Dear Friends, now approximately 4 years completing implementation of GST Act, 2017 gradually Compliance period is over for Three Cycles after initial Implementation of GST Act in India that was started from 1st July 2017 and ended on 31st March 2020 (covering after effect/corrections/claims up to 28th February, 2021) by filing Annual Returns, Reconciliation Statements, GST Audit etc on or before 28th February, 2021.
Authorities have already harnessed themselves with the implementation of those provisions of the Act which are now much red/considered i.e. Inspection, Search, Seizure and Arrest, Demands and Recovery, Offences and Penalties or you can say honeymoon period is over now tough measures are being taken by department and even in recent budget amendments F.Y. 2021-22 many astringent provisions are proposed and most of them are certain to implement in coming days.
Related sections of GST Act, 2017 covered in this Article–
1. Chapter XIV Section 67 to 72 – Inspection, Search, Seizure & Arrest
(r/w Rule -139 to 141 Chapter XXVII)
2. Chapter XV – Section 73 to 84 – Demand & Recovery
(r/w Rule – 142 to 161 Chapter XVIII)
3. Chapter XVI – Section 85 to 94 – Liability to pay in certain cases
4. Chapter XIX Section 122 to 138 – Offences & Penalties
(r/w Rule 162 Chapter XIX)
These provisions are long and descriptive but I will try to give you only limited dose which can sustain your tranquility.
I will try to correlate different provisions related to each other at one place rather describing in their sequence of Act.
A. What is Inspection, Search, Seizure & Arrest:
Section 67(1) Starts with the sentence – Where “Proper Officer” has “reasons to believe” that:
Who is Proper Officer u/s 2(91) “proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board;
Here u/s 67(1) – Proper Officer means – not below the rank of Joint Commissioner who Authorizes in Form No. GST INS-01 {CGST Rule 139(1)} any other officer subordinate to him to conduct the inspection or search or, as the case may be, seizure of goods, documents, books or things liable to confiscation.
Meaning of “reasons to believe”:
‘Reason to believe’ means having knowledge of facts (although does not mean having direct knowledge), that would make any reasonable person, knowing the same facts, to reasonably conclude the same thing.
As per the Indian Penal Code, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.”
Reason to believe is a determination based on intelligent examination and evaluation. It is different from a purely subjective consideration, i.e., an opinion. It is based on facts rather than an interpretation of facts.
Now what is “reason to believe” for as per the Section 67 that Joint Commissioner is form the opinion that authorized officers should Inspect or conduct a Search at the premises of any taxable person, those are enumerated below:
I. If he has suppressed any transaction of supply of goods or services
II. If he has suppressed any information of goods in hand
III. Claimed excess ITC of his entitlement under this Act
IV. Evading Tax by indulging in contravention of any provisions of the Act/Rule etc.
V. If any Transporter, Owner of warehouse/godown or any other place of keeping goods for escaping payment of tax or keeping accounts with wrong entries or presentation to evade tax.
Section 67(1) – Authorizes to JC to authorize any other officer to inspect business premises or Godown or warehouse if a person is in Transport or Storing of Goods business.
Section 67(2) – Authorizes to JC himself or any authorised officer by him in pursuance of inspection under section 67(1) or otherwise if he has reason to believe that goods or books are liable to confiscate/Seize useful for determination of correct tax liability then he can. [Proper officer shall issue an order u/r 139(2) in Form GST INS -02]
Further same section is also authorizes if it is not possible to confiscate the goods then in the premises of supplier goods can be demarked and instructed for not removal of goods till it is approved by seizing authorities. [Order of Prohibition in Form GST INS-03] Books/goods so seized will be released after completion of checking so long as it goes.
** Irrelevant documents will be returned within 30 days from the date of issue of notice, it means the authorities have to decide what is required and what is not required within 30 days.
Section 67(4) gave all rights to the officers to conduct search & seizure by any means including 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.
Rights of Supplier During Search:
## As a right of supplier – you can take copy of extract of documents/goods seized by officers except those which think by Officer is not allowable to give because it can affect the investigation – say any diary or rough record which was created on sight actual record that is kept secret by officer for comparing with books of account i.e. on a piece of paper list of Invoices issued with value in hand written format seized by Officers and that is different than actual that may be refused by officers to give you details. [Section 67(5)]
## Seized goods may be provisionally released by giving bond and security of the value equal to quantum as may be decided or by making payment of tax, interest and penalty, as the case may be. [Rule 140 Form GST INS-04]
## If within 6 months of goods seized no notice is issued to supplier then goods have to be returned by the Officers. Further, these 6 months may be extended max to further 6 months in special circumstances by the proper officer.
