Gujarat High Court
Rhc Global Exports Private ... vs Union Of India on 6 June, 2023
Bench: Ashutosh Shastri
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5978 of 2023
With
R/SPECIAL CIVIL APPLICATION NO. 5979 of 2023
With
R/SPECIAL CIVIL APPLICATION NO. 5980 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI Sd/-
and
HONOURABLE MR. JUSTICE J. C. DOSHI Sd/-
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1 Whether Reporters of Local Papers may be allowed YES
to see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
RHC GLOBAL EXPORTS PRIVATE LIMITED
Versus
UNION OF INDIA
==========================================================
Appearance:
MR SAURABH N SOPARKAR, SENIOR ADVOCATE with MR
ABHISHEKKUMAR C MALVI(9941) for the Petitioner(s) No. 1,2,3
MR MAULIK VAKHARIYA(6628) for the Petitioner(s) No. 1,2,3
MS. MANISHA LAVKUKAR SHAH, GOVERNMENT PLEADER with MR
CHINTAN DAVE, AGP for Respondent State Authority
NOTICE SERVED BY DS for the Respondent(s) No. 1,3,4,5,6
==========================================================
CORAM:HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI
and
HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 06/06/2023
(PER : HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI)
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
1. By way of these petitions, respective petitioners have
assailed basically the action of respondent Nos.4, 5 and 6 who
initiated proceedings under Section 67 read with Section 70(1)
of GGST Act, 2017 and CGST Act, 2017 and sought
consequential reliefs. Since common question of law and facts
have arisen, learned advocates have requested to deal with
petitions conjointly, as a result of this, Special Civil Application
No.5978 of 2023 is treated as a lead matter since the issues are
identical.
2. In Special Civil Application No.5978 of 2023, petitioner
has submitted that petitioner is a company incorporated on
24.1.2019 and has its head office and special economic come
operations at the address shown in the cause title of petition.
Petitioner Nos.2 and 3 are Directors of the company since they
are substantially interested and material affected in the conduct
and business of petitioner company and as such has submitted
this lead petition.
3. According to petitioners, petitioner company is a well-
established SEZ Unit in SURSEZ administered under the control
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
and directions of respondent No.3, i.e. Development
Commissioner, SEZ, Surat. Petitioner company was granted
approval to operate SEZ unit in SURSEZ by respondent No.3
vide LOP No.SSEZ/II/03/2019-20/140 on 1.5.2019. Petitioner is
in specific area within SURSEZ which is located for Gem and
Jewelry activity and Unit of the petitioner is to be treated as
foreign territory for its business operations and as such they are
'Tax Neutral' or 'Revenue Neutral' entity with respect to levy
and collection of custom duties, GST and other indirect taxes. In
respect of this business, petitioner has obtained Registration-
cum Membership Certificate from Export Promotion Council for
EOUS & SEZ Unit as well as Registration cum-Membership
Certificate from Gem & Jewelry Export Council, Surat in the
context of Clause (xvi) of LOP. Further, in compliance of Clause
(xvii) of LOP, petitioner also obtained GSTIN certificate bearing
No.24AAJCR3808D1ZM and as such petitioner is a tax neutral in
terms of GST registration. According to petitioner, even GST
registration of company is indicating tax entity as 'SEZ Unit'
and is covered under first proviso to Rule 8 of the Central Goods
and Services Tax Rules, 2017 which indicates as "PROVIDED
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
that a person having a unit(s) in a Special Economic Zone or
being a Special Economic Zone Developer shall make a separate
application for registration as a business vertical distinct from
his other units located outside the Special Economic Zone". For
the purpose of facilitating measure for the vendors to the
petitioner's SURSEZ unit, IGST registration number is also
taken since they supply goods and services to the petitioner in
SURSEZ and for facilitating importers from DTA area for goods/
services taken out from petitioner in SURSEZ to enable
importers to identify petitioner's unit. It is the case of petitioner
that in both instances, incidence of IGST is not borne by the
petitioner. So far as petitioner's unit is concerned, same is 'Zero
Rated Supply' and as such a tax neutral / revenue neutral and
petitioner is filing nil IGST returns and only declares value of
imports and Exports from its SEZ unit at SURSEZ. Petitioner
also additionally obtained a Legal Entity Identifier India Limited
Certificate and this LEI provides security for international
transactions, shortcuts KYC processes and boosts transparency
throughout the global financial system. LEI is also a valuable
tool for validating identity and gives the petitioner an instant
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
credibility boost. Petitioner contended that this LEI is a sort of a
legal identity to transact globally and same is granted only to
credible and fully KYC and PMLA compliant entities.
4. It is the case of petitioner that some ostensible oral
communication from an officer of Enforcement Directorate,
petitioner company was subjected to search and seizure
operation and premises of the petitioner company were sealed
vide a sealing memo dated 3.3.2023 by respondent No.4 at
around 3.00 p.m. Sealing memo according to petitioner does
not reflect any due process followed by respondent No.4 and
same is carried out without arriving at any satisfaction as
required under Section 67(1) of GST Act. Premises of petitioner
were sealed as all employees were before the office of DRI Surat
for recording of statements and as such respondent No.4 has
sealed business premises, as indicated above. Simultaneously,
respondent No.4 issued summons under Section 70 of CGST/
GST Act, 2017 and directed the Directors of petitioner company
to appear before respondent No.4 for recording of statements
and for production of books of accounts on 4.3.2023. On very
same day, i.e. on 3.3.2023, under some cause of action, another
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
officer of State Tax, i.e. respondent No.5 subjected the
residential premises of petitioner for search and seizure
operation and sealed the said residential premise on 3.3.2023.
