“Unlock the intricacies of Inspection, Search, and Seizure under GST Law. Learn how GST officers scrutinize returns, issue notices, and the consequences of discrepancies. Explore the powers bestowed upon officers, the criteria for search warrants, and the vital ‘reason to believe’ aspect. Understand the seizure, disposal, and release of goods, with expert insights into the legal nuances. Navigate the complexities with precision.”
A GST officer thoroughly checks the GST return of a particular taxpayer based on certain risk parameters to verify its correctness. If he finds any errors, he will issue a scrutiny notice Form GST ASMT 10, seeking an explanation within a period of 30 days from the date of notice or extended time. Where possible, quantify the amount of tax and any other amount payable. On receipt of the notice, the registered person may accept the discrepancies and pay the tax and interest or furnish an explanation for the discrepancies in form ASMT 11. If the explanation furnished by the assessee is acceptable to the Proper Officer (PO), the PO shall inform accordingly in GST ASMT-12, and no further action is taken. However, if the PO is not satisfied with the reply or explanation of the assessee, in such a case, the PO can’t pass an assessment order raising a demand, but he may resort to any of the provisions like audit u/s 65, special audit u/s 66, or inspection, search & seizure u/s 67 or proceed to determine tax and other dues u/s 73 (non-fraud case) or u/s 74 (fraud case).
The Commissioner or an authorized officer can purchase any goods and/or services from a taxable person to check the issue of tax invoices, whether they are maintained correctly, and whether the GST amount is clearly displayed. When the goods are returned, the amount will have to be refunded by the taxable person, and the sales invoice will be canceled. Provision has been made in subsection 12 of Section 67 of the CGST Act.
The GST Act, 2017 has given enormous power in the hands of GST officers, even to arrest persons evading tax or claiming fake input tax or in cases of fraud. In the following article, we will briefly discuss the provision of Inspection, Search & Seizure under Section 67 of the CGST Act.
The term ‘inspection‘ is the act of examining something, often closely. ‘Search‘ denotes an action of government agencies to go, look through, or examine carefully a place, area, person, object, etc., in order to find something concealed or for the purpose of discovering evidence of a concealment of GST. But the search of a person or vehicle or premises, etc., can only be done under proper and valid authority of law. ‘Seize’ means to take possession of goods through legal process, contrary to the wishes of the owner, or to take forcible possession.
Section 67 of the CGST Act gives the power of inspection, search, and seizure to the Proper Officer. In Circular No. 3/3/2017 – GST dated 05 July 17, the Proper Officer has been defined under the Central Goods and Services Tax Act, 2017, or the rules made thereunder. For the function under section 67 of the CGST Act, the proper officer is designated as an officer not below the rank of Joint Commissioner. So any officer below the rank of Joint Commissioner does not have any power under section 67 unless he/she is authorized by the Proper Officer.
If the Proper Officer has reasons to believe that the person concerned has suppressed any transaction of supply or stock of goods in hand, claimed excess input tax credit, contravened any provision of the CGST/SGST Act to evade tax, or a transporter or warehouse owner has kept goods that have escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax, he may authorize in writing any other officer of CGST/SGST to inspect any places of business of such taxable person. Such written authority by the Proper Officer to conduct a search is generally called a search warrant. A search warrant must indicate the existence of a reasonable belief leading to the search. The search warrant should contain details like the violation under the Act, the premises to be searched, the name and designation of the person authorized for the search, the name of the issuing officer with full designation along with his round seal, date and place of issue, serial number of the search warrant, period of validity (e.g., a day or two days, etc.). Section 67(10) of the CGST/SGST Act prescribes that searches must be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973. Section 100 of the Code of Criminal Procedure describes the procedure for search.
Reason to Believe
As per the provision of search and seizure under GST Law, the proper officer can use his power only if he has reasons to believe that the person concerned has contravened any GST law provision. So here the question arises, what is “Reason to Believe“? Before issuing an authorization for any search, the Proper Officer has to disclose the material on which his belief was formed. Though it is not required to record invariably in each case, it would be better if the materials/information, etc., are recorded before the issue of the search warrant or before conducting the search.
