SGST Dept. Can Initiate Proceedings Against The Unit Situated In SEZ: Gujarat High Court Imposes Rs.10K Cost

The Gujarat High Court has held that the state GST department can initiate proceedings against the unit situated in the Special Economic Zone (SEZ).

The bench of Justice Ashutosh Shastri and Justice J. C. Doshi has observed that respondent departments are empowered to carry out proceedings in SEZ. Their jurisdiction is unquestionable, as the Central Government has already authorized those officers by virtue of a notification dated August 5, 2016. Section 6(2) of the GGST Act indicates that where any proper officer issues an order, he is also issuing an order under the CGST Act as authorized by the Act or under intimation to a jurisdictional officer of the Central Government, and as such, it appears that respondents are empowered to carry out search proceedings in SEZ.

The petitioner company is a well-established SEZ unit in SURSEZ administered under the control and directions of the respondent, i.e., the Development Commissioner, SEZ, Surat.

After some ostensible oral communication from an officer of the Enforcement Directorate, the petitioner company was subjected to a search and seizure operation, and the premises of the petitioner company were sealed. The sealing memo, according to the petitioner, does not reflect any due process followed by the respondent, and it was carried out without arriving at any satisfaction as required under Section 67(1) of the GST Act. The premises of the petitioner were sealed as all employees were before the office of DRI Surat for a recording of statements, and as such, the respondent has sealed the business premises. Simultaneously, the respondent issued a summons under Section 70 of the GST Act, 2017, and directed the directors of the petitioner company to appear before the respondent for the recording of statements and the production of books of accounts.

The petitioner submitted that since the petitioner’s unit was within the area earmarked and is a SURSEZ unit, which is a distinctly foreign territory and, as such, is a tax-neutral or revenue-neutral area, it is hence outside the ambit of the provisions of the CGST Act, 2017 or the SGST Act, 2017. The state authorities are not empowered to initiate any action since every SEZ unit is a tax-neutral zone.

The respondent contended that the Development Commissioner had jurisdiction and hence requested cooperation in the proceedings under Section 67(2) of the aforesaid petitioner’s dealers and suppliers. By drawing attention to Article 246A of the Constitution of India, which prescribes special provisions with respect to goods and services tax, and then contended that enforcement agencies are notified for exercising power conferred under Section 21(1) of the SEZ Act, 2005.

The bone of contention of the petitioners is that the business premises of the petitioners were situated in an SEZ and were to be treated as foreign territory and not subjected to provisions by state authorities, which have no jurisdiction to carry out any search proceedings at the premises of the petitioners.

The court noted that once the Central Government has notified the functions of proper officers, those functions shall also be applicable to be carried out by the officers under the CGST Act, and hence it cannot be said that there was any lack of authority on the part of respondents.

The court found that it was an attempt on the part of petitioners by filing these kinds of petitions to thwart and delay the legal proceedings that are initiated by respondent authorities, and as such, this move of petitioners appears to be an abuse of the process of law looking at the manner in which the irregularities alleged to have been committed.

"Such an attempt on the part of petitioners deserves to be dealt with firmly so that litigants may not take advantage of the situation by bringing this kind of litigation. The record has indicated that after the issuance of a notice, petitioners appear to have started not cooperating and have indicated that they will wait for orders from the court. This conduct on the part of the petitioners is not appreciable, and as such, we find it proper to impose costs upon the petitioners for having adopted such a course of action. The petition was dismissed at a cost of Rs. 10,000," the court said.

Case Title: RHC Global Exports Private Limited Versus Union Of India

Case Citation: 2023 Livelaw (Guj) 98

Case No.: R/SPECIAL CIVIL APPLICATION NO. 5978 of 2023

Date: 06/06/2023

Counsel For Petitioner: Saurabh N Soparkar

Counsel For Respondent: Manisha Lavkukar Shah

Click Here To Read The Order