Section 71 GST Access Powers: Limits, Search Safeguards and Visit Reports

Summary: Section 71 of the CGST Act, 2017 authorises access to registered business premises for audit, scrutiny, verification and checks necessary to safeguard revenue. The article examines the statutory limits of this power and its relationship with Sections 67 and 70, which separately govern inspection, search, seizure and summons. It discusses the misuse of visit reports for estimating production and turnover, particularly in brick kiln cases, and challenges involving stock counting, statements recorded without summons, repeated visits and registration verification reports in FORM GST REG-30. The analysis draws upon the legislative ancestry of Section 71 in Rule 22 of the Central Excise Rules, 2002, and judicial principles concerning statutory authorisation, evidentiary admissibility, cross-examination and natural justice. It also considers the significance of FORM GST INS-01, the distinction between access and search, and the consequences of relying on material gathered without prescribed safeguards. The central argument is that officers cannot use a limited statutory power to bypass procedures prescribed for more intrusive enforcement action.

The Ambit of Section 71 of the GST Act – Access to Business Premises, the Dilution of Section 67, and the Use of Visit Reports in Estimation

Part A: The Provision and Its Limits

I. The Problem In The Field

Of all the powers conferred upon the tax administration by Chapter XIV of the Central Goods and Services Tax Act, 2017, and by the corresponding Chapter of the State enactments, Section 71 is among the least discussed and the most frequently invoked. It is the provision under which officers walk into a dealer’s premises, look at his records, examine his stock, make notes, and leave behind a report. In the brick kiln belt of western Uttar Pradesh such visits have become a seasonal feature. The reports generated during them later surface as annexures to show cause notices under Sections 73, 74 and 74A, and they form the evidentiary foundation of demands running into lakhs.

Yet the provision itself is rarely read with care, either by the officer who exercises it or by the dealer who submits to it. The officer treats it as a general licence to enter and to enquire. The dealer treats the visit as an inevitability and signs whatever is placed before him. Both assumptions are wrong, and the consequences of that error are visible in every estimation based demand that follows.

This article is arranged in four parts. Part A sets out the provision, its ancestry and the limits written into its own language. Part B examines the four excesses most commonly encountered in the field, namely the counting of stock, the recording of statements, the repetition of visits, and the pressing into service of the registration verification report. Part C addresses what the authors regard as the central question, which is whether the resort to Section 71 has become a device for diluting Section 67 and for avoiding the authorisation in FORM GST INS-01. Part D turns to the practical consequences, to the grounds available in a writ petition or an appeal, and to the advice which an assessee facing such visits should be given.

Ii. The Graded Scheme Of Chapter Xiv

Chapter XIV of the Act is titled Inspection, Search, Seizure and Arrest. It is not a single power but a graded scheme, and the gradation is deliberate. It is the key to everything which follows.

At the lowest level of intrusion stands Section 71, which provides for access to business premises for the purposes of audit, scrutiny, verification and checks. At a higher level stands Section 67, which provides for inspection, search and seizure, and which is hedged about with the requirement of reasons to believe, written authorisation in the prescribed form, and the safeguards attending a search. Alongside these stands Section 70, which empowers the proper officer to summon any person to give evidence or to produce documents. Sections 65 and 66 provide, respectively, for audit by the tax authorities and for special audit by a chartered accountant or cost accountant nominated by the Commissioner.

Each of these provisions carries its own threshold, its own procedure and its own form. The legislature having provided a graded scheme, it is not open to an officer to collapse the gradation by using the least demanding power to achieve the object of the most demanding one. Where a statute prescribes a particular manner of doing a thing, that thing must be done in that manner or not at all. That proposition, to which this article returns in Part C with the authority which supports it, is its central thesis.

Iii. Section 71: The Text

Sub section (1) provides that any officer under the Act, authorised by the proper officer not below the rank of Joint Commissioner, shall have access to any place of business of a registered person to inspect books of account, documents, computers, computer programs, computer software whether installed in a computer or otherwise, and such other things as he may require and which may be available at such place, for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

Sub-section (2) casts a reciprocal duty upon the person in charge of the place. On demand he must make available to the officer authorised under sub section (1), or to the audit party deputed by the proper officer, or to a cost accountant or chartered accountant nominated under Section 66, the following: such records as are prepared or maintained by the registered person and declared to the proper officer in the prescribed manner; the trial balance or its equivalent; statements of annual financial accounts duly audited, wherever required; the cost audit report, if any, under Section 148 of the Companies Act, 2013; the income tax audit report, if any, under Section 44AB of the Income tax Act, 1961; and any other relevant record. Production is to be made for scrutiny within a period not exceeding fifteen working days from the day on which the demand is made, or such further period as may be allowed by the officer, the audit party or the accountant concerned.

