Physical verification of business premises should be done in the presence of person

The Hon’ble Madhya Pradesh High Court in the case of Empire Steel Holdings v. Union of India [Writ Petition No. 31219 of 2024 dated April 24, 2025] held that the physical verification of business premises should be done in presence of person. In the instant case, no witness was present at time of inspection, visit note was only signed by Superintendent and not by any other witness. The Superintendent ought to have recorded statement of nearby shop owner and obtained their signature in visit notes as a witness. It appeared that no one was accompanied with him from GST Department at time of search, had any person visited with Superintendent, he would have countersigned the visit note. Such a visit note could not be relied on for taking such a drastic action of cancellation of license. On other hand, Joint commissioner also recorded that though business was non-operational at registered place of business, the Assessee was in existence and that no investigation was conducted to verify genuineness of transactions i.e. inward and outward supply before issuance of Show Cause Notice (“SCN”). The Commissioner had already examined Form GSTR-2A for Financial Year 2017-18 to Financial Year 2022-23 in detail and reproduced in order and held that supplier of Assessee was in existence and active which reflects genuineness of purchase.

Facts:

Empire Steel Holdings (“the Petitioner”) was a proprietorship firm engaged in the trading of taxable goods i.e. flat-rolled products of iron or non- alloy steel. Mrs. Akriti Mishra, the proprietor (“the Petitioner”) of the firm, was handling business with the assistance of her husband, Mr. Ashutosh Tiwari. As per the records, the registered office of the firm was situated at 1st Floor, Orbit Mall, A.B. Road, Indore – 452001 (M.P.).

According to the Petitioner, due to health issues of her husband, the business slowed down and she could not operate it properly and she was unable to bear the rent of the premises. Hence, she shifted the business operation to her residential address at 516, BRG Sangrila Talawali Chanda, Indore – 452001 (M.P.) from November 2022. The Petitioner also possessed the Gumasta License issued by the District Labour Officer on July 16, 2023.

According to the Superintendent (“the Respondent-1”), a proper officer of the State Goods and Services Tax (“the SGST”) Department conducted the physical operation on May 15, 2023 at a registered place of business i.e. 1st Floor, Orbit Mall, A.B. Road, Indore – 452001 (M.P.) of the Petitioner but the same was found locked. Therefore, a SCN dated May 17, 2023 (“SCN-1”) was issued for cancellation of registration of license due to “Discrepancies noticed while the conduct of Physical Verification“.

The Petitioner was given three days’ time to file a response to SCN-1. Further, the Petitioner’s registration was cancelled with retrospective effect from October 04, 2017 vide Order dated May 29, 2023 (“the Impugned Order-1”).

Being aggrieved by the Impugned Order-1, the Petitioner filed an application dated July 05, 2023 along with all supported documents for revocation of the order of cancellation of registration. The said application was forwarded to the jurisdiction authority who issued another SCN dated July 24, 2023 (“SCN-2”) as to why the application be not rejected. The Petitioner submitted a reply to the SCN-2. The Deputy Commissioner (“the Respondent-2”) rejected the application for revocation of cancellation while recording reasons of non-genuineness of the party vide order dated August 03, 2023 (“the Impugned Order-2”).

Being aggrieved by the Impugned Order-2, the Petitioner preferred an appeal on September 02, 2023.

Further, the Petitioner filed an appeal before Commissioner (Appeals) and Joint Commissioner (Appeals) (“the Respondent-3”), who disallowed the Petitioner to appeal vide order dated April 25, 2024 Order dated April 25, 2024 (“the Impugned Order-3”) as the Petitioner failed to prove the genuineness of their firm.

The Respondent-3 initiated further proceedings for imposition of penalty due to cancellation of registration from the back date by issuing a SCN dated July 25, 2024 (“the Impugned SCN-3”).

Hence, the Petitioner filed the present writ petition before the Hon’ble Allahabad High Court due to the Impugned actions.

Issue:

Whether the physical verification of business premises should be done in absense of person?

Held:

The Hon’ble High Court of Madhya Pradesh in Writ Petition No. 31219 of 2024 held as under:

• Observed that, the SCNs has been adjudicated partially in favour of the Petitioner, hence, only the issue regarding the cancellation of the GST license of the Petitioner is being considered in this writ petition. The entire process for cancellation of the license was initiated after the visit note was prepared by the Respondent. As per this visit note, the place of business showing at 1st Floor, Orbit Mall, A.B. Road, Indore on the portal as well as GST.gov.in was found locked, and the display board showing the name of the Petitioner. On being enquired at some shops, no such firm was working at the given address and nothing to do with the Petitioner. However, the Respondent did not record the statements of the nearby shop owners. This visit note was only signed by the Respondent, not by any other witness. However, the Respondent did not record the statements of the nearby shop owners. The Respondent ought to have recorded the statement of the nearby shop owner and obtained their signature in the visit notes as a witness. It appears that no one was accompanied with him from the GST department at the time of the search. Had any person visited with him, he would have countersigned this visit note, therefore, such a visit note cannot be relied on for taking such a drastic action of cancellation of license.
• Relied on, the case of Roxy Enterprises v. Union of India [Writ Petition (Civil) No. 13754 of 2023, December 18, 2023]  where in the Division Bench of the Hon’ble Delhi High Court considered Rule 25 of the Goods and Services Tax Rules, 2017 (“the CGST Rules”) which deals with the physical verification of business premises in certain cases. According to Rule 25 of the CGST Act, the physical verification of the business premises should be done in the presence of the person, and it should be uploaded in the Form GST REG-30 on the common portal within 15 working days following the date of such verification. Apart from the above, all these grounds on which the registration of the petitioner has been cancelled have already been criticized by the Joint Commissioner of CGST and Central Excise Indore in its order dated December 31, 2024 whereby the SCN for imposing a penalty of Rs.6,17,33,624/- has been dropped.
• Held that, In view of the aforesaid findings recorded, all the Impugned Orders and the Impugned Show Cause Notice (SCN) are held to be unsustainable and are accordingly quashed. Consequently, the registration license of the Petitioner stands restored from its original date of issuance. As a result, the Writ Petition is allowed, with costs of Rs. 10,000/- (Rupees Ten Thousand Only) payable to the Petitioner.

Our Comments:

Rule 25 of the CGST Rules governs “Physical verification of business premises in certain cases”. Rule 25(1) of the CGST Rules prescribes that where the proper officer is satisfied that the physical verification of the place of business of a person is required after the grant of registration, he may get such verification of the place of business done and the verification report along with the other documents, including photographs, shall be uploaded in FORM GST REG-30 on the common portal within a period of fifteen working days following the date of such verification.

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