Recording reason to believe in INS-01 is a pre-requisite to initiate Search

The Allahabad High Court has ruled that the Revenue department must record specific 'reasons to believe' before initiating a search under Section 67 of the GST Act. In a case involving Excellentvision Technical Academy, the court found that the department failed to provide these reasons and issued search warrants retrospectively and with questionable authenticity. Consequently, the court quashed the entire proceedings and ordered a refund of any amounts deposited by the petitioner.

The Hon'ble Allahabad High Court in the case of Excellentvision Technical Academy (P.) Ltd. v. State of U.P.[Writ Tax No. 554 of 2023 dated May 20, 2024] held that where Revenue department failed to put forward the actual reasons to believe as required under Section 67 of the Central Goods and Services Tax Act, 2017 before initiating search, in such case the entire proceedings is liable to be quashed.

Facts

M/s. Excellentvision Technical Academy (P.) Ltd. ("the Petitioner") was searched by the UP GST department on January 4, 2018, subsequently the Department issued two INS-01 (search warrant), on two different dates: one on January 4, 2018 (date of the search) and the another on February 11, 2019.

Subsequently, the tax Department initiated the proceedings by issuing show cause notice dated February 8, 2021 under Section 74 of the Uttar Pradesh Goods and Services Tax Act, 2017 ("the State GST Act") and later passed the order dated September 01, 2021.

The Petitioner aggrieved by the search conducted by the tax Department filed writ Petition before the Hon'ble Allahabad High court contending that the tax Department never put forth the reasons to believe for conducting search which is mandatory under Section 67 of the State GST Act.

Further, issuance of 2 INS-01 on different dates, itself crate doubt on the genuineness of the authorization to the proper officer to conduct the inspection, search and seizure.

The Petitioner further stated that, both the INS-01 does not contain "reasons to believe" by the Joint Commissioner to initiate the proceedings against the Petitioner, therefore, the proceedings initiated under section 67 is totally illegal and liable to be set aside.

Issue

Whether recording reason to believe in INS-01 is pre-requisite for tax department to initiate the search proceedings?

Held

The Hon'ble Allahabad High Court in Writ Tax No. 554 of 2023 held as under:

• Noted that, the INS-01 issued on February 11, 2019 is subsequent to the search and is, therefore, an invalid document.
• Stated that, the first INS-01 was issued on the date of search, was provided to the Petitioner upon the application by the Petitioner. Thus, the document appears to be fabricated and created as an afterthought.
• Observed the counter affidavit filed by the tax Department and stated that, the tax Department has failed to explain and put forward the actual reasons to believe as required under Section 67 of the State GST Act.
• Stated that, the entire proceedings that have originated from the illegal search and seizure carried out under Section 67 of the State GST Act have no foot to stand on and accordingly, the entire authorization is liable to be quashed.
• Further, ordered the Tax Department to refund the amount deposited by the Petitioner in lieu of the order passed under Section 74 of the State GST Act within a period of eight weeks.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED