GST Enforcement Resembling Customs Raids Hurting Small Taxpayers

Central GST enforcement like Customs: how ‘search‑mode’ culture under GST is hurting small taxpayers and what must change

1. GST was supposed to be different, but enforcement looks like old Customs

When GST started on 1‑7‑2017, we were told it is a new law with a new mindset: self‑assessment, online returns, and minimum physical contact with the department. But if we look at the working style of Central CGST enforcement in many places, it still looks and feels like old‑style Central Excise and Customs – heavy focus on search, seizure, lengthy “investigation”, repeated summons and even arrest threats.

For small and medium taxpayers, walking into a Central GST office still feels like entering a customs preventive office, not a modern tax administration. Officers come with Hawaladars, full videography, seize books and devices, keep records for years without clear permission orders, and often do not coordinate with State SGST officers. Taxpayers and professionals are stuck in the middle.

2. How GST search, seizure and arrest powers are supposed to work

The CGST Act and flyers of the GST Council itself say that search, seizure and arrest are exceptional powers and there are checks and balances.

• Section 67 deals with inspection, search and seizure. A Joint Commissioner or above has to authorise in writing if he has “reasons to believe” that documents or goods are secreted.
• Section 70 deals with power to summon any person to give evidence or produce documents. This is similar to civil court powers and is not meant to be misused for repeated harassment.
• Section 69 read with Section 132 deals with arrest. The Commissioner must record “reasons to believe” that serious offences (above monetary thresholds) have been committed and are punishable with jail.
• The GST Council flyer on “Inspection, Search, Seizure and Arrest” itself says these powers should be used in exceptional cases and with strict criteria.

On paper, therefore, GST is not meant to run like a general criminal investigation agency. But in practice, many DGGI and Central CGST formations are copying old Customs style.

3. Customs‑style practices now seen in Central CGST enforcement

3.1 Long retention of books and records without proper approval

In search operations, officers seize books, devices and records. Under earlier indirect tax laws and even under Income Tax, there are clear limits for how long seized books can be kept without higher approval and there is a requirement to return them after examination, or at least after completion of assessment.

Under GST, Section 67(2) allows seizure of documents and goods, and Rule 139 and related provisions require recording reasons and preparing inventory. However, on the ground:

• Books and devices seized in 2017‑18 to  2022-23 are still lying with the department in some cases, without any fresh written permission recorded at higher level.
• Taxpayers keep writing letters for return of books but either get no reply or are told “verification is still pending”.
• When State GST or audit officers ask for the same records for their own assessments, the taxpayer has nothing to show; he is blamed for non‑production, even though the books are already in Central CGST custody.

This is not only unfair; it directly affects the taxpayer’s ability to reply to show‑cause notices and defend himself in adjudication. The spirit of time‑bound investigation and limited retention is lost.

3.2 Multiple demands on the same books – Central and State both asking

Because GST is a dual system, State SGST officers also conduct audit, enforcement and assessment. Many times:

• Central officers have already seized and retained original books and devices.
• State officers issue notices and call for the same records, not aware that they are lying with Central enforcement.
• The taxpayer stands helpless in between; he cannot satisfy the State officer and cannot get back books from the Central officer in time.

Later, in State proceedings, it is recorded that taxpayer “failed to produce records” and adverse inference is drawn. The taxpayer is punished for lack of coordination between two wings of the same GST system.

3.3 Summons culture – repeated personal attendance, no role for professionals

Section 70 gives power to summon any person as if a civil court. It does not say that professionals cannot be present. It also does not say that taxpayers must explain complex accounts without help. Still, in actual practice:

• Summons are issued again and again, sometimes with very short notice.
• Even when the taxpayer appears, officers often do not allow the CA/advocate to sit in the room or to help in explaining ledgers and returns.
• Many small taxpayers honestly do not understand the technical details of GSTR‑1, GSTR‑3B, 2A/2B matching, etc. They depend fully on professionals. Without them, they cannot properly answer questions.

This creates an imbalance. Statements are recorded under pressure; taxpayers sign whatever is typed, and later these statements are used to allege that ITC was wrongly taken, or that they accepted liability voluntarily.

3.4 Arrest threats and actual arrests – without following full safeguards

Arrest under Section 69 is a very serious step and should be used rarely, after clear formation of “reasons to believe” and with due process. The Supreme Court and several High Courts have repeatedly cautioned against casual arrests in GST matters. CBIC has also issued instructions on arrest and bail guidelines, asking officers to respect these safeguards.

For example:

• CBIC Instructions (including modified Instruction No. 01/2025‑GST) now require that the “grounds of arrest” must be supplied in writing, not just orally, and an acknowledgment taken from the arrested person.
• Delhi High Court in Kshitij Ghildiyal v. DGGIinsisted on written communication of grounds of arrest, relying on the Supreme Court in Pankaj Bansal and other cases.

Despite this, we still see situations where:

• The department uses arrest under Section 69(1) like a routine tool to force reversals of ITC, even from small taxpayers.
• Arrest threat is used to push taxpayers into signing voluntary payment, without proper calculation or proper show‑cause notice.
• In some cases, arrest is done first and reasons are given later in a vague manner, which courts have repeatedly disapproved.

This kind of approach is closer to a preventive Customs raid rather than a modern GST investigation based on data and documents.

4. How this enforcement style hits small and medium taxpayers

From 2017‑18 up to 2022‑23, many small traders, manufacturers and service providers have faced:

• early‑morning search with Hawaladars and full videography,
• seizure and retention of books, devices and loose papers for years,
• overlapping demands from Central and State authorities,
• repeated summons and statements without professional help,
• forced ITC reversals and payments under pressure,
• and, in some cases, immediate arrest of proprietor/partner without proper application of mind.

