GST Search Authorisation Must Function as a Laser Beam, Not a Volley of Fire: Madras HC Lays Down Comprehensive Guidelines on DIN, Voluntary Payment and Section 67 Powers

Overview

The Madras High Court has delivered a significant ruling in M/s. Bhima Enterprises v. The Principal Chief Commissioner of GST & Central Excise & Ors. [W.P.(MD) No. 9040 of 2024 dated August 05, 2026], addressing three critical aspects of GST search proceedings: the validity of a Form GST INS-01 authorisation issued without a Document Identification Number ("DIN"), the obligation to communicate a subsequently generated DIN to the noticee, and whether a payment made during the course of a search can genuinely be characterised as voluntary under Section 74(5) of the Central Goods and Services Tax Act, 2017 ("the CGST Act").

The Court's findings cut across several layers of procedural safeguards and resulted in a comprehensive set of directions governing the manner in which authorities must conduct themselves during search proceedings under Section 67 of the CGST Act.

Background and Facts of the Case

M/s. Bhima Enterprises ("the Petitioner"), a partnership firm engaged in the manufacture and wholesale of jewellery, found itself at the receiving end of a surprise search on August 16, 2023, following an authorisation dated August 15, 2023, issued by the Joint Commissioner, Office of the Central GST & Excise, Tirunelveli Division ("the Respondent").

The authorisation, issued in Form GST INS-01 under Section 67(2) of the CGST Act, presented several irregularities:

  • It did not carry a DIN at the time of issuance
  • It bore a foot-note stating that a DIN could not be generated due to technical difficulties and would be generated later
  • Despite being stated to be issued under Section 67(2), it was described at its foot as an "Inspection warrant" and reproduced all circumstances envisaged under Section 67(1) of the CGST Act — creating a fundamentally contradictory document

During the search conducted on August 16, 2023, officers seized:

  • Gold ornaments weighing 3808.386 grams valued at Rs. 2,22,98,100/-
  • Gold bullion weighing 5478.940 grams valued at Rs. 3,20,79,193/-

The grounds for seizure were that the excess stock found was not reflected in the books of account. The seizure was recorded in Form GST INS-02 dated August 16, 2023.

During the search and the following day, the Petitioner paid Rs. 32,62,640/- in two tranches — Rs. 13,37,888/- on August 16, 2023 and Rs. 19,24,752/- on August 17, 2023 — through Form GST DRC-03. The DRC-03 reflected payment of 100% penalty.

The DIN was subsequently generated on August 25, 2023, but was never communicated to the Petitioner, and no contemporaneous record of the technical difficulty was maintained in the departmental file.

The Petitioner had previously filed W.P.(MD) No. 23502 of 2023 challenging the seizure order, pursuant to which, vide order dated September 26, 2023, the seized goods were directed to be released without bond or security, the Court noting that the Petitioner had already paid the applicable tax and penalty. The seizure order itself, however, was not set aside in those proceedings.

Following this, the Department continued to summon the Petitioner, asserting that further investigation had revealed tax evasion exceeding Rs. 5 crores. The Petitioner then filed the present writ petition, seeking to quash the authorisation dated August 15, 2023 and claiming refund of Rs. 32,62,640/- with interest, along with return of original documents.

Issues Framed by the Madras High Court

The Court identified three core questions for determination:

  1. Whether the powers of inspection, search and seizure under Section 67 of the CGST Act are legally distinct, and whether an authorisation in Form GST INS-01 that does not specifically identify the nature of the power being conferred is valid?

  2. Whether the display of a DIN on a search authorisation is mandatory, and whether a DIN subsequently generated within the prescribed 15-day period is required to be communicated to the noticee?

  3. Whether the amount of Rs. 32,62,640/- paid during the search can be treated as a voluntary payment under Section 74(5) of the CGST Act, and whether the Petitioner is entitled to its refund?

Court's Findings and Holdings

Inspection, Search and Seizure Are Legally Distinct Powers Under Section 67

The Court began by drawing a clear conceptual distinction between the three powers vested under Section 67 of the CGST Act, relying on the Division Bench decision in Shri Ramakrishnan Srikishan Jhaver v. Commissioner of Commercial Taxes [(1965) 57 ITR 664]:

  • Section 67(1) — Authorises a proper officer, not below the rank of Joint Commissioner, to authorise in writing any other officer to inspect the business premises of a taxable person where there are reasons to believe that the assessee has suppressed transactions, stock, claimed excess ITC or contravened the Act to evade tax.
  • Section 67(2) — A higher and distinct power, enabling search and seizure where the proper officer has reasons to believe that goods liable to confiscation or documents and things useful for proceedings are secreted somewhere.

The Court reiterated, drawing from Calcutta Discount Co. Ltd. v. ITO [(1961) 41 ITR 191 (SC)], Aslam Mohamed Merchant v. Competent Authority [(2008) 14 SCC 186] and ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437 (SC)], that:

  • "Reasons to believe" is a condition precedent — not a mere formality
  • The belief must be held in good faith and must be founded on information, not mere suspicion
  • The reasons must exist on record
  • Both the existence of the belief and the reasons therefor are justiciable