JULY 28, 2021

By Vijay Kumar

RJT, in the business of trading in cigarettes in Delhi, on 13.02.2021 had the pleasure of a visit by the officers of the Directorate General of Goods and Services Tax Intelligence (DGGI), Ahmedabad Zonal Unit. Unfortunately, the concerned persons RJT was not present to welcome the distinguished visitors and as the officers found the premises locked, they sealed it and returned the next day. A search was conducted at RJT's premises after they were de-sealed. A panchnama was drawn up by SIO, DGGI (AZU) wherein, it was noted that the stock was "found in order".

On 05.03.2021, about 05:20 P.M., even before the bliss of the search by the DGGI subsided, another set of officers from a different Commissionerate i.e. CGST Commissionerate, Gautam Budh Nagar paid a visit for conducting a search. The authorisation for carrying out the search was issued by Additional Commissioner, CGST Delhi North Commissionerate.

The new search party detained 190 corrugated boxes (cartons). This apart, a seizure document was drawn up in Form GST INS -02 in respect of documents that had been seized. The seizure of documents in the exercise of powers under Section 67(2) of the CGST Act was prefaced by the following reasoning.

"And on scrutiny of document/papers and goods found during the search, I have reasons to believe that certain goods liable to confiscation and documents useful/relevant to proceedings under this Act are secreted in [the] place mentioned above."

RJT approached the High Court of Delhi.

The High Court noted: 2021-TIOL-1552-HC-DEL-GST

1. A careful perusal of Section 67 of the CGST Act would show that it confers, on the proper officer, not below the rank of a Joint Commissioner, power of inspection, search and seizure.

2. Subsection (1) of Section 67 deals with, inspection. This power can be exercised only if the proper officer has reason to believe that eventualities provided in subclause (a) or (b) of subsection (1) of Section 67 have occurred.

3. Subsection (2) of Section 67, on the other hand, confers, on the proper officer, not below the rank of the Joint Commissioner, the power to search and seize goods, documents or books or things, either pursuant to an inspection carried out under subsection (1) or otherwise, if he has reason 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 the CGST Act are secreted in any place.

4. The proper officer is empowered to either carry out the search and seizure himself or authorize in writing, any other officer of Central Tax, to carry out such search and seizure.

It was crystal clear to the High Court upon a perusal of the provisions of subsection (1) and (2) of Section 67:

1. that the expression "reasons to believe" controls the exercise of powers under the said provisions.

2. Therefore, unless the basic jurisdictional facts exist, in a case, the power conferred under subsections (1) and (2) of Section 67 cannot be exercised.

3. It is well-established that the expression reason to believe does not carry the same connotation as say reason to suspect; the standard of belief is that of a reasonable and honest person and not one based on surmises and conjectures, or mere suspicion. The belief of the concerned authority should be based on some actionable material that he has had an opportunity to peruse.

4. Before the proper officer not below the rank of Joint Commissioner decides to either conduct the search and seizure himself or authorize another person in writing to do the same, he should have, reasons to believe, that "any" goods are liable to be confiscated or "any" documents or books or things which, in his opinion, are useful or relevant to any proceedings under the CGST Act, are secreted in "any" place.

In this case, the High Court noted,

1. the search and seizure was conducted by an Inspector of the CGST, Delhi North Commissionerate based on the authorization of the Additional Commissioner of the same department i.e. CGST Delhi North Commissionerate.

2. Admittedly, no investigations were carried out against RJT by the CGST Delhi North Commissionerate. The authorization was based on the communication dated 05.03.2021 addressed by Joint Commissioner (AE), Gautam Budh Nagar to the Additional/Joint Commissioner, CGST Delhi North Commissionerate.

3. A careful perusal of this communication would show that the Joint Commissioner (AE), Gautam Budh Nagar wanted to know, in connection with the investigation of an entity going by the name M/s Mridul Tobie Inc., as to whether RJT, which was its L2 category supplier, actually existed. There is nothing stated in the document which could have formed the basis for issuing an authorization by the Additional Commissioner CGST Delhi North Commissionerate.

4. The communication dated 05.03.2021 gives no clue that "any" goods of RJT were liable for confiscation or "any" documents, or books or things which would be useful for or relevant for proceedings under the CGST Act had been secreted to any place; a prerequisite for the formation of belief, and therefore, for the exercise of powers concerning search and seizure.

The High Court found that the Additional Commissioner, CGST Delhi North Commissionerate exercised his powers for according authorization to conduct search and seizure, at RJT's premises, even though the jurisdictional ingredients were absent. The request of Joint Commissioner (AE), Gautam Budh Nagar conveyed through the communication dated 05.03.2021, was only to ascertain as to whether RJT, which was the L2 supplier of M/s Mridul Tobie Inc., was in existence. There was no independent application of mind by the Additional Commissioner, CGST Delhi North Commissionerate.

The High Court observed,

The officers concerned should bear in mind that the search and seizure power conferred upon them, is an intrusive power, which needs to be wielded with utmost care and caution. The legislature has, therefore, consciously ring-fenced this power by inserting the controlling provision, i.e., "reasons to believe".

The High Court ordered:

1. The search and seizure conducted by CGST Delhi North Commissionerate are declared unlawful.

2. Consequently, both the orders of seizure and prohibition dated 05.03.2021 are set aside.

3. The subject documents will be released to RJT, at the earliest. Liberty is, however, given to the concerned officer to retain copies of the same in case they are required for carrying out further investigations against RJT.

Summary of the story is that a Joint Commissioner of Gautam Budh Nagar wanted to know from the Additional Commissioner, CGST Delhi North Commissionerate whether a particular entity existed. And that ignited a search, seizure, detention, summons, statement - the whole fireworks.

The search was declared by the Court as unlawful. What is the consequence of an unlawful search? The 'searched' suffers silently!

From the Parliament:

The Finance Ministry informed the Parliament:

Classification of 'Hand sanitizers': Harmonised System of Nomenclature (HSN), as used globally, is the basis of classification of goods in GST and Customs (for international trade). As per the HSN Classification reference, for Covid-19 medical supplies, prepared jointly by the World Customs Organization and World Health Organization, 'Hand sanitizers' have been classified HS sub-heading 3808 94, describing it as - 'A liquid or gel generally used to decrease infectious agents on the hands, alcohol-based type'. Therefore, "Hand Sanitizers" are globally classified under this sub-heading as disinfectant. The corresponding entry in Indian Tariff, at 8-digit level, is at tariff item 3808 94 00. There have been certain representations from industry bodies to consider Hand Sanitizer as 'medicament' as well as to consider reduction of rate of GST from 18%. However, GST Council has not recommended any change to the present classification that is based on globally followed HSN system. On the recommendations of the GST Council, in its 44th meeting held on 12th June, 2021, for Covid relief, the GST rate on Hand Sanitizer has been reduced from 18% to 5% with effect from 14th June and upto 30th September, 2021.

Status of the economy: As per the latest estimates released by National Statistical Office (NSO), Ministry of Statistics and Program Implementation (MoSPI), India's real Gross Domestic Product (GDP) is estimated to contract by 7.3 per cent during Financial Year (FY) 2020-21. This reflects the unparalleled effect of the COVID-19 pandemic and the containment measures that were taken to control the pandemic. The contraction was consistent with India's enforcement of stringent lockdowns as reflected in the Government Response Stringency Index measured by Oxford University. The stringent lockdown at the very onset of the pandemic enabled flattening of the pandemic curve and, thereby, provided the necessary time to ramp up the health and testing infrastructure during the first wave when the uncertainty regarding the pandemic was very high. The fundamentals of the economy remained strong as gradual scaling back of lockdowns, along with the astute support of Atmanirbhar Bharat Mission placed the economy firmly on the path of recovery from the second half of FY 2020-21.

The GST compensation cess levied under Section 8 of the GST (Compensation to States) Act, 2017 is transferred into a non-lapsable Fund known as GST Compensation Fund which forms part of the Public Account of India as provided in Section 10(1) of the Act. The States are being compensated for any loss of revenue arising on account of implementation of GST for five years out of the Compensation Fund as per Section 10(2) of the said Act. GST compensation for financial years 2017-18, 2018-19 and 2019-20 has already been paid to all States. The economic impact of the pandemic has led to higher compensation requirement due to lower GST collection and at the same time lower collection of GST compensation cess. GST compensation of Rs. 91,000 crore has been released to all States/UTs to partly meet the compensation payable for the period April'20 to March'21 as the amount in GST Compensation Fund was not adequate to meet the full compensation requirement.

The issue of GST Compensation to States has been deliberated in the 41st and 42nd GST Council meetings. Accordingly, in FY 20-21, Centre had borrowed Rs. 1.1 lakh crore under a special window and passed on to the States as back-to-back loan to help the States meet the resource gap due to short-release of compensation on account of inadequate balance in the Compensation Fund. Subsequent to deliberations in the 43rd GST Council meeting, it has been decided that the Centre is borrowing Rs. 1.59 lakh crores from the market through special window in current FY and passing it on to the States/ UTs as a back to back loan in appropriate tranches as was done in last year. As per this decision Rs. 75000 crore has been released to States/ UTs on 15.07.2021. In addition, depending on the amount available in the Compensation Fund, Centre has also been releasing the regular GST compensation to States to make up for GST revenue shortfall.

The latest available position on Central Government debt, as per the definition in the Fiscal Responsibility and Budget Management Act (FRBM), 2003, for the year 2019-20 and 2020-21 (Provisional) along with percentage of GDP is as under:

Until Next Week.