GST Search Valid Despite DIN Issues; Bank Attachment Upheld by Kerala High Court

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Case Name

Suresh Kumar P.P. & Ors. Vs The Deputy Director

Court Name: High Court of Kerala at Ernakulam

Case No: W.A. No. 943 of 2020 and WP(C) 12710/2020(K)

Decision on: 26th June 2020

Judges: The Honourable Mr. Justice K. Vinod Chandran and The Honourable Mr. Justice T.R. Ravi

Key Takeaways

1. DIN Requirements Are Not Absolute for All Documents: The court clarified that Document Identification Numbers, while important for transparency, are not required for every communication—particularly for seizure orders issued in the presence of the person being investigated.

2. Search and Seizure Authority Is Valid: An officer authorized under Section 67(2) of the CGST Act can properly conduct search and seizure operations, and the “reason to believe” requirement flows from the authorization itself.

3. Audit and Investigation Can Run Simultaneously: Contrary to the appellants’ argument, there’s no legal prohibition against conducting both audit (under Section 65) and investigation (under Section 67) at the same time, as they serve different purposes.

4. Voluntary Tax Payment Is Allowed: Even during investigation, a person can voluntarily pay taxes under Section 74(5) of the CGST Act without waiting for a formal notice.

5. Bank Account Attachment Is Permissible: Attaching bank accounts to protect revenue interests doesn’t require prior hearing, as advance notice could allow the account holder to withdraw funds and defeat the purpose.

Issue

1. Was the search and seizure operation under Section 67 of the CGST Act valid despite the absence of proper Document Identification Numbers (DINs) on the initial summons?

2. Is it legally permissible to conduct simultaneous audit and investigation proceedings against the same assessee?

3. Was the attachment of bank accounts proper and legally justified?

Facts

The Company and the People Involved:

The appellants were Suresh Kumar P.P. (Managing Director, aged 44) and Mr. Aboobacker Sidhique (Director, aged 59) of Kerala Communications Cable Ltd., based in Kochi.

Timeline of Events:

• 17.03.2020: The company received a notice (Exhibit P2) asking for details about Local Cable Operators (LCOs).

• June 2020: The GST department issued summons to both directors. Summons No. 82/2020 was issued to the first appellant (undated), and Summons No. 83/2020 dated 09.06.2020 was issued to the second appellant.

• 09.06.2020: A search and seizure operation was conducted at the company’s premises under Section 67 of the CGST Act. During this operation, documents were seized and a seizure order (Exhibit P4) was issued in the presence of the appellants.

• During the search: The appellants voluntarily issued a cheque to the GST department, which remained unencashed at the time of the court proceedings.

• 15.07.2020: The GST department issued communications to the company’s bank requesting attachment of their bank accounts.

The Core Issue:

The appellants challenged these actions, claiming the procedures weren’t followed correctly and that their rights were violated.

Arguments

Arguments by the Appellants (Suresh Kumar and Aboobacker Sidhique):

1. DIN Requirement Not Met:

The appellants’ senior counsel argued that the summons issued (Annexures A2 and A3) didn’t have Document Identification Numbers (DINs), which is mandatory under the CBIC circular. They contended this made the entire proceeding invalid from the start.

2. Section 67 Violation:

They argued that Section 67 specifically requires that “reasons to believe” must be entered by an officer not below the rank of Joint Commissioner. The Search and Inspection Officer (SIO) who issued the summons was below this rank, making the entire proceeding invalid.

3. Improper Authorization:

Even if there was authorization under Section 67, an officer below Joint Commissioner rank cannot independently arrive at a belief about what documents should be seized.

4. No Parallel Proceedings Allowed:

The appellants argued that audit and investigation cannot happen simultaneously. The audit initiated earlier should have been concluded before investigation began.

5. Coercion in Payment:

They claimed the cheque they issued was given under coercion during the search operation, not voluntarily.

6. Improper Bank Attachment:

The attachment of bank accounts violated principles of natural justice because no hearing was given before the attachment. They cited the case of Manohar v. State of Maharashtra to argue that when state action results in civil consequences, a hearing must be afforded.

7. Reliance on Precedents:

They relied on Mohinder Singh Gill v. Chief Election Commissioner [(1978) 1 SCC 405] to argue that an order must stand on its own merits and cannot be validated by subsequent actions or affidavits.

They also cited Chandra Singh v. State of Rajasthan [(2003) 6 SCC 545] for the same principle.

Additionally, they referenced Watermelon Management Services Private Limited v. The Commissioner, Central Tax, GST Delhi [W.P© No.3618/2010 dated 29.06.2020] to argue against simultaneous proceedings.

And they cited Kaish Impex Private Limited v. Union of India [2020 SCC OnLine Bom 125] to challenge the bank account attachment.

Arguments by the GST Department (Respondents):

1. DIN Was Generated Subsequently:

The department’s counsel argued that while the initial summons may not have had DINs, they were generated subsequently within the prescribed timeframe. The DINs were: CBIC-DIN-202006DSS500001F47A3 and CBIC-DIN-202006DSS500007V5BAA for the respective summons.

2. Proper Authorization Under Section 67(2):

The SIO was properly authorized under Section 67(2) with authorization number CBIC-DIN-202006DSS500009LAF2F to carry out search and seizure operations.

3. “Reason to Believe” Is Part of Authorization:

The “reason to believe” requirement in Section 67 flows from the authorization itself and doesn’t vitiate the order. The SIO, being authorized, can issue the seizure order with reasons.

4. Audit and Investigation Are Different Procedures:

Audit under Section 65 is a routine procedure independent of investigation under Section 67. Section 67 is more onerous and can only be initiated on satisfaction of specific conditions. There’s no legal bar to conducting both simultaneously.

5. Voluntary Payment:

The cheque was issued voluntarily by the appellants. Under Section 74(5) of the CGST Act, a person can voluntarily pay tax even during investigation. The department is authorized to collect amounts above Rs. 10 lakhs through cheque or demand draft under Rule 87(3)©.

6. No Hearing Required Before Attachment:

For protective attachments of bank accounts, prior hearing is not required. If notice were given before attachment, the account holder could withdraw funds and defeat the revenue’s purpose.

