Jewellery Chain Fights GST Raid: Court Partially Rules in Their Favour on Document Copies

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Case Name

Rajive and Company (Chungath Jewellery) & Others v. The Assistant Commissioner, Special Circle, State GST Department, Kollam & Others

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C) Nos. 14144, 14185 & 14907 of 2020

Decided on: Monday, 24th August 2020

Before: The Honourable Mr. Justice A.K. Jayasankaran Nambiar

Key Takeaways

1. Right to Copies is Conditional, Not Absolute (During Investigation): During an ongoing GST investigation, a taxpayer does not have an unconditional right to copies of seized documents. The right crystallises only when those documents are actually relied upon in a notice or proceeding against them.

2. Section 67(5) of CGST/KSGST Act, 2017 Protects Investigation Integrity: The authorities can withhold copies of seized documents if, in the opinion of the proper officer, providing them would prejudicially affect the investigation.

3. Courts Won’t Easily Interfere with Investigation Administration: The High Court made it clear that under Article 226 of the Constitution of India, it would be reluctant to interfere with administrative decisions of investigating authorities — such as where an investigation is based.

4. Post-Investigation Return of Documents: After the investigation concludes, the authorities must return all seized documents that are not relied upon in any proceedings against the petitioners.

5. Section 35 of CGST/KSGST Act, 2017 — Accounts at Place of Business: The law requires accounts to be maintained at each place of business. The petitioners’ argument that their accounts were kept at the head office was not accepted as a valid ground for transfer of investigation.

6. Three Writ Petitions, One Common Judgment: Since all three petitions involved the same Chungath Group and the same legal issues, the Court disposed of all three through a single common judgment.

Issue

1. Are the petitioners entitled to copies of documents seized by GST authorities during an ongoing investigation?

2. Can the Court direct the transfer of a GST investigation from one city (Ernakulam) to another (Kollam) based on the taxpayer’s convenience?

Facts

The Chungath Group — Who Are They?

The Chungath Group is a registered dealer in precious metals and jewellery under the GST Act, operating under 8 GSTIN registrations covering 16 places of business across Kerala. The GSTINs involved were: 32AAHFR7213D1ZM, 32ACKPR7163H1ZD, 32AAJFC3617LIZI, 32AAGFC0176R1Z9, 32AAJFC3618F1ZU, 32AABFF1346F1Z2, 32AAF06176N1ZU, and 32ABZFS9517J1ZD.

The Inspection — December 18, 2019:

On 18.12.2019, GST officers authorized under Section 67(1) of the CGST and KSGST Act, 2017 conducted simultaneous inspections across all 16 business locations of the Chungath Group. During the inspection at Chungath Gold Plaza, KPCC Junction, M.G. Road, Ernakulam, officers found a huge variation in the stock of gold jewellery. The inspection details were recorded in a Mahazar in Form GSTINS 02 under Rule 139(2). On prima facie verification of seized records, several unaccounted business transactions were noticed.

Distribution of Investigation Files — January 1, 2020:

The Deputy Commissioner (Intelligence) distributed the crime files among different officers for efficient handling. The files of M/s Chungath Gold Plaza, Kollam and Chungath Jewellery, Karunagapally, Kollam were allotted to the 2nd Respondent (State Tax Officer, Squad No. V, Ernakulam) vide order dated 01.01.2020.

The Petitioners’ Grievances:

• After receiving a notice (Exhibit P2 dated 26.02.2020) from the 2nd Respondent, the petitioners wrote to the authorities requesting:
• Transfer of the investigation files from Ernakulam to Kollam/Karunagapally (their home base)
• Photocopies of the seized documents
• Their reason for transfer: It was inconvenient for their accounting staff to travel all the way to Ernakulam carrying registers and records.

The Authorities’ Response:

The authorities rejected both requests and filed a detailed statement before the Court explaining why.

Arguments

Petitioners’ Arguments (Chungath Group):

1. Right to Copies: The petitioners argued that they were entitled to copies of the documents seized from their own premises. Without copies, they couldn’t properly respond to the investigation.

2. Inconvenience of Investigation in Ernakulam: Their business activities were centred around Karunagapally, Thiruvananthapuram, and Kollam. Having the investigation based in Ernakulam caused significant inconvenience as they had to carry all their records to Ernakulam.

3. Books Maintained at Head Office: The petitioners stated that their books of accounts were kept and maintained at their head office (not in Ernakulam), which they argued was a valid reason for transferring the investigation.

4. Covid-19 Restrictions: Travel restrictions due to Covid-19 made it even harder for their staff to travel to Ernakulam with documents.

Respondents’ Arguments (GST Department):

1. Ernakulam is the Right Place: Out of 16 business places, 11 were located in Ernakulam and Thrissur districts, which fall under the Ernakulam zone of the SGST Department. The lion’s share of business was concentrated there.