According to petitioner, said search operations were carried out
under the provisions of Section 67 of the GST Act and again
without arriving at any satisfaction, as required under said
provisions. Petitioner No.1 was not available at his residence as
he was staying with his relatives and as such respondent No.5
has sealed the residential premises and simultaneously,
respondent No.4 issued summons on 3.3.2023 to appear on
10.3.2023 and pasted said summons on the wall of residential
premise. Yet another agency, i.e. respondent No.6, also took up
a parallel proceedings under the said cause of action initiated
by respondent No.4 and also searched the petitioner's business
premises in Mumbai with Panchas (witnesses) and seized books
of accounts under Form GST INS-2 and passed an order of
seizure on 4.3.2023 for the receipt for seized documents. Re
No.6 after said search proceedings had also issued various
summons under Section 70 of GST Act to the directors of the
company and employees of the company respectively on
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
3.3.2023 as well as on 4.3.2023 for the statement or
proceedings and this according to petitioners was merely a
roving inquiry, tantamounts to be a colourable exercise of power
and as such according to petitioner, is inconsistent, perverse
and ex-facie illegal and respondent Nos.4 to 6 are acting
without authority of law and went on harassing the petitioner
which has constrained the petitioners to approach this Court by
way of present petition under Article 226 of the Constitution of
India and reliefs which are sought in the petition are set out
hereunder:-
A. This Hon'ble Court may be pleased to issue the writ of
mandamus or any other appropriate writ, order or direction in
the nature of mandamus, quashing and setting aside the
proceedings Initiated by Respondent no. 4.0. Assistant
Commissioner of State Tax (4), Surat, Respondent No.5/1.0.
Assistant Commissioner of State Tax (1), Ahmedabad and 6 l.e.
Assistant Commissioner of State Tax, Mumbai against the
Petitioners u/s.67 read with section 70(1) of the GGST Act, 2017
and CGST Act 2017 along with the consequential proceeding.
and/or Orders passed therein, as the said proceedings are
absolutely illegal, unlawful, contrary the provisions of the Act,
abuse of process of law, against the facts and evidence on record
with consequential relief;
B. Pending the admission, hearing and final disposal of this
petition, this Hon'ble Court may be pleased to stay the impugned
proceedings initiated by Respondent no. 4 i.e. Assistant
Commissioner of State Tax (4), Surat, Respondent No.5 i.e.
Assistant Commissioner of State Tax (1), Ahmedabad and 6 i.e.
Assistant Commissioner of State Tax, Mumbai against the
Petitioners and be further pleased to direct Respondent no. 4 i.e.
Assistant Commissioner of State Tax (4), Surat, Respondent No.5
i.e. Assistant Commissioner of State Tax (1), Ahmedabad and 6
i.e. Assistant Commissioner of State Tax, Mumbai not to take any
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
coercive steps against Petitioners pursuant to impugned inquiry
proceedings;
C. An ex-parte ad-interim relief in terms of prayer "B" above may
kindly be granted; and
D. Grant such other and further relief/s as may be deemed fit and
proper in the interest of justice.
5. Insofar as Special Civil Application No.5979 of 2023 is
concerned, almost similar is the circumstance stated by
petitioner and aggrieved by the action of respondent Nos.4 to 6
have contended that entire proceedings initiated by respondent
is without authority of law and thereby sought a relief for
quashing and setting aside the proceedings initiated by
respondent Nos.4 and 5 against the petitioners under Section
67 and 70(1) of GGST Act, 2017 as well as CGST Act, 2017 and
sought consequential reliefs.
6. Same is the case with Special Civil Application No.5980 of
2023, wherein also, aggrieved by an action of respondent Nos. 4
and 5, a request is made to set aside the proceedings which are
initiated by an authority against the petitioner on the similar
line, but one additional prayer in this petition is to the effect
that action initiated under Section 73 of GGST Act as well as
CGST Act, 2017 also may be quashed and set aside. Since
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
mainly lead matter is argued by counsel appearing for
petitioners as well as countered by learned advocates, as per
the request of learned advocates, facts and contentions taken in
the lead matter are treated as contentions raised in other two
petitions of present group as not separately argued and as such
the Court has heard learned senior counsel Mr. S.N. Soparkar
assisted by Mr. Abhishekkumar C. Malvi for petitioners and
learned Government Pleader Mrs. Manisha L. Shah, assisted by
learned Assistant Government Pleader Mr. Chintan Dave for the
State- respondents, and since long drawn hearing had taken
place and on 5.5.2023 being a last half working day of ensuing
vacation, order is kept reserved and since pleadings have been
completed, these three petitions have been requested to be
dealt with as limited issue with regard to lake of authority of
respondent Nos.4,5 and 6 is tried to be agitated.
7. Learned senior advocate Mr. Saurabh Soparkar appearing
for petitioners has submitted that since petitioner's Unit is
within the area earmarked and is SURSEZ unit which is a
distinct foreign territory and as such, are tax neutral/ revenue
neutral area and hence outside the ambit of provision of CGST
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
Act, 2017 or SGST Act, 2017, particularly from Chapter-IX, X,
XII, XIII, XIV, XV, XVI and XIX of CGST Act and accordingly,
action initiated by respondent Nos.4, 5 and 6 is beyond
jurisdiction, hence relief deserves to be granted. The main
substantial issue which has been raised by learned senior
counsel is that by virtue of provisions contained in SEZ Act,
State authorities are not empowered to initiate any action since
every SEZ unit is tax neutral zone. According to Mr. Soparkar,
supplies to the petitioners SURSEZ Unit are considered as Zero
Rated Supply under the provisions of IGST Act, 2017 and as
such they are not subjected to provisions relating to levy,
collection, evasion or otherwise of GST in the unit. It has been
submitted that in both cases, whether it is an input supply to
SEZ unit or is an outward supply by SEZ unit, SEZ unit does not
suffer any tax incidence on supply either way. Insofar as
incidence of GST Laws are concerned, petitioner's unit will be
governed under Integrated Goods and Services Tax (IGST) as it
is not to be considered as a part of India. Preamble to IGST Act
itself is making it clear that petitioners are not subjected to the
domain of any of the respondent authorities, i.e. respondent
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
Nos.4, 5 and 6 and as such, even if proceedings are initiated by
respondent Nos.4, 5 and 6, assumed to be sanctioned under
Chapter XVI by way of any coercive proceedings, same will not
have any sanction at all and as such since entire proceedings
initiated by respondents against petitioners being without
authority, or jurisdiction, there is hardly any reason to allow
said proceedings to be concluded. By referring to certain
provisions of SEZ Act, particularly 2nd Proviso of Section 22
read with Clause (2) of Section 21 of SEZ Act 2005 which
authorizes only ADG of DRI or ADG of DGCEI as Authorized
Officers for the purposes of enforcement of provisions of the
Customs Act, Central Excise Act and Finance Act and for no
other Statute. Even offences under CGST Act, 2017, SGST Act,
2017, UTGST, 2017 or even IGST Act, 2017 are not notified
offices under the provisions of Section 21(1) of SEZ Act and as
such there is a serious act on the part of respondent authorities
without jurisdiction. Further, entire proceedings launched
against petitioners are devoid of any 'due process' doctrine and
for that purpose, learned senior counsel Mr. Soparkar has
drawn attention of the Court to Section 67 of the Act, which
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
indicates sufficient safeguards before launching proceedings
against any person and therefore, concept of 'due process'
which has been clearly stipulated in Section 67, activities
undertaken by respondent Nos.4 to 6 are nothing but mere
fishing and roving inquiry and that inquiry or process being
without jurisdiction, relief prayed for deserves to be granted.
