Panchnama Under GST

Introduction

A “panchnama” is a formal document prepared by the tax authorities during the course of an inspection, search, seizure, or raid under GST. It records the events that transpire during the process, including the items found, statements made, and other relevant details. Panchnamas are critical in legal proceedings as they serve as evidence.

A panchnama is a document prepared during the seizure of goods or documents, typically in the presence of independent witnesses. It serves as evidence of the process followed during the search and seizure operations. Ensure that independent and credible witnesses are present during the preparation of the panchnama. These witnesses should sign the document, confirming the accuracy of the events recorded. The panchnama should detail every step of the search and seizure process, including the time, place, persons involved, items seized, and the reason for the seizure. This helps in avoiding any future disputes or challenges to the validity of the panchnama. It is advisable to support the panchnama with photographic or video evidence of the proceedings, especially if there is a possibility of the seized items being tampered with or disputed later.

The search and seizure operations should strictly comply with the legal procedures prescribed under the laws. Any deviation from the procedures can lead to the quashing of the panchnama by courts.

The taxpayer should be informed about the reason for the search and seizure. Any undue pressure or coercion during the operation can be contested in court.

Ensure that the seized documents and goods are retained for the required period, as mandated by the laws, and are not held longer than necessary.

If any statements are recorded during the search, they should be included in the panchnama. The statements must be voluntary, without any duress or coercion.

After the panchnama is prepared, it is advisable to have it reviewed by legal counsel to ensure that all aspects of the law have been followed and to prepare for any potential legal challenges

Panchnama under GST

Panchnama (Mahazar) is the primary document for establishing an offence under the CGST Act, 2017 as it has a very strong evidentiary value. It is the record of events right from the commencement of search to the conclusion of the search and includes stock taking as well as the entire record of the search proceedings. The manner of drawing the Panchnama should be such that it should be a mirror image of the proceedings on the spot.

Panchnama is a document where the record of proceedings of the search with regard to the recovery of goods, documents, things, etc. are detailed. The Panchnama is required to be signed by the person in whose presence the search was conducted as also by the independent witnesses, besides the officer who executed the Search Authorization.

A copy of the Panchnama is to be handed over to the persons whose signatures were obtained on the Search Authorization at the time of start of the search. This fact should be recorded in the Panchnama itself. Acknowledgement of the Panchnama having been given to the person in charge of the premises should also be obtained.

Points to be incorporated in a Panchnama:

Panchnama is the single most important document in the context of search and seizure operations. This document (panchnama)  should, therefore, be prepared carefully incorporating the following details when prepared.

(1) Name, age, address, and occupation of Panchas.

(2) Date, time, and place of proceedings.

(3) Reason/authority for search or purpose of visit.

(4) Mention of the fact that the officers conducting the search disclosed their identity to the Panchas.

(5) Name and designation of the officer leading the search team.

(6) Mention of the fact of presence of the occupants/representatives of the premises to be searched during the course of the search.

(7) Mention of the fact of the Execution of the Search Authorization on the occupant/representative of the premises to be searched.

(8) Mention of the fact that one of the occupants/representatives of the party and both panchas have signed the Search Authorization.

(9) Mention of the fact of offering personal search of each member of the search team before commencing search and again after conclusion of search.

(10) Mention of the fact of presence of a lady officer in the party conducting the search in case of search of residence.

(11) Mention of any important event taking place during the operation e.g. arrival of more officers/persons, calling a photographer for photography, drawing of samples, detection of large amounts of cash, sealing of almirah, cupboard etc.

(12) Mention of the details of production of statutory records and other private records, Account Books etc. presented by the representative of the taxpayer for inspection in case of checking.

(13) Mention of how the verification of goods, inputs were undertaken (procedure adopted for weighment, measurement, test checking of standard packages/units etc). It should be supported by inventory of stocks verified.

(14) Record of the fact that in respect of goods verified physically, no other stock was available/left over. Current day’s production and issue of inputs may be specifically mentioned as excluded.

(15) Making of a separate annexure for inventories of records/documents to be resumed and articles/goods seized.

(16) Mention of the grounds forming the reasons to believe that goods seized were liable to confiscation under the CGST Act, 2017 or the Rules made thereunder and the provisions under which seizure was made.

(17) Mention of the value and duty of goods seized/detained and whether seized goods given in ‘supurdagi’ or taken into possession.

(18) Record of the facts regarding drawal of samples, if any. If sealed, a specimen of the seal to be given on the body of Panchnama.

(19) Mention of the details of brand name, trade name, standard packing and markings given on goods verified/seized.

(20) In case of concealment of excisable goods, records or evidences, mention of the facts of place of storage (basement etc.) and manner of concealment.

(21) Mention of the fact that each page of records resumed/seized has been numbered following one set pattern viz.1, 2, 3 etc.

(22) Mention of the fact that the first and last page of every file, register, Account Book etc. has been signed by the authorized representative of the taxpayer or the person on whom the Search Authorization was executed.

(23) Mention of the fact that every loose paper/vital document has been got signed individually from the concerned person from whose seat or cabin the same was recovered and from the person on whom Search Authorization was executed.

(24) In case any portion of the premises, almirah, safe, store etc. is found to be locked and cannot be opened for some reasons or the other, the same may be sealed and a mention may be made accordingly in the Panchnama. This sealed part can be searched using fresh Search Authorization on any following day.

(25) The details of any locker, almirah or any section of premises which has been sealed for reasons that the officers could not immediately obtain access for want of the keys, hypothecation to the bank or any other reason, should be incorporated in the Panchnama.

(26) The grounds for seizure/resumption of records/documents etc. should also be mentioned in the Panchnama.

