Introduction:

Taxation is one of the most important sources of government revenue. Our government has to perform various activities for the welfare of the people of India. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Central and the State. An important restriction on this power is Article 265 of the Constitution which states that “No tax shall be levied or collected except by the authority of law”. Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.

None the less, tax evasion is the massive problem in India. There are many methods that people use to evade taxes in India that range from false tax returns to fake documents. From the past survey report, evaders of tax has been increasing. The tax evaders, by evading the tax, get an unfair advantage over the genuine tax payers. The government has taken various legislative methods to mitigate the effects of tax evasion and to keep corruption free India. To prevent the genuine taxpayers, the concept of Inspection, search, seizure and arrest has been implemented.

In India, the power of search and seizure for prevention and investigation of offences was for the first time conferred under the Code of Criminal Procedure and since search and seizure is a process exceedingly arbitrary in character, stringent statutory conditions were imposed on the exercise of the power.

Statutory Provision under Central Goods and Services Tax Act, 2017

Section 67– Inspection, Search and Seizure

(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that––

(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,

He may authorise in writing (FORM GST INS-01) any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

(2) Pursuant to sub-section (1) or otherwise, where the proper officer not below the rank of JC, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing (FORM GST INS-02) any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things

Proviso 1: Where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him (FORM GST INS-03), may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer

Proviso 2: The documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

Others important points need to be pondered:

  • The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.
  • The officer authorised shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied
  • The person from whose custody any documents are seized shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorised officer at such place and time. (Exception: where making such copies, in the opinion of the proper officer prejudicially affect the investigation)
  • The goods so seized shall be released, on a provisional basis (upon execution of FORM GST INS-04), upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be. ( the “applicable tax” shall include Central tax and State tax or Central tax and the union territory tax and the cess (if payable under GST Compensation to state Act 2017))

As per Sub-rule (2) of Rule 140 of the CGST Rules 2017, in case the person to whom the goods were released provisionally fails to produce the goods at the appointed date and place indicated by the proper officer, the security shall be encashed and adjusted against the tax, interest and penalty and fine, if any, payable in respect of such goods.

  • Where any goods are seized and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized (the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months)
  • In respect of perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and penalty that is or may become payable by the taxable person, whichever is lower, such goods or, as the case may be, things shall be released forthwith, by an order in FORM GST INS-05, on proof of payment. ( In respect of such goods an authorised officer shall have to prepare an inventory of such goods)

Where the taxable person fails to pay the amount in respect of the said goods or things, the proper officer may dispose of such goods or things and the amount realized thereby shall be adjusted against the tax, interest, penalty, or any other amount payable in respect of such goods or things.

  • Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.
  • The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.

Section 68: Inspection of Goods in movement

The Government may require the person in charge of the conveyance carrying any consignment of goods to carry the invoice or bill of supply or delivery challan and a copy of the e-way bill in physical form or the e-way bill number in electronic form or mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner.

Where any conveyance is intercepted by the proper officer at any place, he may require the person in charge of the said conveyance to produce the documents prescribed and devices for verification, and the said person shall be liable to produce the documents and devices and also allow the inspection of goods.

Note: As per Rule 138C of the CGST Rules 2017, Where the physical verification of goods being transported on any conveyance has been done during transit at one place within the State or Union territory or in any other State or Union territory, no further physical verification of the said conveyance shall be carried out again in the State or Union territory, unless a specific information relating to evasion of tax is made available subsequently.

Section 69- Power to Arrest

A. Where the Commissioner has reasons to believe that a person has committed any offence which is prescribed below:

> supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax

> issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax

> avails input tax credit using such invoice or bill referred above ;

> collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due

Which is punishable-

> In cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

> In cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;

He may by order, authorise any officer of Central Tax to arrest such person.

B. Where a person is arrested for an offence specified above and punishable with a term which may extend to five years and with fine which shall be cognizable and non-bailable, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.

C. Subject to the Provision of the Code of Criminal Procedure, 1973-

> where a person is arrested for any offence which is non-cognizable and bailable , he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;

> in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.

Section 70- Power to summon persons to give evidence and produce documents

The proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908. Every such inquiry referred to in sub-section (1) shall be deemed to be a “judicial proceedings” within the meaning of section 193 and section 228 of the Indian Penal Code.

Section 71: Access to Business Premises

> Any officer under this Act, authorised by the proper officer not below the rank of Joint Commissioner, shall have access to any place of business of a registered person to inspect books of account, documents, computers, computer programs, computer software whether installed in a computer or otherwise and such other things as he may require and which may be available at such place, for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue

> Every person in charge of place shall, on demand, make available to the officer authorised or the audit party deputed by the proper officer or a cost accountant or chartered accountant nominated undersection 66—

(i) such records as prepared or maintained by the registered person and declared to the proper officer in such manner as may be prescribed;

(ii) Trial balance or its equivalent;

(iii) Statements of annual financial accounts, duly audited, wherever required;

(iv) Cost audit report, if any, under section 148 of the Companies Act, 2013;

(v) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961; and

(vi) any other relevant record,

for the scrutiny by the officer or audit party or the chartered accountant or cost accountant within a period not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by the said officer or the audit party or the chartered accountant or cost accountant.

Section 72: Officers to assist proper officers

> All officers of Police, Railways, Customs, and those officers engaged in the collection of land revenue, including village officers, officers of State tax and officers of Union territory tax shall assist the proper officers in the implementation of this Act.

> The Government may, by notification, empower and require any other class of officers to assist the proper officers in the implementation of this Act when called upon to do so by the Commissioner.

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