In Pandemic Times, Courts Ought To Adopt That Approach Which Will Kickstart The Economy: Madras HC In GST Case

Observing that the courts ought to adopt that approach which will kickstart the economy during pandemic times, the High Court of Madras ordered the provisional release of goods seized by the GST authorities.

"...laws speak the same language during normal as well as in pandemic times. But, contemporary imperatives demand that courts, whenever possible, ought to adopt that approach which will kickstart the economy", observed a bench of Justice G R Swaminathan in the case Tvl. Rising International Co. v. The Commissioner of Central GST & Excise, Madurai.

The bench was hearing a writ petition filed by a dealer of imported toys whose goods were seized under Section 67 of the Central Goods and Services Tax on the suspicion of tax evasion and failure to maintain proper records. The dealer challenged the order of seizure and prohibition passed against it.

While considering the plea, the Court expressed that it was mindful of the sufferings experienced by manufacturers, traders and farmers due to the COVID-19 pandemic, which the salaried class may not have experienced.

"Salaried classes may not be bearing the brunt. The position of the farmer, manufacturer and the trader is different. This Court is mindful of the pain and suffering experienced by them", the Court said.

The Court noted that under Section 67(1), goods can be seized only if the authorities have "reasons to believe" that tax evasion, suppression etc., have taken place. 

"The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the officer. It must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the authority in initiating proceedings is open to challenge", the HC explained the legal position.

The department contended that the petitioner has been evading goods and service tax by misdeclaring the China's origin plastic toys as non-electric toys and paying 12% IGST on the imported goods in place of 18% IGST leviable on such imported Chinese electric toys.

In this regard, the Court noted that "not a scrap of material" was produced by the department before it to substantiate the allegation. 

"The recitals set out in the order of seizure and the order of prohibition indicate that the formation of the requisite belief is predicated on the scrutiny of the books of account, registers and documents found during the search. This is sufficient to invalidate the entire proceedings", the Court said.

However, it added that it was not quashing the seizure proceedings at the moment but wanted to interfere with the prohibition order.

"Officials who get their salaries in the first week of every month may not be conscious of the cost of delays in such cases. Adjudication proceedings may go on for months. That is why, the statute provides for provisional release of the detained goods", the Court observed, ordering the release of goods on the petitioner furnishing a security of Rupees 2 lakhs.

The respondents are at liberty to conduct adjudication proceedings against the petitioner if he is unable to account for the stock position, clarified the Court.

In parting, Justice Swaminathan made certain observations regarding the influx of Chinese goods and the need to encourage swadeshi products.

"I cannot help mumbling to myself that the general market is flooded with Chinese goods. The public must make a conscious choice to encourage swadeshi products. Last Sunday, I went out to buy a mobile phone. I could not come across a single Indian brand. It is no use telling the public not to buy Chinese items. The Indian entrepreneur must rise to the occasion. He must ask himself as to why the Chinese products are preferred and he must come out with alternatives. There must be no compromise in quality. At the same time, the price factor should also be borne in mind", the judge observed.

Case Details

Title : Tvl. Rising International Co. v. The Commissioner of Central GST & Excise, Madurai.

Coram : Justice G R Swaminathan.

Appearances : Advocate B. Rooban for the petitioner; Advocate B Vijaya Karthikeyan for the respondents.

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