TaxTMI 
TaxTMI 
2026 (3) TMI 900
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....e KGST Act'), and is engaged in the transportation of goods. An investigation conducted by the Mangaluru Commissionerate of the appellants revealed alleged manipulation of invoices and e-way bills, as well as unauthorized transportation activities. It was further found that the goods were removed clandestinely by evading Goods and Services Tax (GST). 3.1 The findings of the investigation were shared with the Bengaluru Commissionerate, which issued a show cause notice in accordance with law, alleging GST evasion and manipulation of documents. The said show cause notice was challenged in the writ petition, inter alia, contending that the officers who conducted the investigation lacked jurisdiction and that the material evidence gathered in the course of such investigation, being without jurisdiction, cannot be relied upon against the respondent-assessee. It was further contended that the search action conducted by the officers of the Mangaluru Commissionerate was without jurisdiction and contrary to the settled principles of law governing search and seizure. 3.2 The learned Single Judge, upon examination of various decisions, held that the officers of the Mangaluru Commissioner....
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....iled before the jurisdictional Economic Offences Court at Bengaluru. 4.3 Learned counsel further submits that on account of the non-cooperation of the respondent-assessee, the Commissioner of the Bengaluru North-West Commissionerate invoked the powers under Section 83 of the CGST Act and provisionally attached the bank accounts of the respondent-assessee in order to safeguard the interest of the Revenue. 4.4 It is further submitted that the proper officer of the Bengaluru North-West Commissionerate seized 1,964 e-way bills, which allegedly revealed GST evasion to the tune of Rs.27.56 crores. The investigation is stated to have uncovered a systematic modus operandi whereby e-way bills were modified by altering vehicle details so as to transport multiple consignments under the cover of the same e-way bill. 4.5 Learned counsel submits that issuance of a show cause notice under Section 74 of the CGST Act is not a natural or automatic consequence of search and seizure operations. According to him, a notice under Section 74 can be issued based on the material gathered upon inspection by the proper officer. He further contends that even assuming that certain material was collecte....
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....stitution of India. 5.3 Learned counsel further submits that the amount deposited by the respondent-assessee during the course of investigation has rightly been directed to be refunded by the learned Single Judge. It is contended that the liberty reserved in favour of the proper officer to proceed afresh in accordance with law sufficiently safeguards the interest of the Revenue. 5.4 On these grounds, learned counsel submits that the writ appeal is devoid of merit and prays that the same be dismissed. 5.5 Learned counsel has relied on the following judgments of the Hon'ble Supreme Court and various High Courts, which are as under: "1. R.J. Trading Co. vs. Commissioner of CGST, Delhi North ([2021] 128 taxamann.com 344 [Delhi]). 2. Reevan Creation vs. State of Gujarat ([2026] 182 taxmann.com 783 (Gujarat). 3. Commercial Taxes Officer, Bharatpur vs. Krishna Oil Industries ([2015] 59 taxmann.com 459 [Rajasthan]). 4. Sri Sai Food Grain and Iron Stors vs. State of Bihar ([2025] 174 taxmann.com 84 [Patna]). 5. Dayal Product vs. Additional Commissioner Grade-2 ([2025] 172 taxmann.com 263 [Allahabad]). 6. Additional Commissio....
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....it Kumar vs. Central Bureau of Investigation and others (2019 SCC OnLine Bom 3155) 30. Ukha Kolhe vs. State of Maharashtra [(1964) 1 SCR 926] 31. R.M. Malkani vs. State of Maharashtra [(1973) 1 SCC (471)]" Analysis: 6. We have considered the submissions of learned counsel for the parties and perused the appeal papers. 7. The primary contention urged by the respondent in the writ petition is that the respondent-assessee is assessed within the jurisdiction of appellant Nos. 1 and 3, whereas the inspection, search and seizure were conducted by the officer falling within the jurisdiction of appellant No. 2, namely, the Mangaluru Commissionerate. It is contended that the evidence seized and the statements recorded by the officers of the Mangaluru Commissionerate are without jurisdiction and, therefore, cannot be relied upon against the respondent-assessee. It is further contended that the search action is contrary to Sections 100 and 165 of the Cr.P.C. 7.1 Section 74 of the CGST Act empowers the proper officer to issue a show cause notice where tax has not been paid, short paid, or erroneously refunded, or where input tax credit has been wrongly availed or ....