## In case of perishable goods or special type of goods which cannot by carried for long time then proper officer, if supplier fails to pay amount as referred above {r/w Rule 140(2)} may sale/disposed off at it’s best judgment and proceedings will be kept under protest against the recovery from supplier. [Rule 141(1) – Form GST INS-05]
## Supplier has right u/s 67(9) to take proper inventory of goods seized.
POWERS OF SEARCH TEAM & THEIR OFFICERS:
1. Section 67(10) – Equate the “Commissioner” with “Magistrate” as under section 165(5) under Cr.P.C- 1973 – so all powers have been vested by replacing word “Commissioner” in place of “Magistrate”
2. The officers 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.
3. Section 70 – equates the CPC, 1908 procedures in case of summoning any person for giving statement, evidence, produce documents etc related to case and also such enquiry is deemed to be “judicial proceedings” under section 193 & 228 of IPC.
4. Remember most general things as a right asked by the search team is as under & these must be ready all time on actual basis to avoid any suspicion in mine of team:
(i) Those 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,
** Few Precautions at the time of inspection/ search/seizure:
1. Do not try to be smart over the officers who have come to your premises.
2. They have certain information – which may correct or wrong but your dubious behavior or wrong statement may prove you wrong.
3. Come before authorities clean handed do not hide anything, their intention of inspection/search is to make you law abiding not to harm you.
4. As per the Registration Certificate there is “Authorised Person” so statements would be given by that person only. But proper officer has full right to summon any person to whom they may feel deem fit for statement.
5. U/s 71(1) officers have full power to access any place of business, records, property, computer etc so do not try to avoid or stop them to access anything or any place.
6. If at any point knowledge is not complete of any person from whom officers are taking statement then do not give any statement by guess work, give straight forward answer “that I am not aware” and give name of person who is aware with whole transactions and it is better to give correct answer rather guess work.
7. Authorities have full power and technical background so give password of protected files.
8. Disclose in registration your all place of business as additional place of business otherwise at the time of search these places/warehouse/godown will be treated as “Un-Authorised Business Premises”.
DEMANDS & RECOVERY
[Chapter XV – u/s 73 to 84 & Rules Chapter XVIII Rules 142 to161]
The demand raised by department has two major criterions and remember all provisions provided in Act has these two bases only:
i. Demand arises due to Natural/Genuine or due to innocence of supplier
ii. Demand raised by reason of fraud or any wilful-misstatement or suppression of facts to evade tax,
Factors responsible for Demand raised by department in addition to routine payment of taxes and returns:
[In search and seizure the officers have Reasons to Believe that there is suppression, misinformation, evasion of tax etc but language of Demand & Recovery starts “Where it appears to the proper officer” this is the basic difference of both sections]
i. Any tax has not been paid
ii. Tax short paid
iii. Erroneously refunded
[this is very important to note till today in GST returns are being filed on self assessment basis and on portal itself refunds in RFD 01 are being made even exports on LUTs are filed for ITC on exports’ refunds, then there is possibility of Erroneously Refund.]
iv. ITC wrongly availed
Note: This section is also applicable where GSTR 3B filed late it means tax has not been paid and attracts section 132, which will be discussed later.
Section 73(1)- The proper officer – requiring him to show cause (SCN) as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made there under.
SCN will be issued u/r 142 in Form No. GST DRC-01.
Time Limit for Issuing SCN u/s 73(1) read with section 73(10):
At least three months prior to end of three years from the due date of filing the Annual Return for the financial year for which tax found short etc.
[That is why Govt never waive the late fee when extended the time limit for filing Annual Returns – take example of 2019-20 AR date extended to March 2021 from Sept 2020 by many occasions but fee has not been waived otherwise 3 years period would have been counted from Sept 2020 to Sept 2023 but now it is March 2024.]
Example: For F.Y.2019-20 annual return extended date is 31/03/2021 now count three years from this date that is 31/03/2024 and three months before is 31st December, 2023, so SCN may be issued by department for the F.Y. 2019-20 is 31st December, 2023].
Proper Officer will issue a Statement of calculation of alleging wrong/short tax paid etc electronically in Form No. GST DRC-02 (remember number of electronic notice is equal to DIN number so never fight with department that the notice is void ab initio because it has no DIN number).
How to avoid SCN (Because SCN has certain consequence) :
Section 73 (5) & (6) give a sigh of relief that if before SCN u/s 70(1) or statement u/s 70(3) pay the amount of Tax along with interest u/s 50 of the Act on the basis of own ascertainment and inform the officer in writing of such payment, then SCN can be avoided.
