Facts of the Case

The petitioners challenged:

  • Search authorization dated 22.08.2023 issued under Section 67(1) of the CGST Act
  • Summons dated 05.09.2023 issued under Section 70
  • Retention of documents collected during inspection

The search was conducted pursuant to directions issued by a Special Judge (P.C. Act) in relation to verification of the source of ₹50,00,000 allegedly linked to a property transaction and subsequent use of funds as FDR for bail security.

The GST Department initiated inspection solely based on these judicial directions, without conducting independent inquiry or forming statutory “reason to believe.” 

Issues Involved

  1. Whether search authorization under Section 67(1) CGST Act can be issued solely on the basis of directions of a Special Judge without independent satisfaction.
  2. Whether such authorization without material evidence satisfies statutory requirements.
  3. Whether documents collected during such inspection are liable to be returned.
  4. Whether summons issued under Section 70 are liable to be quashed.

Petitioner’s Arguments

  • The search authorization was arbitrary and lacked statutory basis.
  • No independent “reason to believe” existed as required under Section 67(1).
  • The action was based solely on judicial directions, not on GST law requirements.
  • The inspection amounted to a roving and fishing inquiry.
  • Documents collected during such illegal inspection must be returned.

Respondent’s Arguments

  • The inspection was conducted pursuant to directions issued by the Special Judge.
  • The department acted in compliance with judicial directions.
  • Summons under Section 70 were valid and part of inquiry proceedings.

Court’s Findings / Order

  • The Court held that:
    • The authorization under Section 67(1) was patently erroneous as no material existed to justify the grounds mentioned.
    • The GST authorities failed to independently satisfy statutory conditions.
    • Inspection based solely on directions of a Special Judge is not sufficient under GST law.
  • Order Passed:
    • Search authorization effectively invalidated.
    • Respondent directed to return all collected documents/photocopies.
    • No interference with summons under Section 70.
    • Authorities may proceed independently in accordance with law, but not merely to comply with the Special Judge’s order.

Important Clarifications by the Court

  • GST authorities must exercise powers strictly within statutory framework.
  • Judicial directions cannot substitute statutory requirements like “reason to believe.”
  • Authorities are free to initiate fresh proceedings only if supported by independent material.
  • Roving and fishing inquiries are impermissible under GST law.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB07122023CW123042023_184904.pdf

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