Inspection, Search & Seizure – Section 67 Of CGST Act 2017


1. Section 67 of the CGST Act 2017 stipulates the provisions relating to Inspection, Search & Seizure. In this article, an attempt has been made to explain the provisions & Rules in a simplified manner.

2. Inspection: Inspection is a softer provision than search to enable officers to access any place of business and check the records. The relevant provisions are brought out in succeeding paragraphs.

Section 67(1)

Rule 139(1)

An officer not below the rank of Joint Commissioner can authorize any other officer of central tax to conduct the inspection.

Such Authorization shall be given in Form GST INS-01.

The authorized officer can inspect any place of business of the taxable person.

He can also inspect the place of business of a person engaged in transporting goods, owner or operator of a warehouse, or any other place.

2.1 Who is a taxable person? : A taxable person is a person registered or is liable to be registered under the CGST Act 2017. Section 22 & Section 24 of the CGST Act prescribes the provisions relating to persons liable for registration.

Search & Seizure

2.2 Which places are considered a place of business?

Section 2(85) Place of business include the following-

(a) a place from where the business is ordinarily carried on and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides, or receives goods and/or services.

(b) a place where a taxable person maintains his books of account. if books of accounts are being maintained or kept at the residence of the director or any other key managerial person the same may be treated as a place of business and inspection can be carried out there

(c) a place where a taxable person is engaged in business through an agent.

2.3 On what ground the officer ( not below the rank of Jt. Commissioner ) may order & authorize the central tax officer to conduct an inspection?

Section 67(1)(a)

An officer ( not below the rank of Jt. Commissioner ) may order & authorize the central tax officer to conduct an inspection when he has reason to believe that a taxable person has done the following acts:

(a) Suppressed any transaction relating to the supply of goods and /or services or the stock of goods in hand or

(b) Claimed input tax credit in excess of his entitlement under the Act or

(c) Indulged in contravention of any of the provisions of this Act or rules made there under.

Further, the officer shall have the reason to believe that the above action has been done by the taxpayer in order to evade tax .

Section 67(1)(b)

An officer ( not below the rank of Jt. Commissioner ) may order & authorize the central tax officer to may conduct an inspection when he has reason to believe that

any person engaged in the business of transporting goods or an owner/ operator of a warehouse/ godown is:-

(a) Keeping goods which have escaped payment of tax.

(b) kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act.

2.4 What is the Suppression of fact?

Section 74(1)

Meaning of Suppression: Suppression” shall mean :

non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made there under,

Or failure to furnish any information on being asked for, in writing, by the proper officer.

2.5 What is the meaning of Reason to believe?

Reason to believe is a determination based on intelligent examination and evaluation. It is based on facts rather than an interpretation of facts.

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.”

3. Search and Seizure The term ‘search’, in simple language, denotes an action of government machinery 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 against an act.

3.1 Statutory provision

Section 67(2)

An officer, not below the rank of Joint Commissioner may authorize (in writing ) any officer or may himself conduct search and seizer of goods, documents or books or things if he has reason to believe (either pursuant to an inspection carried out or otherwise ) that goods, documents, books and things are secreted in any place.

The Jt. Commissioner may conduct/authorize to conduct search & seizure if he is of opinion that these goods are liable to confiscation and documents books & things shall be useful for or relevant to any proceedings under this Act.

Rule 139(2) The order of seizure should be in form GST INS-02
1st Proviso to section 67(2) Where it is not practicable to seize any such goods, the proper officer may serve on the owner/ 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.
Rule 139(3) The proper officer may entrust upon the owner or the custodian of goods, from whose custody such goods or things are seized, the custody of such goods or things for safe upkeep and the said person shall not remove, part with, or otherwise deal with the goods or things except with the previous permission of such officer.
Rule 139(4) Such an order shall be issued in form GST INS-03.
Rule 139(5) Inventory should be prepared and signed by the person from whom goods were seized.
2nd Proviso to section 67(2) The goods, 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 proceeding under this Act.

3.2 What is the meaning of the term ‘Secreted’: – The term ‘secreted’ is not defined under the Act. However, in general parlance, it may be understood to mean anything that is concealed or hidden. Therefore, if documents are not kept in a proper place or usual place with an intention to conceal them from the officer will be termed as secreted. The term any other place would include both disclosed and undisclosed places.

3.3 Power to Seal or Break

Section 67(4) The officer authorized under section 67(2) shall have the power to seal or break open the door of any premises or to break open any almirah, box, the receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, box or receptacle is denied

4. Seizure of documents, books, or things

Section 67(11) 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 for any proceedings under this Act or the rules made thereunder for prosecution
Section 67(5)

The person from whose custody any documents are seized under section 67(2) shall be entitled to make copies thereof or take extracts there from in the presence of the proper officer.

Where the proper officer is of opinion that making such copies or taking such extracts may prejudicially affect the investigation, he can deny making the copy the documents.

Section 67(3) The documents, books, or things which have not been relied upon for the issue of notice under this Act shall be returned to such person within 30 days of issue of said notice

5. Seizure of Goods

Section 67(6) Release of Goods on the provisional basis:- The good seized under section 67(2) shall be released on a provisional basis on the execution of bond and furnishing of security or on payment of tax, interest and penalty
Rule 140(1) The bond shall be in form GST INS-04. The security shall be in form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable. Applicable tax means IGST, CGST, SGST and Compensation Cess.
Rule 140(2) If goods provisionally released are not produced at the appointed date, security will be encashed and adjusted against tax, interest, penalty, and fine if payable
‘Proper Officer’ (to release provisionally the seized goods under section 67 and rule 140) for the purpose of CGST is Principal Commissioner/Commissioner of Central Tax CBE&C circular No. 3/3/2017-GST dated 5-7-2017

Storage of valuable seized goods:- There are many instances where goods seized or confiscated by the department are stolen when in the custody of the department. Hence, a system of e-malkhana (bar coding) is introduced.

It is notified vide MF(DR) Instruction No. 17/2018-Cus dated 15-10-2018 that access to storerooms should be only to authorized officers. CCTV should be in activated mode when keys are used. X-ray machines should be installed and GPS tracking should be done. Standard Operating Procedures (SOPs) should be issued.

Section 67(7)

Where any goods are seized under section 67(2) 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 aforesaid period of sixty days may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.

Section 67(9)

Seizure of perishable or hazardous goods

The proper officer shall make an inventory of perishable or hazardous seized goods.

Rule 141(1)

The perishable goods can be released immediately on payment of the market price or tax, interest and penalty payable, whichever is lower.

The goods should be released by issuing the order in form GST-INS-05.

Rule 141(2) If the taxable person fails to pay the market price of perishable goods or tax, interest and penalty the goods may be disposed of by a proper officer
Section 67(8)

The Central or a State Government may specify the goods or class of goods be disposed of by the proper officer in the following cases:-

Goods are of perishable nature

The value of goods will be depreciated with the passage of time

There is a constraint of the storage space of the goods

Any other relevant reason for not keeping the goods after the seizure.

6. GST Procedure Vs Code of Criminal Procedure

Section 67(10)

Code of Criminal Procedure The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure apply to search and seizure under this section.

The only modification is that in place of the word “Magistrate”, wherever it occurs, the word ‘Commissioner’ was substituted

7. Checking of invoices by the purchase of goods

Section 67(12)

The commissioner may authorize an officer to purchase goods from the business premises of any taxable person, to check the issue of tax invoices/bills of supply.

The taxable person, or a person in charge of business premises, shall refund the amount after cancelling the tax invoice/ bills of supply issued on the return of goods so purchased by such officer.

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March 2021