In the case of Delhi HC in R.J. Trading Co Vs. Commissioner of CGST , Delhi North [W.P.(C) No 4847 of 2021 dated 20.07.21], it was held that no search can be conducted by the Revenue Department where the jurisdiction ingredients are absent. Further, “reason to believe” does not carry the same connotation as “reason to suspect,” and the standard of belief is that of a reasonable and honest person and not one based on mere suspicion.
Similarly, in the case of “Pukhraj v D.R.Kohali,” the Supreme Court observed that when we are dealing with a question as to whether the belief in the mind of the officer who effected the seizure was reasonable or not, we are not sitting in appeal over the decision of the said officer. All that we can consider is whether there is ground which prima facie justifies the said reasonable belief.
The Hon’ble Supreme Court in Sheo Nath Singh v. Appellate Asstt. CIT [1971] 82 ITR 147/AIR 1971 SC 2451 held that the Court can examine the materials to find out whether an honest and reasonable person can base his reasonable belief upon such materials, although the sufficiency of the reasons for the belief cannot be investigated by the Court.
Instructions No 01/20-21 (GST Investigation) Dtd 02.02.21 to be followed during search Operation
As per instructions No. 01/20-21 (GST Investigation) Dtd 02.02.21, the following principles should be observed during a search:
1. Valid and justifiable reason for authorizing a search – No search of premises should be carried out without a valid and justifiable reason for authorizing a search warrant issued by the Competent Authority.
2. Search of Residence – In the case of a search of a residence, there should invariably be a lady officer accompanying the search team.
3. No Coercive Measures against Family Members – In the case of Paresh Nathalal Chauhan vs state of Gujrat (2020(32) G.S.T.L. 342 (Guj.)), the Gujarat HC held that Sec 67(2) does not empower the officer concerned to record statements of family members through force or coercion or to record their conversation on their mobile phones. It is not permissible for the authorized officer to use coercive measures against family members to find out the whereabouts of the taxable person.
4. Circular 122/2019 states that communication from the CBIC offices for ‘Search authorization, Summons, arrest memo, Inspection notices, and letters issued in the course of the enquiry shall mandatorily bear electronically generated “Document Identification Number (DIN)”.
5. The name and premises of such a person mentioned on the search warrant can only be searched.
6. The officers before starting the search should disclose their identity by showing their identity cards to the person in-charge of the premises.
7. The search warrant should be executed before the start of the search by showing the same to the person in-charge of the premises, and his signature should be taken on the body of the search warrant as a token of having seen the same. The signatures of at least two witnesses should also be taken on the body of the search warrant.
8. The search should be made in the presence of at least two independent witnesses of the locality. If no such inhabitants are available/willing, the inhabitants of any other locality should be asked to be witnesses to the search. The witnesses should be briefed about the purpose of the search.
9. Before the start of the search proceedings, the team of officers conducting the search and the accompanying witnesses should offer themselves for their personal search to the person in-charge of the premises being searched. Similarly, after the completion of the search, all the officers and witnesses should again offer themselves for their personal search.
10. After the search is over, the search warrant duly executed should be returned in the original to the issuing officer with a report regarding the outcome of the search. The names of the officers who participated in the search may also be written on the reverse of the search warrant.
11. The issuing authority of the search warrant should maintain a register of records of search warrants issued and returned, and used search warrants should be kept in records.
12. A Panchnama/Mahazar of the proceedings of the search should necessarily be prepared on the spot. A list of all goods, documents recovered and seized/detained should be prepared and annexed to the Panchnama/Mahazar. The Panchnama/Mahazar and the list of goods/documents seized/detained should invariably be signed by the witnesses, the in-charge/owner of the premises before whom the search is conducted, and also by the officer(s) duly authorized for conducting the search.
13. A copy of the Panchnama/Mahazar, along with its annexure, should be given to the person in-charge/owner of the premises being searched under acknowledgement.
