Supreme Court Questions If GST Authorities Can Decide What Material Seized From Advocate's Office Is Privileged

The Supreme Court on Monday questioned whether GST authorities investigating a case could themselves decide which material seized from an advocate was protected by advocate-client privilege while hearing a plea by advocate Puneet Batra challenging the search of his office and seizure of his computer and documents.

A Division Bench of Justices Dipankar Datta and Sheel Nagu raised the question during the hearing after Additional Solicitor General S.V. Raju, appearing for the Union government, submitted that confidential material could be protected by redacting or segregating it during the investigation.

"No, but you decide. Who is going to decide that? You can't be the person deciding it," Justice Datta said.

The bench, while issuing notice on Batra's plea, also directed him to appear before the GST authorities on Wednesday.

Senior Advocate Balbir Singh, appearing for Batra, challenged the legality of the search under Section 67 of the Central Goods and Services Tax Act, arguing that the authorities had to independently satisfy the statutory conditions before entering a third party's premises.

He submitted that there were two separate requirements: first, a reason to believe that tax had been evaded; and second, a reason to believe that material connected with the alleged evasion was located at the particular premises being searched.

"Reason to believe must be for evasion of tax," Singh submitted.

He argued that a search of a taxable person's premises was materially different from a search of premises belonging to a third party who might be connected with the investigation.

"Because you are entering into a third party's house, you are calling a third party who may be connected or unconnected, and not the taxable person is completely different," he said.

The plea challenges the Delhi High Court's finding that Batra was allegedly involved in the affairs of Matkarma Technologies Pvt. Ltd. (MTPL) and was not merely representing the company professionally.

Singh argued that the material relied upon by the authorities had to exist when the search authorisation was issued and could not be supplemented by material collected subsequently to justify the search.

"Reason to believe should exist on that day, when you are forming opinion. If it is subsequently pertaining to [material] collected and now you are trying to justify, that's not the ground," Singh said.

Singh further submitted that Batra had appeared before the GST authorities pursuant to summons on several occasions, provided documents and recorded his statement. He argued that the department could have used the summons mechanism under Section 67(11) to obtain material from him instead of conducting a search.

"They have used consistently issuing summons... At that time, they could have used the power under subsection 11, and they could have said, 'You produce, I'm seizing that,'" he said.

The bench also examined material placed before the High Court in sealed cover, including statements recorded during the investigation. Singh objected to the High Court relying on such material to sustain the search when, according to him, the underlying reasons for authorising the search had not been disclosed to Batra.

Raju defended the search, submitting that the court was not required at this stage to determine the guilt or ultimate tax liability of the person whose premises had been searched.

"Required at this stage is not a finding of guilt or a determination of liability. The court is required to examine whether there was material before the competent authority on the basis of which statutory power under Section 67 of the CGST Act would have been exercised," the ASG said.

Raju emphasised that Section 67(2) concerns a place rather than merely the identity of a person.

"67(2) applies to a place, not to a person," he said.

He submitted that once the premises of Bass Legal had been validly authorised for search, the fact that Batra was using one of the cabins within those premises would not by itself invalidate the search of that cabin.

"Once the premises have been validly authorised to be searched, the fact that one of the cabins situated within those premises was being used by the petitioner would not by itself render the search of that cabin unauthorised," Raju said.

The ASG also disputed Batra's contention that the department had generated material after the search to retrospectively justify its action. He submitted that several statements implicating Batra were already available before the search.

"There are a large number of statements which have implicated him before the search. It's not that we created any statement or evidence after this search," he said.

Raju further submitted that the search power under Section 67(2) operated independently of the summons mechanism under Section 67(11).

On the reasons for the search, Raju said these were recorded in the departmental file and had been shown to the High Court, but were not required to be furnished to Batra at that stage as their disclosure could prejudice the ongoing investigation.

"This reasons to believe we are not given to him, certainly not required to be given. It has to be in the file, it is there in the file. We showed it to the court," he said.

Raju drew an analogy with the statutory framework governing arrest, submitting that reasons forming the basis for investigative action are not necessarily required to be disclosed where doing so could jeopardise an ongoing investigation.

The bench suggested that the authorities could approach the court for appropriate directions regarding the handling and segregation of privileged material.

Singh, however, challenged the High Court's approach of treating prima facie material suggesting that Batra had acted beyond the role of a legal adviser as sufficient to sustain the search.

He reiterated that the relevant test was whether the statutory preconditions for forming the “reason to believe” and exercising the search power existed when the authorisation was issued.

"It's completely a wrong test which has been applied. Test is reason to believe, formation of opinion, and consequently using either subsection one, subsection two or subsection eleven," Singh said.

He also relied on Section 67(10) of the CGST Act, which incorporates provisions of the Code of Criminal Procedure relating to search and seizure, subject to statutory modifications. He argued that the statutory framework required the grounds for the belief preceding a search to be recorded.

Singh also challenged the High Court's direction permitting the department to examine a cloned copy of the seized computer data, subject to restricting the examination to material relevant to the investigation concerning MTPL and protecting information relating to Batra's other clients.

He questioned how the investigating authorities themselves could determine which material was protected by privilege.

"Who's going to decide this below? They are going to decide it. It is going to straight away breach privilege in relation to all other clients," he said.

Singh also referred to a resolution subsequently passed by the client authorising disclosure of its information and submitted that Batra had provided material whenever legally required.

The top court indicated that the issue of protecting privileged material would require careful consideration, particularly where the seized electronic data contained information relating to several other clients.

The court thereafter issued notice on Batra's plea challenging the legality of the GST search and the manner in which advocate-client privileged material is to be dealt with during the investigation.