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.... that the show cause notice under Section 74 is vitiated solely on account of the alleged infirmities in the action under Section 67 cannot be accepted. 8. It is strenuously contended that the inspection, search and seizure carried out under Section 67 of the CGST Act are contrary to the mandate of Sections 100 and 165 of the Cr.P.C and are therefore illegal. On this premise, it is urged that the documents seized, the evidence gathered and the statements recorded in the course of such alleged illegal action cannot be relied upon or utilized in proceedings initiated under Section 74 of the CGST Act. 8.1 Section 74 of the CGST Act, on a plain reading, contemplates issuance of a show cause notice on the basis of material in the possession of the proper officer. The provision may be invoked in any one or more of the contingencies enumerated therein. Significantly, none of those contingencies prescribe or qualify the legal source from which such material must emanate. What the provision mandates is the existence of material forming the basis for issuance of the show cause notice and the furnishing of the relevant particulars to the noticee so as to enable an effective reply. 8.....
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....There is no specific relief sought to declare the search as illegal or contrary to law. In the absence of such a prayer, it would not be permissible to record a finding that the action under Section 67 is illegal. The said issue has not been adjudicated in the order impugned before us. 8.6.2 Further, the respondent has not preferred any appeal challenging the order of the learned Single Judge on that aspect. In the absence of a specific prayer before the learned Single Judge, to that extent, it is not open to the respondent to canvass the legality or otherwise of the action taken under Section 67 of the Act in an intra-Court appeal. 8.7 The Hon'ble Supreme Court, while dealing with similar submissions in Pooran Mal v. Director of Inspection (Investigation), New Delhi, reported in (1974) 1 SCC 345, has held as under: "24. So far as India is concerned its law of evidence is modelled on the rules of evidence which prevailed in English Law, and Courts in India and in England have consistently refused to exclude relevant evidence merely on the ground that it is obtained by illegal search or seizure. In Barindra Kumar Ghose v. Emperor [ILR 37 Cal 467 : 7 1C 359] the learne....
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....ecessary to examine them in detail. Suffice it to say that there appears to be considerable difference of opinion among the judges both in the State and Federal Courts as to whether, or not the rejection of evidence obtained by illegal means depends on certain articles in the American Constitution. At any rate, in Olmstead v. United States (1828) 277 U.S. 438, the majority of the Supreme Court were clearly of opinion that the common law did not reject relevant evidence on that ground." In Kuruma case, Kuruma was searched by two police officers who were not authorised under the law to carry out a search and, in the search, some ammunition was found in the unlawful possession of Kuruma. The question was whether the evidence with regard to the finding of the ammunition on the person of Kuruma could be shut out on the ground that the evidence had been obtained by an unlawful search. It was held it could not be so shut out because the finding of ammunition was a relevant piece of evidence on a charge for unlawful possession. In a later case before the Privy Council in Herman King v. Queen [(1969) 1 AC 304] which came on appeal from a Court of Appeal of Jamaica, the law as laid ....
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....efore, held that the High Court was right in dismissing the two writ petitions. The appeals must also fail and are dismissed with costs." 8.8 The Hon'ble Supreme considered the scope of Section 132 of the Income-tax Act, 1961 which is in pari materia with Section 67 of the CGST Act. As held by the Hon'ble Supreme Court supra, neither the statutory provision governing search nor the adjudicatory provision imposes any express or implied prohibition against the use of material gathered in the course of an illegal search or seizure. It was observed that exclusion of evidence is not a rule of evidence under Indian law, but at best a rule of prudence and fair play. The test of admissibility of evidence is primarily one of relevancy. 8.9 Applying the aforesaid principle, neither Section 67 nor Section 74 of the CGST Act contains any express bar to the use of material gathered during alleged illegal search and seizure proceedings. As observed hereinabove, the respondent-assessee has been afforded full opportunity to demonstrate the relevancy, admissibility or otherwise of the material referred to in the show cause notice during the course of adjudication under Section 74 of the CGST ....