After this, when audit or assessment happens, the taxpayer has no complete records and cannot argue his case properly. The adjudication order just records “no books produced” or “taxpayer admitted liability in statement”, and heavy demands are raised.

This is not how a self‑assessment‑based GST was promised. It also ignores that most small taxpayers are not trained in accounts and law. They depend on professionals; if officers exclude professionals from the room, they are not giving a fair hearing.

5. Comparison with earlier law – what has changed, what has not

In pre‑GST days:

• Central Excise and Service Tax had strong preventive wings, working very similar to Customs.
• Income Tax had clear rules on maximum period of retention of seized books and the need for approval for longer retention.
• Courts had already laid down those confessional statements recorded under pressure, without proper safeguards, cannot be the sole basis for serious penalties or prosecution.

With GST, one expected a shift to:

• data‑driven risk detection,
• structured audit,
• and limited physical search and arrest in truly exceptional, egregious fraud cases.

Instead, especially on the Central side, many officers seem to have carried forward the old Customs mindset into GST, without fully internalising the new legal scheme, the constitutional safeguards, and the dual structure with SGST.

6. Judicial pushback – courts protecting bona fide taxpayers and limiting arrest powers

Several High Courts and the Supreme Court have, over the years, stepped in to protect taxpayers from misuse of GST enforcement powers:

• The Supreme Court, in cases like Pankaj Bansal and related matters, has emphasised that grounds of arrest must be clearly communicated and arbitrary detention under tax laws will not be tolerated.
• CBIC’s own instructions on arrest under GST have been modified to align with these rulings, requiring written grounds and better documentation of “reasons to believe”.
• High Courts have also granted anticipatory bail and quashed harsh actions where there was no material of real fraud, or where the department jumped to arrest without completing basic investigation and document examination.

These judicial trends show that courts recognise the difference between a genuine business dispute or technical mismatch, and a hardcore fake‑invoice racket. Officers on the ground need to reflect this distinction in their day‑to‑day functioning.

7. Practical suggestions for Central CGST enforcement – how to change the approach

7.1 On search and seizure of records

1. Follow proper “reasons to believe” standard under Section 67

• Search should not be the first step for every mismatch in data.
• Use data analytics, third‑party information and desk verification first.

2. Limit seizure of records to what is necessary

• Take properly inventoried copies (physical or digital) where possible instead of carting away the entire office.
• Avoid taking original books that the taxpayer needs for day‑to‑day compliance and bank dealings.

3. Respect reasonable time limit for retention

• Even though the GST Act does not copy Income Tax section 132(8) word‑for‑word, the principle is the same: you cannot keep books indefinitely.
• After examination and necessary copies, return the records with a proper acknowledgment. If more time is needed, record reasons and get written permission at higher level.

4. Coordinate with SGST authorities

• If Central officers have seized records, inform the jurisdictional State officers so that they do not mechanically blame the taxpayer for non‑production.
• Consider sharing scanned copies or summaries in appropriate cases to avoid double hardship.

7.2 On summons and statements under Section 70

1. Allow presence of authorised representative

• Section 70 does not ban professional presence. Let the taxpayer bring his CA or advocate, especially for explaining accounts and returns. This reduces misunderstanding and later disputes.

2. Use summons judiciously

• Avoid calling the same person repeatedly for long hours, especially when the information is already filed online.
• Ask for documents in writing; give reasonable time to produce them.

3. Avoid extracting mechanical “confessions”

• Do not force taxpayers to sign pre‑typed statements admitting liability or “voluntary” reversal of ITC.
• If they want to deposit any amount during investigation, ensure they understand the basis and their legal rights to contest later.

7.3 On arrest under Section 69

1. Treat arrest as a last resort, not a first reaction

• Check whether the case really meets the thresholds under Section 132 and whether there is clear evidence of wilful fraud and risk of flight or tampering.

2. Follow CBIC’s arrest guidelines strictly

• Record detailed “reasons to believe” in the file.
• Communicate “grounds of arrest” in writing as required by Instruction No. 01/2025‑GST and obtain acknowledgment.

3. Distinguish between mastermind and small link players

• In typical GST chains, there are masterminds and there are small businesses who get trapped.
• Use arrest powers only for persons who are truly running the bogus billing racket, not for every recipient with some disputed ITC.

8. Message to taxpayers and professionals – how this note can help

This kind of article or note has two purposes:

• It gives a clear picture to officers about ground realities and the pain on the taxpayer side.
• It gives a moral and legal framework to taxpayers and professionals to assert their rights, quote instructions and case‑law, and ask for fair treatment.

Taxpayers should keep:

• copies of seizure memos,
• correspondence demanding return of books,
• proof of attendance to summons and requests for professional presence,
• and any evidence of threats or forced reversals.

Professionals can then use this material to approach supervisory officers, file complaints, and even take matters to High Courts where necessary. Courts have repeatedly protected bona fide taxpayers when they see clear facts and proper documentation.

9. Conclusion – GST enforcement must move away from “raid mindset” to balanced administration

GST is meant to be a modern law built on technology, self‑assessment and trust. The enforcement wing cannot run like old‑style Customs or Excise forever. If Central CGST enforcement continues to rely mainly on raids, long retention of records, repeated summons without professionals, and aggressive arrest and ITC reversal, it will damage not only individual taxpayers but also the credibility of the entire GST system.

The law, the official flyers and the Supreme Court’s directions all point in one direction: use search and arrest powers sparingly, return books in reasonable time, allow professionals to assist, co‑ordinate with States, and differentiate clearly between genuine business disputes and real fraud.