2025 (9) TMI 1633 - HC - GST

Petition dismissed; Section 67 search and seizure upheld for suspected fake ITC after lawful tenant entry; remedies available

Genesis Enterprises, Kabun Enterprises OPC Private Limited, Aayme Sourcing Creations OPC Private Limited, A.V. Enterprises, Modern Creation, Glitz International, Fiore Enterprises OPC Private Limited, Bexley Creation Enterprises OPC Private Limited, Backbone Overseas Versus Principal Commissioner CGST Delhi East.

HC dismissed the petition and upheld the GST officers' search and seizure actions under Section 67, finding that senior officers had requisite reasons to ... Legality of search conducted by the officials of the CGST Department - proper officer had reasons to believe that there was large scale wrong-doing indulged in by the Gumber family - refund applications filed to the tune of Rs.5 crores, all of which were filed through fake ITC, without any actual supply of goods and services - seizing of the CCTV footage from the residence - violation of right to pivacy - HELD THAT:- The present case is one where the Petitioners are in effect seeking the intervention of this Court at the stage of investigation itself. Various allegations were initially raised against the officials of the GST Department. In terms of Section 67 of the Act, if the authorities suspect wrong-doing such as suppression of transactions, wrongfully claimed input tax credit in excess of entitlement, or has indulged in contravention of the provisions of the Act in order to evade tax, or has failed to declare either the premises where goods are kept or illegally transported goods likely to cause evasion of tax, the officers of the GST Department are permitted to inspect, search as also seize - However, a pre-condition for such inspection, search or seizure would be that a senior officer, not below the rank of Joint Commissioner, ought to have ‘reasons to believe’ that circumstances which necessitates either inspection, search or seizure, exists. In addition, the ‘reasons to believe’ also need to exist before any confiscation of goods, or documents, or books, or things is made. The ‘reasons to believe’ have to disclose that, such seized items are useful or are relevant for the proceedings under the Act. Even superdari seizure is also permitted. In terms of Section 67(7) of the Act, if seizure is effected under Section 67(2) of the Act, and no SCN is issued within a period of 6 months of the seizure of goods (extendable by a further 6 months on sufficient cause), the seized goods are liable to be returned to the person concerned. Moreover, proper inventory has to be made of the seized goods - It is pertinent to note that the safeguards and conditions under the Code of Criminal Procedure, 1973 (now BNSS, 2023) which apply to search and seizure would also apply. If the proper Officer has ‘reasons to believe’ that there is evasion or, an attempt to evade, reasons shall be recorded for retaining the seized goods or other things including documents, and a receipt of the same shall also be executed. Recently, in ITC Limited v. State of Karnataka & Anr. [2025 (9) TMI 1460 - SUPREME COURT], the Supreme Court was dealing with inspection, search, and seizure conducted under Section 15 of the Legal Metrology Act, 2009 (Legal Metrology Act) read with Legal Metrology (Packaged Commodities) Rules, 2011. In the said case, the premises of the Petitioner was inspected and certain stationery items such as books, notebooks, pencils, etc. were seized by the GST Department. The argument was that under Section 15 of the Legal Metrology Act, ‘reasons to believe’ was a condition precedent for conducting inspection, search, and seizure. A perusal of the second panchnama shows that the officials of the GST Department were given access into the premises by the tenant residing on first floor i.e, Smt. Kamlesh, who had handed over the keys to the officials of the GST Department. The Court is not convinced that the access to the business premises was unlawfully obtained, as is clear from the second panchnama, wherein the tenant who had a bunch of keys, had provided access to the officials of the GST department. It appears that the Gumber family was aware of the fact that the officials wanted to search the said premises and they were given access by the Tenant. Insofar as any other remedies which the Petitioner wish to avail of are concerned, the same are left open. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the search and seizure operations conducted by tax authorities complied with the jurisdictional pre-condition of 'reasons to believe' under the statutory provision empowering inspection, search and seizure. 2. Whether seizure and prospective use of residential CCTV footage and memory devices violated the right to privacy and, if so, what safeguards should govern access and copying of such footage. 3. Whether access to business premises by relying upon a tenant's keys (rather than direct accession by the person being investigated) rendered the search unlawful. 