The Patna High Court recently delivered a significant judgment in a tax matter, setting aside a demand of ₹88,64,550.50 raised under the CGST and BGST Acts. The Court declared the tax demand illegal, stating that the inspection conducted was not in line with the mandatory procedures outlined in Section 67 of the CGST/BGST Act, 2017, read with Section 100 of the Code of Criminal Procedure (CrPC), 1973.
The division bench, consisting of Justice P. B. Bajanthri and Justice Alok Kumar Sinha, observed that inspections under the CGST regime must strictly follow procedural safeguards. These include the presence of two independent witnesses, as required under Section 100 CrPC.
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“Section 67 of the BGST/CGST Act, 2017 specifically mandates an inspection to be conducted in accordance with 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 bench stated.
In this case, the inspection and subsequent seizure were found lacking the necessary independent witnesses. The names and signatures of neutral witnesses were absent in the official inspection report, raising concerns about procedural fairness.
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The petitioner's argument highlighted that only the son of the proprietor and a staff member were present during the inspection—both directly connected to the business. The presence of impartial witnesses was mandatory and their absence rendered the inspection report unreliable.
The respondents attempted to justify the inspection by claiming that two independent individuals, Santosh Kumar and Ramashish Prasad, were present. However, the Court dismissed this claim.
“The inspection report 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,” the Court remarked.
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Adding to the irregularities, the Court found that the seizure order had been tampered with by Ms. Kumari Anu Soni, the Assistant Commissioner of State Tax who led the search.
“In the order of seizure... the words ‘As Per Physical Verification’ were not originally mentioned but later inserted/interpolated by Ms. Kumari Anu Soni who had signed and prepared the order of seizure,” the bench noted.
The Court stressed that such manipulations not only weaken the legal validity of the inspection but also amount to misconduct by a government officer.
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After a detailed examination of the documents and submissions, the Court concluded:
“We are of the view that the inspection/search was not carried out in accordance with Section 67 of the BGST/CGST Act, 2017…”
The judgment firmly quashed the demand notice issued under Section 74(9) of the Act, which was based on the faulty inspection conducted on January 18, 2024.
Case Title: M/s Sri Sai Food Grain and Iron Stors vs The State of Bihar & Ors.