7. Precedents Don’t Apply:

The Watermelon Management Services case involved different facts—it was about the Commissioner and Director General conducting parallel investigations, not audit and investigation.

The Kaish Impex case also involved different circumstances and doesn’t apply here.

Key Legal Precedents

1. Mohinder Singh Gill v. Chief Election Commissioner [(1978) 1 SCC 405]

What it says: An illegal order cannot be validated by subsequent actions, filing of counter-affidavits, or explanations. An order must stand on the recitals contained within it or be rendered invalid if essential requirements aren’t followed. No additional grounds can be brought later to validate an invalid order.

How it was applied: The appellants used this to argue that the summons without DINs was invalid on its face and couldn’t be cured by later generating DINs. However, the court distinguished this case, noting that DINs were subsequently generated and the core authorization was valid.

2. Chandra Singh v. State of Rajasthan [(2003) 6 SCC 545]

What it says: A three-Judge Bench followed Mohinder Singh Gill, reiterating that an order passed by a statutory authority must be judged on its face. The reasons contained in the order cannot be supplemented by an affidavit filed later.

How it was applied: Similar to above, the appellants argued the order was defective on its face, but the court found the authorization was proper and the subsequent DIN generation was permissible.

3. Manohar v. State of Maharashtra [(2012) 13 SCC 14]

What it says: When state action results in civil consequences, necessarily there should be afforded an opportunity of hearing to the affected person.

How it was applied: The appellants argued that before attaching bank accounts, they should have been given a hearing. However, the court rejected this, noting that for protective attachments to safeguard revenue, prior hearing is not required. If notice were given, the account holder could withdraw funds and defeat the purpose. The court left open the question of whether a hearing is required before seeking disbursement of amounts from the attached account.

4. Watermelon Management Services Private Limited v. The Commissioner, Central Tax, GST Delhi [W.P© No.3618/2010 dated 29.06.2020]

What it says: This Delhi High Court case dealt with simultaneous investigation by the Commissioner and Director General of GST Intelligence. The Commissioner submitted that the investigation had been handed over to the Director General. The court directed the Director General to conclude the investigation within three months.

How it was applied: The appellants cited this to argue against simultaneous audit and investigation. However, the court distinguished it, noting that the facts were quite different. In Watermelon, there was a question of parallel investigation by two different authorities, whereas here, the issue was about audit and investigation by the same department—which are different procedures with different purposes.

5. Kaish Impex Private Limited v. Union of India [2020 SCC OnLine Bom 125]

What it says: This Bombay High Court Division Bench case involved a situation where Kaish Impex Private Limited was summoned regarding an enquiry against another taxable person (Maps Global) who had allegedly fraudulently availed input tax credit. Simultaneously with the summons to Kaish Impex, their bank accounts were also attached.

How it was applied: The appellants cited this to challenge the bank account attachment. However, the court found that the facts were quite distinct and the decision had no application to the present case.

6. CBIC Circular No. 122/41/2019-GST dated 05.11.2019 (Exhibit A6)

What it says: The Central Board of Indirect Taxes and Customs (CBIC) implemented a system of electronic Document Identification Numbers (DINs) for all communications sent to taxpayers. The DIN system was designed to ensure transparency and accountability, create a digital audit trail, and allow recipients to verify the genuineness of communications. Initially, DINs were required for search authorizations, summons, arrest memos, inspection notices, and letters issued in enquiries.

How it was applied: The court noted that while DINs are important for transparency, not all communications require them. Specifically, seizure orders issued in the presence of the person being investigated don’t need DINs because there’s no risk of pre-dating or post-dating—the person is present when the order is issued. However, summons sent to persons do require DINs, and the court found that proper DINs were subsequently generated for the summons in this case.

Judgment

Decision: Appeal Dismissed

The Kerala High Court dismissed the appeal filed by the two directors. The court upheld the GST department’s search, seizure, and bank account attachment actions.

Key Reasoning:

On the DIN Issue:

The court clarified that while DINs are important for transparency and accountability, they’re not required for every communication. Specifically:

• Seizure orders issued in the presence of the person being investigated (like Exhibit P4) don’t require DINs because the person is present and can verify the order’s authenticity on the spot.
• However, summons sent to persons do require DINs. The court found that proper DINs were subsequently generated for the summons (CBIC-DIN-202006DSS500001F47A3 and CBIC-DIN-202006DSS500007V5BAA), and the appellants’ counsel verified these.

On Section 67 Authorization:

The court held that:

• The SIO was properly authorized under Section 67(2) to carry out search and seizure operations.
• The “reason to believe” requirement mentioned in Section 67 is a mandatory requirement flowing from the authorization itself and doesn’t vitiate or invalidate the order.
• The court found no infirmity in Exhibit P4 (the seizure order) based on the principles established in Mohinder Singh Gill or Chandra Singh.

On Simultaneous Audit and Investigation:

The court held that:

• Audit under Section 65 is a routine procedure independent of investigation under Section 67.
• Section 67 is a more onerous procedure that can only be initiated on satisfaction of specific conditions (suppression of taxable transactions, excess claim of input tax credit, contravention of provisions, keeping of goods and accounts in contravention, escapement of tax, secreting of goods, or any act leading to evasion of tax).
• There’s no legal bar to conducting both audit and investigation simultaneously.

On the Voluntary Payment:

The court found that:

• The issuance of the cheque was voluntary and its receipt by the SIO is sanctioned by statute and the rules prescribed.
• No affidavit was filed by the appellants asserting coercion, despite the court’s offer to return the cheque if coercion was proven.
• The department could proceed with encashing the cheque in accordance with prescribed procedures.

On Bank Account Attachment:

The court held that:

• The principle of natural justice requiring a hearing before attachment doesn’t apply to protective attachments made to safeguard revenue interests.
• If notice were given before attachment, the account holder could withdraw funds and defeat the purpose.
• The court left open the question of whether a hearing is required before seeking disbursement of amounts from the attached account, to be decided by appropriate authorities or forums.

