MARCH 27, 2019

By Vijay Kumar

THIS week, I would like to highlight three interesting High Court decisions dealing with search, seizure and summons (followed by arrest) under GST.

SEIZURE: GST lays its long hands on truckers.

The petitioners are Truck owners challenging the individual Show Cause Notices issued against them under section 130 of the U.P. Goods and Services Tax Act, 2017 on the ground that they are only vehicle owners and are not doing any business in respect to the sale and purchase of the goods.

The case of the petitioner:

1) He is only the owner of the vehicle which he gives to various transporters as per request made by them for transporting their goods and the petitioner himself is not doing any business with respect to the sale and purchase of goods.

2) The petitioner is neither concerned with the purchaser nor the seller of the goods and his only role is for providing vehicle for transportation of the goods and he is not doing any business as contemplated under section 2(17) of the UPGST Act, 2017.

3) The petitioner is neither a supplier of the goods or services as contemplated under section 2(105) of the UPGST Act, 2017 nor is he a registered person within the meaning of the term as defined in Section 2(94) of the UPGST Act, 2017 nor is he a 'taxable' person within the meaning of the word used in Section 2(107) of the UPGST Act, 2017.

4) A drive was lodged against 142 bogus firms involving 1519 Trucks through which goods were sought to be transported and an F.I.R. was also lodged under sections 420, 463, 464, 468, 471, 34, 120-B of I.P.C. and section 132 of the UPGST Act, 2017 in a police station in Lucknow.

5) The notice under section 130 of the UPGST Act, 2017 is with reference to the invoice bilty and E-Way Bill alleging that the tax on such transaction has not been deposited by the parties.

6) The registration of both the dealers namely the consignor and consignee was active mentioning thereby that their registration has not been cancelled in spite of the proceedings having been initiated.

7) When the consignor and consignee are both active, the department should have proceeded against them and not against the petitioner transporter who has nothing to do with any illegality or non-payment of tax by either the consignor or consignee of the goods.

8) The transporter was duly carrying all the documents namely, E-way bill as required containing all the information therein and, therefore, the respondents could have proceeded to make recovery or issue notice under section 130 of the UPGST Act, 2017 or otherwise against the consignor or consignee.

9) It was absolutely wrong to say that the dispatch or delivery has been made to bogus address and that the name of the transport company mentioned on the E-way bill was also found to be bogus.

The high Court observed,

1) If 'any person' transports any goods or stores any goods while they are "in transit" in contravention of the provisions of the Act or Rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure shall be released on conditions as laid down in sub clauses (a), (b) and (c) of Sub Section (1) of Section 129 of Act, 2017.

2) For the application of Sections 129 and 130 of the Act, 2017 it is immaterial that the person proceeded against is not a registered person or a supplier or a taxable person or is not doing any business as provided in any of the sub sections of Section 2 of the Act, 2017. It is enough that he is a 'transporter' of goods and that the goods are being transported and have been seized in transit and if the charge is made out against the transporter, the respondents can proceed to seize such goods including the conveyance.

3) In the present case, a show cause notice has been issued to the petitioner on 17.12.2018 and it is always open for the petitioner to file a reply to the same.

4) The contention of the petitioner that he is not doing any business in respect of sale or purchase of the goods or is not concerned with the goods as he is a mere transporter and is only providing vehicles for transporting and therefore the impugned notice is bad, is without any substance and is rejected.

5) Since the vehicle along with goods have been seized and an F.I.R. has also been lodged in this regard, it is always open for the petitioner to apply to the trial court for release of the conveyance and beyond this, no further observations are required.

The writ petition was dismissed. The truckers are back to the GST Officials. When a truck is hired, the truck owner is required to be sure that the goods he transports are not liable for seizure, for his truck may also get seized.

- Ashok Kumar Bhatia vs State of UP - 2019-TIOL-679-HC-ALL-GST

SUMMONS - Thou shalt attend:

Facts: Petitioner No.1 is the Managing Director of Petitioner No.2. The Central Goods And Service Tax Department conducted a raid on 17.01.2019, at the premises of the Petitioners' Company at Bhiwadi, Rajasthan. Senior Officials of the company, Director and Chief Financial Officer (CFO) were asked to remain present at the premises of the Company. Summons under Section 70 of the Goods and Services Tax Act were served upon them. The raid continued till 19.01.2019. After recording of the statements of Officials of Company, they were arrested. As per the case of the Department, the Company had fraudulently availed input tax credit of Rs.40.53 crores by issuance of fictitious sale invoices and sister concerns of company and Petitioner-Company had fraudulently availed input tax credit of Rs.328 crores.

It is contended by the Petitioners that:

1) the Petitioner No.1 was residing in United States of America. It was only after demise of his father that he returned to India in November, 2017. He was appointed as M.D. on 30.05.2018 after demise of his father.

2) He has all apprehension that if he appears, in pursuance of the notice issued under Section 70 of the Goods and Services Tax Act by the Department, he would be arrested, as has been the fate of Senior Officials of the Company.

3) Petitioner has deposited GST to the tune of Rs.7,15,06,124/- from 18.01.2019 till 02.02.2019, which goes to show that Petitioner is a law abiding citizen. If any coercive action is taken by the Department against the Petitioner, it would seriously hamper his reputation.

4) It is contended by the Petitioner that the tax has not been determined in accordance with Section 73 and 74 of the Act and till the tax is determined, Department has no right to summon the Petitioner or arrest the Petitioner under Section 69 of the Act.

