Patna HC Quashes GST Demand, Citing Non-Compliance with BGST Act and CrPC Inspection Rules

The Patna High Court recently granted relief by overturning a GST demand totalling ₹88,64,550.50. The high court highlighted that an inspection conducted under the Bihar Goods and Services Tax and Central Goods and Services Tax frameworks is legally invalid unless it adheres to the procedural requirements established in Section 67 of the BGST/CGST Act, 2017, in conjunction with Section 100 of the Code of Criminal Procedure, 1973.

Following the Code of Criminal Procedure, an inspection is to be conducted under Section 67 of the BGST/CGST Act, 2017. In the inspection procedure, two witnesses must be there under Section 100 of the Code of Criminal Procedure.

Presiding over the ruling, a Division Bench Justice P. B. Bajanthri and Justice Alok Kumar Sinha, mentioned that, “Section 67 of the BGST/CGST Act, 2017 specifically mandates an inspection to be conducted by the Code of Criminal Procedure. Section 100 of the Code of Criminal Procedure stipulates that there shall be two witnesses when the inspection is conducted… The inspection report, therefore, does not contain the names and signatures of two independent witnesses, which is the mandatory requirement of Section 67 of the BGST/CGST Act, 2017… Clearly, this appears to be an afterthought done with the motive to simply cover up the lacuna…”

“we find that the inspection was carried out without any independent witnesses and even the order of seizure is invalid due to tampered/ interpolated documents, on both these counts they are against the provision as contained under Section 67 of the BGST/CGST Act, 2017 read with Section 100 of the Code of Criminal Procedure, 1973,” the bench mentioned.

In a Civil Writ Jurisdiction Case ruling was delivered whereby the petitioner has contested a demand order of Rs 88,64,550.50 issued u/s 74(9) of the BGST/CGST Act because the underlying inspection breaches the statutory process.

The applicant claimed that the inspection was performed in the absence of two independent witnesses, a requirement not simply under the Act but also u/s 100(4) of the CrPC.

The only witnesses recorded in the inspection report were the son of the proprietor, Sandeep Jaiswal, and a staff member, Ram Pravesh Yadav, both of whom were closely related to the applicant and thus did not have the independence needed by law.

Respondents oppose that two independent individuals, Santosh Kumar and Ramashish Prasad, were present as witnesses and had signed the seizure order.

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Though the court has rejected the same claim while marking that their names and signatures do not appear in the report of the inspection, and that no elaboration was there for why the representatives of the applicant who had signed the report were not included in the seizure order allegedly prepared at that time.

Also, the court said that the order of seizure has been tampered with by Ms. Kumari Anu Soni, the Assistant Commissioner of State Tax, who led the search “In the order of seizure (Annexure ‘1’ to the Counter affidavit filed by Respondent no.3), as against Column No. (A)- Details of Goods Seized, the words ‘As Per Physical Verification’ were not mentioned but in the original order of seizure the words ‘As Per Physical Verification’ had been inserted/interpolated by Ms. Kumari Anu Soni who had signed and prepared the order of seizure,” the Court mentioned.

Post hearing parties and after having pursued the related documents brought on record specifically the inspection report along with the seizure order, the court ruled that “we are of the view that the inspection/search was not carried out in accordance with Section 67 of the BGST/CGST Act, 2017 for the reasons explained hereunder.”

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As per that, the High Court set aside the impugned tax demand which was, “based on the inspection said to have been carried out on 18.01.2024, and we admonish Ms. Kumari Anu Soni, Deputy Commissioner of State Tax to not to tamper with any departmental/court record in future, failing which disciplinary authority or this court will be constrained to order for disciplinary action to be taken against her,” and permitted the writ petition.