Additional Commissioner Of Central Tax vs M/S. Vigneshwara Transport Company on 11 March, 2026

Karnataka High Court

Additional Commissioner Of Central Tax vs M/S. Vigneshwara Transport Company on 11 March, 2026

THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE
ORDER DATED 28.11.2024 PASSED BY THE LEARNED SINGLE
JUDGE IN WP No.18305/2023 ANNEXURE-A CONSEQUENTLY
FURTHER UPHOLDING THE VALIDITY OF THE SHOW-CAUSE
NOTICE DATED 11.04.2023 ISSUED BY THE ADDITIONAL
COMMISSIONER OF CENTRAL TAX BENGALURU NORTH WEST
COMMISSIONER.

SPONSORED

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY,
K.V. ARAVIND J., DELIVERED THE FOLLOWING:-

CORAM:    HON'BLE MR. JUSTICE S.G.PANDIT
          and
          HON'BLE MR. JUSTICE K. V. ARAVIND


                    C.A.V. JUDGMENT

(PER: HON’BLE MR. JUSTICE K.V. ARAVIND)

Heard Sri Shishira Amarnath, learned counsel for the

appellants-Revenue and Sri Y. Pranay Sharma, learned counsel

for the respondent-Assessee.

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2. This intra-Court appeal is filed under Section 4 of the

High Court Act, 1961, challenging the order dated 28.11.2024

passed in W.P. No.18305/2023 (T-RES) by the learned Single

Judge.

Factual Matrix:

3. The respondent-assessee in this appeal is registered

under the Central Goods and Services Tax Act, 2017 (for short,

‘the CGST Act’) and the Karnataka Goods and Services Tax Act,

2017 (for short, ‘the KGST Act‘), and is engaged in the

transportation of goods. An investigation conducted by the

Mangaluru Commissionerate of the appellants revealed alleged

manipulation of invoices and e-way bills, as well as

unauthorized transportation activities. It was further found that

the goods were removed clandestinely by evading Goods and

Services Tax (GST).

3.1 The findings of the investigation were shared with the

Bengaluru Commissionerate, which issued a show cause notice

in accordance with law, alleging GST evasion and manipulation

of documents. The said show cause notice was challenged in

the writ petition, inter alia, contending that the officers who

conducted the investigation lacked jurisdiction and that the
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material evidence gathered in the course of such investigation,

being without jurisdiction, cannot be relied upon against the

respondent-assessee. It was further contended that the search

action conducted by the officers of the Mangaluru

Commissionerate was without jurisdiction and contrary to the

settled principles of law governing search and seizure.

3.2 The learned Single Judge, upon examination of various

decisions, held that the officers of the Mangaluru

Commissionerate, i.e., appellant No.2, were not “proper

officers” competent to undertake inspection, search and

seizure, or to issue the show cause notice. The learned Single

Judge further held that the issuance of a show cause notice

under Section 74 of the CGST Act, founded upon search and

seizure proceedings and statements recorded by an officer

lacking jurisdiction, cannot be sustained in law. It was observed

that such a notice cannot be issued on “borrowed satisfaction.”

3.3 Accordingly, the learned Single Judge directed refund of

₹50.00 lakhs deposited by the respondent-assessee during the

course of investigation and also ordered the return of the

seized documents and other goods. Liberty was, however,
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reserved to appellant No.1 to proceed against the respondent-

assessee in accordance with law.

Submissions:

For Appellants-Revenue:

4. Sri Shishira Amarnath, learned counsel appearing for the

appellants-Revenue, submits that the investigation conducted

by the Mangaluru Commissionerate was not the sole basis for

issuance of the show cause notice. He contends that the show

cause notice has been issued by the proper officers having

competent jurisdiction. It is submitted that the search was

conducted by the Superintendent of Central Tax, Chitradurga

Division, Bengaluru North-West Commissionerate, pursuant to

authorization issued by the Additional Commissioner, Bengaluru

North-West Commissionerate, who is the competent authority.

4.1 Learned counsel further submits that upon receipt of

information from the Mangaluru Commissionerate, the

appellants initiated independent proceedings and issued the

show cause notice. It is contended that the notice was not

issued solely on the basis of material collected by the

Mangaluru Commissionerate, but also on the basis of

investigation carried out by the Bengaluru North-West
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Commissionerate, including the recording of statements of

concerned individuals. The material so collected corroborates

the evidence gathered by the Mangaluru Commissionerate.

4.2 It is therefore submitted that the show cause notice

cannot be said to be founded entirely on the material collected

by the officers of the Mangaluru Commissionerate. It is further

submitted that due summons were issued to the respondent-

assessee and, upon non-compliance, a complaint under Section

200 of the Criminal Procedure Code, 1973 (for short, ‘Cr.P.C.’)

was filed before the jurisdictional Economic Offences Court at

Bengaluru.

4.3 Learned counsel further submits that on account of the

non-cooperation of the respondent-assessee, the

Commissioner of the Bengaluru North-West Commissionerate

invoked the powers under Section 83 of the CGST Act and

provisionally attached the bank accounts of the respondent-

assessee in order to safeguard the interest of the Revenue.