Final Order:

The court concluded: “We do not think that the proceedings initiated under Section 67 is improper, illegal or that the actions projected before us were in any manner proceeded with, in an arbitrary or high-handed fashion. We dismiss the appeal, leaving the parties to suffer their respective costs.”

FAQs

Q1: What is a Document Identification Number (DIN) and why is it important?

A: A DIN is an electronic identification number assigned to official communications by the GST department. It’s designed to ensure transparency, create a digital audit trail, and allow recipients to verify that a communication is genuine and issued on the date claimed by the officer who issued it. This prevents officials from pre-dating or post-dating communications. However, as this judgment clarifies, DINs aren’t required for every type of communication—particularly for orders issued in the presence of the person being investigated.

Q2: Can the GST department conduct both audit and investigation at the same time?

A: Yes, according to this judgment. Audit under Section 65 is a routine procedure, while investigation under Section 67 is a more onerous procedure with stricter requirements. They serve different purposes and can be conducted simultaneously. The court rejected the argument that one must be concluded before the other begins.

Q3: If I’m under GST investigation, can I voluntarily pay the tax without waiting for a formal notice?

A: Yes. Under Section 74(5) of the CGST Act, a person can voluntarily pay tax even during investigation. This is a benefit provided to taxpayers who want to settle their tax liability early. The court in this case upheld the voluntary payment made by the appellants through a cheque.

Q4: Can the GST department attach my bank account without giving me a hearing first?

A: Yes, for protective attachments made to safeguard revenue interests. The court explained that if the department had to give notice before attachment, the account holder could simply withdraw all the funds and defeat the purpose. However, the court left open the question of whether a hearing is required before the department seeks to disburse the amounts from the attached account.

Q5: Can a procedural defect in issuing a summons invalidate the entire investigation?

A: Not necessarily. While procedural requirements are important, the court looks at whether the core authorization is valid and whether defects can be cured. In this case, even though the initial summons lacked DINs, the court found that proper DINs were subsequently generated, and the core authorization under Section 67(2) was valid. The court won’t invalidate an entire proceeding based on a procedural defect that can be remedied.

Q6: What does “reason to believe” mean in the context of Section 67?

A: “Reason to believe” is a requirement under Section 67 that an officer not below the rank of Joint Commissioner must have grounds to believe that certain conditions exist (like suppression of taxable transactions, excess claim of input tax credit, etc.) before initiating an investigation. In this case, the court held that this requirement flows from the authorization itself—once an officer is properly authorized under Section 67(2), the “reason to believe” is inherent in that authorization.

Q7: What was the main issue the appellants lost on?

A: The appellants lost on multiple fronts. The main issues were: (1) the DIN requirement was satisfied through subsequent generation; (2) the Section 67 authorization was valid; (3) simultaneous audit and investigation are permissible; (4) the voluntary payment was genuine; and (5) bank account attachment doesn’t require prior hearing. Essentially, the court found that the GST department followed proper procedures and had valid authority for all its actions.

Q8: Does this judgment mean the GST department can do whatever it wants?

A: No. The court was careful to note that it found no evidence of arbitrary or high-handed action in this specific case. The judgment upholds the department’s actions because they were properly authorized and followed statutory procedures. However, the court would likely intervene if the department acted without proper authorization, violated statutory requirements, or acted arbitrarily.

Q9: What happens to the cheque the appellants issued?

A: The court found that the cheque was issued voluntarily and its receipt is sanctioned by statute. The department can proceed with encashing the cheque in accordance with prescribed procedures. The appellants didn’t file an affidavit asserting coercion despite the court’s offer to return the cheque if coercion was proven.

Q10: Can the appellants challenge the bank account attachment in a separate proceeding?

A: The court didn’t fully address this, noting that it may not be proper to look at attachment orders issued after the writ petition was dismissed. The court left open the question of whether a hearing is required before the department seeks disbursement of amounts from the attached account, to be decided by appropriate authorities or forums. So there may be scope for further challenge at that stage.

1. The petitioners, the Managing Director and Director of a Company registered under the Companies Act, engaged in providing Cable Services as a Multi Service Operator (MSO) under the Telephone Regulatory of India (TRAI) Regulations, are in appeal. The appellants allege that illegal proceedings were taken against them, purportedly under the Central Goods and Services Tax Act, 2017 [’CGST Act’ for brevity], and their residences and offices were raided, both of them kept under illegal custody and an amount of Rupees One Crore extorted from them. On the intervention of their Advocate at mid-night, they were released, allege the appellants. The appellants, in the writ petition prayed for (i) setting aside Exhibit P2 notice, requiring them to provide information issued by the Senior Intelligence Officer (SIO), (ii)

invalidation of search and seizure proceedings initiated under Section 67 of the CGST Act evidenced by Exhibit P4, (iii) refund of Rupees One Crore collected by the 4th and 5th respondents, (iv) a declaration that the petitioners are not liable to pay GST on the revenue share retained by the Local Cable Operator ['LCO' for brevity] as also (v) compensation for

the damage to the reputation of the petitioners and the mental agony suffered.

2. The learned Single Judge found that the writ petition is premature and there was no evidence produced by the petitioners to substantiate the contention of harassment perpetrated on them. The learned Single Judge held that it is inappropriate to form an opinion regarding the allegations raised, at this stage, especially for reason of there being no supporting material to establish the allegations. The learned Single Judge refused exercise of discretion under Article 226 and the reliefs sought for were declined. The petitioners are in appeal against the findings and also produce further documents issued in the course of the investigation attaching their Bank accounts. These orders of attachment were produced for

the first time in appeal, because the attachment was effected after the disposal of the writ petition.

3. We have heard Sri.Mathai M.Paikeday, learned Senior Counsel, through

video-conferencing, instructed by Advocate Sri.Sandeep Gopalakrishnan, Sreelal N Warrier, learned Standing Counsel for the Department and its officers, as also Sri.Mohammed Rafiq, learned Counsel appearing for the State GST Department.