4. Whether communications by investigating officers (email/WhatsApp) and alleged informal coercion to reverse refunds/payment infringed legal norms and warranted relief at the investigation stage. 5. The scope and limits of judicial intervention at the stage of an ongoing investigation under the statutory scheme governing search and seizure. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of search and seizure: 'reasons to believe' under the statutory search/seizure provision Legal framework: The statutory provision grants inspection, search and seizure powers where a proper officer not below Joint Commissioner has 'reasons to believe' specified tax-evasion related circumstances; it permits seizure of documents/things useful or relevant to proceedings and prescribes safeguards including recording reasons, receipts and return of documents not relied upon. Precedent Treatment: The Court follows and applies coordinate and higher court authority holding that (i) the existence of reasons to believe is a jurisdictional fact, (ii) sufficiency of reasons is not amenable to detailed judicial re-weighing so long as there is material furnishing a rational basis for the belief, and (iii) the power is intrusive and to be exercised with care. Prior decisions cited include rulings that require a rational nexus between information and belief and that uphold searches where suppliers were non-existent or prima facie fraudulent chains existed. Interpretation and reasoning: The Court examined the investigating file and intelligence notes indicating a complex chain of apparently non-genuine suppliers, large suspect refund claims and preliminary verification showing non-operational entities and links to the family under investigation. On that material the statutory 'reasons to believe' pre-condition was satisfied at the prima facie stage; the exercise of the power was therefore not shown to be arbitrary or illegal on the present record. Ratio vs. Obiter: Ratio - Where intelligence and preliminary data analysis disclose a prima facie scheme (non-genuine suppliers, funnelled ITC, suspicious refunds), authorities recording reasons to believe may lawfully undertake search/seizure under the provision; judicial review is limited to examining whether some material existed to form the belief. Obiter - Observations on the investigative purpose of Section provisions (not recovery) and the need for care in use of intrusive powers. Conclusions: The Court concluded the searches were not vitiated for want of 'reasons to believe' and allowed investigation to proceed; no relief was granted on this ground. Issue 2 - Seizure/use of residential CCTV footage and right to privacy Legal framework: Seizure of documents/electronic devices is permitted if relevant to proceedings, but statutory safeguards (return of irrelevant material, limited retention) and applicable due-process principles (CrPC/SOPs) constrain access and use; privacy rights apply especially to family/residential footage. Precedent Treatment: The Court relied on precedents recognizing that search/seizure powers are subject to CrPC principles, that intrusive measures require strict compliance with procedure, and that seizure of documents must be for relevant evidence and not retained or used beyond necessity. Interpretation and reasoning: The GST Department asserted memory cards/hard disk of CCTV footage were seized but not accessed. The Court held that family/residential footage implicates privacy and cannot be used or disseminated without safeguards. To balance investigatory needs and privacy, the Court prescribed a procedure: access/viewing only in presence of at least one family member and an authorised representative, copying only relevant portions after joint viewing, and return of remaining footage. Ratio vs. Obiter: Ratio - Seized residential CCTV footage which implicates family privacy shall not be accessed or used except following specified safeguards (presence of family member/authorised representative, limited copying of only relevant material, return of remainder). Obiter - Emphasis that use/dissemination of family footage generally violates privacy and must be stringently regulated. Conclusions: The Court directed that the seized CCTV hard disk/memory cards be accessed only in presence of a family member and authorised representative; only relevant portions may be copied and remaining footage returned. Issue 3 - Lawfulness of entry into business premises via tenant's keys Legal framework: Statute permits sealing/breaking open of premises where access is denied; a search should ideally be effected with knowledge/participation of the person investigated unless exigent circumstances or recorded reasons justify forcible access under the statute. Precedent Treatment: The Court applied statutory text and prior authority emphasizing due process in conducting searches and that breaking open locks is permissible only after recording reasons to believe and following procedure. Interpretation and reasoning: The panchnama of the business premises showed the tenant produced a bunch of keys and admitted possession; the officers introduced themselves and showed the search authorization. The Court