Validity of GST SCN Under Section 74: Karnataka High Court Rules Evidence from Allegedly Illegal Search Remains Admissible
The intersection of jurisdictional boundaries and the admissibility of evidence gathered during search and seizure operations has been a highly debated topic in indirect tax litigation. In a landmark judicial pronouncement, the Karnataka High Court in the case of Additional Commissioner of Central Tax Vs Vigneshwara Transport Company has clarified the legal standing of a Show Cause Notice (SCN) issued under Section 74 of the CGST Act. The Division Bench emphatically ruled that adjudicatory proceedings are independent of the investigative actions undertaken under Section 67 of the CGST Act. Consequently, even if a search is alleged to be jurisdictionally flawed, the evidentiary material recovered remains fully admissible for determining tax liabilities, provided it is relevant to the evasion in question.
This comprehensive summary breaks down the factual matrix, the competing legal arguments, and the profound judicial reasoning that led to the restoration of a multi-crore GST evasion notice.
Factual Matrix of the Dispute
The assessee in the present matter, engaged in the business of goods transportation, holds registrations under both the CGST Act and the KGST Act. The genesis of the dispute traces back to a massive intelligence operation concerning a fake invoicing and e-way bill manipulation syndicate.
The Mangaluru Commissionerate of the GST department initiated a probe which uncovered a sophisticated modus operandi involving the clandestine removal of goods (specifically areca nuts) without the payment of applicable taxes. During this coordinated investigation, it was discovered that the assessee was allegedly facilitating this evasion. The probe revealed that vehicle details on e-way bills were being systematically altered, allowing multiple consignments of goods to be transported under the cover of a single document.
Following the search and seizure operations, the Mangaluru Commissionerate shared the gathered intelligence and recovered documents with the Bengaluru Commissionerate, which held the actual territorial jurisdiction over the assessee. Based on this shared intelligence, which included a staggering 1,964 e-way bills pointing to an estimated GST evasion of ₹27.56 crore, the proper officer at the Bengaluru Commissionerate issued a comprehensive SCN under Section 74 of the CGST Act.
During the investigative phase, the assessee had deposited an amount of ₹50 lakh. Furthermore, due to alleged non-cooperation by the assessee, the authorities invoked Section 83 of the CGST Act to provisionally attach the assessee's bank accounts to protect the Revenue's interests.