4. Learned Senior Counsel Sri.Mathai M.Paikeday argued that the entire proceedings are illegal and that there is untold misery caused to the appellants by reason of the high handed action of the respondent-officers who acted beyond the scope of their authority. It is pointed out that under Section 65 there was an audit initiated, as is evidenced from Exhibit P5 dated 15.05.2020, pending which investigation was initiated under Section 67 without any reasonable cause. Surprise raid was conducted at the offices and residences of the appellants, which commenced in the early morning and ended only at Midnight. The appellants were taken into illegal custody and not provided even basic amenities during the entire period. The appellants were also coerced into parting with Rupees One Crore, which is evidenced by Exhibit P3. Exhibit P3 is made not voluntarily and was executed under duress.

Exhibit P4 order of seizure is without jurisdiction for reason of the SIO, having entered into a satisfaction or rather arrived at reasons to believe that the documents annexed therein were required to be seized. Section 67 specifically mandates such reasons to believe to be entered into by an officer not below the rank of a Joint Commissioner, which the SIO is not. The summons issued against the appellants, as is seen at Annexures A2 and A3 prior to the inspection, does not have the Document Identification Number ['DIN' for brevity], which is an imperative requirement as per Annexure A6 issued by the Central Board of Indirect Taxes and Customs [hereinafter referred to as "Central Board"]. There is also no substantiation as to

a DIN having been generated subsequently, within 15 days, as has been provided under para 5 of Annexure A6. It is hence contended that Section 67 proceedings initiated is invalid on the face of it and, hence, the attachment of the Bank accounts, as evidenced from Annexures A7

and A8 series of documents, are also to be set aside. There could also be no parallel proceedings of audit and investigation. The audit initiated has to be concluded before an investigation is initiated, asserts learned Senior Counsel.

5. It is argued that the cheque of Rupees One Crore was forcefully taken and the same is in violation of the prescription in the CGST Rules, 2017 as to the payments to be made to the Department. Rule 87 is pointed out, specifically to contend that an Electronic Cash Ledger has to be maintained in the prescribed form for each person liable to pay any amounts under

the Act, in the common portal. Any deposit made, can only be with the prescribed form under sub-rule (2) of Rule 87 and not otherwise. No such prescribed form was generated, which establishes the duress under which the cheque was issued. The contention of the Department that the appellants had sought to get the benefits under Section 74(5) of the Act is, hence, prima facie incorrect. It is also pointed out that Exhibit P3 specifically indicated the protest under which the cheque was executed, which points to the threats under which such execution and handing over was made. It is vehemently urged that the non encashment of the cheque despite the account showing sufficient balance, validates the contention of the

respondents not being empowered to accept a cheque. The department themselves were unsure of what they should do with the cheque obtained under threat and coercion. Unless there is a determination of tax and a demand raised as per Sections 49 and 50, there could be no deposit accepted by the Department or its officers, is the further plea on which the proceedings are assailed.

6. The learned Standing Counsel for the CGST Department would at the outset submit that

there was absolutely no harassment meted out and the proceedings were within the authority

of the officers as per the Statute and the Rules framed thereunder. There can be no

allegation of harassment or high-handedness made when a duly authorized inspection was

conducted of a business premise and residences of its Directors. It is admitted that the

inspection extended to the whole day; but, however, the same was in the presence of the

Directors and also ensuring their comforts. After the conclusion of the investigation and

seizure of documents, again in the presence of the appellants, they were directed to report to

the departmental office for recording their statements. By that time, the Advocate had

reached the site of inspection and he accompanied the Directors in their car. The recording of

statement also took some time and there was no forceful detention or illegal arrest. The

payment made was also voluntary and the cheque was not encashed, since there is a

procedure contemplated, which was in process when the writ petition was filed. The officers

hence desisted from encashing the cheque when the writ petition was pending and the writ

appeal too. Even now the cheque is remaining with the Department un-encashed, is the

submission.

7. The learned Standing Counsel submits that Section 67 speaks of power of inspection,

search and seizure, which is conferred on the officer not below the rank of Joint

Commissioner, who has also been empowered to authorize in writing any other officer of the

Department. An authorization is available in the files with DIN and the summons issued also

has been regularized with issuance of a DIN, all of which documents are produced before this

Court in a sealed cover, as per the directions issued by this Court. Exhibit P4 is a seizure

order, for which no DIN is required since the instructions issued by the Central Board does

not take in such orders issued at the time of inspection in the presence of the assessees or

the persons investigated. There is no question of pre-dating or post-dating, which evil is

sought to be avoided by compulsory generation of DIN in the communications addressed to

any person, as distinguished from an order issued in the presence of such persons under

investigation. Section 74(1) notice, it is argued, does not require a determination of tax, since

it is a mere initiation of proceedings for the purpose of determining tax not paid, short paid,

etc. Section 74(5) speaks of a benefit conferred on the person who is proposed to be

investigated to pay up tax on his own assessment, upon which there could be no issuance of

notice under Section 74(1). Only if there is apprehension of further short fall, could there be a

notice under Section 74(1), which is provided for under sub-section (7). The benefit under

Section 74(5) is insofar as the person under investigation being not liable to any investigation,

if the entire amounts due have been paid up and made liable to penalties only at a lesser

percentage. Sections 49 and 50, it is pointed out, come under Chapter X with reference to

’Payment of Tax’, which reckons voluntary payments and not determination of tax on scrutiny

of returns as per Sections 73 & 74 of the CGST Act. The contention raised on Rule 87 is

specifically controverted by reference to clause (c) to the proviso to sub-rule (3), which

authorize any officer carrying out an investigation or enforcement activity to collect by way of

cash, cheque or demand draft any amounts above Rupees Ten Lakhs. There are no parallel

proceedings taken and now that the investigation under Section 67 has commenced the audit

initiated would not be continued.

8. The learned Senior Counsel, in reply submits that even if there is an authorization earlier

under Section 67, that cannot lead to an officer below the rank of Joint Commissioner arriving

at a belief that such and such documents are to be seized. It is argued that the order has to

be tested on the face of it, as has been held by the Constitution Bench of the Hon’ble

Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner [ (1978) 1 SCC 4051.

