2021 (7) TMI 924 - HC - GST

Search and seizure - Gold Flake Super Star cigarettes - illicit trade/supply - jurisdiction of CGST Delhi North Commissionerate - reasonsto believe - Whether or not, requisite statutory ingredients were present to enable the concerned respondents to exercise the power vested upon them under Section 67(2) of the CGST Act? HELD THAT - The first proviso to subsection (2) of Section 67 states that wherever 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 prior permission of such officer - What is crystal clear upon a perusal of the provisions of subsection (1) and (2) of Section 67 is that the expression reasons to believe controls the exercise of powers under the said provisions. Therefore, unless the basic jurisdictional facts exist, in a case, the power conferred under subsections (1) and (2) of Section 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 North Commissionerate. Both the order of seizure of documents and the order of prohibition, simply replicate the language of subsection (2) of Section 67 and the corresponding Rule i.e. Rule 139(2). Thus, the very trigger for conducting the search i.e. the authorization issued by the Additional Commissioner, CGST Delhi North Commissionerate was flawed and unsustainable in law - there was a reasonable explanation as to why the stock register was not found at the premises on the day i.e. 05.03.2021 when the search was conducted by CGST Gautam Budh Nagar/Noida with the assistance of the Delhi North Commissionerate. The Additional Commissioner, CGST Delhi North Commissionerate exercised his powers for according authorization to conduct search and seizure, at RJT's premises, even though the jurisdictional ingredients were absent. The request of Joint Commissioner (AE), Gautam Budh 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 - 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 . The application filed on behalf of RJT i.e. CM No. 16668/2021 which inter alia seeks a direction for setting aside the order dated 12.05.2021, directing the provisional release of goods, based on the terms contained therein - the search and seizure conducted by CGST Delhi North Commissionerate are declared unlawful - Petition disposed off.

Issues Involved:
1. Legality of the search and seizure conducted by CGST Delhi North Commissionerate.
2. Validity of the authorization issued for the search and seizure.
3. Compliance with statutory provisions under Section 67(2) of the CGST Act.
4. Maintenance and availability of stock register and supporting documents.
5. Provisional release of goods and the terms thereof.

Detailed Analysis:

1. Legality of the Search and Seizure Conducted by CGST Delhi North Commissionerate:
The court examined whether the requisite statutory ingredients were present to enable the concerned respondents to exercise the power vested upon them under Section 67(2) of the CGST Act. It was noted that the search and seizure were conducted based on an authorization issued by the Additional Commissioner, CGST Delhi North Commissionerate, at the behest of Joint Commissioner (AE), Gautam Budh Nagar. The search was conducted to verify the existence of RJT, an L2 supplier of M/s Mridul Tobie Inc. However, the court found that the communication from Joint Commissioner (AE), Gautam Budh Nagar did not provide any basis to believe that RJT’s goods were liable for confiscation or that any documents or books were secreted, which are prerequisites for forming a belief under Section 67(2).

2. Validity of the Authorization Issued for the Search and Seizure:
The court scrutinized the authorization issued by the Additional Commissioner, CGST Delhi North Commissionerate, and found it legally untenable. The authorization was based on a request to verify the existence of RJT without any independent application of mind by the Additional Commissioner. The court held that the authorization did not meet the statutory requirements of Section 67(2) of the CGST Act, which mandates that the proper officer must have "reasons to believe" that goods are liable for confiscation or documents are secreted.

3. Compliance with Statutory Provisions under Section 67(2) of the CGST Act:
The court noted that the expression "reasons to believe" controls the exercise of powers under Section 67(2) and requires actionable material that has a nexus with the formation of the belief. The court found that the search and seizure were conducted without such actionable material. The panchnama recorded during the search indicated that the goods were detained because the stock register was not produced, but this was explained by the fact that the stock register had been seized earlier by DGGI (AZU).

4. Maintenance and Availability of Stock Register and Supporting Documents:
The court observed that RJT had provided primary documents such as e-invoices, tax invoices, e-way bills, and transporter challans to support the purchase transactions of the goods found during the search. The respondents' claim that the documents were unrelated was not substantiated with evidence. The court also noted that RJT's stock details were available in electronic form, as permitted under Section 35 of the CGST Act.

5. Provisional Release of Goods and the Terms Thereof:
The court did not delve into the terms of the provisional release order dated 12.05.2021, as it found the authorization for the search and seizure itself to be legally untenable. Consequently, the court set aside the orders of seizure and prohibition dated 05.03.2021 and directed the release of the documents seized during the search.

Conclusion:
The court declared the search and seizure conducted by CGST Delhi North Commissionerate as unlawful. Both the orders of seizure and prohibition dated 05.03.2021 were set aside. The court directed the release of the seized documents to RJT, allowing the concerned officer to retain copies for further investigations if required. The writ petition and pending applications were disposed of, with no order as to costs.

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