Here Act is binding to Officers to serve SCN if above course of action is followed by supplier, but NOTE it is restricted only to that amount which is deposited but NOTE if calculation is differ and liability is more than deposited then he can issue SCN u/s 73(7)
How to avoid PENALTY & Conclude Proceedings:
Section 73(8) helps to avoid penalty payable u/s 50 after SCN issued, it provides if you deposit dues as mentioned in SCN within 30 days of Notice then Penalty can be avoided and all proceedings shall be treated as concluded under said Notice by issuing Form No. GST DRC-05 u/r 142(3) by the proper officer..
In case supplier did not pay as above within 30 days and give representation to the Proper Officer then u/s 73(9) he has to pay 10% penalty along with Tax & Interest or Rs.10,000/- whichever is higher. Then Officer will issue order u/s 73(9) u/r 142(4) GST DRC-06 will also up loaded electronically GST DRC 07.
Section 74 – Deals with Demand raised by reason of fraud or any wilful-misstatement or suppression of facts to evade tax
Whole procedure of demand is as above mentioned in normal case but for certain additional riders I am describing below:
Time Limit for Issuing SCN u/s 74(1) read with section 74(10):
At least SIX months prior to end of FIVE years from the due date of filing the Annual Return for the financial year for which tax found short etc.
Example: For F.Y.2019-20 annual return date is 31/03/2021 now count five years from this date that is 31/03/2026 and six months before is 30th Sep, 2025, so SCN may be issued by department for the F.Y. 2019-20 is 30th Sep, 2025].
How to avoid SCN & Conclude Proceedings & Further Proceedings:
STAGE 1 – SELF ASSESSMENT -Section 74(5) helps to avoid SCN by paying Tax, Interest payable u/s 50 & 15% penalty of such Tax on self assessment basis then No SCN shall be issued,
STAGE 2 – SELF ASSESSMENT IS SHORT OF DEMAND– if in opinion of officer self assessment is of short amount then he will issue SCN and after issuance of SCN Act provides if you deposit dues as mentioned in SCN within 30 days of Notice along with 25% penalty then all proceedings shall be treated as concluded under said Notice (U/s 74(8).
STAGE 3 – OPPORTUNITY GIVEN FOR SHORT PAYMENT IN SELF ASSESSMENT – The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order U/S 74(9).
Where any person served with an order issued under 74(9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty percent of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded U/S 74(11).
**** Here it is pertinent to note that penalty paid at every stage is cumulative and max 50% is an opportunity to avoid further penalty amount and prosecution.
Note: the expression “all proceedings in respect of the said notice” shall not include proceedings under section 132;
Supplier shall intimate the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an order in FORM GST DRC-05 concluding the proceedings in respect of the said notice.
Language of Act suggests u/s 74(9), (10) & (11) if within 30 days of SCN penalty with tax and interest is not paid then Order within 5 years from the date of Annual Return an Order u/s 74(11) shall be passed along with 50% penalty of Tax payable then all proceedings shall be treated as concluded under said Notice (U/s 74(11). Officer will issue order u/s 73(9) u/r 142(4) GST DRC-06 will also up loaded electronically GST DRC 07.
$$ OFFENCES & PENALTIES
(Chapter – XIX –Section 122 to 138 Read with C.G.S.T. Rule – 162)
There are 21 types of Offences described u/s 122(1) which attracts “Penalty” – the quantum of penalty shall be higher of amount as described below:
1. Rs. 10,000/-
2. Amount equivalent to tax evaded
3. Amount equal to Tax should have been deducted u/s 51
4. Amount short deducted u/s 51
5. Deducted but not paid to the Govt.
6. Likewise in TCS
7. The amount of ITC availed wrongly
8. The amount of ITC irregularly distributed
9. Refund amount claimed fraudulently
Summary of 21 offences are as under: )it is descriptive in Act but here it is like ready reckoner –