8. Learned senior counsel Mr. Soparkar has also pointed out
clear hardship which has been meted out to the petitioners on
account of such unauthorized action and then by referring to
notifications, it has been tried to be analyzed that authorities
are acting beyond the scope of their jurisdiction. It has been
contended that by referring to page 51 Annexure-K, page- 52
Annexure-L and page-53 Annexure-M for indicating that single
enforcement officer or agency specified for notified offences
under Customs, Central Excise and Service Tax and thereby
authorization is to be extended by Central Government. For this
purpose, an attention is drawn to page-51 and then indicated
that by virtue of sub-section (1) of Section 21 of SEZ Act, 2005,
Central Government notifies offences contained in the Sections
which are mentioned in a tabular form in respect of Customs
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
Act, 1961, Central Excise Act, 1944 and Finance Act, 1994 and
by virtue of sub-section (2) of Section 21 and second proviso to
Section 22 of SEZ Act, 2005, Central Government has
authorised Additional Director Genera, Directorate of Revenue
Intelligence for offences under Customs Act and Additional
Director General, Directorate General of Central Excise
Intelligence for offences under Central Excise Act, 1944 and
Finance Act, 1994 to be an enforcement officer in respect of any
notified offence or offences committed or likely to be committed
in a Special Economic Zone and by referring to these
notifications, which are at page 52 and 53 of petition
compilation, a contention is reiterated that action of respondent
Nos.4, 5 and 6 is beyond the scope of their authority, as such
same is not sustainable in the eye of law.
9. Yet another submission is made that there are guidelines
also issued for investigating/ visiting or to inspect or search or
seizure SEZ and said guidelines which are framed is indicated in
a communication dated 1.3.2021 at Annexure-N and even that
has not been observed by an authority while taking or dealing
with present petitioners and as such, when entire exercise is
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
undertaken without the authority of law, relief prayed for
deserves to be granted in the interest of justice. No other
submissions have been made.
10. As against this, learned Government Pleader Mrs. Manisha
Shah appearing on behalf of respondent Nos.4,5 and 6 has
pointed out detailed circumstance which has constrained the
authority to initiate action against petitioners and relevant
narration has been made with regard to factual background of
petitioners from the affidavit-in-reply and a contention is raised
that this is not a fit case to exercise extraordinary equitable
jurisdiction and has submitted that authority has acted well
within the scope of authority. To substantiate this, learned
Government Pleader Mrs. Shah has drawn attention to relevant
provisions of SEZ Act, 2005 as well as GGST Act, 2017 and also
notifications issued by the Central Government and thereby
submitted that it is absolutely within the domain of respondents
authority to proceed against petitioners when such shocking
factual background is that of the present petitioners. Mrs. Shah
has contended that a bare reading of provisions contained under
Section 22 of SEZ Act, 2005 would clearly indicate that any
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
officer or agency who is authorized by Central Government may
carry out search and seizure, investigation or inspection in any
Special Economic Zone or unit as the case may be, without even
prior intimation or approval of Development officer and to
further strengthen her submission, Mrs. Shah has also drawn
attention to Section 6 of GGST Act which also deals with
authorization of officers of Central Tax as proper officer in
certain circumstances and thereby by referring to two
provisions, namely Section 22 of SEZ Act read with Section 6 of
GGST Act, a contention is raised that respondent authorities are
empowered to carry out proceedings in SEZ since Central
Government has already authorized the officers vide notification
dated 5.8.2016 since by virtue of Section 2 of GGST Act, an
order passed under CGST Act shall also be construed to have
been passed under GGST Act and as such it is ill-founded for the
petitioners to contend that there is no jurisdiction with
respondent authorities. Apart from that, circular dated 5.7.2017
has also been pointed out to indicate that functions of proper
officers which are defined under CGST Act and has submitted
that Section 6(2) of GGST Act is with regard to cross-
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
empowerment and once Central Govt has notified functions of
proper officers by virtue of circular dated 5.7.2017, same will
also be applicable for officers under GGST Act and there is no
reason for petitioners to contend that action initiated is beyond
the scope of authority. In fact, according learned Government
Pleader Mrs. Shah, petitioners have conveniently loss sight of
the fact that provisions contained under Section 1 of the
Integrated Goods and Services Tax Act, 2017, i.e. IGST Act, said
provision indicates that IGST Act is applicable to whole of India
and Section 7 of IGST Act determines inter-state supply. Sub-
section (5) of Section 7 of the Act indicates that supply of goods
or services or both to or by the SEZ unit shall be treated to be a
supply of goods or services or both in the course of inter-state
trade or both and as such, petitioners are under erroneous
belief that once business of petitioners is carried out through
SEZ, respondents cannot initiate any proceedings. If this
meaning which is tried to be canvassed by petitioners is
introduced, then very purpose of the Act or provision would be
defeated and same would give license to SEZ unit or to keep
themselves away from the rigors of the provisions. Hence, in the
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
absence of any apparent inconsistency between SEZ Act, 2005
and GST Act, 2017, no case is made out by petitioners and here
in the instant case, before initiating action, Development
Commissioner, SEZ had been duly intimated before search and
seizure by departmental officers while carrying out process
under Section 67 of the GGST Act, 2017.
