SEZ units are not exempt from search and seizure proceedings conducted by GST authorities

The Hon'ble Gujarat High Court in the case of M/s. RHC Global Exports Pvt. Ltd. v. Union of India [R/Special Civil Application No. 5978 of 2023 dated June 06, 2023] held that GST authorities have power to conduct search and seizure against the assessee operating in Special Economic Zone ("SEZ") and further applied a cost on the assessee for abusing the due process of law.

Facts

M/s. RHC Global Exports Pvt. Ltd. ("the Petitioner") has principal place of business in Surat SEZ and is engaged in the business of Gem and Jewelry. It was alleged that the Petitioner has availed the fake ITC on the strength of fake invoices issued by non-existent suppliers and utilized the ITC towards payment of output tax liability.

The Petitioner's business premise was searched and seized and sealed by the GST authorities on March 03, 2023.  On the same day, another officer of State Tax searched and seized the residential premise of the Petitioner.

Simultaneously, the Revenue Department issued summons under Section 70 of CGST Act and directed the Directors of Petitioner to appear before Revenue Department on March 04, 2023.

Another agency initiated the parallel proceedings under Section 67 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and searched the Petitioner's business premises in Mumbai and seized the books of accounts by issuing FORM GST INS-02 and passed an order of seizure on March 04, 2023, for the receipt of the seized documents.

The Petitioner filed writ before the Gujarat High Court challenging the proceedings of search and seizure by the Revenue Department on the following grounds that they are SEZ unit located in the Surat SEZ which is a foreign territory, hence outside the ambit of provision of the CGST Act, and accordingly the search and seizure conducted by the Revenue Department is beyond the jurisdiction. 

On the other hand the Revenue Department pointed out that they acted absolutely within the domain to proceed against Petitioner as per Section 22 of the Special Economic Zone Act, 2005 ("the SEZ Act") r.w. Section 6 of Gujarat Goods and Services Tax Act, 2017 ("the GGST Act") which clearly indicates that any officer or agency is authorised by the Central Government may carry out search and seizure, investigation, or inspection in any SEZ without prior intimation or approval of Development officer.

Further the Revenue Department referred to Section 7(5) of the Integrated Goods and Services Tax Act, 2017 ("the IGST Act") and stated that the supply of goods and services to or by the SEZ unit will be treated as supply in course of inter-state trade. 

Issue

Whether SEZ units are exempt from investigation, search and seizure conducted under the GST law?

Held

The Gujarat High Court in R/Special Civil Application No. 5978 of 2023 dated June 06, 2023 held as under:

• Observed, the Section 22 of the SEZ Act and stated that any officer or agency who is authorized by Central Government may carry out search or seizure or investigation or inspection in the special economic zone and the authorized officer of Central Government is empowered to carryout such proceeding without any prior approval or intimation. Stated that, the order issued by the proper officer under the SEZ Act will be deemed that he has issued an order under the CGST Act.
• Further observed that, provision of the IGST Act are applicable to whole of India and since the Petitioner is registered under the IGST Act and the Petitioner is under misbelief that once business is carried out through and within SEZ, the Petitioner is outside the purview of GST authority and hence these SEZ units are not exempted from any investigation or inspection. 
• Held that, the Revenue Department acted within the authority of law/jurisdiction and in the view of the present circumstances the court applied the costs of INR 10,000/-  and instructed the Petitioner to pay cost within ten days. 

Relevant Provision

Section 7 of the IGST Act:

"Inter-State Supply

(1)    …………………
(2)    …………………
(3)    …………………
(4)    …………………
(5)  Supply of goods or services or both,––

(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce."

Section 22 of the SEZ Act

"Investigation, inspection and search or seizure.

The agency or officer, specified under section 20 or section 21, may, with prior intimation to the Development Commissioner concerned, carry out the investigation, inspection and search or seizure in the Special Economic Zone or in a Unit if such agency or officer has reasons to believe (reasons to be recorded in writing) that a notified offence has been committed or is likely to be committed in the Special Economic Zone: Provided that no investigation, inspection and search or seizure shall be carried out in a Special Economic Zone by any agency or officer other than those referred to in sub¬-section (2) or sub section (3) of section 21 without prior approval of the Development Commissioner concerned: Provided further that any officer or agency, if so authorised by the Central Government, may carry out the investigation, inspection and search or seizure in the Special Economic Zone or Unit without prior intimation or approval of the Development Commissioner."