Case Summary: M/s. Traco Enterprises & Anr. v. Deputy Commissioner of Revenue, WBGST Park Street Charge & Ors.
High Court at Calcutta – Constitutional Writ Jurisdiction (Appellate Side)
WPA 12641 of 2025 | Date of Judgment: 19 June 2025
Relevant Sections: Sections 35(6), 67, 73, 74 & 122 of CGST/WBGST Act, 2017
Category: Penalty / Search & Seizure / Procedural Irregularity
Facts (Paras 1–3)
The petitioner, M/s Traco Enterprises, engaged exclusively in the supply of goods to the Ministry of Defence, faced a show cause notice dated 27 May 2025 issued under Section 122(1)(xviii) read with Section 35(6) of the CGST/WBGST Act. During inspection, the Deputy Commissioner seized goods and documents under Section 67, but the petitioner contended that the officer failed to record any “reasons to believe” that such goods were liable for confiscation or that the documents were relevant to proceedings.
The petitioner argued that Section 122, which prescribes penalties, cannot form the basis of a show cause following a search or seizure, particularly when Section 35(6) mandates proceedings under Section 73 or 74 for recovery of tax not paid or short paid.
The State contended that goods were secreted and liable for confiscation under Section 130, thereby justifying the notice under Section 122.
Questions before the Court
-
Whether a show cause notice under Section 122 can be issued in continuation of a search and seizure under Section 67, without invoking Sections 73 or 74.
-
Whether the seizure and blocking of goods were justified in the absence of recorded satisfaction under Section 67.
-
Whether the petitioner is entitled to provisional release of goods pending adjudication.
Court’s Observations (Paras 4–7)
Justice Raja Basu Chowdhury observed that the petitioner supplies goods solely to the Ministry of Defence and has ongoing work orders from the Indian Army. Considering business continuity and the national interest aspect, the Court directed that the petitioner could seek release of seized goods upon furnishing a bank guarantee for 20% of the proposed penalty.
The Court further noted that Section 35(6) obliges the authorities to proceed under Sections 73 or 74, not 122, for recovery proceedings. Therefore, while the hearing of the show cause may continue, no final decision shall be communicated without the Court’s leave.
The issue regarding blocking of the electronic credit ledger was ordered to be heard separately.
Judgment (Para 8)
-
Petitioner allowed to release goods against bank guarantee equal to 20% of penalty proposed.
-
Show cause proceedings may continue, but final orders cannot be issued without Court permission.
-
Matter listed in July 2025 for further hearing.
Table of Referred Sections / Cases
| Reference | Provision / Case | Court’s Interpretation / Verdict |
|---|---|---|
| Section 67 | Power of search and seizure | Requires recorded “reasons to believe” for goods/documents liable to confiscation. |
| Section 35(6) | Maintenance of accounts | Non-maintenance to be proceeded under Sections 73 or 74, not 122. |
| Section 122(1)(xviii) | Penalty for certain offences | Cannot substitute adjudication process under 73/74. |
| Section 130 | Confiscation of goods | Invoked by State, but Court found preliminary procedural defect. |
| Section 73/74 | Determination of tax not paid / fraud cases | Correct procedure for assessment post-inspection. |
Between Fine Lines
The Calcutta High Court has clarified that penalty proceedings under Section 122 cannot bypass the adjudication route prescribed under Sections 73 or 74, especially when initiated after a search under Section 67. Procedural propriety and due process are paramount, and authorities must record satisfaction before seizure. This ruling safeguards businesses—especially those engaged in government contracts—from premature penal actions lacking statutory basis.
Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”