First published on www.Taxguru.in on 16 February 2020
Ratio of the Judgment
Section 67(5) creates a right in the person – denial of copies must be a reasonable action – custody of documents or books seized cannot be for a period more than necessary for examination – copies need to be given to the person from whose custody such records are seized – right to get copies and power of the authorities to refuse the same has to be balanced and such balance may shift with the passage of time.
Operative Part of Judgement
17. Last, in the light of the provision of section 67(5) of the Act creating right in the person, the denial of copies must be a reasonable action. The legislative intent is clear that the documents or books seized must not be kept in the custody of the officer for more than the period necessary for its examination and copies thereof need to be given to the person from whose custody the said documents or books are seized. The reasonableness of the action depends on the facts of each case. If the right to get copies of the documents and the power of the authorities to refuse the same has to be balanced, then the balance may shift by the passage of time and continuing withholding of copies can become unreasonable assuming it is justified at the inception. The documents were seized in January 2019, and the petition is being heard in the middle of August 2019. The prejudice to the Petitioner has been demonstrated.
Issue adjudicated upon:
2. The Petitioner has sought to question the refusal by the Officers of the Director-General of GST Intelligence, Mumbai to supply documents to the Petitioner seized by the officers. The Petitioner has also sought a direction to the Respondents to hand over copies of the documents seized.
Facts of the matter:
3. The Petitioner-High Ground Enterprises Limited is a company listed on the Bombay Stock Exchange and National Stock Exchange of India. The Petitioner has over 10,000 shareholders. An intelligence input was received from the Director-General of GST Intelligence, Calcutta regarding transactions allegedly in connection with fraudulent affirmation and utilization of input tax credit by various firms on the strength of invoices allegedly issued by non-existing entities. An inquiry was initiated by the Respondent-GST Intelligence, Mumbai against the Petitioner. A search was conducted on 9 January 2019 and 10 January 2019 and records and documents were seized as enumerated in Panchanama dated 9/10 January 2019. During the investigation, summons were issued to the Petitioner on 9 January, 11 January and 21 January 2019. Initially, the Petitioner did not appear, however, subsequently appeared pursuant to the summons. The Petitioner on 2 February 2019 requested to hand over the documents seized under the Panachanma. The documents were not handed over.
4. The Petitioner, in the meanwhile, received notices from the Bombay Stock Exchange and the National Stock Exchange in connection with the non-submission of financial results. The Statutory Auditor also requested the Petitioner to supply the necessary documents. As per Regulation 33 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 (Regulations of 2015), every listed company must submit quarterly, half-yearly and yearly financial results with the Stock Exchange within 45 days from the end of the quarter and 60 days in case of the financial results for the March-end quarter.
5. The Bombay Stock Exchange issued a notice to the Petitioner imposing a penalty of Rs. 1,06,200/- payable till 17 June 2019 and thereafter Rs. 5,000/- per day. Since the documents were not given to the Petitioner and the Petitioner is facing coercive action from the Stock Exchange, the Petitioner has filed the present petition seeking direction to the respondent authorities to hand over the copies of the documents seized.
Relevant Law and specific provision of the Law dealt with in the matter
9. The power of the authorities to carry out an investigation, search and seizer is conferred under the provisions of the Central Goods and Services Act, 2017. The Chapter-XIV deals with inspection, search, seizure and arrest. Power of inspection, search and seizure is provided in section 67. Section 68 of the Act deals with the inspection of goods in movement. Section 69 confers the power of arrest on the authorities. The Officer under the Act is empowered to issue summons to give evidence and produce documents, and as provided in section 71 of the Act, the Officer under the Act as specified would have access to any place of business to carry out inspection, audit and survey.
Provisions of S. 67 as analysed by the Hon’ble Bench
10. The scheme of Section 67, more particularly sub-section (5) thereof, suggests that as far as copies of the documents so seized, a person from whose custody such documents have been seized will have right to get the copies thereof. This right is qualified with a contingency where giving such copies will prejudicially affect the investigation. The legislative intent as far as the documents and books which are seized under section 67(2), is clear. The originals of documents or books so seized must be kept by the officer only for a period as may be necessary for an inquiry. Meaning, such documents or books should not be needlessly kept in custody which will otherwise gravely prejudice the person from whose custody the said documents were seized. As can be seen from section 67(5) that if the originals cannot be returned, at least the person is entitled to receive copies thereof. The idea is that businesses should not be subjected to needless harassment.
11. There are two facets of the opinion of the Proper Officer as contemplated under section 67(5) of the Act. Firstly, the opinion, which would be a decision, should be reflected in the record. The opinion cannot be a mere ipsi-dixit of the Proper Officer. There must be cogent reasons to withhold giving of copies to the person. A mere statement that it will prejudicially affect the investigation would be only chanting the language of the section.
Analysis of the Hon’ble Court of the merits of the case (not reproduced verbatim)
1. The Hon’ble Court, while referring to the averments of the Respondent Department noted that there have been inconsistencies in the facts stated by the Department. It has been stated that the Petitioner has shell companies involved in evasion of tax. Then the Respondents state that if copies are given then there may be manipulation or fabrication to evade payment of tax. The Respondent have also stated that the documents seized are copies and not originals. Further on, the Department states that if copies of the documents are given to the Petitioner, it may use them to alert its associates. Finally, the Hon’ble Bench observed, that the Respondents have also stated that soft copies are available with the Petitioner.
2. The Respondents offered the Chartered Accountant of the Petitioner to have an inspection of the documents in its custody. However, the provisions of S. 67(5) creates a right to receive copies by a person from whom custody of the documents is seized. The argument of the Respondent that the Petitioner has to state cogent reasons as to why documents are required is therefore without merit and has to be rejected.
3. The Respondent has also not explained on how the evidence will be tampered by the Petitioner, when the originals are with the Respondent. Secondly, as admitted by the Respondent, if the soft copies are with the Petitioner then the argument that by providing copies, the Petitioner will be able to alert it’s associates is also not explained.
4. The Respondent then provided the Hon’ble Court the records containing a noting by the Proper Officer which stated that “giving of copies would prevent investigation”. The Hon’ble Bench observed that it is merely a reproduction of the language of the section and furthermore, the note was prepared one month after the presentation of this Petition. Therefore, firstly, no reasons are provided in the note as to how the investigation would be prejudiced by merely providing copies and secondly, the record is created
5. The Hon’ble Bench has also observed on the conduct of the Respondent insofar as it’s Affidavit failing to disclose that the Petitioners had co-operated in the investigation. The earlier averments of the Respondents that the Petitioner had failed to co-operate was countered by the Counsel of the Petitioner with dates and this fact was not subsequently acknowledged by the Respondent.
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