2023 (9) TMI 996 - HC - GST

GST goods dealing prohibition orders u/s67(2) treated as seizure; show-cause notice after six months upheld.

An order under the first proviso to s.67(2) CGST Act (prohibiting dealing with goods) can be made only where the authority already has 'reason to believe' ... Power of inspection, search and seizure - Order prohibiting dealing with goods (proviso to Section 67(2)) treated as seizure - Temporal limitation for issuing show cause notice in respect of seized goods - Consequences of failure to issue notice within six months - Distinction between detention and seizureOrder prohibiting dealing with goods (proviso to Section 67(2)) treated as seizure - Power of inspection, search and seizure - Whether an order passed under the first proviso to Section 67(2) of the CGST Act operates as a seizure for all practical purposes. - HELD THAT: - The Court held that the first proviso to Section 67(2) applies only when it is not practicable to effect physical seizure, and that the condition of a 'reason to believe' that goods are liable for confiscation must exist before such an order is passed. The proviso permits directing the owner or custodian not to part with the goods where physical seizure is impracticable, but this order is not a mere interim device to enable the officer to decide later whether to seize; rather, an order of prohibition is, for all intents and purposes, an order of seizure and must be predicated on the same satisfaction that would justify seizure. Consequently, the proviso cannot be used as a stop gap while the authority forms its opinion afresh. [Paras 10, 11, 12, 19]An order of prohibition under the proviso to Section 67(2) of the CGST Act is, in effect, an order of seizure and must be based on the 'reason to believe' that the goods are liable for confiscation.Temporal limitation for issuing show cause notice in respect of seized goods - Consequences of failure to issue notice within six months - Whether a show cause notice issued after the six month period in sub section (7) of Section 67 is invalid and whether goods must be returned where no notice is issued within six months. - HELD THAT: - The Court observed that sub section (7) of Section 67 contemplates return of seized goods if no notice in respect thereof is issued within six months (subject to extension on sufficient cause). However, the provision prescribes the consequence of non issuance as return of goods; it does not render a subsequently issued notice invalid per se. Thus, the statutory consequence for failure to issue the notice within the stipulated period is the return of goods, but the enactment does not postulate automatic invalidity of a notice issued after six months. [Paras 16, 19, 21]Failure to issue a notice within six months attracts the statutory consequence of return of the goods, but a show cause notice issued after six months is not ipso facto invalid under Section 67; the statute prescribes return as the consequence rather than automatic invalidation of later notices.Consequences of parallel confiscation proceedings - Judicial restraint where confiscation order is subject matter of separate petition - Whether the Court in this petition could direct return of goods notwithstanding that an order of confiscation has been passed and is the subject matter of a separate proceeding. - HELD THAT: - The Court noted that an order of confiscation had been passed subsequently and challenged in another writ petition. It held that it would be inappropriate to direct return of the goods in the present petition without adjudicating the merits of the confiscation order, which is pending in a separate proceeding. Accordingly, the present petition cannot be used to circumvent or pre empt the consideration of the confiscation order in the other petition. [Paras 20, 22]No direction for return of goods was granted in this petition because the validity of the confiscation order is being contested in a separate petition; rights and contentions regarding confiscation are reserved for that proceeding.Final Conclusion: The Court held that an order under the proviso to Section 67(2) is, in effect, a seizure requiring the same satisfaction as a physical seizure; non issuance of a notice within six months attracts the statutory consequence of return but does not automatically invalidate a subsequently issued show cause notice; and no direction for return was made in this petition because a confiscation order has been passed and is pending challenge in a separate proceeding, with all rights reserved. Issues Involved:1. Legality of the search conducted under Section 67(2) of the CGST Act.2. Validity of the impugned show cause notice issued beyond the period specified under Section 67(7) of the CGST Act.3. Whether the seized goods are liable to be returned if the notice is not issued within six months.Summary:Issue 1: Legality of the search conducted under Section 67(2) of the CGST ActThe petitioner challenged the searches conducted on 05.05.2022 and 26.08.2022, claiming they were done without any reason to believe that there was suppression of transactions or stock. The court noted that the proper officer must have reasons to believe that the goods are liable for confiscation before passing any order under the proviso to Sub-section (2) of Section 67 of the CGST Act.Issue 2: Validity of the impugned show cause notice issued beyond the period specified under Section 67(7) of the CGST ActThe petitioner argued that the show cause notice issued on 01.03.2023 was beyond the six-month period specified under Sub-section (7) of Section 67 of the CGST Act, making it liable to be quashed. The court observed that the goods were seized on 21.09.2022, and the show cause notice was issued within six months from the seizure date. The court held that the notice issued after six months of the order of prohibition is not invalid and rejected the petitioner's challenge on this ground.Issue 3: Whether the seized goods are liable to be returned if the notice is not issued within six monthsThe petitioner contended that the goods seized should be returned as the notice was issued beyond the six-month period. The court referred to the Gujarat High Court's decision in Devesh Radheshyamji Kabra v. State of Gujarat and noted that if no notice is issued within six months from the date of seizure, the goods must be returned. However, since an order of confiscation was already passed and is the subject of another petition, the court did not pass any further orders regarding the return of goods.Conclusion:The court concluded that no further orders were required in this petition as the order of confiscation is subject to another writ petition. The challenge to the impugned show cause notice on the ground of being issued after six months was rejected. The petition was disposed of with all rights and contentions of the parties regarding the confiscation of goods reserved.