In a significant decision, the Madras High Court has clarified that taxpayers cannot challenge the legality of a GST search once they have obtained provisional release of seized goods, affecting future dispute procedures.
In a ruling with implications for GST enforcement, the Madras High Court has said that taxpayers cannot later challenge the legality of a search after they have already obtained provisional release of seized goods. In the Bhima Enterprises matter, Justice G.R. Swaminathan held that inspection and search come before seizure, and that once seizure has effectively been upheld, the earlier search cannot be undone as a separate issue.
Bhima Enterprises had asked the court to strike down the search as unlawful, arguing that the action taken under section 67(2) of the GST Act lacked a proper Document Identification Number, as required by a Central Board of Indirect Taxes and Customs circular. The firm also said a payment of ₹32 lakh had been made under pressure rather than voluntarily. The search, carried out on 16 August 2023, led to the seizure of gold ornaments and bullion valued at about ₹5.4 crore.
The court noted that Bhima Enterprises had already pursued an earlier writ petition seeking provisional release of the seized goods. In that proceeding, the court ordered release without setting aside the seizure itself, after taking account of the ₹32 lakh payment. Against that background, the latest bench said the company could not use a fresh petition to achieve indirectly what it had not secured before, including nullification of the authorisation order for the search.
The court nevertheless indicated that the payment may not have been voluntary and that the search may not have complied fully with statutory requirements, which could justify a refund claim. But it stopped short of ordering immediate repayment, saying the earlier relief was limited to provisional release. The matter was disposed of with directions for fresh proceedings, while the court also stressed that both taxpayers and tax authorities must act fairly. The ruling sits alongside other recent GST decisions in which the Madras High Court and other high courts have taken a careful, fact-specific approach to provisional release, attachment and confiscation.
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