4.4 It is further submitted that the proper officer of the

Bengaluru North-West Commissionerate seized 1,964 e-way

bills, which allegedly revealed GST evasion to the tune of

₹27.56 crores. The investigation is stated to have uncovered a
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systematic modus operandi whereby e-way bills were modified

by altering vehicle details so as to transport multiple

consignments under the cover of the same e-way bill.

4.5 Learned counsel submits that issuance of a show cause

notice under Section 74 of the CGST Act is not a natural or

automatic consequence of search and seizure operations.

According to him, a notice under Section 74 can be issued

based on the material gathered upon inspection by the proper

officer. He further contends that even assuming that certain

material was collected by an officer lacking jurisdiction, the

same would nonetheless retain evidentiary value.

4.6 It is submitted that the entire material forming the basis

of the show cause notice has been furnished to the

respondent-assessee and that it is open to the respondent to

raise all contentions, including those relating to jurisdiction and

relevancy, in reply to the show cause notice. Entertaining a

challenge to the show cause notice at this stage, when an

opportunity to submit a reply has been afforded, is premature.

4.7 Learned counsel therefore contends that the writ petition

itself was not maintainable, as it was filed at a premature stage

and in the face of an efficacious alternative remedy of
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submitting a reply to the show cause notice and participating in

the adjudication proceedings.

4.8 On these submissions, learned counsel prays that the

order of the learned Single Judge be set aside and the show

cause notice be restored.

For Respondent-Assessee:

5. Per contra, Sri Y. Pranay Sharma, learned counsel

appearing for the respondent-assessee, submits that

inspection, search and seizure under Section 67 of the CGST

Act ordinarily culminate in the initiation of proceedings under

Section 74 of the CGST Act. According to him, a notice under

Section 74 must necessarily be founded on material lawfully in

the possession of the proper officer. It is contended that if such

material is gathered pursuant to an action that is without

jurisdiction or otherwise unsustainable in law, the show cause

notice founded thereon would itself be vitiated.

5.1 Learned counsel further submits that the search

conducted under Section 67 of the CGST Act is contrary to the

mandate of Sections 100 and 165 of the Cr.P.C. It is also

contended that the show cause notice has been issued without

proper application of mind; that the “reason to believe” has
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been recorded in a mechanical manner; and that the notice is

founded on “borrowed satisfaction.”

5.2 It is further submitted that the subsequent summons

issued during the course of investigation under Section 70 of

the CGST Act and the statements recorded pursuant thereto

are contrary to the jurisdictional provisions and are

impermissible to be relied upon against the respondent-

assessee. According to learned counsel, the search conducted

in violation of statutory safeguards amounts to an infringement

of Article 21 of the Constitution of India.

5.3 Learned counsel further submits that the amount

deposited by the respondent-assessee during the course of

investigation has rightly been directed to be refunded by the

learned Single Judge. It is contended that the liberty reserved

in favour of the proper officer to proceed afresh in accordance

with law sufficiently safeguards the interest of the Revenue.

5.4 On these grounds, learned counsel submits that the writ

appeal is devoid of merit and prays that the same be

dismissed.

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5.5 Learned counsel has relied on the following judgments of

the Hon’ble Supreme Court and various High Courts, which are

as under:

“1. R.J. Trading Co. vs. Commissioner of CGST,
Delhi North ([2021] 128 taxamann.com 344 [Delhi]).

