Harishchandras and Yudhishthiras are extinct: Madras HC raps GST officials

Claims made by Goods and Services Tax (GST) officials cannot be accepted at face value and must be supported by verifiable record, the Madras High Court said recently [Bhima Enterprises v. Principal Chief Commissioner GST].

Justice GR Swaminathan made the observation while dealing with a petition challenging a search warrant issued by tax authorities on the ground that it lacked a Document Identification Number (DIN).

A circular issued by the Central Board of Indirect Tax and Customs said that no search authorisation, summons, arrest memo, inspection notices and letters issued in the course of any enquiry shall be issued by its officers without a computer-generated DIN.

The Court ruled that an officer who cites technical difficulties for failing to generate the mandatory DIN must produce evidence to substantiate the claim. While emphasising the need for evidence to back such claims, the Court referred to figures from Hindu scriptures who were known for practicing honesty and righteousness.

“Harishchandras and Yudhishthiras have become an extinct species. The veracity of any claim should be open to verification. Axioms alone can defy the demands for proof. No stand of an official can be taken as an axiom,” it said.

The Court added that an officer relying on exceptions mentioned in the circular must record the precise technical problem and the unsuccessful attempt to generate the DIN.

"If the official concerned could not be successful for technical reasons, he must correspondingly send a mail to his immediate superior recording the fact that his attempt to generate DIN was in vain. Absent such contemporaneous communication to the immediate superior, the Court will be reluctant to take the stand of the department at its face value," the Court further said.

The Court was hearing a a jewellery manufacturer and wholesaler's plea challenging search conducted in August 2023 and alleged coercive collection of ₹32.62 lakh as tax and penalty.

Officials had seized gold ornaments weighing 3,808.386 grams, valued at ₹2.23 crore, and gold bullion weighing 5,478.940 grams, valued at ₹3.21 crore from Bhima Enterprises. The department alleged that the firm’s books disclosed excess stock of ornaments and a shortage of bullion.

The firm paid ₹13.37 lakh on the day of the search and ₹19.24 lakh the following day. While the department termed the payments voluntary, the firm alleged coercion.

It also challenged the warrant for not containing a DIN. The warrant attributed this to technical difficulties.

However, the Court found no contemporaneous record explaining the problem. It noted that authorities had merely recorded that due to technical glitches, DIN could not be generated.

"This is a convenient fig leaf. Parrot-like repetition of the phrase contained in the circular will not immunize the act of the authority from judicial review. What was the technical difficulty experienced by the official concerned must be set out in the file contemporaneously," the Court said.

It added that a DIN generated subsequently must be shared with the taxpayer for verification. In the present case, the authorities had failed to do so. The Court said that they were bound to do so as the very purpose of introducing DIN was to ensure transparency.

"This object is frustrated by not sharing the DIN with the noticee. If the noticee wants to verify the genuineness of the document, he can do so only after entering DIN in the portal. By denying the details relating to DIN, the noticee is disabled from verifying its validity," it added.

The Court noted that the warrant was issued under Section 67(2) of Central Good and Services Tax Act, which governs search and seizure. However, it found that the communication described itself as an inspection warrant.

It said that inspection, search and seizure were distinct powers and that the GST INS-01 form must specify the precise authority conferred.

The Court also observed that the officials are required to inform the taxpayer about the option of securing provisional release of seized goods by furnishing a bond and security.

The Court thus concluded that the ₹32.62 lakh payment was involuntary.

However, it declined to immediately quash the authorisation for search or order a refund since the firm had earlier relied on this payment to secure the release of its gold.

Calling it a “case of pot calling the kettle black”, the Court ordered a fresh assessment.

"Whether the amount in question should be refunded to the petitioner or not will abide by the outcome of such assessment proceedings," it said.

The petitioner was represented by advocate R Karthik Ranganathan.

Additional Solicitor General ARL Sundaresan, assisted by advocate N Dilip Kumar, appeared for the GST authorities.

[Read Judgment]