11. Learned Government Pleader Mrs. Shah has then invited
attention of the Court to circular issued by Assistant
Commissioner of Sales Tax Unit-62, Surat dated 3.3.2023 and
has referred to Section 72 of the Act and has indicated that this
petitioner's unit is under jurisdiction of Development
Commissioner and hence requested to cooperate in the
proceedings under Section 67(2) of the aforesaid petitioner's
dealers/ suppliers. By further drawing attention to Article 246A
of the Constitution of India, which is prescribing special
provision with respect to goods and services tax and then has
contended that enforcement agencies are notified for exercising
power conferred under sub-section (1) of Section 21 of SEZ Act,
2005 by drawing attention to page 51 of the petition compilation
and has also indicated page 52 and in connection with that, a
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
circular dated 5.7.2017 at page 81 is also brought to the notice
of this Court to indicate that respondent authorities, precisely
respondent Nos.4, 5 and 6, are acting well within the scope of
their authority. It has been submitted that if interpretation as
canvassed by petitioners to the effect that Special Economic
Zone shall be deemed to be a territory outside the custom
territory of India and to be considered an area outside India,
such interpretation would lead to a situation where specific
economic zone would not be subjected to any laws whatsoever
and object of SEZ Act 2005 would be frustrated and therefore
there is hardly any justification for petitioner to contend that
there is no scope with respondent Nos.4, 5 and 6 to proceed
ahead against petitioners in any form.
12. Additionally, learned Government Pleader Mrs. Shah has
also submitted that apart from this hyper technicality of lack of
authority which is not sustainable, even facts on hand are
revealing certain shocking figures of the irregularities which
have taken place at the behest of petitioners and for that
purpose, paragraph 7 of the affidavit-in-reply is specifically
brought to the notice of the Court as to in what manner,
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
petitioners have tried to indulge in activity and just by
contending hyper-technicality tried to shield such activity which
is impermissible and as such apart from the point of jurisdiction
which is otherwise not available to the petitioners, facts are of
such nature, which require the petitioners rather to desist from
invoking extraordinary equitable jurisdiction of this Court,
hence contended that petition being merit-less deserves to be
dismissed with costs.
13. In rejoinder, learned senior advocate Mr. Soparkar has
reiterated his submissions and then denied the stand of
respondent authorities and has objected to the words which are
used in affidavit that transaction is bogus and fictitious and
petitioner is engaged in any wrong doing. These words which
are used are stoutly objected by learned counsel for petitioners
and it has been submitted that if authorities have no
jurisdiction, they cannot apply any coercive method against
petitioners. In fact, according to Mr. Soparkar, as on the date of
rejoinder, offences under GST Act, i.e. CGST Act, IGST Act,
GGST Act are notified offences as per Section 21(1) of the Act.
Hence, since entire exercise is undertaken without application
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of mind and is a premeditated act, which since not recognized
under law, deserves to be quashed, hence requested to grant
the reliefs as prayed for in the petition.
14. At this stage, learned Government Pleader Mrs. Shah has
pressed into service three decisions for the purpose of
strengthening her stand:-
(1) Decision in the case of Essar Steel Limited v. Union of
India reported in 2009 (0) AIJEL-HC-222966;
(2) Decision in the case of Union of India v. Oswal
Agricomm Pvt. Ltd. reported in 2010 SCC OnLine Guj
6618;
(3) Decision in the case of Indo International Tobacco Ltd.
v. Vivek Prasad and others reported in 2022 SCC
OnLine Del 90.
15. Having heard learned advocates appearing for the parties
and having gone through the provisions coupled with factual
details which are provided, we may indicate that in which
background of facts, Court has to examine point of jurisdiction
as canvassed by petitioners and as such we deem it proper to
quote hereunder uncontroverted factual details provided in the
affidavit-in-reply by learned Government Pleader, precisely
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
paragraph 7 thereof, which is mentioned hereunder:-
7. The attention of this Hon'ble Court is now drawn to certain
factual aspects that compelled the respondent authorities to initiate
search proceedings in case of the petitioner.
7.1. Analytics and Intel Inputs: State Tax Department of
Gujarat is extensively using system based analysis and GST
Analytics and Intelligence Network (GAIN) and various such
technological tools through which actionable inputs of tax
evaders are generated. Such analysis and discreet inquiry
revealed that the parties namely (Rudraksh Gems and Jewels
(GSTN: 24FOVPR3628H1ZB), Ashtmangal Gems and Jewels
Having GSTN: 24AFHPJ0991H1ZH) were prima facie
fictitious and non-existent. It appears that prima facie that
further investigation revealed that these parties were
showing majority of its outward supply (sales) of goods to
one entity namely SAGAR EMPIRE JEWELS PRIVATE
LIMITED is engaged into the business of Diamond. This
inquiry lead to a group of 3 group companies
(petitioners).These three companies are namely Sagar
Diamond limited, RHC Global Exports limited and Sagar
Empire Jewels Private Limited. Detailed analysis of all the
purchases of the group of companies revealed that, they have
shown voluminous inward supply (purchases) transactions
from entities most of which are fictitious.
7.2. It appears that prima facie of the Quantum of bogus
transactions and Input tax credit involved:
Table: 1
Bogus purchases shown by Group companies
Sr. Company Suspected Bogus Suspected
No. Purchase (Rs.) Bogus ITC (Rs.)