The above list is only illustrative and not exhaustive as there can be numerous other factors which may have to be incorporated in Panchnama depending on the nature of proceedings and the events taking place during the search proceedings.

Further, if two or more firms are operating from the same premises or there are common employees etc., the Panchnama should contain relevant details, which may include ground plan, details of plant and machinery installed etc. When no incriminating documents or contraband is found, a ‘NIL’ Panchnama should be drawn.

Here are some tips, relevant case laws, principles, and points to consider during a panchnama under GST:

1. Understanding the Purpose of a Panchnama:

• Documentation of Events: A panchnama documents all the activities and findings during a search, inspection, or seizure. It is a crucial piece of evidence that can be used in legal proceedings.
• Involvement of Witnesses: Typically, a panchnama is signed by independent witnesses (referred to as “panchas”) who attest to the events described in the document.

2. Tips for Handling a Panchnama:

• Ensure the Presence of Witnesses: During the preparation of a panchnama, ensure that independent witnesses are present and that they are not connected with the party being searched.
• Accurate Documentation: Verify that the panchnama accurately reflects the events, findings, and any statements made during the search or seizure. Any discrepancies should be immediately pointed out.
• Avoid Coercion: Ensure that the contents of the panchnama are not recorded under any duress or coercion. If you feel pressured, this should be recorded in the panchnama.
• Obtain a Copy: Always request a copy of the panchnama once it is completed. This is your right and is essential for your records and any future legal proceedings.
• Review Before Signing: Carefully review the panchnama before signing. Ensure that all entries are factual, and that nothing has been omitted or misrepresented.
• Legal Representation: If possible, have a legal representative present during the drafting and signing of the panchnama. This ensures that your rights are protected.

3. Points to Consider During Panchnama:

• Complete and Clear Description: Ensure that the description of the items seized, documents inspected, or other actions taken is complete and clear.
• Presence of All Parties: Confirm that all relevant parties are present during the drafting of the panchnama, including the taxpayer or their representative, the GST officers, and the witnesses.
• Record Objections: If you have any objections or reservations about the actions taken by the GST officers or the content of the panchnama, ensure these are recorded in the document.
• Timely Completion: The panchnama should be completed at the location of the search or seizure and at the time the events occur. Post-dated or delayed panchnamas should be questioned.
• Language and Clarity: The panchnama should be drafted in a language understood by all parties involved, and the language should be clear and unambiguous.

4. Relevant Case Laws and Principles:

• Kailash Chand Sharma v. State of Rajasthan (2009): The Supreme Court emphasized the importance of having independent and reliable witnesses for a panchnama. The credibility of the panchnama can be questioned if the witnesses are not truly independent.
• State of Maharashtra v. Natwarlal Damodardas Soni (1980): The Supreme Court ruled that a panchnama must accurately reflect the events that transpired during the search and seizure. Any fabrication or omission can render the panchnama invalid.
• R.K. Agarwal v. Union of India (2018): In this case, the Gujarat High Court observed that the panchnama should be a true and correct record of the proceedings, and it should not be influenced by the investigating officers.
• Rupesh R. Shah vs. State of Gujarat (2018): The Gujarat High Court stressed the importance of adhering to the principles of natural justice during the preparation of a panchnama. The court held that if the panchnama is not prepared in a fair manner, it could be challenged in court.
• Bhupinder Singh vs. Union of India (2022): The Delhi High Court ruled that any discrepancies or irregularities in the panchnama could lead to the quashing of the entire search and seizure operation.

[M/s. Ajantha Textiles vs. Superintendent of Central Tax, 2021]: In this case, the court quashed the panchnama as the search was conducted without following proper procedures, including the lack of independent witnesses and failure to document the search adequately.

[M/s. Radha Krishna Industries vs. State of Himachal Pradesh, 2021]: The Supreme Court emphasized the importance of following due process during search and seizure operations. The court held that any action taken without adhering to prescribed legal procedures would be considered invalid.

[Vallabhdas Liladhar vs. Assistant Commissioner, 2020]: The Bombay High Court held that a panchnama, prepared without informing the taxpayer of the reasons for the search, was not sustainable and was quashed.

[Amit Oil vs. Union of India, 2018]: The court ruled that non-compliance with the procedural requirements under the GST laws during a search and seizure operation rendered the panchnama void.

These case laws highlight the importance of strict adherence to the procedural requirements during search and seizure operations under GST. Failure to comply with these requirements can result in the panchnama being quashed by courts.

5. Principles Settled by Courts:

• Independence of Witnesses: Courts have consistently held that the witnesses to a panchnama must be independent and should not have any vested interest in the proceedings.
• Accuracy and Completeness: A panchnama must accurately reflect all the facts and events that occurred during the search or seizure. Any inaccuracies can lead to the dismissal of the panchnama as evidence.
• No Coercion: The contents of a panchnama must not be obtained under coercion or duress. If coercion is alleged, it should be recorded, and the validity of the panchnama can be questioned.
• Right to Representation: The taxpayer has the right to legal representation during the drafting of a panchnama. This helps ensure that the taxpayer’s rights are protected, and the panchnama is fair and accurate.
• Natural Justice: The preparation of a panchnama must adhere to the principles of natural justice, ensuring fairness and transparency in the process.

Summary:

A panchnama is a crucial document during GST searches, inspections, and seizures, serving as key evidence in legal proceedings. It is important to ensure the presence of independent witnesses, accurate documentation, and to review the panchnama carefully before signing. Relevant case laws emphasize the importance of fairness, accuracy, and adherence to natural justice in the preparation of a panchnama. Taking these precautions can help protect your rights and ensure that the panchnama is a true reflection of the events.

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