The Madras High Court has held that the legality of a GST search cannot subsequently be challenged after the taxpayer has obtained provisional release of the seized goods, particularly where an earlier writ petition had already dealt with the seizure and granted limited relief.
The ruling was delivered in Bhima Enterprises v. Principal Chief Commissioner of GST, W.P.(MD) No. 9040 of 2024, by Justice G.R. Swaminathan.
Background of the Case
The case arose from a GST search conducted by the department on 16 August 2023 under Section 67(2) of the CGST Act. During the search, the authorities seized gold ornaments valued at approximately ₹2.20 crore and physical gold bullion valued at around ₹3.20 crore, alleging excess stock.
The taxpayer subsequently challenged the search proceedings, contending that the search authorisation was invalid because it did not contain the Document Identification Number (DIN) required under CBIC Circular No. 122/41/2019-GST dated 5 November 2019.
The petitioner also contended that a payment of ₹32 lakh made to the department was not voluntary but was obtained under coercion.
Earlier Writ Petition and Provisional Release
An important aspect of the dispute was the taxpayer’s earlier writ petition seeking relief against the seizure and requesting provisional release of the seized goods.
By an order dated 26 September 2023, the High Court directed provisional release of the goods after taking note of the payment of ₹32 lakh made by the taxpayer. However, the earlier proceedings did not result in the seizure itself being quashed.
The taxpayer subsequently approached the Court again, seeking to declare the search proceedings illegal.
Court’s View on Challenging the Search
The Madras High Court declined to grant this relief. The Court explained that inspection and search precede seizure, and once the seizure had effectively been accepted in the earlier proceedings and provisional release had been obtained, the taxpayer could not subsequently seek to invalidate the search that led to the seizure.
Justice G.R. Swaminathan observed:
“Inspection and search are stages anterior to seizure. When seizure itself has been implicitly upheld, one cannot nullify the search that preceded seizure.”
The Court therefore held that the validity of the search should have been properly raised and adjudicated in the earlier proceedings. It was not permissible for the taxpayer to seek indirectly, through subsequent proceedings, a relief that had not been obtained earlier.
The Court specifically observed that what the petitioner had failed to achieve in W.P.(MD) No. 23502 of 2023 could not be indirectly achieved in the present proceedings by challenging the authorisation order dated 15 August 2023.
Finding Regarding Departmental Irregularity
Interestingly, the Court did not completely endorse the department’s conduct. The Bench was satisfied that the search had not been conducted strictly in accordance with the statutory requirements and also found substance in the contention that the payment of ₹32 lakh was not made voluntarily.
However, the Court stopped short of directing an immediate refund because the earlier writ proceedings had resulted only in provisional release of the seized goods and had not conclusively invalidated the seizure.
Thus, the Court maintained a distinction between finding an illegality in departmental action and granting consequential monetary relief.
Taxpayer Must Approach Court With Clean Hands
The judgment also carries an important message for both taxpayers and tax authorities.
The Court observed that a writ applicant must approach the Court with clean hands and cannot take inconsistent positions in successive proceedings. At the same time, the department cannot take advantage of procedural conduct or omissions on the part of the taxpayer to justify an otherwise illegal action.
The Court emphasised that the standard imposed on the department would be even higher, stating:
“The bar that the Court will set for the department will be higher than the one meant for the taxpayer.”
The proceedings were ultimately disposed of with liberty for the department to initiate fresh proceedings in accordance with law.
Key Takeaway for GST Taxpayers
The judgment highlights the importance of challenging the legality of GST search and seizure proceedings at the earliest opportunity. Taxpayers who obtain provisional release of seized goods should carefully examine the terms of the order and ensure that all objections relating to search authorisation, DIN requirements, seizure and alleged coercive payments are expressly raised.
A taxpayer should not assume that obtaining provisional release automatically preserves every challenge to the underlying search proceedings.
Case Details
Case: Bhima Enterprises v. Principal Chief Commissioner of GST
Case No.: W.P.(MD) No. 9040 of 2024
Court: Madras High Court
Judge: Justice G.R. Swaminathan
Petitioner: Mr. R. Karthik Ranganathan
Respondents: Mr. A.R. L. Sundaresan and Mr. N. Dilip K
Conclusion: The Madras High Court’s decision reinforces the procedural importance of raising all available legal challenges at the appropriate stage of GST proceedings. While departmental illegality cannot be ignored, a taxpayer who has already obtained limited relief in earlier litigation cannot ordinarily reopen the validity of the search through subsequent proceedings.