1 (SAGAR DIAMONDS 9,14,05,377/-
LIMITED) 3534,64,12,369/-
27AAWCS0068B1Z8
2 (RHCGLOBAL 1,86,66,818/-
EXPORTS PRIVATE
736,63,03,058/-
LIMITED )
27AAJCR3808D1ZG
3 (SAGAREMPIRE 6,61,67,749/-
JEWELS PRIVATE
447,73,51,023/-
LIMITED)
27ABFCS6904A1ZK
Total 4716,98,05,667/- 17,62,39,943/-
Table: 2
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
Details of business verticals of the group companies
(Petitioners)
Sr. Company DTA Unit SEZ Unit
No.
1 SAGAR 27AAWCS0068B1 24AAWCS0068B
DIAMONDS Z8 903, Embassy 1ZEPLOT NO 266-
LIMITED Chamber, B, SEZ DIAMOND
MUMBAI, PARK, SACHIN,
NARIMAN POINT, SURAT, Surat,
400021 Gujarat, 394230
2 RHCGLOBAL 27AAJCR3808D1 24AAJCR3808D1
EXPORTS ZG604, THE ZM(i)UNIT NO.
PRIVATE EMBASSY 146 ON PLOT NO.
LIMITED CENTER 255, SURAT
PREMISES CHS SPECIAL
LTD, MUMBAI, ECONOMIC
NARIMAN ZONE, SACHIN,
POINT,400021 SACHIN, Surat,
Gujarat, 394230
(ii) PLOT NO 278-
B, SURAT
SPECIAL
ECONOMIC
ZONE, SACHIN,
SURAT, Surat,
Gujarat, 394230
3 SAGAREMPIRE 27ABFCS6904A1 24ABFCS6904A2
JEWELS ZK903,Embassy ZP
PRIVATE Chamber,Mumbai| PLOT NO-219
LIMITED Nariman AND 220 BLOCK
Point,Jamnalala 340,341/P, SEZ
Bajaj Marg,400021 Diamond Park,
Sachin, Surat,
Surat, Gujarat,
394230
7.3. It appears that prima facie based on the above state analytics
and intel inputs and system based verification, concrete
reasons to believe were arrived at and proposal for search
u/s 67 (2) was submitted. Looking to the gravity of the
matter, a massive multi state operation including Search and
seizure u/s section 67 of the CGST and SGST Act and
physical verification u/s 25 and also proceedings u/s 70 were
planned and executed with prescribed permission of
competent Authority across98 entities and 138 locations
including Sagar Diamond limited, RHC Global Exports
limited, Sagar Empire Jewels Private Limited on3rd of
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
March, 2023.Since the whole scam was very huge and well
planned, and a part of it was executed from Maharashtra,
the State GST authorities of Maharashtra were
intimated and were coordinated with. Thereby parallel
searches at the business and residential premises of Sagar
Diamond limited, RHC Global Exports limited, Sagar Empire
Jewels Private Limited were organised in Mumbai and the
search operation was then jointly executed.
7.3.1. It appears that prima facie Total 172 entities
were identified as a part of this operation
out of which 98 entities were found to be
registered in Gujarat state while rest 74
entities were found to be registered outside
Gujarat state. Spot verifications u/s 25 and
proceedings summons u/s 70 were conducted at
the registered places of business of above
mentioned 98 entities registered in Gujarat
which revealed that 74 firms of them are
fictitious i.e. Either these firms are found
non-existent at its registered business place
or owners are not traceable or firms are in
the name of the persons of no means and
owners are not aware of what business
activities are going on in the firms which
are registered in their names. Significantly, it
was also verified that Sagar Diamond limited,
RHC Global Exports limited, Sagar Empire
Jewels Private Limited are the ultimate
beneficiaries of input tax credit passed on by
these bogus firms.
7.3.3. Bogus purchases from Gujarat based
fictitious firms shown by the petitioners and
confirmed to be bogus (non-existent)by Spot
Verifications conducted u/s 25:
Sr. Company Suspected Suspected
No Bogus Bogus ITC
Purchase Availed
1 (SAGAR 5,42,38,97,991 1,67,85,606
DIAMONDS
LIMITED)
27AAWCS006
8B1Z8
2 (RHCGLOBAL 5,23,68,12,636 1,30,59,383,
EXPORTS
PRIVATE
LIMITED )
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
27AAJCR3808
D1ZG
3 (SAGAREMPI 2,08,72,36,704 3,08,45,863
RE JEWELS
PRIVATE
LIMITED)
27ABFCS6904
A1ZK
Total 12,74,7947,331 6,06,90,852
7.3.3. It appears that prima facie during various search
proceedings and consequent investigation have
pointed towards the possibility that present
petitioners namely Sagar Diamond limited, RHC
Global Exports limited, Sagar Empire Jewels
Private Limited and promoters of the companies
with the help of other persons have planned and
executed this massive scam of availing and
passing on fraudulent and ineligible Input Tax
Credit to their companies.
7.3.4. It appears that prima facie the promoters/
directors of Sagar Diamond Limited, RHC Global
Exports limited, Sagar Empire Jewels Private
Limited carefully planned the scam by creating
2 verticals within each company one in DTA
(Domestic Tariff Area - an area within India
that Is outside the Special Economic Zones)
and the other in SEZ (SEZ- is a dedicated
zone wherein businesses enjoy simpler tax
and easier legal compliances. SEZs are
located within a country's national borders) Both
of these vertical are two parts the same
company. They have single common bank
account and common balance sheet.
