TaxTMI 
TaxTMI 
2026 (8) TMI 512
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....940 grams valued at Rs.3,20,79,193/- on the ground that this excess stock was not reflected in the petitioner's book of accounts. The search officials were not convinced or satisfied by the explanation preferred by the petitioner. The seizure details were recorded in the form GST INS-02 on 16.08.2023. A seizure memo was also issued. While the petitioner would claim that there were compelled to cough up Rs.32,62,640/- towards tax liability in two installments ie., a sum of Rs.13,37,888/- and Rs.19,24,752/- on 16.08.2023 and 17.08.2023 respectively, the respondents contend that it was a voluntary payment made by the petitioner after they realized that they were liable to pay the same. 2.The case of the petitioner is that this search itself was illegal as the warrant produced by the officials concerned did not bear the mandatory "Document Identification Number (DIN)". Hence, the proceedings that took place pursuant thereto were non-est. They also would claim that they were harassed by being repeatedly summoned. Seeking refund of the amount said to have been coercively collected from them totalling Rs.32,62,640 and questioning the validity of the authorization issued on 15.08.20....
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....ner. (b)It is not necessary that authorization letter should mandatorily contain DIN. It is enough if it is generated within 15 days from the date of inspection / search. In the case on hand, the time line was followed. Since DIN is not required to be shared with the assessee, no prejudice has been caused to the petitioner by non-disclosure of DIN subsequently generated. (c)The surprise search and inspection had exposed the petitioner's attempts at tax evasion. Even if some irregularity is attributed to the acts of the officials, that will not vitiate the process itself. In support of his contentions, the learned ASG placed reliance on a catena of case laws ( DDA vs Durga Chand Kaushish (1973) 2SCC 825, Hammad Ahmed vs Abdul Majeed (2019) 14 SCC 1, B.Rajendran vs K.Arumugham (2011) 1 LW 283, Pooran Mal vs Director of Inspection (1974) 93 ITR 505 SC, UOI vs Kunisetty Satyanarayana (2206) 12 SCC 28, CCE vs Krishna Wax 2019 (368) E.L.T. 796 (S.C.) among others) 5.I carefully considered the rival contentions and went through the materials on record. The following issues arise for consideration:- (a)What are the elementary formalities that have to be....
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....h, or otherwise deal with the goods except with the previous permission of such officer: Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act. (3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice. (4) The officer authorised under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied. (5) The person from whose custody any documents are seized under sub-section (2) shall be entitled to make copies thereof or take e....
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....sary in connection with any proceedings under this Act or the rules made thereunder for prosecution. (12) The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier." The above provision speaks of inspection, search and seizure. They are conceptually distinct acts though one may closely follow the other. I have to say so because the Standing counsel in his written notes has argued that since inspection and search have been dealt under the very same provisions(Section 67, Rule 139 and Form GST INS-01), the dividing line between an inspection and search is too narrow and very much blurred. The Hon'ble Divison Bench of this Court in Shri Ramakrishnan Srikishan Jhaver and Others Vs. Commissioner of Commercial Taxes and Others ((1965) 57 I....
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....o the discovery of contraband or evidence of guilt to be used in prosecution of a criminal action, that the term implies exploratory investigation or quest and that it is well established that it is not a search to observe what is open and patent either in daylight or artificial light. Though the American view of the meaning of the words "inspection" and "search" is so expressed in the context of the Fourth Amendment to the Constitution of the United States, it seems to us that it correctly represents the general import and content of those English words. An examination of sections 96, 98 and 51 of the Code also shows that search has been used in contradistinction with "inspection" and implies an exploratory examination or probing into or seeking out something which is hidden, concealed, suspected and not open, exposed or demonstrated. It appears to be hardly appropriate to say that when a person or place is explored or probed into for something hidden or not obvious, such a person or place is inspected. That is clearly a search. Seizure implies not mere taking but forcible taking. It is taking with force possession of something contrary to the wishes of its owner or possessor: See....