2. Reevan Creation vs. State of Gujarat ([2026]
182 taxmann.com 783 (Gujarat).

3. Commercial Taxes Officer, Bharatpur vs.
Krishna Oil Industries ([2015] 59 taxmann.com 459
[Rajasthan]).

4. Sri Sai Food Grain and Iron Stors vs. State of
Bihar ([2025] 174 taxmann.com 84 [Patna]).

5. Dayal Product vs. Additional Commissioner
Grade-2 ([2025] 172 taxmann.com 263
[Allahabad]).

6. Additional Commissioner Grade-2 vs. Dayal
Product ([2025] 178 taxmann.com 288 (SC)).

7. Lari Almira House vs. State of U.P. ([2023] 149
taxmann.com 476 (Allahabad)).

8. Vijay Trading Company vs. Additional
Commissioner ([2024] 166 taxmann.com 69
(Allahabad)).

9. Additional Commissioner Grade-2 vs. Dinesh
Kumar Pradeep Kumar ([2025] 181 taxmann.com
973 (SC)).

10. Dinesh Kumar Pradeep Kumar vs. Additional
Commissioner Grade-2 ([2024] 165 taxmann.com
166 (Allahabad)).

11. Additional Commissioner Grade-2 vs. Shree
Om Steels ([2026] 182 taxmann.com 592 (SC)).

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WA No. 101 of 2025

12. Gopal Trading Company vs. State of U.P.
([2025] 174 taxmann.com 576 (Allahabad)).

13. Maa Mahamaya Alloys (P.) Ltd. vs. State of
U.P. ([2023] 150 taxmann.com 158 (Allahabad)).

14. I.J. Rao, Assistant Collector of Customs vs.
Bibhuti Bhushan Bagh ([1989] 1989 taxmann.com
619 (SC)).

15. ITC Limited vs. State of Karnataka and another
(Civil Appeal No.11799/2025).

16. Radhika Agarwal vs. Union f India ([2025] 171
taxmann.com 832 (SC)).

17. Commissioner of CGST vs. Deepak Khandelwal
(Spl. Leave Petition No.18536/2024)

18. Deepak Khandelwal Proprietor M/s. Shri Shyam
Metal vs. Commissioner of CGST, Delhi West and
another (W.P.(C) 6739/2021)

19. Dabur India Ltd. and another vs. State of Uttar
Pradesh and others [(1990) 4 SCC 113)

20. Kesari Nandan Mobile vs. Office of Assistant
Commissioner of State Tax ([2025] 177
taxmann.com 481 (SC))

21. Commissioner of Commercial Taxes and others
vs. Ramkishan Shrikishan Jhaver and others [(1967)
66 ITR 664]

22. Commissioner of Income Tax vs. J.Alexander
(I.T.R.C.No.64/1999)(HCK)

23. SNJ Breweries Pvt. Ltd. vs. Principal Director of
Income-tax [(2024) 468 ITR 37]

24. P. Kishore vs. Secretary to Government of
India and others (2025 SCC OnLine Mad 3053)

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WA No. 101 of 2025

25. Harikisandas Gulabdas and Sons and another
vs. the State of Mysore and another ([1971] 27 STC
434 (Kar))

26. Intelligence Officer, Directorate General of GST
Intelligence vs. Kesar Color Chem Industriest
([2025] 171 taxmann.com 739 (Karnataka))

27. Pooran Mal vs. the Director of Inspection
(Investigation)New Delhi and others [(1974) 1 SCC
345]

28. Aasha Lata Soni vs. Durgesh Soni (CRMP
No.2112/2022) (High Court of Chhattisgarh)

29. Vinit Kumar vs. Central Bureau of Investigation
and others (2019 SCC OnLine Bom 3155)

30. Ukha Kolhe vs. State of Maharashtra [(1964) 1
SCR 926]

31. R.M. Malkani vs. State of Maharashtra [(1973)
1 SCC (471)]”

Analysis:

6. We have considered the submissions of learned counsel

for the parties and perused the appeal papers.

7. The primary contention urged by the respondent in the

writ petition is that the respondent-assessee is assessed within

the jurisdiction of appellant Nos.1 and 3, whereas the

inspection, search and seizure were conducted by the officer

falling within the jurisdiction of appellant No.2, namely, the

Mangaluru Commissionerate. It is contended that the evidence

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seized and the statements recorded by the officers of the

Mangaluru Commissionerate are without jurisdiction and,

therefore, cannot be relied upon against the respondent-

assessee. It is further contended that the search action is

contrary to Sections 100 and 165 of the Cr.P.C.

7.1 Section 74 of the CGST Act empowers the proper officer

to issue a show cause notice where tax has not been paid,

short paid, or erroneously refunded, or where input tax credit

has been wrongly availed or utilized by reason of fraud, willful

misstatement, or suppression of facts. The said provision

prescribes a comprehensive procedure culminating in

adjudication, including the period of limitation.

7.2 Sub-section (3) of Section 74 of the CGST Act requires

the proper officer to serve a statement containing details of tax

not paid, short paid, or erroneously refunded, or input tax

credit wrongly availed or utilized. Sub-section (9) of Section 74

mandates that the proper officer, after considering the

representation of the person chargeable with tax, shall

determine the amount of tax, interest and penalty due and

pass an order to that effect.

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7.3 Section 67 of the CGST Act empowers the proper officer

to conduct inspection and to seize documents, books of account

or goods. Upon completion of inspection and investigation,

determination of tax liability is to be undertaken under Section

73 or Section 74 of the CGST Act, as the case may be.

7.4 In the present case, we are concerned with proceedings

under Section 74 of the CGST Act.

7.5 A combined reading of these provisions would indicate

that Section 74 of the CGST Act contemplates the issuance of a

show cause notice and service of a statement containing the

details of the tax allegedly not paid, short paid, or erroneously

refunded, or input tax credit wrongly availed or utilized. As

provided under sub-section (1), the noticee is afforded an

opportunity to submit a reply. The proceedings culminate in an

order of determination of the amount of tax, interest and

penalty under sub-section (9).

7.6 If the entire scheme and scope of Section 74 of the CGST

Act is examined, it becomes evident that the initiation of

proceedings thereunder is not necessarily dependent upon an

action under Section 67 of the CGST Act. At the most, initiation

of proceedings under Section 74 may, in a given case, follow

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from scrutiny or other proceedings such as those contemplated

under Section 61 of the CGST Act. However, it cannot be held

that recourse to Section 74 is conditional upon, or inseparably

linked to, the outcome of proceedings under Section 67.

