found that the respondent authorities should have awaited the High Court's decision on the search's validity before proceeding with the confiscation. Consequently, the court quashed the confiscation order and remanded the matter for fresh adjudication after giving the petitioner an opportunity of hearing.

3. Procedural Irregularities During the Search and Seizure:
The petitioner alleged several procedural irregularities, including obtaining signatures on blank papers, arbitrary recording of stock figures, and using witnesses brought from Kanpur. The respondents denied these allegations, stating that the search was conducted as per the law, and the witnesses were genuine. The court found no cogent evidence to support the petitioner's claims of procedural irregularities or mala fide actions by the respondents. The court accepted the respondents' explanation for the overwriting in the weighment sheets and the presence of witnesses.

4. Existence of "Reasons to Believe" for Conducting the Search and Seizure:
The petitioner argued that the search and seizure were conducted without proper "reasons to believe" as required under Section 67 of the U.P. GST Act. The court examined the documents presented by the respondents and found that the "reasons to believe" were based on valid material, including the interception of goods and suspicious transactions. The court held that the Department had valid reasons to conduct the search and seizure, and the writ petition failed on this ground.

Conclusion:
The court dismissed the writ petitions challenging the search and seizure operations, finding that the Department had valid "reasons to believe" and conducted the search as per the law. However, the court quashed the confiscation order due to procedural lapses and remanded the matter for fresh adjudication after giving the petitioner an opportunity of hearing. The court also dismissed related writ petitions for similar reasons, except for one where the "reasons to believe" were not produced.

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