1. Supplies made without issue/incorrect/false invoice
2. Issue any Invoice without supply or contravention to Act
3. Collects tax but not paid beyond 3 months from the due date to Govt
4. Collects tax in contravention of Act but not paid beyond 3 months from the due date to Govt
5. Fails to deduct/less deducted/wrongly deducted and not deposited to Govt
6. Fails to Collect/less collected/wrongly collected and not deposited to Govt
7. ITC availed without actual supply fully or partial in contravention of Act
8. Refund taken fraudulently
9. Take or wrongly distribute ITC in contravention of section 20
10. Play with accounts to evade Tax – fake record/fake accounts/false information
11. Liable for registration in GST but not taken registration
12. False information at the time of registration
13. Stopping to officer to discharge his duties
14. Transport of goods without cover documents
15. Suppress of Turnover to avoid tax
16. Fail to maintain records and books as desired in Act
17. Failed to furnish/produce documents called for by Officer
18. Goods confiscated or liable to confiscate moved or stores other place to avoid seize.
19. Issuing Invoice by using other’s GST No.
20. Tampering or destroying evidence of GST liability
21. Disposed off or tamper goods seized or confiscated
SPECIFIC PENALTY U/S 122(2) – FOR EVASION OF TAX WRONG REFUND:
It deals if tax has not been paid or short paid or wrongly refunded by dept. or wrong ITC availed in situation:
Innocently without wrong intention – Penalty is Rs.10,000/- or 10% of Tax liability whichever is higher {122(2)(a)}
If Willfully or fraud or suppression then Penalty is Rs.10,000/- or equal to tax ascertain whichever is higher. {122(2)(b)}
Section 122(3) Deals penalty to Recipient or Dealing Person:
Rs.25,000/- Penalty is to be paid – If any person knowingly who helps or abets in offences from 1 to 21 above or acquire/transport/dealing in confiscated or liable confiscated goods or supply in contravention to Law or fails to appear before officer or fails to raise Invoice (say without tax paid goods purchased and sold).
Other Penalties:
| Section | Offence | Who is liable | Minimum
Rs. |
Maximum Rs. |
| 123 | Non filing of return | Supplier | 100/- per day | 5000 |
| 124 | Information ask u/s 151 – data/statistics etc | Supplier or to whom asked | 10000 + 100 per day | 25000 |
| 125 | Contravention of any Act or Rule of GST | Who contravene | Nil or as per officer | 25000 |
DETENTION OF GOODS IN TRANSIT:
Section 129 deals with detention of moving goods or stored during movement and have two major bifurcations of penalties:
Offence:
Goods in Transit or stored during transport in contravention of any Rule or Act of GST.
(Here important to note language used offences of any contravention means E-Way bill, Invoice, Challan, Transporter or above offences all are covered under this provision)
Penalty Two Type – If owner of goods come forward and accept or otherwise:
1. If Owner come forward and accept his mistake and pay tax + penalty:
Applicable Tax + 100% penalty (in case of exempted goods – 2% of value of goods or Rs. 25000/- whichever is higher.
2. If Owner does not come forward and paid by transporter etc:
Applicable Tax + 50% penalty less by amount paid thereon (in case of exempted goods – 5% of value of goods or Rs. 25000/- whichever is higher.
** If within 7 days of detention tax & penalty is not paid then further action u/s 130 shall be initiated, in case of perishable goods this period may be reduced.
VERY IMPORTANT MISCELLANEOUS SECTION 132
This section is very important here some important offences given which have grave consequences:
Offences:
a) Supply without issue of invoice or in violation with the intention to evade tax.
b) Issue of Invoice without supply for intention to give benefit of ITC
c) Availing ITC on such invoices (so supplier & recipient both covered)
d) 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;
e) Evade tax or used ITC by other means as covered above
f) Falsify records, documents etc to evade taxes
g) Obstruct to officer to perform his duty
h) Knowingly get possession of goods which are subject to prohibition by law such as detailed or liable for confiscate.
i) Receives or in any way concerned with supply in contravention of Act, Rule etc.
j) Tampering documents etc
k) Fails to supply information or supply wrong information
l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section,
Arrest for Offences from a to d above:
Section 69 deals with power of arrest, that is as under:
Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person and further procedures of CRPC will be followed and will be presented to Magistrate for further action.
Penalties for a to l offences above:
i. If amount of tax evaded or ITC utilized > 5 crores – Imprisonment up to 5 years and fine.
ii. If amount of tax evaded or ITC utilized > 2 crores but < 5 crores – Imprisonment up to 3 years and fine.
iii. If amount of tax evaded or ITC utilized > 1 crores but < 2 crores – Imprisonment up to 1 years and fine.
Penalties for l in case of f, g & j above:
Imprisonment 6 months or fine or both. (i.e. falsify records, obstruct officer and tampering documents)
** For habitual offenders u/s 132(2) – in second or onward imprisonment may extend to 5 years.
Offences by Companies and Compounding of Offences:
Where an offence committed by a person under this Act is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Responsible Officers meaning:
u/s137(2)
Any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly
U/s 138 – Compounding:
Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed. [Form No. GST CPD Rule 162(1)]
Compounding Fee:
Act has provided range of compounding fee as under:
The amount for compounding of offences under this section shall be such as may be prescribed, subject to the minimum amount not being less than ten thousand rupees or fifty per cent. of the tax involved, whichever is higher, and the maximum amount not being less than thirty thousand rupees or one hundred and fifty per cent. of the tax, whichever is higher.
Benefits of Compounding: [Compounding order come under Form GST CPD u/r 162(3)]
On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.
I hope this untouched area will be certainly touched by you after reading this article and I shall be grateful to put your remarks and questions thereon.
(Republished with Amendments)
*****
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
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Very informative & easy to comprehend article.