2023 (6) TMI 406 - HC - GST

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. ... Investigation, inspection and search or seizure in a Special Economic Zone - authorisation of officers as proper officers for carrying out proceedings in SEZ - treatment of supplies to or by SEZ unit as inter state supply - territorial fiction of SEZ and limits of its exclusion from domestic laws - due process safeguards under Section 67 of the GST statutes - abuse of process and imposition of costs for frivolous or delaying litigationInvestigation, inspection and search or seizure in a Special Economic Zone - authorisation of officers as proper officers for carrying out proceedings in SEZ - treatment of supplies to or by SEZ unit as inter state supply - due process safeguards under Section 67 of the GST statutes - Whether respondent Nos.4, 5 and 6 acted without jurisdiction or authority in initiating search, seizure and related proceedings at the petitioners' SEZ unit and residential/business premises under the GST/SEZ statutes. - HELD THAT: - The Court examined Section 22 of the SEZ Act (investigation, inspection, search or seizure), Section 6 of the GGST Act (authorisation of officers as proper officers) and the IGST provisions treating supplies to or by SEZ units as inter state supplies. The statutory scheme permits an officer or agency authorised by the Central Government to carry out search, seizure or investigation in an SEZ and, where so authorised, such measures may be undertaken without prior approval of the Development Commissioner. The Central Government had issued requisite authorisations (notification dated 5.8.2016) and the functions of proper officers under CGST have been defined by circulars referred to by respondents. The IGST regime treats supply to or by SEZ units as inter state trade and does not render SEZ units outside the reach of GST/inspection measures. The factual material placed by respondents (analytics, intel inputs, spot verifications and alleged large scale bogus transactions) furnished prima facie reasons to believe and justified initiation of coordinated multi state search and related proceedings under Section 67 and summons under Section 70. In the circumstances, there was no legal inconsistency between the SEZ Act and GST enactments that would bar the respondents from acting, and the petitioners failed to establish lack of authority or jurisdiction of respondent Nos.4, 5 and 6 to proceed. [Paras 17, 18, 19, 20, 21]Petitions dismissed on the ground that respondent Nos.4, 5 and 6 were acting within their statutory authority and not without jurisdiction; extraordinary equitable jurisdiction was not exercised to interfere with the investigations.Abuse of process and imposition of costs for frivolous or delaying litigation - Whether the petitions constituted an abuse of process warranting refusal of relief and imposition of costs. - HELD THAT: - The Court found that the petitions were filed in circumstances where significant prima facie material had been placed before the authorities and that the petitioners' conduct after issuance of notices-indicating non cooperation and seeking to await court orders-suggested an attempt to frustrate or delay the statutory process. Having regard to the nature and volume of the alleged irregularities and the public interest in effective enforcement, the exercise of extraordinary equitable jurisdiction was not justified. The filing was treated as an abusive litigation tactic meriting a deterrent response. [Paras 22, 23, 24, 25]Petitions dismissed as an abuse of process; costs of Rs.10,000 for each petition ordered to be paid to the Gujarat State Legal Services Authority within ten days, non payment to be recoverable as arrears of land revenue.Final Conclusion: The petitions were dismissed on merits and for being an abuse of process: the State authorities were held to have had jurisdiction and prima facie cause to initiate coordinated search, seizure and related proceedings in respect of the SEZ units, and costs were imposed on the petitioners. 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.