The remaining sub-sections deal with the circumstances in which access may be resorted to and with the consequences of its denial, including the power to seal or break open premises and receptacles where access is refused, and concealment is suspected. The precise terms of those sub-sections must be read from the bare Act as currently in force. No draftsman should paraphrase them from memory.

Iv. The Four Conditions Of A Valid Access

On a plain reading of sub section (1), four elements must concur before access is lawful.

First, there must be an officer under the Act. The provision does not authorise access by a person who is not an officer under the enactment, and it does not authorise an officer to act of his own motion.

Secondly, there must be an authorisation by the proper officer not below the rank of Joint Commissioner. This is a jurisdictional condition and not a formality. The legislature has deliberately placed the power of authorisation at a senior level, because entry into a citizen’s business premises is an invasion of a protected interest. An authorisation issued by an officer below that rank is no authorisation at all, and access taken under it is access without authority of law.

Thirdly, the access must be to a place of business of a registered person. The provision does not extend to the residence of a partner or a director as such, nor to premises unconnected with the registered business.

Fourthly, and most importantly, the access must be for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. Two limitations are compressed into that phrase. The first is a limitation of purpose: the access must be for audit, scrutiny, verification or checks, and for nothing else. The second is a limitation of necessity: the exercise must be necessary to safeguard revenue. The word necessary is not surplusage. It imports a requirement of satisfaction, and a satisfaction capable of being tested. An officer who cannot explain why the access was necessary at that point of time has not satisfied the statutory condition, however courteous and however brief his visit may have been.

V. The Ancestry Of Section 71: Rule 22 Of The Central Excise Rules, 2002

The character of a provision is often best understood from the provision which it replaced. Section 71 has a parent, and the parent is instructive.

Rule 22 of the Central Excise Rules, 2002 was headed Access to a registered premises. Sub rule (1) provided that an officer empowered in that behalf by the Principal Commissioner or the Commissioner should have access to any premises registered under those Rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. Sub rule (2) required every assessee, every importer who issued an invoice on which CENVAT credit could be taken, and every first stage and second stage dealer, to furnish to that officer a list in duplicate of the records maintained in respect of receipt, purchase, manufacture, storage, sale or delivery of the goods, including inputs and capital goods, of the records of payments for input services and their receipt or procurement, and of the financial records including the trial balance or its equivalent. Sub rule (3), as substituted with effect from 2012, required those same persons to produce on demand, to the empowered officer, to the departmental audit party, to the Comptroller and Auditor General of India, or to a cost accountant or chartered accountant nominated under Section 14A or Section 14AA of that Act, the records so maintained, the cost audit report if any under Section 233B of the Companies Act, 1956, and the income tax audit report if any under Section 44AB of the Income tax Act, 1961, within the time specified by the person requiring them.

Placed beside Section 71, the descent is beyond argument. The same purpose clause, almost word for word, of scrutiny, verification and checks necessary to safeguard the interest of revenue. The same catalogue of documents, with the Companies Act reference merely updated from Section 233B of the Act of 1956 to Section 148 of the Act of 2013, and the Section 44AB reference carried over untouched. The same structure of access in the first limb and production on demand in the second. The same class of recipients, namely the empowered officer, the audit party and the nominated accountant. Section 71 is Rule 22 raised to the dignity of a section and fitted with a fifteen working day outer limit for production.

The consequence is important and it should be pleaded. Rule 22 lived its entire life in the company of a distinct and separately conditioned power of search. It was never understood, in all the years of its operation, as a warrant to conduct a search, to seize records, to record statements or to make a best judgment estimate of production. It was a records access and records production provision, and nothing further. A provision carried forward in substantially the same language carries its character forward with it. The department cannot read into the successor a width which the predecessor never possessed, and the assessee is entitled to say that what Rule 22 did not authorise is not authorised by Section 71 merely because the drafting has been elevated from a rule to a section.

Vi. Access And Inspection, Not Investigation

It is essential to notice what Section 71 confers and what it withholds.

It confers access, that is to say the right to enter and to be present at the place of business. It confers the right to inspect, that is to say to look at and to examine. The objects of inspection are enumerated: books of account, documents, computers, computer programs, computer software, and such other things as the officer may require and which may be available at the place.