7.4. It appears that prima facie during the search & based on pre-
search scrutiny, it was found out that in DTA Vertical Sagar
Diamond limited, RHC Global Exports limited, Sagar Empire
Jewels Private Limited have shown inward supplies from
above fictitious firms and obtained fake bills only, without
any underlying supplies of goods or services from them. The
taxpayer has availed bogus input tax credit on the strength
of these bogus bills and utilized this input tax credit towards
the payment of output tax liabilities on GSTN Portal. By
availing &utilizing such ineligible input tax credit, the
taxpayer has contravened the provision of section 16 of the
act. It is found prima facie that no payments in respect of
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
such domestic purchase bills has been made to settle the
account(Value of such purchases amounting to Rs. 4716
Crores and fraudulent ITC amounting to 17.62 Crores).
7.5. It appears that prima facie, it is found that all the suppliers
of above-mentioned companies have no establishment of
Diamond, RubyStone or precious stone and such firms are
suspected to be created by the operators of Sagar Diamond
limited, RHC Global Exports limited, Sagar Empire Jewels
Private Limited for wrongful availment and passing of input
tax credit. Such input tax credit availed by Sagar Diamond
limited, RHC Global Exports limited, Sagar Empire Jewels
Private Limited is passed on to other bogus firms situated at
of Surat, created in the name of Poor people, who are
completely unknown about these transactions. (E.g. M/s Shri
Ram Trading, M/s Khodal Sales, M/s Finn Enterprises etc.).
7.6. It appears that prima facie, it is found that Sagar Diamond
limited, RHC Global Exports limited, Sagar Empire Jewels
Private Limited have received thousands of crores of rupees
by showing sales to bogus firms through GSTR-1 Form
without any movement of goods for merely passing on Input
Tax Credit and receiving unaccounted money/proceeds of
crime/Bogus billing money/ unaccounted/ black money from
these companies to their Bank accounts. (Violation of Section
16 and Attracting Penalty U/s 122 of GGST Act, 2017).
7.7. It appears that prima facie, above mentioned bank receipts
has been used by Sagar Diamond limited, RHC Global
Exports limited, Sagar Empire Jewels Private Limited in their
second vertical i.e. Surat SEZ having same Bank Accounts by
showing import of goods without payment of import duty and
IGST. Export shown against such imports by Sagar Diamond
limited, RHC Global Exports limited, Sagar Empire Jewels
Private Limited do not have any corresponding receipts in
terms of foreign remittance against the so-called exports
shown by them. It is further observed that Sagar Diamond
limited, RHC Global Exports limited, Sagar Empire Jewels
Private Limited has sold goods imported to DTA (Domestic
Tarrif Area) without payment of Tax in grey market.
Government exchequer has incurred huge loss of revenue in
the form of Goods and Services Tax. Tax rate of GST in the
case of Jewellery 3% wherein Diamonds/Ruby Stone are fall
in 0.25% slab.
7.8. It appears that prima facie below mentioned table is showing
export shown by these Companies without receiving any
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
corresponding payment in inward foreign remittances:
Export from
Sr. Sachin SEZ
GSTN Firm Name
No. Surat (Amt. in
Cr)
SAGAR DIAMONDS
1 24AAWCS0068B1ZE
LIMITED 12,761.78
RHCGLOBAL EXPORTS
2 24AAJCR3808D1ZM 11,869.70
PRIVATE LIMITED
SAGAREMPIRE JEWELS
3 24ABFCS6904A2ZP
PRIVATE LIMITED 5724.51
Total 30,355.99
7.9. Quantum of Tax Evasion: It appears that prima facie as
tabulated in Table-1, fraudulent ITC of Rs. 17.64 crs from
bogus firms was availed and IGST on Imports amounting to
Rs. 75 Crores (approx.) was evaded by importing (duty free)
in SEZ unit and disposing the same in DTA units without
invoices.
16. In the background of aforesaid factual details, if we peruse
the relevant provisions to examine whether respondent Nos.4,5
and 6 have lack of any authority or not. The bone of contention
of petitioners is that business premises of petitioners is situated
in Special Economic Zone and as such, to be treated as foreign
territory and not subjected to provisions whereby respondent
authorities, i.e. State authorities No.4, 5 and 6 have no
jurisdiction to carry out any search proceedings at the premises
of the petitioners.
17. Now, for this purpose, we may refer to Section 22 of the
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
SEZ Act which deals with investigation, inspection or search or
seizure, same reads as under:-
"22. Investigation, inspection and search or seizure:
The agency or officer, specified under section 20 or section 21,
may, with prior intimation to the Development Commissioner
concerned, carry out the investigation or search or seizure in
the Special Economic Zone or in a Unit if such agency or
officer has reasons to believe (reasons to be recorded in
writing) that a notified offence has been committed or is likely
to be committed in the Special Economic Zone:
Provided that no investigation, search or seizure shall be
carried out in a Special Economic Zone by any agency or
officer other than those referred to in sub-section (2) or sub-
section of section 21 without prior approval of the
Development Commissioner concerned.
Provided further that any officer of agency, if so authorised by
the Central Government, may carry out the investigation,
inspection, search or seizure in the Special Economic Zone or
Unit without prior intimation or approval of the Development
Commissioner."
Reading of the aforesaid provisions would suggest that any
officer or agency who is authorized by Central
Government may carry out search or seizure or
investigation or inspection in the special economic zone or
units situated therein and it also suggests that authorized
officer of Central Government is empowered to carryout
such process without any prior approval or intimation. So,
moment authorization is reflecting, such measure can be
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
undertaken against special economic zone or unit. Section
6 of the GGST Act in this context is also relevant to the
issue which deals with authorization of the officer of
Central Tax as proper officer in certain circumstances,
which reads as under:-
"Section 6: Authorisation of officers of central tax as proper
officer in certain circumstances.
(1) Without prejudice to the provisions of this Act, the officers
appointed under the Central Goods and Services Tax Act are
authorised to be the proper officers for the purposes of this
Act, subject to such conditions as the Government shall, on
the recommendations of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued
under sub-section (1),-
(a) where any proper officer issues an order under this Act, he
shall also issue an order under the Central Goods and
Services Tax Act, as authorised by the said Act under
intimation to the jurisdictional officer of central tax;
(b) where a proper officer under the Central Goods and Services
Tax Act has initiated any proceedings on a subject matter, no
proceedings shall be initiated by the proper officer under this
Act on the same subject matter.
