2019 (7) TMI 471 - HC - GST

Evasion of GST - Jurisdiction of inspect and search - Power to issue Seizure (prohibition) order - Proper authorization or not - Violation of the principles of natural justice - powers conferred under the provisions of Section 67(2) of the Goods and Service Tax Act, 2017 - reasons to believe - goods in the nature of cotton seeds and bales - HELD THAT - Clause (2) of section 67 of the Act, 2017 makes it clear that if 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. The first proviso to clause (2) further clarifies that if it is not practicable to seize any such goods, the proper officer, or any officer authorised 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. Clause (6) provides that the goods so seized under sub-section (2) can be released on a provisional basis upon execution of a bond and furnishing a security in such manner and on such quantum as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be. Even at this stage, the authority concerned is empowered to release the seized goods on a provisional basis upon asking the writ applicant to execute a bond and also furnishing security of a particular quantum. Thus, even if the authority has reason to believe that the goods liable to be confiscated are likely to be secreted, the authority will have the power to pass an order of prohibition pursuant to the order of seizure. The Assistant Commissioner is the person who has been authorised by the Proper Officer under section 67 of the Act to carry out the search and seizure. We fail to understand why it has been stated in the Form that he had reason to believe that certain goods were liable to confiscation and are secreted in the place mentioned in the order. The reasonable belief was entertained by the the Proper Officer. The Assistant Commissioner appears to have merely carried out the orders of the superior officer namely the Appropriate Officer not below the rank of the Joint Commissioner. In the case on hand, it appears from the stance of the respondent No.4, as indicated in the Affidavit-inreply that the Assistant Commissioner of State Tax was authorised by the office of the Commissioner of State Tax (Enforcement) to inspect and carry out the search and seizure. To this extent, the orders of prohibition and seizure / Form - GST-INS-02 as well as the Form GST-INS-03 appears to be defective. The writ applicant is permitted to invoke clause (6) of section 67 of the GST Act and prefer an appropriate application before the appropriate authority for release of the seized goods on provisional basis upon execution of a bond and furnishing a security to the satisfaction of the concerned authority. Application disposed off.

Summary

Issues Involved:
1. Legality of the order of prohibition of goods.
2. Compliance with principles of natural justice.
3. Prematurity of the prohibition order.
4. Validity of the seizure order.
5. Procedural compliance under Section 67 of the GST Act, 2017.

Detailed Analysis:

1. Legality of the order of prohibition of goods:
The court examined whether the Assistant Commissioner of State Tax (Enforcement) Division-3, Gandhinagar, committed any error in passing the order of seizure and prohibition. The court noted that the Proper Officer, not below the rank of Joint Commissioner, had reasons to believe that the writ applicant had contravened the provisions of the GST Act to evade tax, thus justifying the authorization for search and seizure under Section 67 of the Act. The court emphasized that the belief must be that of an honest and reasonable person based on relevant materials and circumstances. The court found that the proper officer authorized the Assistant Commissioner to carry out the search and seize goods, documents, or books, and pending confiscation proceedings, action was taken under Section 67 of the Act.

2. Compliance with principles of natural justice:
The petitioner argued that the impugned order of prohibition was in clear violation of the principles of natural justice and contrary to the powers conferred under Section 67(2) of the GST Act. The court, however, found that the statutory requirement of reasonable belief, rooted in the information in possession of the Proper Officer, was to safeguard the citizen from vexatious proceedings. The court noted that the satisfaction of the Proper Officer was based on the belief that the goods were liable to confiscation and likely to be secreted, which justified the issuance of the order of prohibition.

3. Prematurity of the prohibition order:
The petitioner contended that the order of prohibition was premature as the department had neither determined any liability in adjudication proceedings nor issued any assessment order determining any liability contemplated in law. The court observed that the confiscation proceedings had been initiated against the writ applicant by issuing notice under Sections 73 and 74 of the Act, and pending these proceedings, action was taken under Section 67 of the Act regarding search, seizure, and prohibition. The court found that the whole object was to preserve and protect the goods or books or documents pending the determination of the tax liability.

4. Validity of the seizure order:
The petitioner argued that the seizure order lacked details of the goods seized, implying no valid seizure of goods in accordance with law. The court referred to the statutory provisions and case law, emphasizing that the power to search and seize under Section 67 of the GST Act is a general power, and it is essential that the preliminary conditions required by the section must be strictly satisfied. The court found that the Assistant Commissioner of State Tax (Enforcement) was authorized by the Proper Officer to carry out the search and seizure, and the order of seizure was in accordance with law.

5. Procedural compliance under Section 67 of the GST Act, 2017:
The court examined whether the procedural requirements under Section 67 of the GST Act were met. The court noted that the words "where the proper officer has reasons to believe" suggest that the belief must be based on relevant materials and circumstances. The court found that the satisfaction of the Proper Officer was based on the belief that the goods were liable to confiscation and likely to be secreted. The court observed that the statutory requirement of reasonable belief is to safeguard the citizen from vexatious proceedings, and the belief must be that of an honest and reasonable person based on relevant materials and circumstances.

Conclusion:
The court concluded that the order of prohibition was in accordance with law. The court permitted the writ applicant to invoke clause (6) of Section 67 of the GST Act and prefer an appropriate application for the release of the seized goods on a provisional basis upon execution of a bond and furnishing a security to the satisfaction of the concerned authority. The writ application was disposed of accordingly.