7.7 Section 74 of the CGST Act is an independent provision

conferring substantive power upon the proper officer to initiate

adjudicatory proceedings in the circumstances enumerated

therein.

7.8 In that view of the matter, the contention urged by the

respondent-assessee that the show cause notice under Section

74 is vitiated solely on account of the alleged infirmities in the

action under Section 67 cannot be accepted.

8. It is strenuously contended that the inspection, search

and seizure carried out under Section 67 of the CGST Act are

contrary to the mandate of Sections 100 and 165 of the Cr.P.C

and are therefore illegal. On this premise, it is urged that the

documents seized, the evidence gathered and the statements

recorded in the course of such alleged illegal action cannot be

relied upon or utilized in proceedings initiated under Section 74

of the CGST Act.

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8.1 Section 74 of the CGST Act, on a plain reading,

contemplates issuance of a show cause notice on the basis of

material in the possession of the proper officer. The provision

may be invoked in any one or more of the contingencies

enumerated therein. Significantly, none of those contingencies

prescribe or qualify the legal source from which such material

must emanate. What the provision mandates is the existence of

material forming the basis for issuance of the show cause

notice and the furnishing of the relevant particulars to the

noticee so as to enable an effective reply.

8.2 In the present case, though it is contended that the

material was not supplied along with the show cause notice, it

is not in dispute that the foundational material forming the

basis of the notice has been made available to the respondent

for the purpose of submitting a suitable reply. While filing the

reply, it is open to the respondent-noticee to demonstrate the

relevancy, admissibility or otherwise of such material for the

purposes of proceedings under Section 74 of the CGST Act.

Such an exercise necessarily falls within the domain of factual

adjudication to be undertaken by the proper officer in

accordance with law.

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8.3 It is trite that, while interpreting a fiscal statute, the

Court cannot add to or subtract from the language employed by

the legislature. No words can be implied or omitted on

considerations of equity or intendment. The provision has to be

construed strictly in accordance with its plain and unambiguous

text.

8.4 The contention that the material forming the basis of the

show cause notice has been gathered in proceedings allegedly

instituted without jurisdiction and, therefore, cannot constitute

the foundation for action under Section 74 of the CGST Act, is

liable to be rejected, and for an additional reason as well.

8.5 It is urged by the respondent-assessee that the

inspection, search and seizure conducted under Section 67 of

the CGST Act are contrary to the mandate of Sections 100 and

165 of the Cr.P.C, and are therefore vitiated.

8.6 The writ petition has the following prayers;

“(i) Issue a writ of Certiorari or any other direction or
writ for quashing the show cause notice dated
11/04/2023 issued by the Respondents as showed
in Annexure-B in the interest of justice and
equity.

(ii) Issue a writ of mandamus/order/direction/
appropriate order directing the Respondent

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authorities to restore GST registration in the
interest of equity and justice.

(iii) Further direct the respondents to refund the pre-

deposit of Rs.50 Lakhs with interest from the date
of deposit till date or refund interest of justice and
equity.

(iv) Pass any order, or direction as deemed fit in the
facts and circumstances of the case including cost
in the interest of justice and equity.”

8.6.1 The prayers in the writ petition do not call in

question the validity of the search conducted under Section 67

of the CGST Act. There is no specific relief sought to declare the

search as illegal or contrary to law. In the absence of such a

prayer, it would not be permissible to record a finding that the

action under Section 67 is illegal. The said issue has not been

adjudicated in the order impugned before us.

8.6.2 Further, the respondent has not preferred any

appeal challenging the order of the learned Single Judge on

that aspect. In the absence of a specific prayer before the

learned Single Judge, to that extent, it is not open to the

respondent to canvass the legality or otherwise of the action

taken under Section 67 of the Act in an intra-Court appeal.

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8.7 The Hon’ble Supreme Court, while dealing with similar

submissions in Pooran Mal v. Director of Inspection

(Investigation), New Delhi, reported in (1974) 1 SCC 345,

has held as under:

“24. So far as India is concerned its law of evidence
is modelled on the rules of evidence which prevailed in
English Law, and Courts in India and in England have
consistently refused to exclude relevant evidence
merely on the ground that it is obtained by illegal
search or seizure. In Barindra Kumar
Ghose v. Emperor [ILR 37 Cal 467 : 7 1C 359] the
learned Chief Justice Sir Lawrence Jenkins says at p.
500:

“Mr Das has attacked the searches and has
urged that, even if there was jurisdiction to
direct the issue of search warrants, as I hold
there was, still the provisions of the Criminal
Procedure Code have been completely
disregarded. On this assumption he has
contended that the evidence discovered by the
searches is not admissible, but to this view I
cannot accede. For, without in any way
countenancing disregard of the provisions
prescribed by the Code, I hold that what would
otherwise be relevant does not become
irrelevant because it was discovered in the
course of a search in which those provisions
were disregarded. As Jimutavahana with his
shrewd common sense observes — “a fact
cannot be altered by 100 texts,” and as his
commentator quaintly remarks: “If a
Brahmana be slain, the precept ‘slay not a
Brahmana’ does not annul the murder”. But
the absence of the precautions designed by the
Legislature lends support to the argument that
the alleged discovery should be carefully
scrutinized.”