Reference is made to paragraph 8, which speaks of an illegal order not being validated by

subsequent actions, of filing of counter affidavits, explanations and so on and so forth. The

order has to stand on the recitals therein or rendered invalid if the essential requirements are

not followed. There can be no additional grounds brought out later to validate an invalid order.

Reliance is also placed on paragraph 37 of the decision in Chandra Singh v. State of

Rajasthan [ (2003) 6 SCC 5451, where a three-Judge Bench has followed Mohinder Singh

Gill, reiterating the principle that an order passed by a statutory authority must be adjudged

on the face thereof as the reasons contained therein cannot be supplemented by an affidavit.

Manohar v. State of Maharashtra [ (2012) 13 SCC 141 is relied upon to contend that when

State action results in civil consequences, necessarily there should be afforded an

opportunity of hearing. The learned Senior Counsel would argue that before attachment there

should have been a hearing afforded to the appellants. The judgment of the Delhi High Court

in W.P(C) No.3618/2010 dated 29.06.2020 [Watermelon Management Services Private

Limited v. The Commissioner, Central Tax, GST Delhi1 is placed on record to assail the

simultaneous proceedings of audit and investigation. The decision of the Division Bench of

the High Court of Bombay, reported in Kaish Impex Private Limited v. Union of India [2020

SCC OnLine Bom 1251 is pointed out to resist the attachment of Bank accounts.

9. The matter was heard on three days and on 05.08.2020 we had, by an interim order,

specifically directed the Department to produce the regularization of Exhibit P4, Annexures 2

& 3 Summons by generation of DIN, if the same is applicable. The learned Standing Counsel

has produced the authorization of the SIO to carry out the search and seizure, under Section

67(2) with CBIC-DIN-202006DSS500009LAF2F as also the subsequent generation of DIN

with respect to Annexures 2 and 3 CBIC-DIN-202006DSS500001F47A3 and

CBIC-DIN-202006DSS500007V5BAA, respectively. At the commencement of hearing on

11.08.2020 itself, the DIN were supplied to the learned Senior Counsel who appeared

through Video Conferencing as also the learned instructing counsel who was before us, in

person. By the conclusion of the hearing, the learned Senior Counsel and the Instructing

Counsel confirmed that they have verified the generation of DIN, and accepts that it has been

duly generated and is undoubtedly genuine. Immediately we notice Annexure A6 instructions

issued by the Central Board. Therein any communication which does not bear the

electronically generated DIN and not covered by the exceptions in paragraph 6 are rendered

invalid as per para 4. The exceptions are (i) technical defects in generating DIN and (ii)

communications regarding investigation, enquiry, verification, etc. to be issued with short

notice or urgent situations. As far as the exceptions are concerned, they have to be

regularized within 15 days of its issuance. As pointed out by the learned Standing Counsel for

the appellants, the mandatory requirement does not take in a seizure order as issued at

Exhibit P4, in the presence of the Directors. There is also no dispute raised by the appellants

that Exhibit P4 was not served on them, on the date it bears, immediately on effecting the

seizure.

10. The Circular Exhibit A6 at its beginning refers to the requirement of DIN, to ensure

transparency and accountability. The 1st paragraph is extracted hereunder:

"In keeping with the Government’s objectives of transparency and accountability in indirect

tax administration through widespread use of information technology, the CBIC is

implementing a system of electronic (digital) generation of a Document Identification Number

(DIN) for all communications sent by its offices to taxpayers and other concerned persons. To

begin with, the DIN would be used for search authorization, summons, arrest memo,

inspection notices and letters issued in the course of any enquiry. This measure would create

a digital directory for maintaining a proper audit trail of such communication. Importantly, it

would provide the recipients of such communication a digital facility to ascertain their

genuineness. Subsequently, the DIN would be extended to other communications. Also, there

is a plan to have the communication itself bearing the DIN generated from the system".

[underlining by us for emphasis]

Evidently there are communications which would not be covered by the very nature of it and

all communications are not brought under the mandatory requirement. Exhibit P4 seizure

order, by the nature of its issuance, to the appellants in their presence would not be included,

as there could be no suspicion raised of its issuance, on the date and time it bears and its

author. The objective is also for the assessee to ensure the genuineness of the document as

having been issued on the date and by the officer who has issued it. This prevents any abuse

by the Departmental officers of pre-dating communications and ratifying actions by

authorizations subsequently made out in the files. We do not think, Exhibit P4 issued to the

appellants, which is also an order of seizure of documents, made in the presence of the

appellants, to effectuate seizure requires a DIN or even subsequent generation of the same.

The invalidity argued on that ground does not survive. As far as summons at Annexures A2

and A3, there is proper generation of DIN, which has been verified by the learned Senior

Counsel and the Instructing Counsel and communicated to us by the time the hearing

concluded. The argument addressed on the basis of Annexure A6 does not, hence, stand for

further consideration.

11. The allegations raised of harassment and high-handedness cannot be considered in a

petition under Article 226 of the Constitution. An operation carried out by a statutory authority

invested with the powers of search, inspection and seizure, by reason only of such activities

having been carried out in the residences and offices of any person under investigation for a

long time, cannot be labeled as harassment or high-handed. Nor could the inconvenience

caused to the person under investigation, especially of remaining in the premises for the

entire duration, termed to a detention pursuant to an arrest. A search and seizure operation

necessarily brings with it certain discomforts, which are to be endured in the best interest of

the person under investigation who witnesses every action of the inspection team. The

allegations are also not substantiated which, we perfectly understand, are impossible of

substantiation, especially in a petition under Article 226. Apart from the invalidity urged of the

very search, inspection and seizure, we are not considering any of the issues so raised in the

writ petition and in the appeal. We do not express any opinion and the appellants, if desirous,

could take appropriate proceedings with substantiating material.

