Every Act in one way or the other provides the authorities the power to physically Search and Seize the belongings of a person if found to be unexplanatory or in variance with the submissions made by him, and such power is undoubtedly present in the GST Act also. In this article we shall be giving an overview of the procedure and guidelines adopted by the authorities while conducting Inspection, Search and Seizure formalities of any person. Kindly note that these procedures, being highly sensitive in nature, should be taken up with due care and the approach varies case to case depending upon the merits of the particular case.
Though the authorities are permitted under the Act to conduct Inspection and Search of any person, it cannot be done just like that without having appropriate reasons to do so. Hence, firstly we need to understand what could be the possible sources of information from where the authorities gather knowledge which becomes the basis for Inspecting or Searching any person. Though these sources are non-exhaustive in nature, practically few of the “reasons to believe” are:
1. Significant amount of discrepancies in figures reported in the returns filed by a taxpayer
2. Taxpayer being involved in Circular Trading, i.e. when 2 or more taxpayers issue invoices within themselves without involving actual supply of goods to claim fraudulent Input Tax Credit and increase turnover
3. Considerable differences in the Input Tax Credit availed by a taxpayer vis-à-vis the Input Tax Credit auto populated in the GSTR-2A
4. Taxpayer involved in receipt of or issue of bogus bills, i.e. issue or receipt of invoices without actual supply of goods
5. Confession or purchases from a person who is already subjected to Search and Seizure proceedings
6. Where supplies are being undertaken by a person beyond the threshold limit without registration
7. Information from other departments such as Income Tax, Customs, Banking Institutions etc.
Once the above information is received by the authorities, the officer, not below the rank of the Joint Commissioner of GST, if he is of the view that:
1. Any transaction of supply or goods in hand have been suppressed
2. Input Tax Credit has been excessively claimed
3. Any provision of the Act/ Rule has been contravened with the intent to evade tax
4. Any transporter or any warehouse/ godown/ or any other place has any goods which are or likely to cause evasion of tax
then in any of the above scenario, he may authorise any central tax officer in Form INS-01 to Inspect / Search any place of business of the taxpayer or any such transporter/ warehouse/ godown or any other place.
The difference in the Inspection and Search warrant is that a Search warrant provides the officers wider powers as compared to an Inspection warrant. The warrant to Inspect or Search shall be issued on the basis of the seriousness and the reliability of the sources of reasons to believe
During the Inspection proceedings, the authorities calculate the intensity and the quantum of the tax so evaded basis the information so gathered
If the said officer, pursuant to the Inspection conducted above or otherwise, also has the reasons to believe that any goods liable to confiscation/ documents/ books or things are secreted in any place, he may authorise any central tax officer to search and seize such goods / documents or things.
In order to conduct the proceedings of Inspection and Search, the officers have some rights that they can exercise to conduct the operations smoothly. In a similar manner, the person undergoing the process also has some rights. Below are few important points to be kept in mind elaborating the rights of the officer and the person during the time of Search and Seizure proceedings:
1. The person can ask for the copy of search warrant issued by the Joint Commissioner
2. It is not necessary for the officer to share the reasons to believe with the person
3. The person should completely cooperate with the officer, including providing access to any place, goods, documents or records as required by the officer or else the officer also has the power to seal or break open any door of any premises or almirah etc wherever any relevant material is suspected to be concealed
4. The officer can ask any information from the person, even those which are beyond the reasons to believe
5. The Commissioner of GST has the power to authorise the arrest a person if
a. He has reasons to believe that a person has committed offence in respect to:
i. Supply of goods or services without issue of an invoice
ii. Issue of invoice without supply of goods or services leading to wrongful availment of Input Tax Credit
iii. Avails Credit on the basis of invoice as mentioned above
iv. Collects GST but fails to pay to the government within a period of 3 months from the payment due date
And the amount involved in any of the cases above is more than Rs. 2 Crore
b. The person is convicted again for the second or subsequent time for offences under Section 132
6. The officer cannot assault the taxpayer in any manner
7. There is no time limit prescribed for how long the search shall continue and would depend the size and nature of the taxpayer. Also usually officers conduct a substantiate long duration of search to pressurize the taxpayer to agree to the defaults as highlighted by the officer and pay the necessary tax and interest amount
8. Goods in the possession of the taxpayer substantiated by proper documentation is not liable to be seized by the officer
Once the officer has completed the Search proceedings and identified the goods or records or material to be seized, a Panchnama in Form INS-02 is prepared detailing all the material to be Seized along with the observations of the officer and is signed by the officer, taxpayer and two independent witnesses. While issuance of the Panchnama, it is very important to ensure that the person does not give any statement or declaration under the pressure of the officer which may be used against the person at a later stage. The person shall also be entitled to make copies of the documents seized by the officer unless the officer is of the opinion that it might harm the investigating proceedings
If the goods cannot be practically seized, the officer may order the owner or custodian of goods in Form INS-03 not to move or deal with the goods unless permitted by officer
The person may get his Seized goods released on a provisional basis upon execution of a Bond in Form INS-04 and furnishing bank guarantee as a security, with a condition to produce the goods at a later date and place as indicated by the officer.
Subsequent to the above, the officer provides list of further documents and information as may be required to understand the facts of the case. The officer also issues a summon to the person asking him or his authorized representative to appear and produce the necessary. The intention of the summon is to only gather more information and not to put any allegations on the person. However, during personal appearances the officers puts a lot of pressure on the taxpayer to agree with the findings of the officer and pay the demand amount, which should be handled very carefully.
Once the above information is collated and summarized by the officer, he shall determine and inform the amount of demand payable by the person. Below are the possible outcomes:
1. The person agrees to the demand and pays the same- The proceedings are stopped and any goods or documents or material in the possession of the officer is returned to the person
2. The person does not agree to the demand- In this case there are two possibilities
a. The demand has been raised on the person on account of reasons other than fraud or wilful-misstatement, recovery under Section 73 shall be done by the officer
b. The demand has been raised on the person on account of reasons of fraud or wilful-misstatement, recovery under Section 74 shall be done by the officer
The recovery proceedings under Section 73 and 74 shall be discussed in detail in another article. As already stated above, Search and Seizure proceedings can have significant repercussions if not taken up carefully and hence requires detailed study of the case.