Evidence gathered during an illegal search is admissible in tax proceedings if relevant.

The respondent, a transport company registered under the CGST/KGST Acts, was investigated by the Mangaluru Commissionerate for alleged GST evasion via manipulated invoices and e-way bills.

Based on this intelligence, the Bengaluru North-West Commissionerate (having jurisdiction over the respondent) conducted searches and issued a Show Cause Notice (SCN) under Section 74 of the CGST Act.

The respondent challenged the SCN in a writ petition, arguing that the investigation by the Mangaluru officers was without jurisdiction and the resulting evidence was inadmissible.

The learned Single Judge quashed the SCN, holding it was based on "borrowed satisfaction" from officers lacking jurisdiction and ordered a refund of ₹50 lakhs deposited during the probe.

The Revenue appealed this decision.

The court primarily applied Section 74 of the CGST Act, which empowers a "proper officer" to determine tax evasion regardless of whether a prior search under Section 67 occurred.

It relied on the Supreme Court precedent in Pooran Mal v. Director of Inspection (1974), establishing that the test for admitting evidence is "relevancy," and Indian law does not exclude evidence merely because it was obtained through an illegal search unless there is an express statutory prohibition.

This principle was recently reaffirmed in Dr. Naresh Kumar Garg v. State of Haryana (2026).

Furthermore, Section 70 of the CGST Act allows officers to summon any person for evidence during an inquiry, and such material can be transferred to the jurisdictional "proper officer" for adjudication.

The Court reasoned that Section 74 is an independent adjudicatory power and its invocation is not "inseparably linked" to the legality of a Section 67 search.

The Court found that while the Mangaluru Commissionerate shared intelligence, the actual SCN was issued by the "proper officer" in Bengaluru who had competent jurisdiction.

Applying Pooran Mal, the Court held that even if the Mangaluru search had procedural infirmities, the resulting 1,964 e-way bills and incriminating statements remained relevant and admissible for tax determination.

The Court critiqued the Single Judge’s order to return seized documents, noting it rendered the liberty to "proceed in accordance with law" illusory by stripping the Revenue of the foundational evidence needed for the SCN.

Finally, the Court observed that the respondent’s right to challenge the relevancy or veracity of the evidence is preserved within the statutory adjudication process, making the writ petition premature.

It held that (1) Section 74 proceedings are not contingent on Section 67 actions; (2) material gathered by one Commissionerate can be legally used by another; and (3) evidence from an irregular search is not automatically inadmissible if relevant.

The Writ Petition was dismissed, the SCN was restored, and the respondent was granted 15 days to file a reply.

All merits of the case remain open for adjudication by the tax authorities.