FACTS OF THE CASE

The petitioner, M/s R.J. Trading Co. (RJT), a registered GST dealer engaged in the trading of cigarettes, challenged the legality of search and seizure operations conducted by GST authorities.

  • RJT was duly registered and compliant with GST filings and tax payments.
  • On 13.02.2021 and 14.02.2021, DGGI conducted a search and found stock in order, but seized documents including stock registers.
  • On 05.03.2021, another search was conducted by CGST Delhi North, leading to:
    • Detention of 190 cartons of cigarettes (22,26,000 sticks)
    • Issuance of prohibition order (GST INS-03)
  • Authorities alleged absence of stock register and suspected illicit trade.
  • RJT contended that all goods were supported by valid documents (e-invoices, e-way bills, transporter records).

ISSUES INVOLVED

  1. Whether the search and seizure under Section 67(2) CGST Act was valid?
  2. Whether “reasons to believe” existed before exercising such powers?
  3. Whether detention of goods via prohibition order was legally sustainable?
  4. Whether absence of stock register justified seizure and prohibition?

PETITIONER’S ARGUMENTS

  • No proper authorization or delegation of power was established.
  • Mandatory conditions under Section 67(2) were not satisfied.
  • Goods were not “secreted” and were found at registered premises.
  • All transactions were supported by valid documentation.
  • Investigation was unrelated to petitioner; action was arbitrary.
  • Prohibition order was without jurisdiction and violated statutory safeguards.

RESPONDENT’S ARGUMENTS

  • Investigation was triggered due to suspected GST evasion by related entities.
  • RJT was linked as a supplier in the chain of suspicious transactions.
  • Stock register was not produced during search.
  • Goods were not supported by proper documentation at the time of inspection.
  • Officers acted based on “reasonable belief” and valid authorization.

COURT’S FINDINGS / ORDER

The Delhi High Court examined the scope of Section 67(2) CGST Act and held:

  • “Reasons to believe” is a mandatory jurisdictional requirement and must be based on credible material, not suspicion.
  • The belief must be honest, reasonable, and based on actionable evidence, not conjecture.
  • Goods found at registered premises cannot automatically be treated as “secreted.”
  • Search was conducted without prior inspection under Section 67(1) and lacked proper foundation.
  • The authorization was based merely on a request from another Commissionerate without independent satisfaction.

Conclusion:

  • The exercise of power under Section 67(2) was legally unsustainable.
  • The prohibition and seizure actions were invalid due to absence of jurisdictional facts. 

IMPORTANT CLARIFICATIONS BY COURT

  • “Reason to believe” ≠ “reason to suspect”
  • Proper officer must independently assess material before authorizing search
  • Mere non-production of stock register does not automatically justify seizure
  • Inter-departmental communication cannot replace statutory satisfaction
  • Powers under Section 67 are extraordinary and must be strictly construed

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2126-DB/RAS20072021CW48472021_225004.pdf

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