Gujarat HC dismisses petition challenging state authority jurisdiction in Special Economic Zones under SEZ Act Section 22

The Gujarat HC dismissed a petition challenging the territorial jurisdiction of state authorities to conduct search proceedings in Special Economic Zones. The petitioners argued SEZ constitutes foreign territory beyond state authority jurisdiction. The court held that under Section 22 of SEZ Act and Section 6 of GGST Act, Central Government has authorized officers to conduct searches in SEZ without prior approval. The court found petitioners registered under IGST Act, making them subject to investigation. The petition was dismissed with costs for attempting to delay legal proceedings and abuse of process.

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Issues Involved:
1. Jurisdiction of State Authorities under GGST and CGST Acts over SEZ Units.
2. Legality of Search and Seizure Operations.
3. Allegations of Bogus Transactions and Tax Evasion.
4. Equitable Jurisdiction of the Court.

Summary:

1. Jurisdiction of State Authorities under GGST and CGST Acts over SEZ Units:
The petitioners contended that their SEZ unit is a distinct foreign territory, tax neutral, and outside the ambit of CGST and SGST Acts. They argued that state authorities lacked jurisdiction to initiate proceedings under Sections 67 and 70 of the GGST Act, 2017 and CGST Act, 2017. The court examined Section 22 of the SEZ Act and Section 6 of the GGST Act, concluding that authorized officers of the Central Government could carry out search and seizure operations in SEZs without prior approval. The court held that the respondents were empowered to act under the GGST and CGST Acts, thus rejecting the petitioners' jurisdictional challenge.

2. Legality of Search and Seizure Operations:
The petitioners claimed that the search and seizure operations were conducted without due process and satisfaction as required under Section 67(1) of the GST Act. They argued that the operations were a roving inquiry and a colorable exercise of power. The court noted that the Development Commissioner, SEZ, was duly intimated before the search and seizure operations, and the actions were within the scope of the respondents' authority. The court found no merit in the petitioners' claim of illegality in the search and seizure operations.

3. Allegations of Bogus Transactions and Tax Evasion:
The respondents presented detailed analytics and intelligence inputs revealing that the petitioners engaged in voluminous bogus transactions and availed ineligible Input Tax Credit (ITC). The court noted that the petitioners showed significant bogus purchases from fictitious firms and availed fraudulent ITC, causing substantial revenue loss to the government. The court found the factual background compelling and indicative of serious irregularities, justifying the respondents' actions.

4. Equitable Jurisdiction of the Court:
The court emphasized that equitable jurisdiction should not be exercised in favor of petitioners involved in serious irregularities and tax evasion. It highlighted the petitioners' conduct of not cooperating with the authorities and attempting to thwart legal proceedings. The court referred to the Supreme Court's observations on the abuse of judicial process and the need for exemplary costs to deter frivolous litigation. Consequently, the court dismissed the petitions with costs of Rs. 10,000/- for each petition, to be paid to the Gujarat State Legal Service Authority within ten days.

Conclusion:
The court dismissed the petitions, upholding the jurisdiction of state authorities under the GGST and CGST Acts over SEZ units, validating the legality of the search and seizure operations, and recognizing the serious allegations of tax evasion and bogus transactions against the petitioners. The court imposed costs on the petitioners for abusing the judicial process.

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