The High Court observed,

1) It is pertinent to note that it is clear case of the Department that the Petitioner and its sister concerns have availed input tax credit to the tune of Rs.328,36,73,701/- on the basis of fake invoices, out of which Rs.40,53,58,772/- is the fraudulent input tax credit claimed by Petitioner No.2 of which Petitioner No.1 is the Managing Director. This fact is not controverted by the Petitioner, nor there is any pleading or counter pleadings on behalf of the Petitioner in the Writ Petition that a wrong allegation has been levelled by the Goods and Services Tax Department.

2) The Petitioners' Writ Petition is confined to technicalities as also to the fact that the Petitioner No.1 was residing abroad and was not involved in day to day affairs of the company.

3) This Court is not convinced by the arguments for the Petitioner for the very reason that Petitioner No.1 is the Director of the company since 08.08.2012 and has been receiving managerial remuneration from the company to the tune of about Rs.60 lakh per annum.

4) Petitioner No.1 became the Managing Director of Petitioner No.2 on 30.05.2018, hence contention of counsel for the Petitioner that he was not involved in day to day affairs of the company, cannot be accepted.

5) The case set up by the Department is that the Petitioner has claimed input tax credit on fake invoices, which fact is not controverted by the Petitioner. Hence, Department has all rights to take any action permissible by law.

6) The contention that the tax is to be first determined under Section 73 & 74 of the Act does not have any force for the very reason that in an offence committed under Section 132 of the Act determination of tax is not required and the Department can proceed straight away by issuing summons or if reasonable grounds are available by arresting the offender.

7) Since offence under Section 132 is made out and Senior Officials of Company are behind bars, Petitioner being Managing Director is responsible and Department has the right to proceed under Section 69 and 70 of the Act.

8) Petitioners have claimed tax input credit on the basis of fake invoices, hence Writ Petition is dismissed with cost of Rs.1,00,000/- only.

This is perhaps the first time that a petitioner against summons, not only lost the case, but ended up paying costs.

- Bharat Raj Punj vs Commissioner CGST - 2019-TIOL-678-HC-RAJ-GST

SEARCH is valid:

A normal Search: On 13.3.2018, around 11.30 A.M., a search party, consisting of the Officers of U.P. GST/Commercial Tax Department started a search at the office premises of the petitioner-company situated in Kanpur and at the factory premises of the petitioner company situate at Sumerpur, District Hamirpur. It has been alleged that the authorized signatory of the petitioner-company was not present at the time of search, however, he was called and was manhandled and pressurized to admit large scale tax evasion. It is alleged that he was asked to sign on some blank papers on 13.3.2018, which were used for drawing the Panchnama on 14.3.2018. The signature on blank papers, was used by exercising duress, thus, the said Panchnama has no legal sanctity. It has been further stated that the stocks of the raw materials as well as finished goods were not weighed by the officers despite the insistence for the same. The search party was informed that the raw-materials were duly covered by the tax invoices and E-way bills and they were fully reflected in the books of accounts. It is further alleged that in the factory premises the computerized weigh bridge is installed, however, the respondents did not weigh the raw materials as well as the finished products and recorded highly exaggerated figures on the basis of assumptions in the Panchnama. It has been alleged that the list attached to the Panchanama is based on mere physical verification and eye estimation and the entries recorded therein are arbitrary. It has been further alleged that the two witnesses of the search were brought by the search party from Kanpur as the addresses of the said witnesses recorded in the Panchnama itself shows. The said two persons are fake persons as they are not resident on the addresses mentioned in the Panchnama. The non-mentioning of the correct address itself clouds the entire exercise as arbitrary and mala fide as also an abuse of the process of law. It is further stated that even the list attached to the Panchnama clearly shows that there is an overwriting while recording the stocks and it has also been argued that assuming for the sake of arguments to be correct, it was impossible for the respondent authorities to have weighed the goods referred to in the list attached to the Panchnama within such a short span of time.

It is further stated that a complaint was made on 15.3.2018 before the Commissioner U.P. GST, Lucknow regarding the highhanded manner in which the search was carried out and further requested that the stocks may be re-verified under the supervision of the District Magistrate. A similar request was also made to the District Magistrate, Hamirpur on 14.3.2018. It is thus argued that the entire exercise of wrongly recording the goods in an arbitrary and mala fide manner was only to saddle the petitioner-company with heavy duty and penalty. The petitioner argued that Section 67 of the U.P.GST confers the power of inspection, search and seizure on the proper officer, who has 'reasons to believe' that a taxable person has suppressed any transaction relating to supply of goods and service or the person aggrieved has kept the goods at a place which has escaped the payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act. It is also argued that the entire search and seizure was done in complete disregard to the mandatory provisions of subsection 10 of Section 67 as also the provisions of Section 100 and Section 165 of the Cr.P.C. It has been argued at length that "reasons to believe" are mandatory and a sine qua non before authority empowered under the Act, exercises its powers under Section 67 of the UPGST Act.

The High Court observed,

It is essential that the officer authorizing the search should have 'reasons to believe.' The principles that are culled out from the catena of decisions is that the 'reasons to believe' should exist and should be based on reasonable material and should not be fanciful or arbitrary. It is also established that this Court in exercise of its powers under Article 226 cannot go into the sufficiency of the reasons and should not sit as an appellate court over the reasons recorded. It is also well established that the reasons may or may not be communicated to the assessee but the same should exist on record.

We are inclined to hold that the Department had 'reasons to believe' and, in pursuance of the said reasons, the search and seizure operations were carried as such the writ petition fails as regards insufficiency of material for carrying out the search and seizure.

- Rimjhim Ispat Ltd Vs State of UP - 2019-TIOL-676-HC-ALL-GST

The Search was valid.

So was the seizure

So was the summons

Until next week