12. We shall now consider the validity of the investigation under Section 67. Section 67(1)

and (2) reads as under:

"67. Power of inspection, search and seizure

(1) Where the proper officer, not below the rank of Joint Commissioner, has

reasons to believe that -

(a) a taxable person has suppressed any transaction relating to supply of goods or

services or both or the stock of goods in hand, or has claimed input tax credit in

excess of his entitlement under this Act or has indulged in contravention of any of

the provisions of this Act or the rules made thereunder to evade tax under this Act;

or

(b) any person engaged in the business of transporting goods or an owner or

operator of a warehouse or a godown or any other place is keeping goods which

have escaped payment of tax or has kept his accounts or goods in such a manner

as is likely to cause evasion of tax payable under this Act, he may authorise in

writing any other officer of central tax to inspect any places of business of the

taxable person or the persons engaged in the business of transporting goods or

the owner or the operator of warehouse or godown or any other place.

(2) Where the proper officer, not below the rank of Joint Commissioner, either

pursuant to an inspection carried out under sub-section (1) or otherwise, has

reasons to believe that any goods liable to confiscation or any documents or books

or things, which in his opinion shall be useful for or relevant to any proceedings

under this Act, are secreted in any place, he may authorise in writing any other

officer of central tax to search and seize or may himself search and seize such

goods, documents or books or things:

13. Section 67 (1) empowers an officer not below the rank of Joint Commissioner with the

authority to inspect, search and seize as also empowers such officer to authorize in writing

any other officer to inspect any place of business or other premises of a taxable person.

Likewise, sub-section (2) enables any officer below the rank of Joint Commissioner to carry

out by himself, or authorize in writing, any other officer to search and seize such goods,

documents, books or things. The reason to believe, which has to be entered into by an officer

not below the rank of Joint Commissioner as per sub-section (2) of Section 67, to carry out by

himself a search and seizure operation or to authorize another officer, is with respect to the

fact that goods liable to confiscation or documents or books or things which in his opinion

would be useful for or relevant to any proceedings under this Act, are secreted in any place.

Hence, it is not a reason to believe that the specific document or books or things which is

seized would be useful for or relevant to any proceedings under this Act. If an officer not

below the rank of Joint Commissioner has reason to believe that any material, useful or

relevant to any proceedings under the Act, are secreted in a place, then he is empowered to

carry out by himself or authorize in writing any other officer to carry out the search and

seizure.

14. The authorization under Form GST INS-01 having CBIC-DIN is produced before us. The

SIO who has seized the documents, has been authorized under Section 67(2) to search the

premises of Kerala Communicators Cable Ltd., Thoundayil Road, Panampilly Nagar,

Ernakulam-682 020 with such assistance as may be necessary to seize and produce books

or documents or other things relevant to the proceedings under the Act, if found by such

authorized officer and for production of the same before the Directorate General, GST

Intelligence, Kochi. The Directorate General is an Officer above the rank of Joint

Commissioner. The authorization has been issued after recording the fact that the Directorate

General has reason to believe, on information presented, that goods liable to

confiscation/documents relevant to the proceedings under the Act are secreted in the

business/residential premises detailed therein. In the scheme of Section 67 and the

empowerment of an officer not below the rank of Joint Commissioner who has further been

empowered with the power to authorize any other officer to search and seize from the

business or other premises of a taxable person, we do not find any infirmity in Exhibit P4 as

has been alleged on the basis of the dictum of Mohinder Singh Gill or Chandra Singh.

15. The Hon’ble Supreme Court in Mohinder Singh Gill specifically found that a statutory

order has to be judged by the reasons mentioned therein. The said dictum does not apply in

the scheme of Section 67, which empowers an officer not below the rank of a Joint

Commissioner not only to inspect, search and seize from the business premises of a taxable

person, but also empowers to authorize another officer to carry out the search and seizure.

Reason to believe, at the risk of repetition, to be entered into by the officer not below the rank

of Joint Commissioner, is that goods liable to confiscation or material relevant to any

proceedings under the Act is secreted in a place. Such reason to believe is available in the

authorization and the further reason to believe, as is seen from Exhibit P4, is of the

authorized officer as to the prima facie relevance attached to the documents, books and

things seized. The authorization is also to search and seize any goods or documents or other

things relevant to the proceedings under the Act as found by the authorized officer. We do not

think that the reason to believe as found in Exhibit P4 entered into by the authorized officer, is

one spoken of under sub-section (2) of Section 67; but is a mandatory requirement flowing

from the authorization itself. The SIO, according to us, has been properly authorized under

section 67(2) to carry out the search and seizure operations in the premises of the appellants.

The reason to believe as seen from Exhibit P4 issued by the SIO, is a requirement as per the

authorization and does not at all vitiate or invalidate the order.

16. The next contention raised by the learned Senior Counsel is with respect to there being

no permission for simultaneous proceedings issued requiring an audit and an investigation.

The decision of the Division Bench of the Delhi High Court in Watermelon Management

Services Private Limited was a case in which the Commissioner, Central Tax and the Director

General of Goods and Services Tax Intelligence were conducting parallel investigation. The

Commissioner hence submitted before Court that the investigation has now been handed

over to the Director General itself. The question arose also of an attachment made without

any proceeding being launched under Section 74. The Division Bench did not interfere with

the attachment, but directed the Director General to conclude the investigation within a period

of three months. There is no dictum discernible and the facts are quite distinct and the

decision has absolutely no application.

17. Here the challenge is to simultaneous proceedings of investigation having been

commenced when already an audit was in progress. Audit under section 65 is a routine

procedure to be carried out by the Commissioner in such frequency and in such manner as

prescribed in the rules; which is independent of an investigation under Section 67. Section 67

is a more onerous procedure which can be initiated only on the satisfaction of an Officer not

below the rank of a Joint Commissioner of, suppression of taxable transactions, excess claim

of input tax credit, contravention of the provisions of the Act and Rules, keeping of goods and

accounts in contravention of the provisions, escapement of tax, secreting of goods or material

liable to confiscation or relevant or useful in any proceedings under the Act and any act

leading to evasion of tax. Investigation under Section 67 is no routine procedure as is an audit

under section 65. In this context we cannot but observe that the appellants, on their own

admission, were issued with notice dated 17.03.2020, Exhibit P2, calling for details of the

LCOs. There is nothing stated in the writ petition as to how and in what manner the appellants

responded to the said notice. Then by Exhibit P5 dated 15.05.2020 an audit under Section 65

was initiated and later in June the investigation under section 67. Though we are not going

into the merits of the suppression alleged, the appellants themselves say that it is with

respect to the quantum on which GST is payable; whether it should be on the gross amounts

collected by the LCO. Looking at the various proceedings it cannot be, for a moment,

believed that the appellants were taken off guard by the abrupt proceedings taken under

Section 67 as they would allege. We do not find any infirmity in the audit and investigation

proceeding being continued simultaneously. But the learned Standing Counsel informs us

that in the wake of the investigation commenced, the audit would not be proceeded with.