In Emperor v. Allahdad Khan [ILR 35 All 358 : 19 1C
332] the Superintendent of Police and a Sub-Inspector
searched the house of a person suspected of being in

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illicit possession of excisable articles and such articles
were found in the house searched. It was held that the
conviction of the owner of the house under Section 63
of the United Provinces Excise Act, 1910, was not
rendered invalid by the fact that no warrant had been
issued for the search, although it was presumably the
intention of the Legislature that in a case under Section
63, where it was necessary to search a house, a search
warrant should be obtained beforehand.

In Kuruma v. Queen [1955 AC 197] where the Privy
Council had to consider the English Law of Evidence in
its application to Eastern Africa, Their Lordships
propounded the rule thus:

“The test to be applied, both in civil and
in criminal cases, in considering whether
evidence is admissible is whether it is
relevant to the matters in issue. If it is, it is
admissible and the Court is not concerned
with how it was obtained.”

Some American cases were also cited before the Privy
Council. Their Lordships observed at p. 204 thus:

“Certain decisions of the Supreme Court
of the United States of America were also
cited in argument. Their Lordships do not
think it necessary to examine them in
detail. Suffice it to say that there appears
to be considerable difference of opinion
among the judges both in the State and
Federal Courts as to whether, or not the
rejection of evidence obtained by illegal
means depends on certain articles in the
American Constitution. At any rate,
in Olmstead v. United States(1828) 277
U.S. 438, the majority of the Supreme
Court were clearly of opinion that the
common law did not reject relevant
evidence on that ground.”

In Kuruma case, Kuruma was searched by two police
officers who were not authorised under the law to carry
out a search and, in the search, some ammunition was
found in the unlawful possession of Kuruma. The
question was whether the evidence with regard to the

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finding of the ammunition on the person of Kuruma
could be shut out on the ground that the evidence had
been obtained by an unlawful search. It was held it
could not be so shut out because the finding of
ammunition was a relevant piece of evidence on a
charge for unlawful possession. In a later case before
the Privy Council in Herman King v. Queen [(1969) 1 AC
304] which came on appeal from a Court of Appeal of
Jamaica, the law as laid down in Kuruma case was
applied although the Jamaican Constitution guaranteed
the constitutional right against search and seizure in the
following provision of the Jamaica (Constitution) Order
in Council 1962, Sch. 2, Section 19:

“(1) Except with his own consent, no
person shall be subjected to the search of his
person or his property or the entry by others
on his premises. (2) Nothing contained in or
done under the authority of any law shall be
held to be inconsistent with or in
contravention of this Section to the extent
that the law in question makes provision
which is reasonably required …. for the
purpose of preventing or detecting crime….”

In other words search and seizure for the purposes of
preventing or detecting crime reasonably enforced was
not inconsistent with the constitutional guarantee
against search and seizure. It was held in that case that
the search of the appellant by a Police Officer was not
justified by the warrant nor was it open to the Officer to
search the person of the appellant without taking him
before a Justice of the Peace. Nevertheless it was held
that the Court had a discretion to admit the evidence
obtained as a result of the illegal search and the
constitutional protection against search of person or
property without consent did not take away the
discretion of the Court. Following Kuruma v. Queen the
Court held that it was open to the Court not to admit
the evidence against the accused if the Court was of the
view that the evidence had been obtained by conduct of
which the prosecution ought not to take advantage. But
that was not a rule of evidence but a rule of prudence
and fair play. It would thus be seen that in India, as in
England, where the test of admissibility of evidence lies

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in relevancy, unless there is an express or necessarily
implied prohibition in the Constitution or other law
evidence obtained as a result of illegal search or seizure
is not liable to be shut out.

25. In that view, even assuming, as was done by the
High Court, that the search and seizure were in
contravention of the provisions of Section 132 of the
Income Tax Act, still the material seized was liable to be
used subject to law before the Income tax authorities
against the person from whose custody it was seized
and, therefore, no Writ of Prohibition in restraint of such
use could be granted. It must be, therefore, held that
the High Court was right in dismissing the two writ
petitions. The appeals must also fail and are dismissed
with costs.”

8.8 The Hon’ble Supreme considered the scope of Section

132 of the Income-tax Act, 1961 which is in pari materia with

Section 67 of the CGST Act. As held by the Hon’ble Supreme

Court supra, neither the statutory provision governing search

nor the adjudicatory provision imposes any express or implied

prohibition against the use of material gathered in the course of

an illegal search or seizure. It was observed that exclusion of

evidence is not a rule of evidence under Indian law, but at best

a rule of prudence and fair play. The test of admissibility of

evidence is primarily one of relevancy.

