Rajasthan AAR Rejects GST Advance Ruling Application Following Adjudication by Proper Authority

Overview of the Case

The Rajasthan Authority for Advance Ruling (AAR) examined an application submitted by an individual who was not registered under GST provisions. The case titled In re Bhagvan Tirthani highlights critical procedural limitations concerning the jurisdiction and scope of advance ruling authorities under the GST framework.

The individual sought determinations under Section 97(2)(e) and (f) of the CGST/RGST Act, 2017, specifically relating to the obligation to register under GST and potential tax liabilities. The matter involved complex factual scenarios concerning search operations, seizure of currency and goods, and imposition of multiple penalties.

Factual Background and Contentions

Business Operations and Turnover

The applicant represented that his father operated a grocery trading business with revenue below the mandatory GST registration threshold. The family maintained that their commercial activities did not warrant registration under the prevailing exemption provisions.

Search and Seizure Operations

According to the submissions, enforcement authorities conducted search operations at the residential location of the applicant's uncle, Mr. Lalit Tirthani. The applicant challenged the legality of these proceedings, claiming they constituted unauthorized action.

During these operations, enforcement officials seized:

  • Currency totaling ₹10 lakhs from the uncle's residential premises
  • Additional cash amounting to ₹37.45 lakhs, regarding which detailed explanations and bifurcation statements were allegedly submitted

Ownership Claims on Seized Currency

The applicant provided a detailed breakdown of the ₹37.45 lakhs seized, asserting that:

  • An amount of ₹21 lakhs belonged to Mr. Maneesh Hazari
  • ₹15 lakhs was the property of Mr. Puranmal
  • Only ₹1.45 lakhs pertained to the applicant's family members

The applicant maintained that comprehensive documentation supporting these ownership claims had been furnished to the appropriate authorities.

Confiscation of Cigarette Stock

The enforcement action also involved seizure of cigarette inventory valued at ₹18,67,690. These goods were confiscated under Section 130(1) read with Rule 139 of the GST framework. The applicant contested this action on the ground that the cigarette stock did not belong to the family business.

According to the submissions, various sales representatives and distributors of multiple cigarette manufacturing companies used the applicant's shop location as a convenient meeting point due to its prominent market position. The applicant contended that these goods belonged to agents of Delhi-based cigarette manufacturers rather than to the family enterprise.

Currency Not Classified as 'Goods'

A significant legal argument presented relied upon a judgment from the Delhi High Court. The applicant referenced the decision in Jagdish Bansal Vrs. Union of India [W.P.(C) No. 16677 of 2023 dated February 26, 2024], wherein the court held that currency does not fall within the definition of "goods" under Section 2(75) of the CGST Act.

Based on this precedent, the applicant argued that the enforcement authorities lacked legal authority to seize and confiscate currency under GST provisions, as cash constitutes money rather than goods as contemplated by the legislation.

Challenge to Valuation

The applicant contested the valuation methodology applied by the jurisdictional officer to the seized cigarette inventory, claiming significant overvaluation.

Authorization Defects in Search Proceedings

The applicant raised fundamental procedural objections to the search operations, asserting that:

  • The search was conducted at premises not specified in the authorization
  • No proper authorization existed for conducting search at Mr. Lalit Tirthani's residence
  • The entire search proceeding was unauthorized from inception

Multiple Penalty Impositions

The applicant challenged various penalties imposed under different provisions of Section 122 of the CGST Act, 2017, specifically:

  1. Penalty of ₹9,81,526 under Section 122(1)(i)
  2. Penalty of ₹9,81,526 under Section 122(1)(xv)
  3. Penalty of ₹9,81,526 under Section 122(1)(xvi)
  4. Penalty of ₹9,81,526 under Section 122(1)(xvii)
  5. Penalty of ₹9,81,526 under Section 122(1)(xviii)
  6. Multiple penalties of ₹50,000 each (CGST ₹25,000 plus SGST ₹25,000) imposed on different family members under Section 122(3)(d)

The applicant sought quashing of all these penalties, arguing that the underlying search proceedings were fundamentally invalid.

Questions Raised Before AAR

The application presented eleven specific questions seeking advance rulings on matters including:

  • Permissibility of conducting searches at locations not mentioned in search warrants
  • Authority to seize cash and valuables from unauthorized locations
  • Seizure and confiscation of cash belonging to third parties
  • Whether currency qualifies as 'goods' subject to confiscation under GST law
  • Seizure and confiscation of goods belonging to other persons
  • Imposition of penalties and demands against persons other than the assessee
  • Treatment of third-party goods stored at the assessee's premises
  • Seizure of cash from residential premises of relatives
  • Clubbing of cash seized from multiple premises for assessment purposes
  • Ignoring affidavits and ownership declarations in confiscation proceedings

Procedural Developments

Personal Hearing

The Authority scheduled a personal hearing on 02.12.2024. Mr. Satish Shivnani, Chartered Accountant, appeared as the authorized representative for the applicant. During the hearing, he submitted the necessary authorization letter along with the questions requiring advance ruling.