18. The learned Senior Counsel has seriously challenged the receipt of the cheque not only

as a coercive act under duress, but also as not sanctioned by the Statute or the Rules. Any

deposit of money, according to the learned Senior Counsel, has to be after determination of

tax under Sections 49 and 50 and by generating the forms as prescribed under the Rules. In

such circumstance, when no tax is assessed and there exists no demand, there could not be

any deposit taken or cheque accepted under Section 74(5), is the argument. Looking at the

provisions, we are unable to accept the above contention.

19. Sections 49 and 50 are seen at Chapter X of the CGST Act, which has the nominal

heading ’Payment of Tax’. Section 49 speaks of deposit made towards tax, interest, penalty,

fee or any other amount in the various modes spoken of therein, including NEFT, which are

subject to conditions and restrictions as prescribed. The credit of any payment made is

effected to the electronic cash ledger of such person making the deposit, which also is

maintained as prescribed in the rules. Section 50 speaks of interest on delayed payment of

tax and the rate and manner in which it has to be computed. Sections 49 and 50 essentially

are provisions enabling voluntary payments which, when made, are credited in the electronic

cash ledger in the form prescribed under sub-section (1); with the deposit being made in the

challan as generated under sub-section (2). The generation of the challan as spoken of in

sub-section (2) is also by any person or a person on his behalf.

20. Chapter XII speaks of ’Assessment’, which by every registered person under Section 59

is a self assessment, under Section 60 a provisional assessment made by the proper officer

on a request made by the taxable person and scrutiny of returns under Section 61 made

independently by the proper officer to verify its correctness. After scrutiny of returns notice is

issued on the discrepancies noticed. If no satisfactory explanation is furnished within a period

of thirty days or the registered person does not accept the discrepancies by making corrective

measures, the officer can initiate appropriate action, including those under Sections 65, 66

and 67, and proceed to determine the tax and other dues under Section 73 or 74.

Assessments in the event of non-filing of returns, unregistered persons as also special cases

are spoken of in Sections 62, 63 and 64;

21. The determination of tax arises under Sections 73 and 74 under circumstances either of

non-payment, short payment, erroneous refund, wrongly availed or utilized input tax credit

etc. Section 74 is the determination contemplated when there is fraud, willful-misstatement or

suppression of facts and Section 73 when such allegation is not there. Hence, when an

investigation is initiated under Section 67, the assessee is immediately brought to notice of

the proceedings initiated. Before proceeding under Section 74(1) for determination of tax,

interest and penalty payable, at any point after initiation of proceedings but prior to a notice

under Section 74(1), the assessee is enabled under sub-section (5) of Section 74 to pay the

amount of tax along with interest under Section 50 and a penalty equivalent to 15% on the

basis of a self assessment or as ascertained by the proper officer. On such amounts being

paid, the proper officer under sub-section (6) shall desist from serving any notice under

sub-section (1). Then proceedings can be resumed under sub-section (1) only if the proper

officer is of the opinion that the amount paid falls short of that actually payable. Again, after

issuance of notice under Section 74(1), the assessee is enabled to pay the amounts with

interest and penalty equivalent to 25% under sub-section (8). However, when an order is

issued under sub-section (9) by the proper officer pursuant to a notice issued under

sub-section (1); under sub-section (11) in addition to the tax and interest penalty equivalent to

50% of the tax payable is mandatory. The scheme, hence, is such that an assessee on being

informed of the initiation of a proceeding being enabled to pay tax, even before a notice for

determination is issued, with interest and penalty of 15%. The penalty after issuance of notice

for determination is enhanced to 25% and on service of an order stands enhanced to 50%.

We do not think that there is any scope for determination of tax or interest under Sections 49

and 50 and the determination has to be made under Chapter XV ’Demands and Recovery’,

containing inter alia Sections 73 and 74.

22. When an investigation is in progress and the premises of any person is being searched

and seizure effected; again at any time, in the course of the proceedings, the person is

enabled payment of tax, interest and penalty at the reduced rate of penalty so as to save

himself from a higher penalty. In the course of inspection, often a generation of the prescribed

form and deposit in accordance with the Rules may not be possible. This is why Section 87(3)

proviso speaks of the restriction for deposit upto ten thousand rupees per challan, in case of

over the counter payments being exempted in situations under clauses (a), (b) and (c) of that

proviso. Sub-clause (c) of the proviso to Section 87(3) reads as under:

"(c) Proper officer or any other officer authorised for the amounts collected by way

of cash, cheque or demand draft during any investigation or enforcement activity or

any ad hoc deposit".

An officer above the rank of a Joint Commissioner or one authorized by such officer carrying

out the investigation or enforcement activity is so exempted and can deposit any amounts

collected, by way of cash, cheque or demand draft, during the investigation or enforcement

activity. This does not require generation of the Forms prescribed. The proper officer or the

one authorized, hence is enabled to receive cash, cheque or demand draft in the course of an

investigation or enforcement activity from the tax payer. We do not find any extortion having

been effected against the statute and Exhibit P3 specifically indicates that it is a voluntary

payment, although it is made under protest.