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....t operate in distinct spheres. Section 74 is not dependent upon, nor is it controlled by, the outcome of proceedings under Section 67. Even assuming that there is any infirmity in the action taken under Section 67, the same would not, by itself, denude the proper officer of the power to initiate proceedings under Section 74, provided the material gathered discloses circumstances contemplated therein. 8.14 Neither Section 67 nor Section 74 of the CGST Act contains any express or implied prohibition against the use of material collected during search and seizure for the purpose of initiating adjudicatory proceedings under Section 74. The learned Single Judge, in our considered view, has expanded the scope of Section 74 by reading into it a requirement that the material forming the basis of the notice must necessarily emanate from a validly initiated action. Such a requirement is not borne out from the plain language of the provision. 8.15. The material available to the proper officer may flow from multiple sources. Such sources may be identifiable or otherwise; what is material for the purpose of Section 74 is the relevancy of the material forming the foundation for initiation ....
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....indicates that the residential premises of Praveen Suvarna and the business premises of the respondent were searched. Praveen Suvarna is stated to be the proprietor of the respondent concern. The said search was conducted pursuant to authorisation issued by the competent authority under Section 67 of the Act. It is further stated that the Mangalore Commissionerate was examining other entities within its jurisdiction and, in that connection, summons were issued to the respondent and statements were recorded. The materials so collected, being relevant for determination of the respondent's liability, were thereafter transferred to the proper officer at Bengaluru. 10.3 The aforesaid aspects are not in dispute. In order to ascertain the correctness of the above factual position, we have perused the show-cause notice placed on record. 10.4 Even prior to the issuance of the show-cause notice, various correspondences between the Bengaluru Commissionerate and the Mangaluru Commissionerate are available on record. The said correspondences indicate that investigation into a fake invoice racket involving multiple entities, spread across jurisdictions, was undertaken, and the materials pe....
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....ance of fake invoices and in the modification of e-way bills, so as to enable repeated use of the same invoice and e-way bill for multiple transportations. 10.11 The show-cause notice, running into 253 pages, indicates the involvement of multiple entities in the alleged fake invoicing racket. Specific instances of fake e-way bills are also referred to therein, pointing towards the role attributed to the respondent. The show-cause notice sets out specific instances of alleged fake invoices and furnishes details thereof, which encompass as many as 1,964 e-way bills involving the respondent. It is stated that these particulars were unearthed during investigations conducted not only in the case of the respondent but also in proceedings relating to other entities. 10.12 The notice further records that the respondent is stated to have admitted to clandestine supply of goods through the use of fake invoices and e-way bills. The materials so relied upon have been furnished to the noticee, namely the respondent. The entire material forming the basis of the show-cause notice has been gathered through search and seizure operations and by recording statements during the course of such pr....
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....iable to be excluded so long as it is relevant to the matter in issue. 10.18 The order of the learned Single Judge proceeds on the premise that the search and seizure operations were conducted only outside the jurisdiction of the Bengaluru Commissionerate, namely by the Mangaluru Commissionerate. However, the material on record, which remains undisputed, indicates that the business premises as well as the residential premises at Chitradurga, falling within the jurisdiction of the competent authority, were also searched, and documents/materials were recovered and seized therefrom. These materials form part of the foundation for issuance of the show-cause notice. 10.19 We further observe that where materials are gathered by two different Commissionerates in the course of simultaneous or coordinated action undertaken to unearth a tax evasion racket, it is neither practicable nor legally permissible to confine proceedings under Section 74 of the Act solely to the materials collected by the proper officer within his territorial jurisdiction. There is no legal impediment for the proper officer to rely upon materials disclosing tax evasion, even if such materials were gathered by an....