2. Transfer Request is a Delay Tactic: The respondents argued that the request for transfer was not bonafide and was only a tactic to delay the investigation proceedings.

3. Accounts Must Be at Place of Business: Under Section 35 of the CGST/KSGST Act, 2017, accounts must be maintained at each place of business. The petitioners’ claim that accounts were at the head office was not a legally justifiable ground for transfer.

4. Digital Accounts Can Be Transferred Electronically: The petitioners were keeping most accounts in digital format, which could be easily transferred electronically, making the inconvenience argument weak.

5. Copies Would Harm Investigation: Under Section 67(5) of the CGST/KSGST Act, 2017, the proper officer need not provide copies of seized documents if it would prejudicially affect the investigation. Gold is an evasion-prone commodity, and unwarranted delays could lead to revenue losses and evasion tactics.

6. Administrative Decisions Are Internal: The distribution of crime files among officers is an internal administrative matter under Section 6 of the KSGST Act. Dealers cannot be consulted on such decisions.

7. Copies Available When Relied Upon: The Government Pleader submitted that copies of seized documents would be made available to the petitioners if and when those documents are relied upon in any notice or proceedings.

Key Legal Precedents & Provisions

The judgment references the following key legal provisions (no external case law precedents were cited in this judgment):

Section 67(1) of CGST and KSGST Act, 2017

Authorizes proper officers to conduct inspectionsThe basis for the December 18, 2019 inspections

Section 67(5) of CGST/KSGST Act, 2017

Seized documents need not be provided if it would prejudicially affect investigationUsed by respondents to justify withholding copies; Court accepted this principle but conditioned it on the stage of proceedings

Section 35 of CGST/KSGST Act, 2017

Accounts must be maintained at each place of businessUsed to reject the petitioners’ argument that accounts were at head office

Section 6 of the KSGST Act

Appointment of proper officersUsed to justify internal file distribution decisions

Rule 139(2) of CGST/KSGST Rules

Mahazar to be prepared in Form GSTINS 02 during inspectionThe inspection findings were recorded under this rule

Article 226 of the Constitution of India

High Court’s writ jurisdictionThe Court noted it would be reluctant to interfere with administrative decisions of investigating authorities under this Article

Judgment

It was a partial win for the petitioners and a partial win for the respondents.

The Court’s Decision:

On Copies of Seized Documents — Petitioners Partially Succeed

The Court held that while the petitioners cannot demand copies of all seized documents immediately during an ongoing investigation, they are entitled to copies of those specific documents that the respondents rely upon in any notice or proceedings issued against them. The Court directed:

“In the event of any notice or other proceedings being issued to the petitioners in connection with the investigation that is currently ongoing, wherein reference is made to any document seized from the petitioners, the respondents shall permit the petitioners to take copies of those documents relied upon in the said notice/proceedings, before proceeding further in the matter.”

Additionally, the Court ordered that after the investigation is complete, the respondents must return all seized documents that are not relied upon in any proceedings against the petitioners.

On Transfer of Investigation to Kollam — Petitioners Fail

The Court rejected the prayer for transfer of investigation to Kollam. The reasoning was:

• In matters of investigation, the authorities must be given a degree of leeway in administrative decisions such as where an investigation is based and how it proceeds.
• The High Court, exercising jurisdiction under Article 226 of the Constitution of India, would be “loath to interfere” with such administrative decisions of the investigating authority.

Final Order:

The three writ petitions were disposed of (not dismissed outright, but resolved) with the above directions.

FAQs

Q1: Why were three separate writ petitions filed?

The Chungath Group operates through multiple entities and registrations. Three different entities/branches filed separate petitions, but since they all involved the same group and the same legal issues, the Court heard and decided them together through one common judgment.

Q2: Can the GST department permanently keep seized documents without returning them?

No! The Court made it clear that after the investigation stage, the respondents must return all seized documents that are not relied upon in proceedings against the petitioners.

Q3: Does a taxpayer have an absolute right to copies of seized documents during a GST investigation?

Not immediately. Under Section 67(5) of the CGST/KSGST Act, 2017, the proper officer can withhold copies if providing them would prejudicially affect the investigation. However, once those documents are relied upon in a notice or proceeding, the taxpayer must be given copies before the matter proceeds further.

Q4: Can a taxpayer ask the Court to transfer a GST investigation to a more convenient location?

It’s very difficult. The Court held that decisions about where an investigation is based are administrative decisions of the investigating authority, and the High Court would be reluctant to interfere with such decisions under Article 226 of the Constitution of India.

Q5: What is the significance of Section 35 of the CGST/KSGST Act, 2017 in this case?

It was used to counter the petitioners’ argument that their accounts were at the head office. The law requires accounts to be maintained at each place of business, so the petitioners couldn’t use the “accounts are elsewhere” argument to justify a transfer of investigation.

