Gujarat HC Charges INR 10K as GST Authorities Can Start Legal Proceeding in SEZ

In a recent ruling, the Gujarat High Court has granted permission to the State GST department to initiate legal proceedings against the establishment situated within the premises of the Special Economic Zone (SEZ).

The bench of justices Ashutosh Shastri and J.C. Doshi has observed that the respondent departments are authorised to carry out operations in SEZ. This recognition stems from the fact that the Central Government had previously granted such authority through a notification issued on August 5, 2016. Consequently, the respondents’ authority to conduct search operations within SEZs is indisputable. This conclusion is supported by Section 6(2) of the GGST Act, which stipulates that any directive issued by a proper officer also carries the weight of an order under the CGST Act, as authorised by the Act itself or through communication to a jurisdictional officer of the Central Government.

The petitioner company is a well-established SEZ unit in SURSEZ that is governed by and subject to the order of the Development Commissioner, SEZ, Surat.

The petitioner company was under the search and seizure operation after an ostensible oral communication from an Enforcement Directorate officer, and the petitioner company’s premises were sealed. According to the petitioner, the sealing document does not demonstrate that the respondent followed the law and that all necessary steps were taken, as stated in Section 67(1) of the GST Act, and no satisfaction was reached at the conclusion.

Read also: Madras HC: Central GST Authorities Can Issue Summons & Conduct Investigation

The respondent has sealed the petitioner’s firm because all of the employees were required to appear at the DRI Surat office to have their statements recorded. In addition, the respondent summoned the directors of the petitioner company to appear before him for the recording of statements and the presentation of books of accounts. This was done simultaneously under Section 70 of the GST Act, 2017.

The petitioner argued that the petitioner’s unit is not subject to the provisions of the CGST Act of 2017 or the SGST Act of 2017 because it is a SUREZ unit, which is clearly foreign territory and, as such, is a tax-neutral region. The petitioner’s unit is also located within the area designated and is a SUREZ unit. Every SEZ unit is a tax-neutral zone, hence the state authorities have no authority to take any action.

The respondent claimed that Section 67(2) of the aforementioned petitioner’s dealers and suppliers were applicable and as a result asked for cooperation in the proceedings. By calling attention to Article 246 A of the Indian Constitution, which establishes special provisions for the supply of goods and services tax, and afterwards requesting that enforcement authorities be informed when using the authority granted by Section 2(1) of the SEZ Act 2005.

The petitioners’ main issue is that because their business locations are in Special Economic Zones, they should be treated as foreign territory and exempt from state regulations. According to the petitioners, state authorities lack the authority to conduct any searches at their locations.

The court pointed out that after the Central Government has announced the functions of proper officers, those duties will also apply to officers working under the CGST Act, therefore it is impossible to claim that respondents lacked jurisdiction.

Read also: Gujarat HC Rules That GST Only Payable on Construction Cost Instead of Land Cost

The court concluded that the petitioners’ motive behind filing these petitions was to obstruct and delay the legitimate actions undertaken by the respondent authorities. Consequently, the court considered these actions to be an abuse of the legal system, particularly when considering the alleged irregularities that had taken place.

To prevent litigants from exploiting such circumstances through the filing of such litigations, the court emphasised the requirement for strong action against such practices by the petitioners. It was observed from the records that the petitioners ceased their participation following the issuance of the notice and expressed their intention to await the court’s orders. The court disapproved of this behaviour on the part of the petitioners, considering it inappropriate. Thus, the court found it fitting to impose a penalty of Rs. 10,000 for the dismissal of the plea.