Illegal Search & Seizure Under GST: Court Quashes Proceedings
In a significant ruling, the Allahabad High Court has quashed the entire proceedings initiated under Section 67 of the Uttar Pradesh Goods and Services Tax (UPGST) Act, 2017, against M/S Excellentvision Technical Academy Pvt. Ltd. The court found that the search and seizure operation lacked valid authorization, making all subsequent actions void. This judgment highlights the importance of adherence to procedural law in GST enforcement actions and provides relief to businesses facing arbitrary searches.
Case Overview: Excellentvision Technical Academy Pvt. Ltd.
v. State of U.P.
Background of the Case
- The case involves M/S ExcellentvisionTechnical Academy Pvt. Ltd., which challenged the legality of a search and
seizure operation conducted on January 4, 2018.
- The company contended that the Joint Commissioner did not record 'reasons to
believe' before authorizing the search, a mandatory requirement under Section
67 of the UPGST Act, 2017.
- Further, the authorities issued two INS-01 forms (search authorization
documents) on different dates—one on January 4, 2018, and another on February
11, 2019—raising questions about the authenticity of the authorization.
Key Legal Issues Raised
1. Non-Compliance with Section 67: The law
mandates that before conducting a search, tax authorities must record specific
reasons justifying their belief that the search is necessary. In this case, the
search was conducted without proper justification.
2. Contradictions in Search Authorization (INS-01 Forms): Two INS-01 forms were
issued, one after the search had already been conducted, which raised serious
concerns about procedural violations.
3. Failure of the State Authorities to Provide a Clear Justification: The
government’s counter affidavit failed to explain the procedural lapses
satisfactorily, leading to legal ambiguity.
Court’s Judgment and Observations
Quashing of Proceedings
- The Allahabad High Court found that the
entire search authorization process was flawed and did not comply with
statutory requirements.
- As a result, the entire GST proceedings initiated under Section 67 were
declared illegal and quashed.
Key Directives by the Court
1. Release of Seized Goods and Documents:
The State authorities must return all confiscated goods and documents to the
petitioner within three weeks from the date of judgment.
2. Refund of Any Amount Deposited: Any amount paid by the petitioner under
Section 74 of the UPGST Act must be refunded within eight weeks.
3. Reinforcing the Importance of 'Reasons to Believe' in GST Proceedings: The
court reiterated that tax authorities must strictly follow procedural
safeguards, including documenting clear 'reasons to believe' before initiating
a search.
Legal Implications of the Judgment
1. Strengthening Protection Against
Arbitrary GST Raids: This ruling reinforces that GST authorities must follow
due process and cannot conduct random searches without proper documentation and
justification.
2. Preventing Afterthought Justifications: The court’s rejection of the
later-issued INS-01 form sets an important precedent that tax authorities
cannot create documents retrospectively to justify their actions.
3. Relief to Taxpayers from Illegal GST Proceedings: This decision serves as a
major relief for businesses facing harassment through arbitrary tax searches.
Companies can challenge illegal actions in court, citing this judgment as a
reference.
Conclusion: A Landmark Judgment Ensuring Fair GST
Enforcement
The Allahabad High Court’s ruling in M/S
Excellentvision Technical Academy Pvt. Ltd. v. State of U.P. is a landmark case
in protecting taxpayers from unlawful GST enforcement actions. By quashing the
proceedings due to lack of proper authorization, the court has reinforced the
importance of procedural fairness and the rule of law in GST investigations.
... ....sets a crucial precedent in GST enforcement, emphasizing the necessity of procedural compliance. By quashing the proceedings due to the lack of valid authorization, the court has reaffirmed the importance of "reasons to believe" in search operations. This ruling strengthens legal safeguards for businesses, preventing arbitrary tax raids and ensuring adherence to due process. Taxpayers must stay vigilant about procedural lapses and assert their rights when facing unjustified GST actions, reinforcing fairness and transparency in tax administration.
Key Takeaways for Businesses & Tax Professionals
✅ Always ensure that tax authorities provide
a valid 'reasons to believe' document before a GST search.
✅ If there are inconsistencies in search authorization documents (INS-01), they
can be legally challenged.
✅ Taxpayers have the right to approach the High Court under Article 226 of the
Constitution to quash illegal GST proceedings.
✅ Authorities must adhere to procedural requirements; failure to do so can
render their entire action void.