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.... a matter of belief in the mind of the officer. It cannot be based on mere suspicion. It must be founded upon information. The existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. In Aslam Mohamed Merchant Vs. Competent Authority ((2008) 14 SCC 186) it was observed that whenever a statute provides for "reasons to believe", either the reasons should appear on the face on the notice or they must be available on the materials which had been placed before the authority. In Income Tax Officer Vs. Lakhmani Mewal Das ((1976) 103 ITR 437 (SC) it was held that the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the authority and the formation of his belief as to the existence of the circumstances set out in the Section. Thus, Section 67 contains an inherent safeguard to ensure that the power of inspection / search and seizure is not arbitrarily exercised. 7.While the proper officer can authorise any other officer of Central ....
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....ey of fire hoping atleast one bullet will hit the mark. On the other hand, it has to be more like a laser beam. In the case on hand, the authority is not clear as to whether goods have been secreted or if documents have been stashed away. He does not know whether they are in the business premises or the assessee's residence. Mechanical repetition of the statutory language defeats the very purpose of incorporating safeguards in the statutes. 9.Though any move of the authority is open to judicial review, Courts would be reluctant to undertake the exercise once the act is done. In other words, if an illegal search conducted by the authority leads to discovery of tax evasion, the Court will not restrain the authority from proceeding further merely because, the conditions precedent for undertaking a search were absent. 10. Lord Acton long ago commented that power tends to corrupt, and absolute power corrupts absolutely. That is why, in any liberal democracy, absolute power is never conferred on a bureaucrat. Section 67 embodies that principle and is hedged with safeguards. It has to be read with Rule 142 of the CGST Rules. To supplement them, the Central Board of Indirect Tax ....
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....ation does not bear the electronically generated DIN and is also not covered by the exceptions, it shall be treated as void. Even if the case falls within the exception, it should be regularized by generating DIN within 15 days of its issuance. Ratification must be obtained from the superior officer for having issued the communication without DIN. After such approval is obtained, the DIN must be electronically generated. After printing the electronically generated pro-forma bearing the DIN, it has to be filed in the concerned file. In order to ensure transparency, recipients/members of general public are enabled to verify the genuineness of the communication by entering the CBIC- DIN. Yet another circular No. 122/41/2019-GST dated 23.12.2019 was issued on the same lines. 12.The Hon'ble Supreme Court in the decision reported in (2023) 1 SCC 566 (Pradeep Goyal Vs. Union of India) gave directions for implementation of the system of electronic (digital) generation of DIN in the indirect tax administration. When the search was conducted on an assessee, but warrant did not contain "DIN", the Hon'ble High Court of Andhra Pradesh High Court in Novelty Reddy and Reddy Motors Priv....
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....ded that this amounts to sufficient compliance of the requirements set out in the circular. Admittedly, the DIN details were not shared with the assessee/petitioner. Are they bound to do is the next question that calls for consideration. My answer is in the affirmative. The very purpose of introducing DIN was to ensure transparency. This object is frustrated by not sharing the DIN with the noticee. If the noticee wants to verify the genuineness of the document, he can do so only after entering DIN in the portal. By denying the details relating to DIN, the noticee is disabled from verifying its validity. 15.The circular may not expressly require the department to furnish the subsequently generated DIN post-inspection. But on an overall reading of the circular, one can safely come to the conclusion that without DIN, the noticee cannot take any step for verifying the genuineness of the communication. 16.During the pendency of the present writ proceedings, the department had come out with yet another circular bearing Circular No. 249/06/2025-GST, dated 09.06.2025 modifying the earlier circular and holding that when verifiable Reference Number (RFN) is generated in a document uplo....
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....e inspection / search cannot be challenged after obtaining relief of provisional release of goods. 19.The next question that calls for consideration is whether the authorities were justified in making the petitioner cough up a sum of Rs. 32,62,640/- during the course of the inspection. 20.According to the authorities, this payment was voluntarily made by the petitioner. The petitioner contended that it was done under coercion. In such matters, a commonsensical approach has to be adopted. Section 67(6) of the Act provides that the goods so seized shall be released on a provisional basis upon execution of a bond and furnishing security or on payment of applicable tax, interest and penalty. Since conflicting versions are possible, the Hon'ble Division Bench of the Gujarat High Court in the judgment authored by Hon'ble Mr.Justice J.B.Pardiwala (as His Lordship then was) in M/s.Bhumi Associates Vs. Union of India reported in 2021 (2) TMI 701 issued the following directions:- "The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/ State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of....
