GST Law is in the process of formation. There is need of removing laxity and absolute powers to authorities in respect of inspection, search, seizure, detention, suspicion etc.
Many a times, goods are seized by authorities under VAT Act/ Rules on the grounds of their own suspicion as well as search operations are taken on suspicion and surmises.
Section 48 of U.P. VAT Act, 2008 deals with the ‘Power to seize goods’. Section 48(1) presupposes “reason to believe” of an officer authorized under section 45(1) in respect of power to seize any goods in the specified circumstances.
According to section 61(1) of the proposed Goods and Services Tax Act, 2016[Model GST Law], the Central or a State Government may require the person in charge of a conveyance carrying any consignment of goods of value exceeding Rs. 50,000/- to carry with him such documents as may be prescribed in this behalf. Further according to sub-section (2) of section 61, where any vehicle referred to in sub-section (1) is intercepted by the proper officer at any place, he may require the person in charge of the said vehicle to produce such documents for verification and the said person shall be liable to produce the documents.
According to Section 69(1) of MGL which deals with the detention of goods and conveyances, and levy of penalty- where any person:
(i) transports any goods or stores such goods while they are in transit in violation of the provisions of this Act; or
(ii) stores or keeps in stock goods or supplies goods which have not been accounted for in the books or records maintained by him in the manner required by this Act;
all such goods and the conveyance used as a means of transport for carrying the said goods shall be liable to detention, in the manner prescribed, by the proper officer and shall be released only after payment of applicable tax, interest and penalty leviable thereon or upon furnishing a security, in such form as may be prescribed, equivalent to the amount of the applicable tax, interest and penalty.
As per sub-section (2) of section 69 no tax, interest or penalty shall be determined under sub-section (1) without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.
According to Section 70(1)(iv) of the MGL, if any person contravenes any of the provisions of this Act or rules made thereunder with intent to evade payment of tax, then, all such goods shall be liable to confiscation and the person shall be liable to penalty under section 66 of the proposed Law.
As per Frequently Asked Questions(FAQ) & Answers on GST ‘reason to believe’ has been meant as having knowledge of facts which, although not amounting to direct knowledge, would cause a reasonable person, knowing the same facts, to reasonably conclude the same thing. As per Section 26 of the IPC, 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’ contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration. It has to be and must be that of an honest and reasonable person based on relevant material and circumstances.
An officer carrying out a search has the power to search for and seize goods (which are liable to confiscation) and documents, books or things (relevant for any proceedings under MGL) from the premises searched. During search, the officer has the power to break 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.
Also, the distinction between ‘Seizure’ and ‘Detention’ has been meant as the denial of access to the owner of the property or the person who possesses the property at a particular point of time by a legal order/notice is called detention. Seizure is taking over of actual possession of the goods by the department. Detention order is issued when it is suspected that the goods are liable to confiscation. Seizure can be made only on the reasonable belief which is arrived at after inquiry/investigation that the goods are liable to confiscation.
The meaning of the term “Search” as per law dictionary and as noted in different judicial pronouncements, the term ‘search’, in simple language, denotes an action of a 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 of a crime. The search of a person or vehicle or premises etc. can only be done under proper and valid authority of law.
As per Section 60 of MGL, inspection can be carried out by an officer of CGST/SGST only upon a written authorization given by an officer of the rank of Joint Commissioner or above. A Joint Commissioner or an officer higher in rank can give such authorization only if he has reasons to believe that the person concerned has done one of the following:
i. suppressed any transaction of supply;
ii. suppressed stock of goods in hand;
iii. claimed excess input tax credit;
iv. contravened any provision of the CGST/SGST Act to evade tax;
v. a transporter or warehouse owner has kept goods which have escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax.
A culpable state of mind has been meant as while committing an act, a culpable mental state is a state of mind wherein:
-the act is intentional;
-the act and its implications are understood and controllable;
-the person committing the act was not coerced and even overcomes hurdles to the act committed;
-the person believes or has reasons to believe that the act is contrary to law.
It is settled principle of law that seizure cannot be made merely on presumption-Seema Enterprises vs. CCT [Commercial Tax Revision No.571 of 2013]
It has been held in CCT Uttarakhand vs. Kama Metal and Alloys Pvt. Ltd. Roorkee (2016) 31 VLJ 144 (Trib) that presumption and doubt cannot be basis for seizing the goods.
In CCT, UP vs. Shree Ram Trading Company, (2016) 31 VLJ 194 it has been held by the Allahabad High Court, on the facts and circumstances of the case that the imposition of penalty merely on the basis of suspicion was not justified at all.
The powers to authority under the proposed GST Act can be well defined looking to the practical difficulties and judicial pronouncements so far, under prevailing laws.