2020 (8) TMI 418 - HC - GST

Dismissed appeal upholds legality of GST Act proceedings, search/seizure actions, and bank account attachment. No substantiation for harassment claims.

The appeal was dismissed, affirming the legality of proceedings under the Central Goods and Services Tax Act, the validity of search and seizure actions, ... Power of inspection, search and seizure under Section 67 - Authorization by an officer not below the rank of Joint Commissioner - Document Identification Number (DIN) requirement and exceptions for communications - Concurrent audit under Section 65 and investigation under Section 67 - Voluntary payment under Section 74(5) and its relation to Sections 49 and 50 - Acceptance of cash/cheque during investigation under proviso to Rule 87(3) - Provisional attachment of bank accounts under Section 83 in the context of Section 67 proceedings - Judicial review under Article 226 where allegations lack substantiationDocument Identification Number (DIN) requirement and exceptions for communications - Validity of seizure order and summons in absence of DIN and applicability of DIN-exceptions - HELD THAT: - The Court held that the Central Board's DIN requirement aims at transparency and an audit trail but does not render invalid a seizure order issued in the presence of the person at the time of inspection. Exhibit P4 (seizure order) issued to the appellants in their presence did not require a DIN and need not be subsequently regularised; summons and other communications, where applicable, must bear a DIN but here the summons were regularised by generation of DIN during the proceedings and the appellants accepted the genuineness of those DINs. Consequently the contention that Exhibit P4 was invalid for lack of DIN failed. [Paras 9, 10, 11]Exhibit P4 and the summons are not invalidated for lack of DIN; the DIN requirement does not vitiate the seizure made in the presence of the appellants.Power of inspection, search and seizure under Section 67 - Authorization by an officer not below the rank of Joint Commissioner - Whether the search and seizure effected by the Senior Intelligence Officer (SIO) was invalid for want of requisite 'reasons to believe' under Section 67 - HELD THAT: - The scheme of Section 67 empowers a proper officer not below the rank of Joint Commissioner to inspect and, where satisfied, to authorize another officer to search and seize. The statutory 'reason to believe' required of the officer not below the rank of Joint Commissioner is that goods liable to confiscation or material relevant to proceedings are secreted in a place; that officer may then authorize another officer. The authorization (Form GST INS-01) showed the Directorate General had reason to believe as required and the SIO was validly authorized under Section 67(2). The reasons recorded by the authorized officer in Exhibit P4 as to prima facie relevance of seized material flowed from and were consistent with the authorization and did not vitiate the seizure. Reliance on the principle that a statutory order must stand on its recitals (Mohinder Singh Gill) was held inapplicable to the authorization/authorization chain under Section 67. [Paras 12, 13, 14, 15]Search and seizure effected by the SIO were valid because the SIO was properly authorized under Section 67 and the requisite reason to believe was recorded by the competent officer.Concurrent audit under Section 65 and investigation under Section 67 - Permissibility of simultaneous audit under Section 65 and investigation under Section 67 - HELD THAT: - The Court distinguished routine audit under Section 65 from the more onerous investigation under Section 67 and held that they are independent procedures. Initiation of an investigation under Section 67 while an audit under Section 65 was pending did not, by itself, render the investigation invalid. The appellants had been issued notice calling for details and the progression from notice to audit and then investigation did not establish that the appellants were taken by surprise; the Court accepted the Department's stand that, in view of investigation commencing, the audit would not be continued. [Paras 16, 17]Simultaneous initiation and continuation of audit and investigation is not impermissible; no infirmity found in commencing Section 67 proceedings while Section 65 audit was pending.Voluntary payment under Section 74(5) and its relation to Sections 49 and 50 - Acceptance of cash/cheque during investigation under proviso to Rule 87(3) - Rule 142 and intimation prior to deposit - Legality of accepting a cheque/payment during investigation and whether such acceptance required prior notice, assessment or generation of prescribed electronic forms - HELD THAT: - The Court analysed Chapters on Payment and Assessment and held that Sections 49 and 50 govern voluntary payments and do not limit the mechanism by which a person may tender payment during an investigation. Section 74(5) permits the person under investigation to pay tax, interest and a reduced penalty before a notice under Section 74(1); Rule 142(2) permits such voluntary payment and its subsequent intimations/formal acknowledgement. The proviso to Rule 87(3) (c) authorises an officer carrying out investigation or enforcement activity, or an officer authorised by him, to collect amounts by cash, cheque or demand draft during investigation or enforcement, and such collection need not follow generation of the regular forms. Accordingly, the cheque tendered (Exhibit P3) was held received in a manner sanctioned by the statute and rules; the Court found no extortion on the statutory/Rule basis and noted the cheque remained unencashed. [Paras 20, 21, 22, 23, 24]Acceptance of the cheque/payment during investigation was permissible under Section 74(5) and the proviso to Rule 87(3); Rule 142 does not make such payment dependent on prior intimation by the officer.Provisional attachment of bank accounts under Section 83 in the context of Section 67 proceedings - Validity of attachment of bank accounts in the present case where Section 67 proceedings were pending - HELD THAT: - The Court declined to examine in depth attachment orders made after dismissal of the writ petition, observing limits of appellate review in this proceeding, but addressed the legal principle distinguishing the present facts from Kaish Impex. In Kaish Impex the attachment was interfered with because Section 70 was not specified in Section 83 and the entity attached was twice removed from the person under investigation. Here, the accounts attached belong to the taxable person against whom Section 67 enquiry has been initiated; Section 83 provisional attachment for protecting revenue in the context of specified proceedings can apply. The Court