Material From Another Commissionerate Can Be Relied Upon To Initiate Section 74 CGST Proceedings: Karnataka High Court
Court says evidence cannot be ignored merely because search may be irregular; sets aside order directing return of seized documents
The Karnataka High Court has held that proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 are independent of search and seizure operations conducted under Section 67 of the Act, and that materials gathered during investigations by officers of another Commissionerate can be relied upon to initiate tax evasion proceedings.
The Court further observed that the admissibility of such material depends on its relevance to the proceedings and cannot be rejected merely because it was collected during a search whose legality is questioned. The court also ordered the return of seized documents and the refund of ₹50 lakh deposited by the assessee during investigation.
Justice S.G. Pandit and Justice K. V. Aravind while allowing the writ appeal filed by the tax authorities, set aside a Single Judge’s order that had quashed the notice and directed the return of seized documents and goods.
The Bench relying on Pooran Mal v. the Director of Inspection (Investigation)New Delhi and others (1974) 1 SCC 345 observed, “…evidence collected in the course of a search, in the form of seized articles or documents, cannot be discarded altogether merely on the ground that the search was illegal. The material or evidence gathered or collected in the course of such search can still be acted upon or relied upon, subject to the rule of relevancy and the test of admissibility. The said pronouncement fortifies the view taken by this Court”.
“We further observe that where materials are gathered by two different Commissionerates in the course of simultaneous or coordinated action undertaken to unearth a tax evasion racket, it is neither practicable nor legally permissible to confine proceedings under Section 74 of the Act solely to the materials collected by the proper officer within his territorial jurisdiction. There is no legal impediment for the proper officer to rely upon materials disclosing tax evasion, even if such materials were gathered by an officer of another jurisdiction”, the Bench further noted.
Advocate Shishira Amarnath appeared for the appellant and Advocate Pranay Sharma Y. appeared for the respondent.
The dispute in the matter pertained to an investigation into alleged manipulation of invoices and e-way bills involving the transportation of goods without payment of GST. Authorities claimed that the probe uncovered a network involving multiple entities and nearly 1,964 e-way bills, indicating possible tax evasion of around ₹27.56 crore.
A Single Judge Bench had earlier held that the investigation conducted by officers of the Mangaluru Commissionerate was without jurisdiction and that the show-cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 could not rely on such material.
The Bench, thus, observed that in investigations involving coordinated action across jurisdictions, it would be impractical to restrict proceedings only to materials collected by officers within a single territorial jurisdiction.
“If valuable material and evidence, having financial implications, are gathered during inspection and search and are thereafter directed to be returned on the premise that such material cannot be utilized, the liberty reserved to initiate fresh proceedings would, in effect, become illusory. In such circumstances, the grant of liberty, while simultaneously foreclosing the use of the material already collected, would render the reserved right nugatory. We therefore find no justification in the submission of the learned counsel for the respondent that the liberty granted to the Revenue sufficiently safeguards its interest”, the Bench noted.
The court also held that the proper officer is entitled to rely on material gathered during investigations conducted by officers of another commissionerate, provided the assessee is supplied with such material and given an opportunity to respond in accordance with principles of natural justice.
Consequentially, the Bench while setting aside the earlier judgment, restored the show-cause notice and granted the assessee fifteen days to file a reply, while allowing the tax authorities to proceed with adjudication in accordance with law.
Cause Title: Additional Commissioner Of Central Tax & Ors. v. M/S. Vigneshwara Transport Company WA No. 101 of 2025
Appearances:
Appellant: Shishira Amarnath, Advocate.
Respondent: Pranay Sharma Y., Advocate.