Facts of the Case:

In this case, the petitioner was subjected to a surprise search operation on 16.08.2023 under Section 67(2) of the CGST Act, 2017. During the search, GST authorities seized gold ornaments  on the allegation that the stock was not reflected in the books of accounts. The petitioner contended that the search authorization issued on 15.08.2023 did not bear a Document Identification Number (DIN), rendering the proceedings illegal. It was also alleged that the officials coerced the petitioner into making payments aggregating ₹32.62 lakh towards tax and penalty during the search proceedings.

The department, however, maintained that the search was conducted on the basis of credible intelligence regarding tax evasion and that the payments were voluntarily made by the petitioner after admitting discrepancies. The department further argued that DIN was subsequently generated within the prescribed period and that non-disclosure of DIN to the taxpayer did not vitiate the proceedings. Aggrieved by the search proceedings and seeking refund of the amount allegedly recovered under coercion, the petitioner approached the High Court.

Issue:

• Whether the search proceedings initiated under Section 67 of the CGST Act were valid in the absence of a DIN in the authorization and whether the subsequently generated DIN ought to have been communicated to the taxpayer.
• Whether the authorization issued by the department constituted a valid search authorization or merely an inspection authorization.
• Whether the amount collected during the course of search proceedings could be regarded as a voluntary payment under Section 74(5) of the CGST Act.
• Whether the petitioner was entitled to refund of the amount deposited during the search proceedings.

Held That:

The Madras High Court undertook an extensive analysis of the statutory framework governing inspection, search and seizure under Section 67 of the CGST Act and emphasized that these powers are distinct in nature and cannot be exercised mechanically. The Court held that a proper officer must possess genuine “reasons to believe” supported by relevant material before invoking powers of inspection, search or seizure. Mechanical reproduction of statutory language without application of mind defeats the safeguards embedded in the statute.

On the issue of DIN, the Court held that CBIC Circular No. 122/41/2019-GST dated 05.11.2019 makes quoting of DIN mandatory in search authorizations, summons and other specified communications. While DIN may be generated subsequently in exceptional circumstances such as technical difficulties, the reasons for such non-generation must be contemporaneously recorded. Further, once generated, the DIN must be communicated to the taxpayer. Non-communication of DIN defeats the objective of transparency and prevents the taxpayer from verifying the genuineness of departmental communications.

The Court found significant procedural infirmities in the authorization issued to the petitioner. The authorization was described both as an inspection warrant and a search warrant and failed to clearly indicate the precise nature of power being exercised. The Court observed that the authorization reflected a lack of application of mind and was not in conformity with statutory requirements.

With respect to the payment of ₹32.62 lakh, the Court relied upon the principles laid down in Bhumi Associates, Vallabh Textiles and Radhika Agarwal. It held that no recovery can be made during search proceedings and any payment under Section 74(5) must be genuinely voluntary. Such voluntary payment must be preceded by a written self-ascertainment of tax liability by the assessee and proper compliance with Rule 142 through filing of Form GST DRC-03 followed by acknowledgement in Form GST DRC-04. The Court observed that the petitioner was neither informed of the statutory option of securing provisional release of goods by executing a bond and furnishing security nor afforded sufficient opportunity to independently ascertain its liability.

The Court concluded that the payment extracted during the search lacked the element of voluntariness and that the search proceedings were not conducted strictly in accordance with law. However, considering that the petitioner had earlier secured release of the seized goods by representing before the Court that the tax liability had already been discharged, the Court declined to order an immediate refund.

Instead, the Court directed the department to initiate fresh assessment proceedings in accordance with law. The issue of refund of the amount deposited would depend upon the outcome of such assessment proceedings. The period between 15.08.2023 and the date of receipt of the Court’s order was directed to be excluded for limitation purposes.

Case Name: M/s. Bhima Enterprises, Represented by its Accountant, Sathish Kumar Rajendran Versus The Principle Chief Commissioner of GST & Central Excise Tamil Nadu & Puducherry, The Commissioner of GST & Central Excise, The Joint Commissioner, Office of the Central GST & Excise, The Superintendent, Office of the Central GST & Excise, The Inspector, Office of the Central GST & Excise, Tirunelveli dated 05.08.2026.

Citation No. 2026 Taxo.online 2263