Tvl.Rising International Co vs. The Commissioner Of Central GST

Facts

The petitioner, M/s. Rising International Company, a GST-registered dealer importing toys from China and purchasing from Delhi, challenged orders of seizure and prohibition dated August 21, 2020, issued by the Superintendent (HPU), CGST and Central Excise, Madurai. The petitioner claimed to have filed returns until March 2020, with no arrears, and that business was shut down due to COVID-19 lockdown. The respondents conducted a search and seizure, alleging the petitioner had unaccounted stock and evaded GST by misdeclaring imported toys. The petitioner contended there was no reasonable basis for the search and that mere non-maintenance of a stock register was insufficient grounds for seizure. The respondents argued they had intelligence inputs about tax evasion and conducted the search under Section 67(2) of the CGST Act, finding unaccounted stock.

Held

The Court held that while the respondents had intelligence inputs, they failed to produce any material to substantiate the formation of the requisite belief for initiating proceedings. The recitals in the seizure and prohibition orders, stating that the belief was predicated on scrutiny of books and documents found during the search, were insufficient to validate the proceedings. The Court acknowledged that the search had revealed the non-maintenance of a stock register, and therefore, did not quash the order of seizure. However, the Court found it necessary to interfere with the order of prohibition, noting that over 40 days had passed since the seizure without a show cause notice being issued. Citing Section 67(6) of the CGST Act, the Court directed the release of the seized goods on a provisional basis upon the petitioner executing a personal bond and furnishing security of Rs. 2,00,000. The Court modified the order of prohibition to this extent, allowing the petitioner to deal with the goods, while reserving the respondents' liberty to conduct adjudication proceedings if the petitioner failed to account for the stock. The observations made were not to have a bearing on the adjudication proceedings.

Key Issues

1. Whether the search and seizure conducted by the respondents were based on reasonable belief as required under Section 67(1) of the Central Goods and Services Tax Act, 2017, and if the petitioner's contention that the action was a 'fishing enquiry' without reasonable basis is valid? 2. Whether the non-maintenance of a stock register alone constitutes sufficient grounds for ordering the seizure of goods and issuing an order of prohibition under the CGST Act? Petitioner's Arguments: The petitioner argued that the search was conducted without reasonable basis and constituted a 'fishing enquiry'. They contended that mere non-maintenance of a stock register cannot be a ground for seizure, and they were prepared to account for the stock. They relied on AIR 1976 SC 1753 (Income-Tax Officer, Calcutta vs. Lakhmani Mewal Das) and highlighted the detrimental impact on their business, which had just restarted after the lockdown. Respondents' Arguments: The respondents asserted they had intelligence inputs regarding GST evasion by misdeclaring imported toys. They claimed the search was authorized under Section 67(2) of the CGST Act and that unaccounted stock was found. They relied on Section 35(1) read with Rule 56 of the CGST Rules, emphasizing the obligation to maintain stock accounts, and cited 1987 (20) E.L.T 483 (S.C), 1992 (59) E.L.T 201 (S.C), and 2004 (168) E.L.T 298 (Mad.) to argue that the writ petition was prematurely filed and the Court should not sit in appeal over the proper officer's belief.