HC Emphasizes Need to Record Reasons in GST INS-01 Form Before Initiating Search U/S 67

On May 20, 2024, in the case of Excellentvision Technical Academy Pvt. Ltd. v. State of U.P. [Writ Tax No. 554 of 2023, the Allahabad High Court highlights the need for the Revenue Department to record reasons in INS-01 before initiating search proceedings under Section 67 of the Central Goods and Services Tax (CGST) Act, 2017.

It has been ruled by the Hon’ble Allahabad High Court that where the Revenue Department loses to place the actual reasons to trust as needed u/s 67 of the CGST, 2017 before executing the investigation, in these matters the whole proceedings have been obligated to get quashed. The same decision shows the necessity of compliance with the procedural pre-requisite to keep the validity of the investigation.

Case Facts in Case of M/s. Excellentvision Technical Academy

The UP GST department searched the M/s. Excellentvision Technical Academy (P.) Ltd. (“the Petitioner”) on 4th January 2018, nextly the council issued two INS-01 (search warrants), on two different dates: one on January 4, 2018 (date of the search) and the other on February 11, 2019.

Thereafter the tax department initiated the proceedings via issuing the SCN on 8th February 2021 u/s 74 of the Uttar Pradesh Goods and Services Tax Act, 2017 (“the State GST Act”) and subsequently passed the order on September 01, 2021.

Dissatisfied with the search that the tax department performed, the applicant filed the writ petition to the Hon’ble Allahabad High Court arguing that the tax department never proposed the reasons to assume for conducting the investigation which is obligatory u/s 67 of the State GST Act.

Issuance of 2 INS-01 on different dates, itself creates suspicion on the genuineness of the authorization to the proper officer to perform the inspection, search, and seizure.

Both the INS-01 do not include “reasons to believe” by the Joint Commissioner to initiate the proceedings against the applicant, hence, the proceedings initiated u/s 67 is illegal and exposed to be set aside, as per the applicant.

Allahabad High Court Case

Whether recording a reason to consider in INS-01 a requirement for the tax department to initiate the search proceedings?

The Hon’ble “Allahabad” High Court in Writ Tax No. 554 of 2023 ruled as under:

• Remarked that the INS-01 issued dated February 11, 2019, is after the search and is, thus, an invalid document.
• Mentioned that the first INS-01 was issued on the date of search, and was furnished to the applicant on the application by the applicant. Therefore, the document arises to be fabricated and made as an afterthought.
• Mentioned that the whole proceedings that have been derived via the illegal investigation conducted u/s 67 of the State GST Act are not correct and subsequently, the whole authorisation is obligated to be quashed.
• Noted that the tax department filed the counter affidavit and mentioned that the tax department was unable to elaborate and propose the actual cause to consider as needed u/s 67 of the State GST Act.
• The tax department has been ordered to refund the amount that the applicant deposited instead of the order passed under section 74 of the State GST Act within 8 weeks.

Closure: In the case of Excellentvision Technical Academy Pvt. Ltd. v. State of U.P., the Allahabad High Court’s ruling acts as a reminder for the tax authorities to comply with the procedural pre-requisite when executing the investigation.

Read Also: GST Proceedings Are Invalid Without a Document Identification Number

The cruciality of clarity and accountability in tax administration has been highlighted in the decision of the court to quash the proceedings due to the lack of recorded reasons in INS-01. The same ruling carried the rights of the assessees and supports the stationery framework controlling the tax searches under the GST regime.