8.9 Applying the aforesaid principle, neither Section 67 nor

Section 74 of the CGST Act contains any express bar to the use

of material gathered during alleged illegal search and seizure

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proceedings. As observed hereinabove, the respondent-

assessee has been afforded full opportunity to demonstrate the

relevancy, admissibility or otherwise of the material referred to

in the show cause notice during the course of adjudication

under Section 74 of the CGST Act.

8.10 It is also apposite to refer to the judgment of the Bombay

High Court in Vertiv Energy Pvt. Ltd. v. Union of India

[(2025) 140 GSTR 140]. In the said case, a show cause

notice issued under the provisions of the GST enactments was

founded upon a report of the Comptroller and Auditor General

of India (CAG). The show cause notice was assailed on the

ground that the CAG had no jurisdiction to audit a private

company and, therefore, a notice entirely premised on such

audit report was without jurisdiction and unsustainable in law.

8.11 The Bombay High Court, while considering the said

contention and referring to the judgment of the Hon’ble

Supreme Court in Pooran Mal (supra), has held as under:

“26. In the above context, we must refer to Pooran
Mal v. Director of Inspection (Investigation), Income-
tax, New Delhi [(1974) 93 ITR 505 (SC); (1974) 1 SCC
345; 1974 SCC (Tax) 114; 1973 SCC OnLine SC 41.] ,
and Balwant Singh v. R.D. Shah, Director of Inspection,
Income-tax [(1969) 71 ITR 550 (Delhi); 1968 SCC
OnLine Del 41.] in which there are some observations to

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the effect that there could be no bar to the use of
information gathered from search or seizure, which may
eventually be declared as illegal. In the context of
section 132 of the Income-tax Act, Balwant
Singh [(1969) 71 ITR 550 (Delhi); 1968 SCC OnLine Del

41.] held that there was nothing in article 19 of the
Constitution which forbids the use of evidence obtained
as a result of an illegal search. Consistent with this
view, the relief of a writ of prohibition to use such
information from the documents which had been
illegally seized was denied.

27. In Pooran Mal [(1974) 93 ITR 505 (SC); (1974)
1 SCC 345; 1974 SCC (Tax) 114; 1973 SCC OnLine SC

41.] , the court held that India’s law of evidence is
modelled on the rules of evidence that prevailed in
English law. Courts in India and England have
consistently refused to exclude relevant evidence
merely because it was obtained by illegal search or
seizure. In any event, we do not pursue this line any
further because, in this case, the impugned show-cause
notice was not even based on any audit by CERA/CAG.”

8.12 In addition to the reasons assigned hereinabove, and for

the further reasons that follow, we find ourselves unable to

agree with the conclusion reached by the learned Single Judge.

8.13 Sections 67 and 74 of the CGST Act operate in distinct

spheres. Section 74 is not dependent upon, nor is it controlled

by, the outcome of proceedings under Section 67. Even

assuming that there is any infirmity in the action taken under

Section 67, the same would not, by itself, denude the proper

officer of the power to initiate proceedings under Section 74,

– 25 –

WA No. 101 of 2025

provided the material gathered discloses circumstances

contemplated therein.

8.14 Neither Section 67 nor Section 74 of the CGST Act

contains any express or implied prohibition against the use of

material collected during search and seizure for the purpose of

initiating adjudicatory proceedings under Section 74. The

learned Single Judge, in our considered view, has expanded the

scope of Section 74 by reading into it a requirement that the

material forming the basis of the notice must necessarily

emanate from a validly initiated action. Such a requirement is

not borne out from the plain language of the provision.

8.15. The material available to the proper officer may flow

from multiple sources. Such sources may be identifiable or

otherwise; what is material for the purpose of Section 74 is the

relevancy of the material forming the foundation for initiation of

proceedings. This is precisely the principle enunciated by the

Hon’ble Supreme Court in Pooran Mal (supra). Though the

said decision was rendered while interpreting Section 132 of

the Income-tax Act, 1961, the underlying principle regarding

admissibility and use of material would equally apply to

proceedings under Section 74 of the CGST Act.

– 26 –

WA No. 101 of 2025

9. The learned Single Judge proceeded to hold that the

action under Section 67 of the CGST Act was not carried out by

a “proper officer” within the meaning of the Act. It was

observed that if inspection, search and seizure are conducted

by an officer other than the proper officer, the same would be

invalid in law.

9.1 On that premise, it was held that the inspection, search

and seizure carried out by appellant No.2 were void ab initio.

Consequently, it was further held that a notice issued under

Section 74 of the CGST Act, founded upon such search and

seizure and the statements recorded therein could not be

sustained, as there would be no valid basis for issuance of the

show cause notice. The learned Single Judge also observed that

the notice under Section 74 was issued on “borrowed

satisfaction.”

9.2 Accordingly, directions were issued to refund the sum of

₹50.00 lakhs deposited by the respondent-assessee during the

course of investigation and to return the seized documents and

other goods. However, liberty was reserved to the competent

authority to initiate appropriate proceedings against the

respondent-assessee in accordance with law.

