‘Reason to Believe’ a mandatory requirement to conduct Search and Seizures under GST: Allahabad HC [Read Order]

The Allahabad High Court has recently held that the  ‘reasons to believe’ are mandatory to conduct search and seizures procedure adopted as per the State GST Acts.

The Assessee, Rimjhim Ispat Limited, had their factory premise being subjected to a search party, consisting of the Officers of U.P. GST/Commercial Tax Department. It has further been alleged that the authorized signatory of the petitioner-company Sri Sunil Gupta was not present at the time of search, however, he was called and was manhandled and pressurized to admit large scale tax evasion. It is alleged that he was asked to sign on some blank papers which were used for drawing the Panchnama. It was further stated that the stocks of the raw- materials as well as finished goods were not weighed despite the insistence of Sri Sunil Gupta.

The search party was informed that the raw-materials were duly covered by the tax invoices and E-way bills and they were fully reflected in the books of accounts. It was further alleged the factory premises had a computerized weigh bridge installed, however, the revenue department did not weigh the raw-materials as well as the finished products and recorded highly exaggerated figures on the basis of assumptions in the Panchnama therefore further alleging that the list attached to the Panchanama was based on mere physical verification and eye estimation and the entries recorded therein were arbitrary.

Owing to the failure of the authority to counter the claim of the petitioner of the lack of ‘reasons to believe’, Justice Pankaj Mithal and Justice Pankaj Bhatia disposed of the writ petition.

“it is essential that the officer authorizing the search should have ‘reasons to believe.’ The principles that are culled out from the catena of decisions referred above is that the ‘reasons to believe’ should exist and should be based on reasonable material and should not be fanciful or arbitrary. It is also established that this Court in exercise of its powers under Article 226 cannot go into the sufficiency of the reasons and should not sit as an appellate court over the reasons recorded. It is also well established that the reasons may or may not be communicated to the assessee but the same should exist on record,” the Court said.