Must have Cogent Reasons To Withhold Documents Obtained During Seizure Under CGST Act Bombay HC [Read Judgment]

The Bombay High Court recently held that any authority under Central Goods and Services Tax Act who conducts seizure of documents or books of a company/individual must not keep them in custody for more than necessary period and copies thereof need to be given to the person from whose custody the said documents or books are seized.

Division bench of Justice MS Sanklecha and Justice Nitin Jamdar granted relief to a company called High Ground Enterprises and directed the Directorate General of GST Intelligence to release copies of documents seized within two weeks.

Case Background

The bench was hearing a writ petition filed by High Ground Enterprises seeking relief after the Bombay Stock Exchange imposed a penalty of Rs.1,06,200 for non-disclosure of financial results. If the company failed to pay the said amount till June 17, a penalty of Rs.5000 per day would be imposed.

According to the petitioner company, such non-submission of documents was due to the fact that all relevant documents were seized by the said authority GST Intelligence, Mumbai.

According to the respondent authority, intelligence input was received from the Director-General of GST Intelligence, Calcutta regarding transactions allegedly in connection with fraudulent affirmation and utilization of input tax credit by various firms on the strength of invoices allegedly issued by non-existing entities. An inquiry was initiated by GST Intelligence, Mumbai against the petitioner company.

A search was conducted on January 9, 2019 and January 10, 2019 and during the investigation, summons was issued to the petitioner on January 9, 11 and 21, 2019. Initially, the petitioner did not appear, however, he subsequently appeared. On February 2, the petitioner requested said authority to hand over the seized documents. The documents were not handed over.

In the meantime, company received notices from both BSE and NSE in connection with the non-submission of financial results. The Statutory Auditor also requested the petitioner company to supply the necessary documents. The documents were not handed over.

Judgement

Advocate Sujay Kantawala appeared on behalf of the petitioner and Advocate Pradeep Jetly for the respondents.

Kantawala submitted that even if copies of the documents are given at this stage, it will solve the petitioner's purpose for making statutory compliance as per SEBI Regulations, 2015. Grave prejudice is caused to the petitioner because the documents were not available to the company, and such a position cannot continue.

On the other hand, respondents Union of India and DG-GSTI, filed an affidavit and contended orally that it is open for the Chartered Accountant of the petitioner company to take inspection of the record but handing over documents at this stage will gravely prejudice their investigation.

According to the respondents, the investigation is at the sensitive stage and petitioner is likely to manipulate the documents and alert its associates and stall the progress of the investigation.

Upon examining the relevant provisions of CGST Act, the bench noted that mere opinion without assertion would not suffice -

"The opinion cannot be a mere ipsi-dixit of the Proper Officer. There must be cogent reasons to withhold giving of copies to the person. A mere statement that it will prejudicially affect the investigation would be only chanting the language of the section."

The bench added -

"We also note the averment in the affidavit filed by the Respondents wherein it is sought to be suggested that the Petitioner did not co-operate by answering the summons. The counsel for the Petitioner pointed out to us that the Petitioner attended subsequently. However, the said fact has not been mentioned in the affidavit of the Respondents. This is not an innocuous mistake. It appears that partial averments are made to give different colour to the adjudication."

Court stated that there were clear contradictions in the submissions made by the respondents. Court said-

"When the originals are with the respondent authorities, how can the said documents will be tampered by the petitioner. Secondly, if the soft copies are available with the petitioner, the argument that if the copies are given, now the Petitioner will alert its associates is also not explained."

Finally, allowing the petitioner company's petition, Court observed-

"In the light of the provision of section 67(5) of the Act creating right in the person, the denial of copies must be a reasonable action. The legislative intent is clear that the documents or books seized must not be kept in the custody of the officer for more than the period necessary for its examination and copies thereof need to be given to the person from whose custody the said documents or books are seized." 

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