The Madurai Bench of the Madras High Court has held that while the Document Identification Number (DIN) framework is a mandatory transparency measure and any subsequently generated DIN must be shared with the taxpayer, defects in compliance would not automatically invalidate a completed search where subsequent events and the conduct of the assessee prevent such relief. 

The bench of Justice G.R. Swaminathan has observed that inspection involves examination of material made available for scrutiny, whereas a search is an exploratory exercise intended to uncover concealed goods or documents. Consequently, authorities must clearly identify which statutory power they are exercising instead of issuing ambiguous authorisations that blur the distinction between inspection and search. 

A writ petition filed by a jewellery manufacturer challenging the legality of a GST search conducted in August 2023, the seizure of gold ornaments and bullion, and the alleged coercive collection of ₹32.62 lakh during the search proceedings. The petitioner also sought refund of the amount and return of original documents. 

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GST officers conducted a surprise search under Section 67(2) of the CGST Act on 16 August 2023. During the operation, officials seized 3,808.386 grams of gold ornaments valued at ₹2.22 crore and 5,478.940 grams of gold bullion valued at ₹3.20 crore, alleging that the excess stock was not reflected in the books of accounts.

The department maintained that the taxpayer voluntarily paid ₹32.62 lakh in two instalments immediately after discrepancies were detected, while the petitioner contended that the payment had been extracted under coercion. 

The central challenge before the High Court was that the search authorisation issued in Form GST INS-01 did not bear the mandatory Document Identification Number (DIN). The petitioner argued that CBIC circulars make DIN compulsory and that failure to include or communicate it rendered the proceedings illegal.

The department countered that DIN had been generated later within the prescribed period and that the circulars did not require the subsequently generated DIN to be furnished to the taxpayer. It also argued that any procedural irregularity could not nullify the discovery of tax evasion. 

Before deciding the dispute, the High Court undertook an extensive analysis of Section 67 of the CGST Act and clarified that inspection, search and seizure are conceptually distinct statutory powers.

The Court noted that although the warrant purported to be issued under Section 67(2), it simultaneously contained features associated with inspection proceedings under Section 67(1). The standard GST INS-01 form, the Court observed, requires officers to appropriately edit and tailor it to the facts of each case instead of mechanically reproducing statutory language.

According to the Court, search authorisations must reflect proper application of mind and cannot be drafted in a manner that attempts to cover every possible situation without specificity. 

One of the most significant findings in the judgment concerns the purpose of the DIN system introduced by the CBIC.

The Court held that DIN was introduced to promote transparency, accountability and verification of departmental communications. While the CBIC circular permits issuance of communications without DIN in exceptional situations such as technical glitches, the officer must contemporaneously record the reasons, obtain approval and generate the DIN within fifteen days.

Importantly, the Court ruled that generation of DIN alone is insufficient. If the DIN is subsequently generated, it must also be communicated to the taxpayer because, without the number, the taxpayer cannot verify the authenticity of the departmental communication on the CBIC portal. Failure to share the DIN defeats the very purpose of the system. 

The Court also criticised the department’s reliance on a generic claim of “technical difficulties,” observing that such assertions must be supported by contemporaneous records rather than being accepted at face value. 

Despite these findings, the High Court declined to invalidate the search itself.

The Court noted that the petitioner had earlier approached the High Court seeking release of the seized goods and had obtained relief on the basis that the applicable tax had already been paid. Since the earlier proceedings had effectively accepted the seizure without challenging the legality of the search itself, the Court held that it was no longer open to the petitioner to attack the search after securing release of the goods. 

The judgment devotes considerable attention to the issue of tax collections during GST searches.

Relying upon decisions of the Gujarat High Court, Delhi High Court and the Supreme Court, Justice Swaminathan reiterated that tax authorities should not recover tax during search proceedings through pressure or coercion. The Court referred to CBIC instructions clarifying that recoveries under Section 79 can only follow due adjudication, although taxpayers remain free to make voluntary payments through DRC-03.

The Court also noted Supreme Court observations that Section 74(5) gives the taxpayer an option to make voluntary payment and does not authorise officials to compel payment through threats of arrest. 

While declining to quash the search, the Court concluded that the proceedings were “not above board.” It observed that the search warrant was defective, the explanation regarding the absence of DIN was unsupported by contemporaneous records, the subsequently generated DIN had never been shared with the taxpayer, and the payment of ₹32.62 lakh did not appear to be truly voluntary.

Instead of ordering an immediate refund, however, the Court directed the GST department to initiate fresh assessment proceedings relating to the disputed transaction. It further directed that limitation would exclude the period from 15 August 2023 until receipt of the certified copy of the judgment.

The Court held that the question of refund of the ₹32.62 lakh would ultimately depend upon the outcome of the fresh assessment proceedings after issuing notice and granting the petitioner a proper opportunity of hearing. 

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