It does not confer a power of search. It does not confer a power of seizure. It does not confer a power to compel any person to answer a question. It does not confer a power to record a statement. It does not confer a power to detain goods. It does not confer a power to require the dealer to admit any figure, rate, capacity or quantity.

The distinction between access and search is not one of degree but of kind. Access is a right to be present and to look at what is produced or is openly available. Search is an active hunt for material that is not produced. The legislature has provided for search separately in Section 67 and has surrounded it with safeguards for a reason. An officer who, having entered under Section 71, proceeds to rummage, to open what is closed, to carry away what is not offered, or to compel what is withheld, has stepped out of Section 71 and into territory for which he holds no authority.

Vii. The Absence Of Any Power Of Survey

A practice has grown up of describing a visit under Section 71 as a survey, and of recording the proceedings in a document headed Bhraman Report or Survey Report. The word appears in the officer’s own handwriting in many such reports, and it appears in departmental correspondence.

The Goods and Services Tax Act contains no power of survey. The expression does not occur in Section 71, in Section 67, or anywhere else in Chapter XIV. The contrast with the Income tax Act, 1961, is instructive. Section 133A of that enactment is expressly headed Power of survey, and it sets out in terms what the authority may do, what it may not do, and the limits within which it must act. The Parliament which enacted the Central Goods and Services Tax Act was aware of that provision and of its language. The omission of any comparable power from the Goods and Services Tax enactment cannot be treated as accidental.

It follows that the description of a visit as a survey adds nothing to the officer’s authority. A label does not create a power. If a visit is to be defended it must be defended by reference to Section 71 and to the authorisation issued under it, and not by reference to the nomenclature adopted in the officer’s own report. Where the report itself recites that the proceedings were conducted at the time of the survey, the dealer is entitled to ask, and the Court is entitled to know, under what provision of the Act that survey was conducted.

Part B: The Excesses in Practice

Viii. Counting And Valuation Of Stock

Whether an officer exercising access under Section 71 may count and record stock is a question of some nicety.

In favour of the power it may be said that sub section (1) permits inspection of such other things as the officer may require and which may be available at the place, and that physical stock is a thing available at the place of business. It may be added that the circumstances contemplated by the Act for recourse to the more stringent powers include suppression of stock, so that a comparison of physical stock with recorded stock is a legitimate object of verification.

Against the power it must be said that inspection is not the same thing as measurement, valuation or estimation. To look at stock is one thing. To count it, to assign a grade to it, to fix a rate for it, and to derive from it a figure of production and turnover for an entire financial year is quite another. The latter exercise is an exercise in assessment, and assessment is governed by provisions which carry their own requirements of notice and of hearing.

The sensible view, and the one which a Court is likely to accept, is this. An officer exercising access may note what he sees, including stock. Such a note is evidence of the condition of the premises on the day of the visit, and of nothing more. It is not evidence of what was produced in the months before the visit, and it is certainly not evidence of what was sold or at what price. Those are matters to be established by material, and the dealer must be confronted with that material and given an opportunity to meet it before any conclusion is drawn against him.

Three propositions follow, and they arise in almost every kiln matter.

(a) An eye estimate is not a count. Where the report does not disclose the method of counting, the figure recorded is an impression, and an impression is not a foundation for a demand.

(b) A snapshot is not a season. In a brick kiln, firing proceeds in cycles. A visit made in the middle of a cycle records the position in the middle of a cycle. It does not establish the production of the year.

(c) A signature is not an admission. The munshi or other person present commonly signs the report. That signature establishes his presence and, at the highest, that the report was prepared in his presence. It does not amount to an admission of capacity, of production, of rate or of turnover, and it cannot be treated as dispensing with proof.

The first of these propositions is supported by a settled line of decisions under the central excise law, where demands for clandestine removal were frequently founded upon shortages said to have been detected at the time of a visit. In Arham Petro Products v. Commissioner of Central Tax, the Customs, Excise and Service Tax Appellate Tribunal at Kolkata observed that no proper physical stock taking had been carried out during the investigation and that the stock position had been arrived at upon eye estimation alone, and held that shortages cannot be established solely through eye estimation, with the result that the demands founded upon the alleged shortages of raw materials and of finished goods could not be sustained. A kiln visit at which the officer writes down lakhs of bricks without disclosing how he counted them stands on no better footing than an excise officer who records a shortage of metal without weighing it.