Confiscation & Seizure of Goods( Sec 67(2) & rule 139
An officer carrying out a search has the power to search for and seize goods, documents, books, or things which, in his opinion, shall be useful for or relevant to any proceedings under GST Law. Goods become liable to confiscation when a person supplies or receives any goods in contravention of any of the provisions of the GST Act or rules made thereunder leading to the evasion of tax. If it is not practicable to seize items, the authorized officer may serve an order of prohibition in Form GST INS-03 on the owner/custodian of the goods, forbidding them from removing, parting with, or otherwise dealing with the goods except with the prior permission of such officer.
It should be noted that the expression “things” occurring in Sec 67(2) of the CGST Act would cover cash as well. GST authorities are empowered to seize cash from assesses, and unless the investigation is carried out and the matter is finally adjudicated, the question of releasing cash does not arise. It was held in the case of Madhya Pradesh HC in Kanishka Matta vs UOI (Writ petition no.8204/2020 dated 26.08.20)
However, in a recent case of ARVIND GOYAL CA Vs UNION OF INDIA & ORS. (Delhi High Court),W.P.(C) 12499/2021, a Division Bench of the Delhi High Court recently directed to return the amount taken in possession by GST Officers with interest, noting that the GST Officers cannot take possession of cash found during a search under the Goods and Services Tax Act, 2017. During the course of the search at the residence of the petitioners, the court directed the petitioner to submit a bank guarantee for the release of currency.
Power to seal or break the Premises
During search, the officer has the power to break and open the door of the premises authorized to be searched if access to the same is denied. Similarly, while carrying out search within the premises, he can break open any almirah or box if access to such almirah or box is denied and in which any goods, account, registers or documents are suspected to be concealed. He can also seal the premises if access to it denied.
In case of Singhi Buildtech Pvt Ltd Vs Commissioner of Commercial tax ( 2019 (22) GSTL.10(KAR)) Karnataka HC held that officer shall not seal premises unnecessarily .
In case of M/s Napin Impex Pvt ltd Vs commissioner of DGST, Delhi & ors, (W.P. (C ) 10287/ 2018 Dated 28.09.18 Delhi HC Directed to hand over of premises sealed for over a month , sealing cannot assume “indefinite” life.
In case of Anopsinh Kiritsinh Sarvaiya Vs State of Gujarat (R/Special application No. 2705 of 2020 dated 06.02.2020, Gujarat HC held that GST Authorities should be concerned with goods or other articles stored in godown, which may be liable to confiscation and there was no pint in keeping godown closed with a seal affixed on it.
Period of Seize and release of documents , Books or things etc
As per 2nd provision of sec 67(2),Seized documents, books or things will be retained by the officer only for the period necessary for examination and for any inquiry or proceeding under GST law, In case of Universal Dyechem pvt ltd vs UOI (2021(46) G.S.TL.119(Guj)) Gujarat HC held that seized documents , books or things produced by a taxable person which have not been relied upon for the issue of notice shall be returned within 30 days of issue of SCN. As per section 67(7) seized goods shall be returned within 6 months of such seizure if no notice is issued within 6 months to the person from whose possession they were seized, period of 6 months may be extended by proper office for further period not exceeding 6 months if sufficient cause being shown.
Photo Copy of Seized Documents
Taxable person shall be entitled to make copies thereof or take extracts there from of any documents seized in the presence of authorized officer at such time and place decided by officer but GST Officer can deny for making copy of documents where the proper officer is of opinion that making such copies or taking such extracts may prejudicially affect the investigation as mentioned in Section 67(5). But most of the cases like High ground Enterprises Ltd Vs UOI, Harshvadan Rajnikant Trivedi Vs UOI AND Manish Lalit Kumar Bavishi Vs Additional Director General GST Authorities directed to make available the coped of seized documents.
As per section 67(6) of GST Act, The goods so seized under sub-section (2) shall be released, on a provisional basis, 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. If taxable person Executes bonds for the value of goods in Form GST INS-04 and furnishes security in form of Bank guarantee equivalent to the amount of tax , interest and penalty payable or pay applicable of tax , interest and penalty payable , seized goods can be released on provisional basis but if taxable person fails to produce the goods on appointed date and place indicated by PO Security shall be en-cashed and adjusted against the tax , Interest and penalty and fine if any payable in respect of such goods.
