2019 (3) TMI 916 - HC - GST

Court upholds search legality, quashes confiscation order, remands for fresh adjudication

The court upheld the legality of the search and seizure operation, finding that the Department had valid reasons to conduct it. However, the confiscation ... 'reasons to believe' - search and seizure under Section 67 - substantive due process - procedural due process - opportunity of hearing under Section 130(4) - confiscation under Section 130 - quashing and remand for fresh adjudication'reasons to believe' - search and seizure under Section 67 - substantive due process - Existence and sufficiency of 'reasons to believe' for authorising search and seizure under Section 67 of the U.P. GST Act. - HELD THAT: - The Court examined whether the Department had material on which a 'reason to believe' could be formed before directing the search on 13.3.2018. The record produced before the Court included contemporaneous 'reasons to believe' and the Department relied upon intercepted information, including a suspicious e-way bill and other material available prior to the search. Applying settled principles, the Court observed that a writ forum will not reappraise the sufficiency or adequacy of those reasons and that such reasons need only exist on the record and be based on reasonable material rather than fanciful grounds. Although an earlier judicial order later set aside an interception in related proceedings, as on the date of the search the Department possessed materials which furnished a basis for belief. Consequently the Court upheld formation of 'reasons to believe' and rejected the challenge to the search insofar as it rested on absence of such reasons.The search and seizure was lawfully authorised on the basis of existing 'reasons to believe'; the challenge to validity of the search on that ground is dismissed.Procedural due process - search and seizure under Section 67 - Alleged procedural infirmities in the conduct of search and seizure (non-weighment/eye-estimation of stocks, overwritings, and independence of chance witnesses). - HELD THAT: - The Court addressed complaints that weighment was not performed despite availability of a weighbridge, that inventories were based on eye-estimation, that overwritings rendered records unreliable, and that witnesses were not independent. On the question of witness independence, the Court held that to impugn witnesses as interested it must be shown they were dependent on the investigating agency for livelihood; that factual burden was not discharged. Regarding overwritings and corrections, the Court accepted the Department's explanation that mistakes were corrected and the corrected sheets were signed by nominated representatives of the petitioner. The petitioner failed to produce cogent evidence of mala fides or that the procedural steps adopted tainted the exercise of power.Procedural challenges to the manner of search and seizure are rejected; the alleged irregularities do not vitiate the operation as tainted by mala fide exercise of power.Confiscation under Section 130 - opportunity of hearing under Section 130(4) - quashing and remand for fresh adjudication - Validity of the ex parte confiscation order passed without concluding adjudication while the High Court was entertaining challenge to the search; whether the order complied with the mandated opportunity of hearing under Section 130(4). - HELD THAT: - The confiscation order impugned was passed ex parte. Although the authorities contended notices were issued and the petitioner had sought adjournment pending High Court adjudication of the search challenge, the statutory mandate in Section 130(4) requires that an opportunity of hearing be granted before passing a confiscation order. In the circumstances of ongoing High Court proceedings, the Court held that, as a matter of fairness and in view of the statutory requirement, the confiscation order could not stand without fresh adjudication affording the petitioner an opportunity to be heard. Accordingly the impugned order was quashed and the matter remitted for de novo adjudication in accordance with law and after hearing the petitioner.The confiscation order is quashed; the matter is remanded to the adjudicating authority to decide confiscation afresh after granting statutory opportunity of hearing in terms of Section 130(4).'reasons to believe' - Disposition of connected writs where 'reasons to believe' were placed on record by the respondents. - HELD THAT: - In the connected petitions, where the Department produced its recorded 'reasons to believe' on the file and those reasons did not appear fanciful or arbitrary on perusal, the Court applied the same principle that it will not reassess sufficiency of the material. Thus those petitions were dismissed for lack of merit. One connected petition (Writ Tax No. 659 of 2018) was not decided because the respondents did not place the reasons before the Court.Writ petitions in which the respondents produced non-fanciful 'reasons to believe' are dismissed; the petition where reasons were not produced was left undecided.Final Conclusion: The challenge to the search and seizure on the ground of non-existence of 'reasons to believe' and on procedural grounds is rejected; however the ex parte confiscation order is quashed and remitted for fresh adjudication after granting the petitioner the opportunity of hearing in terms of law. Connected petitions in which 'reasons to believe' were produced are dismissed; one petition was not decided for want of production of reasons. 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.