Calcutta, January 23, 2024 – The Delhi High Court has recently invalidated the search authorization issued under the Central Goods & Services Tax Act, 2017 (CGST Act), underscoring the importance of adhering to legal grounds for such actions. The bench, comprising Hon'ble Shri Justice Vibhu Bakhru and Hon'ble Shri Justice Amit Mahajan, ordered the GST authorities to return documents to Bhagat Ram Om Prakash Agro Private Limited, the petitioner in the case.

The court's decision followed an examination of the search authorization, which cited all grounds stated in Clause ‘A’ of FORM GST INS-01 as reasons for the inspection. The clause lists various grounds for authorizing a GST inspection, including suppression of transactions relating to the supply of goods and/or services, stock of goods in hand, claiming Input Tax Credit (ITC) in excess of entitlement under the Act, claiming a refund in excess of entitlement under the Act, and engaging in contravention of the provisions of the Act or rules made thereunder to evade tax.

However, the High Court found that these grounds were not substantiated by any evidence or material on record, rendering the authorization "patently erroneous."

CA Dost Vikash Dhanania of GST DOST, an authority on GST matters, lauded the court's decision, stating, "This judgment is a critical reminder to tax authorities that each ground for inspection must be backed by tangible evidence. The ruling not only protects businesses from undue scrutiny but also serves as an educational tool for taxpayers to understand their rights under the GST framework."

The High Court's examination of the search authorization process is expected to bring more transparency and accountability to the GST inspection regime. The ruling highlights the necessity for tax authorities to meticulously document the basis for their actions, ensuring that they are within the bounds of the law.

The case arose from an order by a Special Judge, which led to the inspection to verify the source of ₹50,00,000 used in a property transaction. The High Court expressed concerns over the Special Judge's directive for a broad inquiry without proper reference to the CGST Act's provisions.

While the court did not comment on the Special Judge's order under adjudication, it made clear that the GST authorities are free to proceed with any legitimate inquiries under the Act, provided they have adequate grounds to do so.

The business community has expressed relief over the judgment, seeing it as a safeguard against arbitrary regulatory overreach and an educational moment regarding the procedural aspects of GST inspections.