– 27 –

WA No. 101 of 2025

10. In the statement of objections filed by the appellant-

authorities in the writ petition, it is stated that intelligence was

gathered regarding the clandestine removal of goods, namely

areca nuts, without payment of appropriate duty. A number of

traders were allegedly involved in such transactions, and the

respondent is stated to be the transporter of the said goods. It

is further averred that such transactions by various dealers

were detected at different places falling within the jurisdiction

of different GST Commissionerates. Search and seizure

operations were conducted on multiple business entities,

including dealers and transport companies.

10.1 Insofar as the respondent is concerned, it is stated that

the respondent has business branches at various places beyond

the jurisdiction of the Northwest Commissionerate, Bengaluru.

10.2 The statement of objections indicates that the residential

premises of Praveen Suvarna and the business premises of the

respondent were searched. Praveen Suvarna is stated to be the

proprietor of the respondent concern. The said search was

conducted pursuant to authorisation issued by the competent

authority under Section 67 of the Act. It is further stated that

the Mangalore Commissionerate was examining other entities

– 28 –

WA No. 101 of 2025

within its jurisdiction and, in that connection, summons were

issued to the respondent and statements were recorded. The

materials so collected, being relevant for determination of the

respondent’s liability, were thereafter transferred to the proper

officer at Bengaluru.

10.3 The aforesaid aspects are not in dispute. In order to

ascertain the correctness of the above factual position, we have

perused the show-cause notice placed on record.

10.4 Even prior to the issuance of the show-cause notice,

various correspondences between the Bengaluru

Commissionerate and the Mangaluru Commissionerate are

available on record. The said correspondences indicate that

investigation into a fake invoice racket involving multiple

entities, spread across jurisdictions, was undertaken, and the

materials pertaining to entities falling within other

Commissionerates were forwarded by the Mangaluru

Commissionerate to the respective authorities.

10.5 We also find that summons were issued under Section 70

of the GST Act requiring Sri Praveen Suvarna to appear before

the Superintendent of Central Excise, Mangaluru.

– 29 –

WA No. 101 of 2025

10.6 A summons under Section 70 of the Act may be issued to

any person whose attendance is considered necessary to give

evidence or to produce documents or any other material in the

course of any enquiry. The scope of Section 70 cannot be

construed in a restricted manner so as to confine the issuance

of summons only to matters directly connected with the

business activities of the respondent in the present case.

10.7 In the instant case, the respondent is stated to have

multiple places of business and dealings with various dealers

across different jurisdictions. The proper officers having

jurisdiction over such dealers or transactions are, therefore,

empowered to summon the respondent in connection with

enquiries within their respective territorial limits. In the course

of such enquiry, material or information may be gathered either

in relation to those entities or in relation to any alleged evasion

attributable to the person so summoned.

10.8 If the proper officer issuing the summons does not have

jurisdiction to initiate adjudicatory proceedings against the

respondent, no fault can be found with such officer in

transferring the material collected during the enquiry to the

– 30 –

WA No. 101 of 2025

competent proper officer for initiation of proceedings and

adjudication in accordance with law.

10.9 The show-cause notice indicates that search operations

were conducted on multiple entities, including various business

establishments as well as the residential and business premises

of the respondent, and mahazars were drawn in that regard.

The materials relating to the respondent were gathered in the

course of investigation conducted in respect of other business

entities.

10.10 All such materials were thereafter forwarded to the

proper officer having jurisdiction over the respondent, who has

formed the basis for issuance of the show-cause notice. We find

that the notice makes reference to mahazars drawn by the

Mangaluru Commissionerate in respect of other persons and

seeks to demonstrate the involvement or facilitation allegedly

extended by the respondent in the issuance of fake invoices

and in the modification of e-way bills, so as to enable repeated

use of the same invoice and e-way bill for multiple

transportations.

10.11 The show-cause notice, running into 253 pages,

indicates the involvement of multiple entities in the alleged fake

– 31 –

WA No. 101 of 2025

invoicing racket. Specific instances of fake e-way bills are also

referred to therein, pointing towards the role attributed to the

respondent. The show-cause notice sets out specific instances

of alleged fake invoices and furnishes details thereof, which

encompass as many as 1,964 e-way bills involving the

respondent. It is stated that these particulars were unearthed

during investigations conducted not only in the case of the

respondent but also in proceedings relating to other entities.

10.12 The notice further records that the respondent is

stated to have admitted to clandestine supply of goods through

the use of fake invoices and e-way bills. The materials so relied

upon have been furnished to the noticee, namely the

respondent. The entire material forming the basis of the show-

cause notice has been gathered through search and seizure

operations and by recording statements during the course of

such proceedings. The material collected is prima facie

incriminating and is stated to be crucial for adjudication of the

alleged fake invoicing racket involving evasion of duty/tax.