(3) Any proceedings for rectification, appeal and revision,
wherever applicable, of any order passed by an officer
appointed under this Act, shall not lie before an officer
appointed under the Central Goods and Services Tax Act."
18. A close perusal of above-stated provisions indicates that
respondent authorities are empowered to carry out proceedings
in SEZ. Their jurisdiction is unquestionable as Central
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
Government has already authorized those officers by virtue of
notification dated 5.8.2016. Sub-section (2) of Section 6 of GGST
Act indicates that where any proper officer issues an order
under this Act, he is also issuing an order under CGST Act as
authorized by Act or under intimation to jurisdictional officer of
Central Government and as such it appears that respondents
are empowered to carry out search proceedings in SEZ.
Therefore, it cannot said that they were acting without the
authority of law or jurisdiction. Further, by virtue of circular
dated 5.7.2017, functions of proper officers under CGST Act are
also defined. Hence, once Central Government has notified the
functions of proper officers, said functions shall also be
applicable to be carried out by the officers under CGST Act and
hence it cannot be said that there was any lack of authority on
the part of respondents, as contended.
19. Additionally, provisions of IGST Act, 2017 are applicable to
whole of India and undisputedly, petitioner has got its
registration under IGST Act, which is precisely mentioned in
paragraph 4.6 of the petition. Provision contained under Section
7 of IGST Act, determines inter-State supply and sub-section (5)
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
indicates that supply of goods or services of both, to or by a SEZ
unit shall be treated to be a supply of goods or services or both
in the course of inter-State trade or commerce and therefore,
petitioner appears to be under mistaken belief that once
business of petitioner is carried out through and within SEZ,
they are outside the purview of authority of respondents and
hence these SEZ units are not exempted from any investigation
or inspection. If submission of petitioners is accepted that they
are SEZ units and as such not subjected to such rigors of
investigation or inspection, same would defeat the very purpose
of the Act and apart from this, there appears to be no visible
inconsistency in both the Acts i.e. SEZ Act 2005 or GST Act,
2017 and here, undisputedly, it has been stated that
Development Commissioner, SEZ had already been duly
intimated before search and seizure by departmental officer
while initiating proceedings under Section 67 of the CGST Act
and that being so, submission made by petitioners appearing to
be not worthy of acceptance.
20. In addition to this, uncontroverted facts which are stated
in the affidavit and volume of such would also be one of the
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
considerations which cannot be ignored while exercising
equitable jurisdiction and once authorities are empowered,
there is hardly any reason for this Court to intercept this
process which is going against the petitioners right from March
2023. It appears that action was initiated by an authority by
seizing the premises from 3.3.2023 and then it appears that
under the guise of this petition, now an attempt is being made
to avoid proceedings by conveying to the authorities that since
notices have been issued, petitioners would like to wait for
orders and directions of the Court which clearly reflects from
the reply which has been given by petitioners in response to the
summons. So, when the conduct on the part of petitioners is
also such in this peculiar background of facts, even otherwise
we are not inclined to exercise our extraordinary equitable
jurisdiction and conjoint reading of the provisions coupled with
factual backgrounds, we feel that this is not a fit case in which
we may allow the petitioners to invoke extraordinary
jurisdiction.
21. At this stage, out of few decisions which are tried to be
relied upon by learned Government Pleader, we may observe
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
from one of the decisions in the case of Essar Steel Limited
(supra) issued by the Coordinate Bench of this Court, wherein
provisions of SEZ Act are analyzed to some extent, of-course in
background of said facts, but to our conclusion, few
observations contained in paragraphs 41.3.2, 41.3.3 and 41.3.4
are of assistance and as such, we quote the same hereunder:-
41.3.2 The movement of goods from the Domestic Tariff Area to
the Special Economic Zone has been treated as export by a
legal fiction created under the SEZ Act, 2005. A legal
fiction is to be restricted to the statute which creates it.
Reference is made to the decisions of the Apex Court in the
case of State of West Bengal V/s. Sadan K. Bormal and
another, (2004) 6 SCC 59, Meghraj Biscuits Industries
Limited V/s. Commissioner of Central Excise U.P., (2007) 3
SCC 780, MORIROKU UT INDIA (P) LIMITED V/s. State of
Uttar Pradesh and others, (2008) 4 SCC 548. Moreover,
such legal fiction should be confined to the purpose for
which it has been created. Reference is made to the
decisions of the Apex Court in the case of State of
Karnataka V/s. K. Gopalakrishna Shenoy and antoher,
(1987) 3 SCC 655; Mancheri Puthusseri Ahmed and others
V/s. Kuthiravattam Estate Receiver, (1996) 6 SCC 185. As
stated above, such movement has been treated as export
under the SEZ Act 2005 for the purpose of making
available benefits as in the case of actual exports like duty
drawback, DEPB benefits, etc. to the Special Economic
Zone Unit / Developer or the Domestic Tariff Area supplier
at their option. Construing this movement of goods as
entailing a liability of payment of duty runs absolutely
counter to the purpose of the legal fiction created under
the SEZ Act, 2005.
41.3.3 Section 51 of the SEZ Act, 2005 providing that the Act
would have overriding effect does not justify adoption of a
different definition in the Act for the purposes of another
statute. A non-obstante clause only enables the provisions
of the Act containing it to prevail over the provisions of
another enactment in case of any conflict in the operation
of the Act containing the non-obstante clause. In other
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words, if the provision/s of both the enactments apply in a
given case and there is a conflict, the provisions of the Act
containing the non-obstante clause would ordinarily
prevail. In the present case, the movement of goods from
the Domestic Tariff Area into the Special Economic Zone is
treated as an export under the SEZ Act, 2005, which does
not contain any provision for levy of export duty on the
same. On the other hand, export duty is levied under the
Customs Act, 1962 on export of goods from India to a place
outside India and the said Act does not contemplate levy of
duty on movement of goods from the Domestic Tariff Area
to the Special Economic Zone. Therefore, there is no
conflict in applying the respective definitions of export in
the two enactments for the purposes of both the Acts and
therefore, the non-obstante clause cannot be applied or
invoked at all.
