Challenge to 'search action' at business premises dismissed by High Court citing presence of 'reason to believe'

The Hon'ble Delhi High Court in RCI Industries and Technologies Ltd. v. Commissioner DGST Delhi &Ors. [ W.P.(C) 121/2021 decided on January 7, 2021] dismissed the writ application filed to impugn the search action at the business premises on the ground that there are ‘reasons to believe' to inspect and search the business premises by the GST Authorities ('the Respondents') as per Section 67 of the Delhi Goods and Service Tax Act, 2017 ('DGST Act').

Facts

RCI Industries and Technologies Ltd. ('the Petitioner') is registered under the DGST Act functioning from its unit in Delhi and has its warehouse in Delhi.

There was a search conducted at the business premises and the warehouse of the Petitioner by the Respondents and they asked the Petitioner to produce the books of accounts for the period from 2017-18 to 2020-2021.

The Petitioner stated that he has been subjected to harassment at the hands of the Respondents who have searched them numerous times. The Petitioner has responded to the summons issued in this regard, pursuant whereto statement of the Petitioner's director was also recorded. The last search was conducted by the Respondents on March 7, 2020 at the director's residence.

This search action was challenged by the Petitioner in W.P.(C) No. 7145/2020 dated March 18, 2020 before theHon'ble Punjab and Haryana High Court. The said challenge was successful and consequently the search action and the panchnama dated were quashed.

Now, the Respondents have again conducted search.

Petitioner's Contention

• That the Petitioner was forced to accept the admit the tax liability andwas pressurized to make payment of tax and interest under the Form DRC-03.
• That the search was conducted in the absence of two independent witnesses and their signatures were not recorded as mandated under Section 67(10) of the DGST Act read with Section 165(4) and 100(4) of the Code of Criminal Procedure, 1973 which would declare the search as null and void.
• No parallel enquiry under the same issue can take place under Section 5 and Section 6 of the DGST Act.
• The reasons to believe for carrying out search was not in accordance with Section 67(2) of the DGST Act.

Respondent's Contention

That the search conducted is valid and within the confines of the law on the basis of the following:

• The officers who have visited the business premises of the Petitioner were duly authorized and competent to carry out the search.
• The Respondents had submitted the recorded reasons to believe in terms of Section 67 of the DGST Act to justify the action in the Court.
• Further, during the search action no independent witnesses were available to witness the statement of the Petitioner, the search was still valid on the basis of three judgements being State Of Punjab v. Wassan Singh And Ors[(1981) 2 SCC 1] ; Sahib Singh v. State of Punjab [(1996) 11 SCC 685] and Kalpnath Rai v. State (Through CBI)[(1997) 8 SCC 732] .
• Furthermore, clarified that there was no parallel investigation being carried on by the Respondents. The notice issued on September 30, 2020 required documents for the period from 2017-18 to 2020-21 but issued show cause notice for 2017-18 to 2018-19 and the notice issued on November 16, 2020 was confined to 2020-21.

Issue

Whether the search action taken by the Respondents on the business premises of the Petitioner is legal?

Held

The Hon'ble Delhi High Court in W.P.(C) 121/2021 decided on January 7, 2021 held as under:

Statement made during the search

• The Court noted that no recovery has been made during the search. Further, the statement where the Petitioner has accepted the tax liability at the time of the search has not been retracted till date and the Petitioner has not given any convincing explanation for the same. Thus, the present petition is an attempt to wriggle out of the commitment made in the statement by the Petitioner during the search action and the Court cannot permit the Petitioner to take recourse to challenging the search proceedings in an endeavour to withdraw the apparent admissions made in the said statement.

Parallel proceedings

• Noted that the notice issued on September 30, 2020 required documents for the period from 2017-18 to 2020-21 but issued show cause notice for 2017-18 to 2018-19 and the notice issued on November 16, 2020 was confined to 2020-21.
• It was opined that the Petitioner would be at liberty to take action to impugn in case the action of the State and Central Authorities was overlapping. It was asserted that there are no guidelines prescribed in the DGST Act or Rules regarding cross-empowerment of the Central and State Authorities.
• The reference to the letter issued by the Central Board of Indirect Taxes and Customs ('CBIC') dated October 5, 2018 as well as letter issued by CBIC dated June 22, 2020 was made to state that if an officer of the Central GST initiates intelligence-based enforcement action against a taxpayer administratively assigned to State GST, then the officers of the Central GST would themselves take the case to its logical conclusion and would not transfer the said case to their counterparts in the State GST.

Absence of the two independent witnesses

• Noted that there is no panchnama on record. Further, stated that no specific provision was shown that deals with recording of statement in search action regarding the absence of the two independent witnesses. The only relevant section is Section 70 of the DGST Act, which does not entail signatures of witnesses.
• The absence of signatures does not manifest an absence of delegation of power in favour of the team which conducted the search action. Further, the provisions of the Delhi Value Added Tax Act, 2004, also cannot render the proceedings as illegal.

Presence of ‘reason to believe'

• TheCourt can interfere and hold the exercise of power to be bad in law only if the grounds on which reason to believe is founded have no rational connection between the information or material recorded; or are non-existent; or are such on which no reasonable person can come to that belief.The reasons to believe recorded by the Respondents demonstrate that they had the reasons, as per Section 67(2) of the DGST Act, to carry out the search.Applying the test of reasonable man, the High Court cannot say that there is no application of mind while issuing search warrant.Thus, did not countermand the action taken against the Petitioner and disposed off the petition.

Relevant Provisions

Section 67(2) of  the DGST Act

'(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, 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.'