2021 (1) TMI 702 - HC - GST

GST search action upheld despite challenges over witness signatures and panchnama under Section 67

RCI Industries And Technologies Ltd Through Its Director Rajeev Gupta Versus Commissioner DGST Delhi & Ors.

Delhi HC upheld the validity of GST search action under Section 67 of DGST Act, 2017. The court rejected petitioner's challenges regarding absence of ... Validity of action of search carried out at the Petitioner’s business premises - Section 67 of the Delhi Goods and Services Tax Act, 2017 (DGST Act) read with Rule 139 of the DGST Rules, 2017 - another search action in relation to the same period, despite the Petitioner being earlier subjected to search action at the hands of the Central Authorities - HELD THAT:- If an officer of the Central GST initiates intelligence- based enforcement action against a taxpayer administratively assigned to State GST, the officers of the former would not transfer the said case to their counterparts in the latter department and they would themselves take the case to its logical conclusion. At this stage, we are only concerned with the search action initiated and the ultimate logical conclusion would have to be gone into at the appropriate stage, when the Revenue proceeds for determination of tax. The Respondents would be bound by the aforenoted circulars and we reiterate that in case the action of the State and Central Authorities is overlapping, the Petitioner would be at liberty to take action to impugn the same in accordance with law. Absence of the two independent witnesses - HELD THAT:- There is no panchnama on record. In essence, the main thrust of Petitioner’s argument is that the statement of Mr. Rajeev Gupta does not record the presence of the two independent witnesses or signatures, making the search action illegal. We have already dealt with the contention of the Petitioner regarding the alleged involuntary/forced statement and in view of our observations made hereinabove, this issue, is rendered insignificant. Further, no specific provision is shown to us that deals with recording of statement in search action. The only relevant section is Section 70, which does not entail signatures of witnesses. Be that as it may, determination of tax liability, has to be in accordance within the confines of statutory provisions of the GST laws. We reiterate that the evidentiary value of the aforenoted statement, and the effect of payment of tax and interest made pursuant thereto, are issues which would have to be gone into at the stage of adjudication. There are no merit in the contention of the Petitioner that absence of the signature of the authorised person on Form GST INS-01 would render the search action to be non-est. Mr. Babbar does not dispute that the persons who carried out the search were indeed those whose names has been mentioned in the said authorisation, and they had displayed their identity cards at the time of search. It is also not the case of the Petitioner that the officers who carried out the search did not properly discharge their official duty or otherwise acted in furtherance of some extraneous purpose. The absence of signatures does not manifest an absence of delegation of power in favour of the team which conducted the search action. Further, the provisions of DVAT Act quoted in the documents also cannot render the proceedings as illegal. The erstwhile Act is saved by the repeal and saving provisions of the DGST Act, 2017. Reasons to believe to inspect and search the premises of the Petitioner - HELD THAT:- The Courts can interfere and hold the exercise of power to be bad in law only if the grounds on which reason to believe is founded have no rational connection between the information or material recorded; or are non-existent; or are such on which no reasonable person can come to that belief. The reasons to believe shown to us demonstrate that the Appropriate authority had the reasons, as per mandate of Section 67(2) of the DGST Act alongwith relevant Rules, for formation of belief to carry out the search. Applying the test of reasonable man, we cannot say that there is no application of mind while issuing search warrant. Applying the test of reasonable man, we cannot say that there is no application of mind while issuing search warrant. Thus, we would not like to countermand the action taken against the Petitioner - Petition disposed off. Issues Involved:1. Legality of the search action under Section 67 of the DGST Act, 2017.2. Alleged harassment by the CGST Authorities.3. Parallel enquiries by State and Central GST Authorities.4. Compliance with procedural requirements during the search.5. Validity of the statement recorded during the search.6. Relevance of the Delhi Value Added Tax Act, 2004 in the search documents.7. Adequacy of reasons to believe for conducting the search.Detailed Analysis:1. Legality of the Search Action:The petitioner challenged the search action conducted on 30th September 2020 under Section 67 of the DGST Act, 2017, arguing that it was illegal and unlawful. The court, however, found that the search was lawful and within the confines of the law, as the officers were duly authorized and competent to carry out the search. The court noted that the reasons to believe justifying the search action were provided and found to be adequate.2. Alleged Harassment by CGST Authorities:The petitioner claimed harassment by the CGST Authorities, citing multiple searches, including one on 7th March 2020, which was quashed by the Punjab and Haryana High Court. The court did not find this argument compelling enough to invalidate the current search by the State GST Authority, as there was no substantial cause of action presented.3. Parallel Enquiries by State and Central GST Authorities:The petitioner argued that parallel enquiries by State and Central GST Authorities were not permissible under Sections 5 and 6 of the DGST Act, 2017. The court noted that there was no overlap in the periods under investigation by the State and Central Authorities. The court also referred to guidelines and clarifications issued by the Central Board of Indirect Taxes and Customs, which allow for cross-empowerment of officers for intelligence-based enforcement actions.4. Compliance with Procedural Requirements:The petitioner contended that the search was conducted without the presence of two independent witnesses, as required under Section 67(10) of the DGST Act, 2017, and Sections 165(4) and 100(4) of the Code of Criminal Procedure, 1973. The court found this argument insignificant, noting that there was no specific provision requiring witness signatures on statements recorded during a search. The court emphasized that the absence of witnesses did not invalidate the search action.5. Validity of the Statement Recorded During the Search:The petitioner argued that the statement recorded during the search was coerced and should not be given effect. The court found no merit in this argument, noting that the statement had not been retracted and that the petitioner had agreed to pay the admitted tax and penalty. The court stated that the admissibility of the statement would be determined during the adjudication of the tax demand.6. Relevance of the Delhi Value Added Tax Act, 2004:The petitioner argued that references to the Delhi Value Added Tax Act, 2004, in the search documents vitiated the action. The court held that the provisions of the DVAT Act are saved under Section 174(2)(c) of the CGST Act, 2017, and can be resorted to for adjudication purposes for dues pertaining to the period before the promulgation of the CGST Laws.7. Adequacy of Reasons to Believe:The petitioner challenged the adequacy of reasons to believe for conducting the search. The court reviewed the reasons provided and found them to be sufficient, noting that the formation of belief by the proper officer met the statutory requirements. The court emphasized that its scrutiny was limited to ensuring that the conditions specified under the statutory provision were met and found no grounds to countermand the search action.Conclusion:The court dismissed the petition, finding no substantial cause of action to invalidate the search action. The court upheld the legality of the search conducted under Section 67 of the DGST Act, 2017, and found the procedural and substantive grounds raised by the petitioner to be without merit. The court clarified that it had not expressed any opinion on the merits of the case, leaving the determination of tax liability to the appropriate stage of adjudication.