was not convinced access via the tenant was unlawful on the facts; however, it observed as a general rule that relying on a tenant's keys without knowledge of the investigated person may not be permissible and that officers should ordinarily ensure the person under investigation provides access or, if denied, follow Section 67(4) to break open locks after recording reasons. Ratio vs. Obiter: Ratio - On the present facts, access via tenant's keys was factually validated by the panchnama and not held unlawful. Obiter - General admonition that access through a tenant may be impermissible absent knowledge of the person under investigation; formal procedure for breaking locks must be adhered to. Conclusions: No illegality in entry was found on the present record; guidelines stated for future conduct where tenant access is relied upon. Issue 4 - Communications by officials and allegations of coercion/duress in payments/refund withdrawals Legal framework: Investigative communications should follow official modes and preserve traceability; informal modes (e.g., WhatsApp) are not ordinarily permissible and can give rise to allegations of impropriety; coercion/duress claims require factual adjudication in appropriate proceedings. Precedent Treatment: The Court relied on principles of due process and prior observations that investigative actions and communications must not be arbitrary and must be traceable. Interpretation and reasoning: The Court noted email communications should identify name/designation of the official and that WhatsApp use is generally impermissible except in exceptional circumstances; such communications expose officials to allegations and should be avoided. Regarding alleged payments under coercion, the Court found conflicting versions and held that coercion claims require deeper examination in appropriate adjudicatory fora - they could not be decided at the investigation stage. Any reversal/repayment issues will be subject to Show Cause Notice proceedings, and revival of refunds would depend on outcomes there. Ratio vs. Obiter: Ratio - Investigative communications should be by prescribed official modes with traceable identification; WhatsApp communications are ordinarily inappropriate. Obiter - Allegations of coercion cannot be resolved at the investigation stage and require adjudication; cautions against officials engaging in avoidable informal communications. Conclusions: Directions were issued on official mode of communication and restraint on WhatsApp; coercion allegations left to be examined in adjudicatory proceedings (Show Cause Notice stage). Issue 5 - Extent of judicial intervention during ongoing investigation Legal framework: Writ jurisdiction permits interference where illegality or mala fide exercise of power is shown, but courts are cautious about intervening at investigative stages absent clear violation of jurisdictional facts or procedural safeguards. Precedent Treatment: The Court applied established principles limiting interference where reasons to believe exist and where investigation is bona fide; prior decisions were followed that courts should not substitute their own view of evidentiary sufficiency for the investigating authority at preliminary stages. Interpretation and reasoning: The Court declined to stay or quash the investigation given prima facie material supporting reasons to believe, while issuing directions to protect privacy and ensure procedural propriety. Observations were made to the effect that nothing in the order would bind other proceedings and that other remedies remain open to petitioners. Ratio vs. Obiter: Ratio - Courts will refrain from curtailing bona fide investigations where statutory pre-conditions are met on prima facie material but may issue protective directions to safeguard fundamental rights and procedural fairness. Obiter - Emphasis that the court's observations do not determine adjudicatory outcomes and do not bind other proceedings. Conclusions: The Court refused to grant substantive relief curtailing the investigation, but issued directions balancing investigatory interests with privacy and procedural safeguards; other remedies reserved. ADDITIONAL DIRECTIONS AND ADMINISTRATIVE GUIDELINES (SUMMARY) 1. CCTV hard disk/memory cards from residence to be accessed only in presence of at least one family member and one authorised representative; only relevant portions to be copied; remainder returned. 2. Officials should ordinarily seek access to business premises from the person under investigation; reliance on tenant's keys acceptable only where factual panchnama supports it; otherwise follow Section 67(4) procedures for forced access after recording reasons. 3. Official communications should be via prescribed official modes with name/designation of sender; WhatsApp communications are generally impermissible except in emergencies and ought to be avoided to prevent allegations. 4. Allegations of payments under coercion and withdrawal of refunds require adjudication in Show Cause Notice or appropriate proceedings; the investigation may continue and other remedies remain open.