23. The learned Instructing Counsel had an argument with respect to Rule 142 that unless an

intimation is served as provided under sub-rule (1A), there cannot be a deposit made or taken

under Section 74(5). We are afraid, the argument cannot be countenanced. Rule 142, in fact,

is in consonance with our interpretation of the payment of tax under sub-sections (5), (8) and

(11) of Section 74. Sub-rule (1)(a) of Rule 142 speaks of a notice issued inter alia under

Section 74 in the prescribed form and sub-rule (1)(b) of a statement, inter alia under

subsection (3) of both Sections 73 and 74, which contains the details of tax payable for

periods other than that covered under a notice issued under sub-section (1), which stages,

we have not reached in the present case. Sub-rule (1A) speaks of communication of the

details of tax, interest and penalty as ascertained by an officer, in Part A of Form GST

DRC-01A, prior to a notice under sub-section (1) of Section 73 or Section 74, as the case

may be. The Form DRC-01A has the heading "Intimation of Tax ascertained as being

Payable under Section 73(5)/74(5)’. Hence, when the proper officer contemplates issuance of

a notice under Section 73(1) or Section 74(1), prior to that he has to issue Form DRC-01A

showing the details of tax, interest and penalty as ascertained by the said officer. This does

not, however, deviate from the fact that even before that, the assessee could voluntarily make

a deposit under sub-section (5) of Section 73 or Section 74. Sub-rule (1A) was brought in by

notification No.49.2019-Central Tax, dated 9.10.2019, with effect from 09.10.2019. In tune

with the said provision, sub-rule (2) was amended with addition of certain words as seen

hereunder:

"R.142(2) Where, before the service of notice or statement, the person chargeable

with tax makes payment of the tax and interest in accordance with the provisions of

sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in

accordance with the provisions of sub-section (5) of section 74, or where any

person makes payment of tax, interest, penalty or any other amount due in

accordance with the provisions of the Act, whether on his own ascertainment or, as

communicated by the proper officer under sub-rule (1A), he shall inform the proper

officer of such payment in FORM GST DRC-03 and the proper officer shall issue

an acknowledgement, accepting the payment made by the said person in FORM

GST DRC-04"

The above underlined portion specifically indicates that the deposit could be made either on

the tax payer’s own ascertainment or as communicated by the proper officer under sub-rule

(1A). Prior to introduction of sub-rule (1A), sub-rule (2) spoke of payment of tax and interest in

accordance with the provisions of sub-section (5) of Sections 73 and 74 and information to

the proper officer in the prescribed form, which has to be acknowledged by the proper officer.

By the amendment of 2019, the tax payer, as it was prior to that, could make own

assessment and pay the tax, interest and penalty under sub-section (5) of Sections 73 or 74

and was given an additional opportunity, by way of an intimation issued by the proper officer

of the ascertainment of the tax, interest and penalty prior to the notice under sub-section (1)

of Sections 73 and 74 for the purpose of paying such amounts at the reduced rate of penalty

of 15%. Rule 142 as it stands in 2019 does not at all speak of deposit under Section 74(5)

being made only after an intimation is served by the proper officer. We have from the

provisions of the statute clearly found otherwise.

24. We had, on the last date of hearing specifically informed the learned Senior Counsel as

also the Instructing Counsel that if the appellants require the cheque back on the assertion of

a coercion having been effected, we would so direct especially when the cheque is remaining

unencashed. We also directed that an affidavit be filed to the said effect by the appellants

themselves. No such affidavit has been filed and no insistence for the return of the cheque

has been made. We have also found that the issuance of the cheque is voluntary and its

receipt by the SIO, is sanctioned by the statute and the rules prescribed there under. Hence,

the Department could proceed for encashment of the cheque in accordance with the

procedure prescribed.

25. The last contention raised by the learned Senior Counsel was the attachment made of

bank accounts. We kept it for last since, if Section 67 proceedings are found to be illegal, then

definitely attachment would also stand vacated. We are also of the opinion that it may not be

proper for us to look at the attachment orders which have been issued subsequent to the writ

petition having been dismissed. We are in appeal from the judgment of the learned Single

Judge and it may not be proper for us to go beyond the issues urged and considered by the

learned Single Judge in an appeal. The learned Senior Counsel however vehemently urged

that the appeal is a continuation of the writ proceedings. Kaish Impex Private Limited, was

also relied on.

26. Kaish Impex Private Limited, the decision of a Division Bench of the Bombay High Court,

is not applicable to the facts of the instant case. Kaish Impex Private Limited was summoned

with reference to an enquiry against a taxable person, one Maps Global. The allegation

against Maps Global was fraudulent availing of input tax credit. On scrutiny of bank accounts

of the said taxable person, it was noticed that an amount was transferred to one Balajee

Enterprises who had transactions with Kaish Impex Private Limited. Simultaneous to the

summons issued to Kaish Impex Private Limited, their Bank accounts were also attached.

The attachment order specifically spoke of proceedings under Sections 67 and 70 as against

Kaish Impex Private Limited. The power to provisionally attach, for the purpose of protecting

revenue, is available under Section 83. Such attachment is also in the context of proceedings

initiated under the specified Sections of the GST Act. The Division Bench found that Section

70 is not specified in Section 83 and there was no proceeding under Section 67 against Kaish

Implex Private Limited. The attachment therein was of an entity who was twice removed from

the taxable person subjected to investigation. This was the reasoning on which attachment

was interfered with. Here, the Bank accounts attached are of the taxable person, against

whom an enquiry is initiated under Section 67.

27. The learned Senior Counsel also argued based on Manohar that there is an implied

requirement of hearing even where the Rules are silent, as a necessary concomitant of the

principles of natural justice, which obviously has not been granted; prima facie vitiating the

attachment. We are afraid, the said principle does not apply insofar as an attachment made to

protect the interest of the revenue. If notice is issued before attachment, then the account

holder could as well defeat the purpose, by withdrawing the amounts kept in such accounts.

The rule for a hearing does not arise prior to attachment. Whether it arises before seeking

disbursement of the amounts remaining in the account, we are not called upon to adjudicate

as of now. We leave the matter to be adjudicated before the appropriate authorities or forum.

We do not think that the proceedings initiated under Section 67 is improper, illegal or that the

actions projected before us were in any manner proceeded with, in an arbitrary or

high-handed fashion.

We dismiss the appeal, leaving the parties to suffer their respective costs.

Sd/-

K.VINOD CHANDRAN

JUDGE

Sd/-

T.R.RAVI

JUDGE