In case of state of U.P. Vs Kay Pan Fragrance Pvt Ltd (Civil Appeal No 8941, 8942 and 8944 of 2019 dated 22 Nov 19 , Hon’ble SC held that proper mechanism already provided for in the CGST Act and the rules must be followed for release on a provisional basis upon execution of a bond and furnishing of a security , in such manner and of such quantum (even upto the total value of goods involved) , respectively as may be prescribed or on payment of applicable taxes , interest and penalty maybe as the case may be as predicated in section 67(6) of the act.
In case of Quality enterprise Vs Assistant state tax officer (W.P.(C) No 18212 of 2020 dated 18.09.20, Kerala HC Held that Bank guarantee furnished before the department shall not be en-cashed until orders are passed by the first appellate authority as directed and the order communicated to the petitioner .
Seizure and disposal of goods having perishable or Hazardous Nature
As per section 67(8) proper office may dispose of the goods as soon as may be after its seizure under section 67(2) of the CGST Act in following circumstances
I. If there is a constraint of the storage space of the goods or
II. Goods are of perishable or Hazardous nature
III. Value of goods depreciate with the passage of time or
Iv. Any other relevant reason for not keeping the goods after the seizure
Notification No. 27/2018-Central Tax dated 13.06.2018 has Notifies categories of such goods which shall, as soon as may be after its seizure under section 67(2) of the CGST Act, be disposed of by the proper officer, having regard to the perishable or hazardous nature, depreciation in value with the passage of time, constraints of storage space or any other relevant considerations of the said goods. In this notification total 17 categories of goods are specified. Inventory of such goods to be signed and maintained by the person from whose custody such goods are seized.
As per Rule of CGST 141 (1) Where the goods or things seized are of perishable or hazardous nature, and 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.
141(2) Where the taxable person fails to pay the amount referred to in sub-rule (1) 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.
CAN GST OFFICIALS FORCE FOR DEPOSIT OF GST AT THE TIME OF SEARCH AND SEIZURE
GST officials cannot force the Assessee for deposit of tax at the time of search and seizure proceedings even they can’t ask for Post dated cheque. Such kind of collection/recovery of tax is illegal and the same is violative to Article 265 of the Constitution of India which provides that no tax can be recovered without authority of Law. In the case of M/s Remark Flour Mills Private Limited V State of Gujrat (R/Special Civil Application No 4835/2018) has slammed the practice of collecting post dated cheques during inspection/search & seizure proceedings. The Hon’ble High Court held that the practice of collecting post-dated cheques during the raid is not permissible means of collection of revenue. The similar view was earlier taken by the Hon’ble Gujarat High Court in VAT regime as well in the case of Atul Motors v State of Gujarat (R/Special Civil Application no 959/2015) and Automark Industries (i) Ltd v State of Gujrat (2014) SCC online Gujarat 14217.
Documents asked during Search & Seizure
In General taxable person is asked to provide the books of Accounts and records required to be maintained by taxable person including Trial balance , duly audited annual financial statements , Tax audit reports, cost audit reports etc .
Precautions during Search & Seizure
Taxable Person should be calm and obedient and shall not hide any documents and record and provide correct information to proper officer. Taxable person should not interfere or stop any officer conducting search. But Search officer cannot search any other property not mentioned in the Search Warrant. Taxable person can ask search officer to show its identity card and before the start of the search proceedings, the team of officers conducting the search and the accompanying witnesses should offer themselves for their personal search to the person in-charge of the premises being searched. Similarly, after the completion of search all the officers and the witnesses should again offer themselves for their personal search. Taxable person should cross verify the list prepared of all goods, documents recovered and seized/detained
Summon
Even after search, Proper office has full right to summon and question any person and ask for Information and documents he may deem fit. Where any summon has been issued by proper officer, the person to whom such summon is issued is required to present himself before the officer and provide required evidence or documents when required.
CONCLUSION
Search and seizure adversely affects Taxable person reputation and paralyze his business activities. Therefore while exercising such powers, the authorities should be rather careful and cautious and must exercise it strictly under the authority of the law. Inspection, Search or Seizure can only be carried out by a proper officer as envisaged by legislature, only when such proper officer has ‘reason to believe’ regarding the existence of such exceptional circumstances.
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