also rejected the submission that natural justice mandates a hearing prior to attachment for protection of revenue, noting that prior notice may defeat the purpose of attachment; whether hearing is required before disbursal was left open. [Paras 25, 26, 27]Provisional attachment of the appellants' bank accounts in the context of Section 67 proceedings was not legally impermissible on the grounds advanced; Kaish Impex is distinguishable.Judicial review under Article 226 where allegations lack substantiation - Whether the writ petition should be entertained on allegations of harassment, illegal custody and extortion in absence of substantiating material - HELD THAT: - The Court held that allegations of harassment and high-handedness, unsupported by substantiating material, do not justify exercise of extraordinary writ jurisdiction. Search and seizure operations carried out by statutory authority may cause discomfort but such inconvenience, without corroborative material establishing illegality, cannot be characterized as unlawful detention or harassment in a petition under Article 226. The Court declined to adjudicate those allegations on merits in the writ jurisdiction and left open the appellants' remedy to pursue proceedings with supporting evidence. [Paras 11]Writ petition on grounds of harassment and coercion was premature and unsustained for want of substantiation; Article 226 relief refused on those points.Final Conclusion: The appeal is dismissed. The Court upheld the validity of the Section 67 authorization and seizure, found the DIN requirement inapplicable to seizure made in the appellants' presence, held that simultaneous audit and investigation did not vitiate proceedings, approved acceptance of payment/cheque during investigation under the statutory scheme and rules, and found provisional attachment of the appellants' bank accounts not impermissible on the grounds urged; allegations of harassment were not entertained for lack of substantiation. Issues Involved:1. Legality of the proceedings initiated under the Central Goods and Services Tax Act, 2017 (CGST Act).2. Validity of search and seizure proceedings under Section 67 of the CGST Act.3. Refund of Rupees One Crore collected by the respondents.4. Liability to pay GST on the revenue share retained by the Local Cable Operator (LCO).5. Compensation for damage to reputation and mental agony.6. Validity of the attachment of bank accounts.7. Simultaneous proceedings of audit and investigation.8. Allegations of harassment and high-handedness by the respondent-officers.Detailed Analysis:1. Legality of the Proceedings Initiated Under the CGST Act:The appellants argued that the entire proceedings were illegal and unauthorized, causing significant distress. They contended that the investigation under Section 67 was initiated without reasonable cause, despite an ongoing audit under Section 65. The respondents countered that the proceedings were within the statutory authority, and the search and seizure operations were conducted lawfully.2. Validity of Search and Seizure Proceedings Under Section 67 of the CGST Act:The appellants challenged the validity of the search and seizure, arguing that the Senior Intelligence Officer (SIO) was not authorized to conduct such operations under Section 67, which mandates authorization by an officer not below the rank of Joint Commissioner. The court found that the SIO was properly authorized under Section 67(2) by an officer of the required rank, and the reasons to believe were duly recorded. The court held that the authorization and subsequent actions were valid and in compliance with the statutory requirements.3. Refund of Rupees One Crore Collected by the Respondents:The appellants claimed that Rupees One Crore was extorted from them under duress, evidenced by Exhibit P3. They argued that the payment was not voluntary and violated CGST Rules, specifically Rule 87. The court found that the cheque was issued voluntarily, albeit under protest, and its receipt was sanctioned by the statute and rules. The court noted that the cheque remained unencashed due to pending legal proceedings and directed that the department could proceed with encashment in accordance with the prescribed procedure.4. Liability to Pay GST on the Revenue Share Retained by the LCO:The court did not specifically address this issue in detail, as it was not the primary focus of the appeal. The appellants can pursue this matter through appropriate legal proceedings if desired.5. Compensation for Damage to Reputation and Mental Agony:The court held that allegations of harassment and high-handedness could not be substantiated in a petition under Article 226 of the Constitution. The court found that the search and seizure operations, although causing discomfort, were lawful and necessary. The court did not express any opinion on the allegations, leaving the appellants to pursue appropriate proceedings if they wish to substantiate their claims.6. Validity of the Attachment of Bank Accounts:The appellants produced orders of attachment of their bank accounts, which were issued after the disposal of the writ petition. The court found that the attachment orders were valid as they were issued in the context of ongoing proceedings under Section 67. The court noted that the attachment was necessary to protect the interest of the revenue and did not require prior notice or hearing.7. Simultaneous Proceedings of Audit and Investigation:The appellants argued that simultaneous proceedings of audit and investigation were not permissible. The court found that audit under Section 65 is a routine procedure, while an investigation under Section 67 is a more onerous procedure initiated based on specific reasons to believe. The court held that there was no infirmity in continuing both proceedings simultaneously, but noted that the audit would not be continued in light of the ongoing investigation.8. Allegations of Harassment and High-Handedness by the Respondent-Officers:The court dismissed the allegations of harassment and high-handedness, stating that such claims could not be substantiated in a petition under Article 226. The court emphasized that the search and seizure operations were conducted lawfully and any discomfort experienced by the appellants was a necessary consequence of the investigation.Conclusion:The appeal was dismissed, with the court upholding the validity of the proceedings under the CGST Act, the search and seizure operations, and the attachment of bank accounts. The court found no evidence of harassment or high-handedness and held that the cheque issued by the appellants was voluntary. The appellants were advised to pursue appropriate legal proceedings if they wished to substantiate their claims further.