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....re issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under Section 73 or Section 74, as the case may be. 3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where "recovery" of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account ....
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....67. Analysing the aforesaid data indicates that the number of people arrested is normally in hundreds or more.52 However, it is to be noted that the figures with regard to the tax demand and the tax collected would, in fact, indicate some force in the petitioners' submission that the assessee's are compelled to pay tax as a condition for not being arrested. Sub-section (5) to Section 74 of the GST Acts gives an option to the assessee and does not confer any right on the tax authorities to compel or extract tax by threatening arrest. This would be unacceptable and violative of the rule of law." The Hon'ble Supreme Court called upon the revenue to submit data with regard to the arrest made for recovery of tax. After analyzing the data, the Hon'ble Supreme Court noted that the number of people arrested is normally in hundreds or more. The Court went on to remark that there is some force in the petitioner's submission that the assessee's are compelled to pay as a condition for not being arrested. Sub-Section 5 to Section 74 of the CGST Act gives an option to the assessee and does not confer any right on the tax authority to compel or extract tax threatening arrest. That ....
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....d or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts would fall under Section 73 of the Act. If it was by reasons of fraud or any willful-misstatement or suppression of facts, it would fall under Section 74 of the Act. Section 75 contains general provisions leading to determination of tax. 28. According to the department, the case on hand falls under Section 74 of the Act. Section 74 of the Act reads as follows:- "74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful misstatement or suppression of facts.- (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requir....
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....r considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. (10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund. (11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded. Explanation 1.-For the purposes of section 73 and this section,- (i) the expression -all proceedings in respect of the said notice? shall not include proceedings under section 132; (ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the....
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.... the proper officer in writing of such payment. Rule 142(2) of the CGST Rules provide that the assessee shall inform the proper officer of payment in Form GST DRC -03 and the proper officer shall issue an acknowledgement, accepting the payment made by the person in Form GST DRC 4. Mere furnishing of challan is not sufficient because it does not disclose whether the payment was made towards satisfaction of the particular tax liability in question. Mere description of the payment as voluntary is insufficient. The basis of ascertainment must be brought out in the own language and words of the assessee. Once such a statement is made, the assessee cannot resile from the stand so taken. 31.When no tax shall be collected except without the authority of law (Article 265 of the Constitution of India), any amount collected towards tax or interest or penalty without the authority of law is liable to be refunded. Tax is determined and collected or recovered only by following a statutorily prescribed procedure. If tax has escaped such assessment and such escapement is subsequently discovered, before the authority issues show cause notice, the assessee can make the payment. But such payment h....
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....ght of what has been laid down above, the petitioner is entitled to seek refund. But I am unable to straight away grant the said relief for only one reason. 34. The petitioner had earlier filed W.P.(MD)No.23502 of 2023 challenging the seizure order dated 16.08.2023 and seeking release of the goods. The writ petition was allowed on 26.09.2023 in the following terms:- "2. The respondents have seized the goods since it is excess stock available with the petitioner. The petitioner had already paid the tax and penalty. However, the respondents are not releasing the goods. Under Section 67 (6) the respondents are having power to release the goods on certain conditions. The said provision is extracted hereunder: "(6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be." 3.The respondents are empowered to demand to pay tax, interest and penalty or they can direct the petitioner to execute a bond or furnish security. In the ....
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....e assessee / petitioner. The bar that the Court will set for the department will be higher than the one meant for the tax payer. 38.The principles enunciated above can be summarised as hereunder: a) The power to inspect is distinct from the power to conduct search and the power to effect seizure. Authorization in form GST INS-1 must specifically bear out the nature of the power conferred. That is to say, authorisation to inspect by itself would not include the power to search and effect seizure. b) The officer authorised in this behalf must act strictly in accordance within the limits of the power so conferred and cannot traverse beyond. c) The Proper officer cannot invoke the powers conferred under Section 67(1) and Section 67(2) arbitrarily. He must have "reasons to believe" that the cicrumstances set out in the respective provisions exist. Court can scrutinise in exercise of the power of judicial review if those circumstances exist. d) Display of the DIN in the communication/summon/notice is mandatory. If it could not be displayed for the reasons set out in the circular dated 05.11.2019, they must be expressly mentioned in the communication....