10.13 We also note that, during the course of

investigation, a sum of Rs.50 lakhs has been directed to be

deposited to safeguard the probable tax liability that may arise

– 32 –

WA No. 101 of 2025

upon adjudication of the show-cause notice. It is further

noticed that, on account of the alleged non-cooperation of the

respondent, the bank accounts of the respondent were

provisionally attached under Section 83 of the Act. But for the

search and seizure operations conducted in the course of

investigation, the foundational material forming the basis of the

show-cause notice would not have been unearthed.

10.14 The learned Single Judge directed return of the

seized documents and other goods on the ground that the

same had been collected by an officer lacking jurisdiction.

However, the search and seizure operations conducted by the

competent authority under Section 67 of the Act at places

falling within the jurisdiction of the Bengaluru Commissionerate

were not brought to the notice of the learned Single Judge.

10.15 We find it difficult to approve the finding of the

learned Single Judge directing return of the seized material. No

doubt, liberty has been granted to the authorities to initiate

fresh proceedings. However, in our considered view, such

liberty would be illusory in the absence of the very seized

material which constitutes the foundational basis for issuance of

the show-cause notice.

– 33 –

WA No. 101 of 2025

10.16 Once the crucial and incriminating materials are

ordered to be returned, as directed by the learned Single

Judge, it cannot reasonably be expected that the proper officer

would be in a position to issue a show-cause notice devoid of

supporting material. As noticed hereinabove, a show-cause

notice must necessarily be founded on tangible and

documentary evidence, particularly when serious allegations of

evasion are made and extended limitation is sought to be

invoked.

10.17 As observed earlier in this order, at this stage what

is required to be examined is not the source or legality of

collection of the material for the purpose of assessing its

evidentiary value, but its relevancy to the proceedings. The

Hon’ble Supreme Court in Pooran Mal (supra) has held that

evidence obtained, even if irregularly, is not liable to be

excluded so long as it is relevant to the matter in issue.

10.18 The order of the learned Single Judge proceeds on

the premise that the search and seizure operations were

conducted only outside the jurisdiction of the Bengaluru

Commissionerate, namely by the Mangaluru Commissionerate.

However, the material on record, which remains undisputed,

– 34 –

WA No. 101 of 2025

indicates that the business premises as well as the residential

premises at Chitradurga, falling within the jurisdiction of the

competent authority, were also searched, and

documents/materials were recovered and seized therefrom.

These materials form part of the foundation for issuance of the

show-cause notice.

10.19 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.

10.20 It is precisely for this reason that the statutory

scheme mandates supply of all materials forming the basis of

the show-cause notice to the dealer or assessee, so as to afford

an effective opportunity of rebuttal in compliance with

principles of natural justice.

– 35 –

WA No. 101 of 2025

11. Learned counsel for the respondent has relied upon a

bunch of 35 judgments to advance two prepositions: Firstly,

the principles governing the validity of a search and the

consequences thereof; and secondly, the requirements for

constituting a valid search.

11.1 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.

12. After the judgment was reserved and before

pronouncement, this Court noticed the judgment of the Hon’ble

Supreme Court in Dr. Naresh Kumar Garg vs. State of

Haryana and Others [2026 SCC Online SC 295]. The

Hon’ble Supreme Court, reiterating the principles laid down in

– 36 –

WA No. 101 of 2025

Pooran Mal (supra), has held that 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.

Conclusions:

13. In light of the observations made hereinabove, we

conclude the following:

(i) Proceedings under Section 74 of the CGST Act

constitute an independent adjudicatory mechanism and

are not contingent upon action taken under Section 67 of

the CGST Act.

(ii) The legality or otherwise of the search and seizure

proceedings does not, by itself, render the material

gathered during such proceedings inadmissible for the

purpose of initiating proceedings under Section 74, so

long as such material is relevant to the issues involved.

– 37 –

WA No. 101 of 2025

(iii) There is no prohibition under the CGST Act

preventing the proper officer from relying upon material

gathered during investigations conducted by officers of

another Commissionerate.

(iv) Once all materials forming the basis of the show

cause notice are furnished to the respondent-assessee, it

is open to the respondent to raise all permissible

contentions regarding relevancy of such material in the

course of adjudication under Section 74 of the CGST Act.

(v) Interference by the writ Court with the show cause

notice at the threshold, when the respondent has an

effective opportunity to submit a reply and participate in

the adjudicatory process, is premature.

14. In light of the above, the following;


                                 Order

      (i)     Writ appeal is allowed.

      (ii)    The impugned order dated order dated 28.11.2024

in WP No.18305/2023 (T-RES) is set aside.

(iii) The WP No.18305/2023 is dismissed.

(iv) The respondent-Assessee is granted 15 days time

from today to file reply to the show cause notice.

– 38 –

WA No. 101 of 2025

(v) The appellants-Revenue are at liberty to proceed

further with the show cause notice, in accordance

with law.

(vi) All contentions of both parties insofar as merits are

kept open.

(vii) No orders as to costs.

Sd/-

(S.G.PANDIT)
JUDGE

Sd/-

(K. V. ARAVIND)
JUDGE

MV/DDU

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