Q6: What is a “Mahazar” in the context of GST inspections?

A Mahazar is an official document/record prepared by GST officers during an inspection, recording what was found at the premises. In this case, it was prepared in Form GSTINS 02 under Rule 139(2) and recorded the stock variations found at the Ernakulam branch.

Q7: What happens if the GST department issues a notice relying on seized documents but doesn’t give copies to the taxpayer?

Based on this judgment, the taxpayer can approach the Court. The Court has clearly directed that copies of relied-upon documents must be provided to the petitioners before the respondents proceed further in the matter.

Q8: Was Covid-19 considered by the Court?

The respondents acknowledged that if the petitioners’ difficulty in travelling to Ernakulam was due to Covid-19 restrictions, they had no objection to giving reasonable time to respond to notices and produce documents. However, this was not a ground to transfer the entire investigation.

As these writ petitions involve a common issue, they are taken up for

consideration together and disposed by this common judgment.

2. The petitioners have approached this Court through the present writ

petitions at various stages during an investigation that is ongoing into the affairs of the petitioners under the GST Act, at the instance of the respondents. In the writ petition, it is the case of the petitioners that their request for copies of documents, that were seized by the respondents in connection with the ongoing investigation, has been illegally turned down by the respondents, and further, while the petitioners have their business activities centred around Karunagappally, Thiruvananthapuram, Kollam and Ernakulam respectively, the investigation has been based in Ernakulam, which causes inconvenience to the petitioners in that they have to carry their records pertaining to the other branches all the way to Ernakulam for participating in the investigation proceedings. The prayer in the

writ petition, therefore, is for direction to the respondents to issue copies of the seized documents, as also for a transfer of the investigation to Kollam so that the petitioners are not inconvenienced in the investigation process initiated by the respondents.

3. Through a statement filed on behalf of the respondents it is stated as

follows in paragraphs 2 to 8.

"2. It is submitted that the various places of business of

Chungath Group of concern, a registered person under the

GST Act and dealer in precious metals, jewellery etc. Bearing

GSTIN Nos. 32AAHFR7213D1ZM, 32ACKPR7163H1ZD,32AAJFC3617LIZI,32AAGFC0176R1Z9,

32AAJFC3618F1ZU, 32AABFF1346F1Z2, 32AAF06176N1ZU

and 32ABZFS9517J1ZD were inspected by the proper officers

authorized under section 67(1) of the CGST and KSGST Act

2017 on 18.12.2019. Under the above 8 registrations, 16

places of businesses are involved. On the basis of inspection

and in the interest of work, administration and revenue and

further to felicitate speedy disposal, the above crime files were

distributed by the Deputy Commissioner (Intelligence), the 5th

respondent herein. The files of M/s Chungath Gold Plaza at

Kollam (the petitioner) and Chungath Jewellery, Karunagapally.

Kollam (petitioner in wp 14144 of 2020) were allotted to the

2nd respondent vide order referred to above dated 01-01-2020.

It is humbly submitted that the same was issued by the 5th

respondent after discussions with the Deputy Commissioner,

intelligence. Thiruvananthapuram. Such internal work

arrangements, based on the information/inspection/investigation by intelligence officers/squad are integral to proper administration of work,

particularly in matters of revenue. In this regard, reference

may be made to section 6 of the KSGST Act, were it is

expedient to appoint officers as 'proper officers'. The allotment

of files and work arrangements to various tax officers, who

may designated as 'proper officers' for the purpose of carrying

out the provisions of the Act, are matters of policy and

administration within the Commercial Taxes Department.

Dealers cannot be consulted on such decisions, and the Deputy

Commissioner or Joint Commissioner, while arriving at such a

decision may take into consideration, crucial information,

relating to the Crime file.

3. Thus crime files of Chungath Group, bearing GSTIN

32AAHFR7213D1ZM and GSTIN 32ACKPR7163H1ZD were

entrusted to the 2nd respondent herein. Among the two

allotted crime files, the branch office of the petitioner, M/s

Chungath Gold Plaza, KPCC Jn, MG Road Emakulam bearing

GSTIN 32ACKPR7163H1ZD was inspected by the 2nd

respondent.

4. It is submitted, that at the time of inspection, huge variation

in the stock of gold jewellery were noted in the place of

business at Chungath Gold Plaza, KPCC Jn, MG Road,

Ernakulam, a branch office of the petitioner. Details of the

same is recorded in the Mahazar pertaining to the said

inspection prepared in Form GSTINS 02, under Rule 13912. On

prima facie verification of the seized records, several

unaccounted business transactions were noticed. Ffor the

cross examination of evidence, further verifications and

clarifications on the documents recovered from the aforesaid

business places, in compliance with section 35 of the

CGST/KSGST Act 2017, books of accounts were called for, from

the petitioner, by the 2nd respondent. The petitioner, in

response to the first notice, Exhibit P2, preferred replies by

way of representations to 5th, 2nd and 3rd respondents,

requesting for transfer of files from the 2nd respondent to the

4th respondent. The petitioner also prayed for taking

photocopies of the seized records.