41.3.4 Similarly, reliance on Section 53 of the SEZ Act 2005 to
contend that a Special Economic Zone is a territory outside
India, is misconceived. Section 53 provides that the Zone
would be deemed to be a territory outside the customs
territory of India for the purposes of undertaking the
authorized operations. The term 'customs territory' cannot
be equated to the territory of India and in fact, such term
has been defined in the General Agreement of Tariffs &
Trade, to which India is a signatory, to mean an area
subject to common tariff and regulations of commerce and
that there could be more than one customs territory in a
country. Moreover such an interpretation would lead to a
situation where a Special Economic Zone would not be
subject to any laws whatsoever. The entire SEZ Act 2005
would be rendered redundant since it is stated to extend
the whole of India. In any case, various provisions of the
SEZ Act would be rendered redundant and unworkable if
the Special Economic Zone was to be considered an area
outside India. This is apart from the fact that such a
declaration would be constitutionally impermissible.
So from aforesaid discussion and perusal of provisions, as
indicated above, we are satisfied that respondent Nos.4, 5 and 6
authorities are acting not beyond their authorities and facts are
such in which we are of the considered opinion that this is not a
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
fit case in which we may exercise our extraordinary jurisdiction,
which is equitable in nature, and as such, petition being merit
less, deserves to be dismissed.
22. Since facts in other two petitions connected with lead
matter are also similar and for that, no separate arguments
were canvassed and submissions of both the sides have been
made in the lead petition, present order would govern the
connected Special Civil Applications as well.
23. In fact, we find that this is an attempt on the part of
petitioners by filing these kind of petitions to thwart and belay
the legal proceedings which are initiated by respondent
authorities and as such this move of petitioners appears to be an
abuse of process of law looking to the manner in which the
irregularities alleged to have been committed. Such attempt on
the part of petitioners deserves to be dealt with firmly so that
litigants may not take disadvantage of situation by bringing
such kind of litigation. Record has indicated that after issuance
of notice, petitioners appear to have started not cooperating and
have indicated to wait for orders from the Court. This conduct
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
on the part of petitioners is not appreciable and as such we find
it proper to impose costs upon the petitioners to have adopted
such course of action.
24. At this stage, we remind ourselves to one of the salutary
observations which have been made by Hon'ble Apex Court in
paragraphs 13 and 14 in the case of Dnyandeo Sabaji Naik v.
Pradnya Prakash Khadekar reported in (2017) 5 SCC 496),
which read as under :-
"13. This Court must view with disfavour any attempt by a
litigant to abuse the process. The sanctity of the judicial
process will be seriously eroded if such attempts are not
dealt with firmly. A litigant who takes liberties with the
truth or with the procedures of the Court should be left in
no doubt about the consequences to follow. Others should
not venture along the same path in the hope or on a
misplaced expectation of judicial leniency. Exemplary costs
are inevitable, and even necessary, in order to ensure that
in litigation, as in the law which is practised in our country,
there is no premium on the truth.
14. Courts across the legal system - this Court not being an
exception - are choked with litigation. Frivolous and
groundless filings constitute a serious menace to the
administration of justice. They consume time and clog the
infrastructure. Productive resources which should be
deployed in the handling of genuine causes are dissipated
in attending to cases filed only to benefit from delay, by
prolonging dead issues and pursuing worthless causes. No
litigant can have a vested interest in delay. Unfortunately,
as the present case exemplifies, the process of dispensing
justice is misused by the unscrupulous to the detriment of
the legitimate. The present case is an illustration of how a
simple issue has occupied the time of the courts and of how
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
successive applications have been filed to prolong the
inevitable. The person in whose favour the balance of
justice lies has in the process been left in the lurch by
repeated attempts to revive a stale issue. This tendency
can be curbed only if courts across the system adopt an
institutional approach which penalizes such behavior.
Liberal access to justice does not mean access to chaos and
indiscipline. A strong message must be conveyed that
courts of justice will not be allowed to be disrupted by
litigative strategies designed to profit from the delays of
the law. Unless remedial action is taken by all courts here
and now our society will breed a legal culture based on
evasion instead of abidance. It is the duty of every court to
firmly deal with such situations. The imposition of
exemplary costs is a necessary instrument which has to be
deployed to weed out, as well as to prevent the filing of
frivolous cases. It is only then that the courts can set apart
time to resolve genuine causes and answer the concerns of
those who are in need of justice. Imposition of real time
costs is also necessary to ensure that access to courts is
available to citizens with genuine grievances. Otherwise,
the doors would be shut to legitimate causes simply by the
weight of undeserving cases which flood the system. Such a
situation cannot be allowed to come to pass. Hence it is not
merely a matter of discretion but a duty and obligation cast
upon all courts to ensure that the legal system is not
exploited by those who use the forms of the law to defeat
or delay justice. We commend all courts to deal with
frivolous filings in the same manner."
25. Thus, in view of the aforesaid peculiar background of facts
and in view of the overall circumstances prevailing on record,
we deem it proper to dismiss the petitions with costs of
Rs.10,000/- (Rupees Ten Thousand only) for each petition to be
paid to Gujarat State Legal Service Authority within TEN DAYS
from today.
C/SCA/5978/2023 CAV JUDGMENT DATED: 06/06/2023
26. Accordingly, petitions stand DISMISSED with aforesaid
amount of costs and it is clarified that non-payment of such
costs would be recoverable as arrears of land revenue. Notices
stand discharged. Interim relief, if any, stands vacated
forthwith.
Sd/-
(ASHUTOSH SHASTRI, J)
Sd/-
(J. C. DOSHI,J)
OMKAR