5. The respondent herein submits that as per available records

major volume of business is found in the additional place of

business, ie; at KPCC Jn, M.G.Road, Ernakulam. The petitioner

repeatedly stated in representations as well as in writ petition,

that the books of accounts of said premises are kept and

maintained at their head office is not a legally justifiable

ground for transfer of files to 4th respondent. The petitioner is

statutorily obliged to maintain books of accounts and other

details at the place of business. Section 35 of the CGST/KSGST

Act 2017 reads: “Provided that where more than one place of

business is specified in the Certificate of registration, the

accounts relating to each place of business shall be kept at

such place of business".

6. Further, it is found that the lion share of business of the

group is concentrated in districts of Ernakulam and Thrissur

and their accounts are also being kept at there. A total of 16

places of business falling under 8 registrations were inspected

on 18.12.2019 and of these 16 places, 11 business places are

located in Ernakulam and Thrissur Districts coming under the

jurisdiction of Ernakulam zone of the SGST Department. The

respondent submits that the request of the petitioner to

transfer files is not bonafide and is only a tactic to delay the

process.

7. Moreover, the reason cited for transfer of files from

Ernakulam to Kollam/Karunagapally is that it is difficult for the

accounting staff to travel to Ernakulam carrying registers

concerned. Given the fact that the area of business operations

of the Chungath Group concerns is distributed all over Kerala,

and most concerns are in Ernakulam and Thrissur districts,

such a reason mentioned for transfer can only be found to be

unreasonable and unsustainable. On the basis of inspection it

is also noticed that the petitioner is keeping most of the

accounts in digital format which can be easily transferred

electronically. In any case, it is submitted that there is no

objection from the office of the respondent, in giving

reasonable time for the petitioner to respond to the notice and

produce documents, accounts etc, if the problem they face is

due to Covid-19 restrictions on travel.

8. The respondent wishes to submit that gold is an evasion

prone commodity, the crime files of which warrants speedy

disposal in the sake of revenue. Unwarranted delay in

proceedings can lead to irreparable damages and losses to the

revenue of State, and may also lead to evasion tactics by the

dealers. The petitioner has also asked for the copies of

recoveries. It is submitted that taking such extracts/copies will

adversely affect the investigation. As provided under Section

67(5) of the CGST/KSGST Act, 2017, the documents/books

seized from the person need not be provided to the dealer, if in

the opinion of the proper officer, it will prejudicially affect the

investigation.”

4. The reasons indicated in the statement, for rejecting the request for

transfer of the investigation to Kollam are also seen reflected in an order dated 20.05.2020 that is produced as Ext.R(a) by the respondents, and impugned by the writ petitioner in W.P.(C)No.14907/2020. It is further submitted by the learned Government Pleader that copies of the seized documents can be made available to the petitioners in the event notices are issued to the petitioners in the course of investigation or thereafter, and reliance is placed therein on any specific documents seized from the petitioners.

5. I have heard Sri.Harisankar V.Menon, the learned counsel for the

petitioner and Dr.Thushara James, the learned Government Pleader for the

respondents.

6. On a consideration of the facts and circumstances of the case and the

submissions made across the Bar, I find that the petitioners will no doubt be entitled to seek copies of the documents seized from their premises, if and when they are confronted by the respondents with any notice or other proceeding, wherein reliance is placed on the said seized documents. I, therefore, make it clear that in the event of any notice or other proceedings being issued to the petitioners in connection with the investigation that is currently ongoing, wherein reference is made to any document seized from the petitioners, the respondents shall permit

the petitioners to take copies of those documents relied upon in the said

notice/proceedings, before proceeding further in the matter. After the stage of investigation, the respondents shall return to the petitioners, all such seized documents as are not relied upon by them for proceeding further against the petitioners.

7. As regards the prayer of the petitioners for a transfer of the files to

Kollam and to base the investigation in Kollam, I am of the view that the said prayer of the petitioners cannot be acceded to. In matters of investigation the respondents are to be given a certain degree of leeway while deciding such administrative matters such as the place at which an investigation is to be based and the manner in which it is to proceed. With such administrative decisions of the investigating authority this Court would be loath to interfere, in proceedings under Article 226 of the Constitution of India.

I, therefore, dispose the writ petition by rejecting the prayer of the

petitioners for a transfer of the investigation to Kollam, and by directing the respondents to furnish copies of the documents seized from the petitioners, in the manner indicated above.