Ix. Recording Of Statements: Sections 70 And 136

The recording of statements during a Section 71 visit is perhaps the most frequent excess, and it is the one with the clearest legal answer.

Section 71 confers no power to record a statement. The power to summon any person whose attendance is considered necessary to give evidence or to produce a document is conferred by Section 70, and it is exercised by the issue of a summons. A person who attends in response to a summons attends under compulsion of law, and the proceeding carries the character which that section gives it.

Section 136 then governs the evidentiary use of such statements. It provides that a statement made and signed by a person on appearance in response to any summons issued under Section 70, during the course of any inquiry or proceedings under the Act, shall be relevant for the purpose of proving, in any prosecution for an offence under the Act, the truth of the facts which it contains, in the two situations which that section specifies, namely where the maker is unavailable in the circumstances there described, or where he is examined as a witness before the Court and the Court is of the opinion that the statement should be admitted in the interest of justice.

The first consequence: a statement taken without summons is outside Section 136

A statement recorded during a Section 71 visit, without any summons under Section 70, falls outside Section 136 altogether. The section attaches relevance only to a statement made on appearance in response to a summons. A statement taken at the kiln, from a munshi who was never summoned, is not within the four corners of that provision.

The second consequence: the omitted sub section, and what the excise learning shows

Even in respect of a statement duly recorded under Section 70, Section 136 speaks of relevance in any prosecution for an offence under the Act. It contains no counterpart to the provision found in the legacy central excise law which extended the relevancy of such statements to departmental adjudication.

That omission is not a matter of inference. It is demonstrated by the case law upon Section 9D of the Central Excise Act, 1944, of which Section 136 is the lineal successor. In J.K. Cigarettes Ltd., 2009 (242) E.L.T. 189 (Del.), the Delhi High Court held that a statement recorded by a departmental officer is relevant only in the circumstances which Section 9D specifies; that the provision contemplates a two stage process, namely the examination of the maker before the adjudicating authority and thereafter the formation of an opinion upon admissibility; and, significantly for the present purpose, that sub section (2) of Section 9D extended the provision to adjudication proceedings and not merely to prosecutions.

That last holding is the one to be marked. It establishes, upon the authority of a High Court, that under the central excise law the relevancy regime for recorded statements reached departmental adjudication, and reached it because the legislature had said so in a separate sub section. Section 136 contains no such sub-section. An assessee contending that statements recorded under Section 70 are not substantive evidence in an adjudication under Sections 73, 74 or 74A therefore stands on considerably firmer ground when he can point to the provision which once achieved that result and which the Parliament has now left out.

The right of cross-examination

Upon cross-examination, the learning is settled and of immediate practical use. A Division Bench of the Delhi High Court in Basudev Garg held that a noticee has the right to cross-examine the persons whose statements are relied upon against him, and that the right obtains even in quasi-judicial proceedings unless one of the circumstances specified in Section 9D, and in the corresponding Section 138B of the Customs Act, is shown to exist. That reasoning was followed in a later writ petition before the same High Court, decided on 26 February 2016, in which an adjudicating authority’s refusal to permit cross-examination of the partners whose statements were relied upon was set aside as contrary to Basudev Garg.

The Tribunal has applied the same discipline. In Kuber Tobacco India Ltd., 2016 (338) E.L.T. 113 (Tri. Del.), it held that the procedure prescribed by sub-section (1) of Section 9D is required to be scrupulously followed. In Alliance Alloys Pvt. Ltd., 2016 (338) E.L.T. (Tri. Chan.), it considered whether the adjudicating authority must first examine the witness-in-chief before any question of cross-examination arises, treating Section 138B of the Customs Act as pari materia with Section 9D. The sequence so insisted upon rests upon Section 138 of the Evidence Act and upon the reasoning of the Supreme Court in Sukhwant Singh v. State of Punjab, (1995) 3 SCC 367, that cross-examination presupposes an examination-in-chief. For a practitioner before the Allahabad High Court, the decision of that Court in Parmarth Iron Pvt. Ltd. is of particular value, it having been cited for the proposition that where the revenue relies upon the statements of witnesses, those witnesses must be made available for cross-examination before their statements can be taken into consideration at all.

The Supreme Court has touched the question, though without finally determining it. In G.T.C. Industries Ltd. v. Collector of Central Excise, Civil Appeal Nos. 8583-8584 of 2010 and connected appeals, decided on 9 February 2023, the Court endorsed the view of the High Court in repelling a challenge to the constitutional validity of Section 9D, and with it the High Court’s reading that the authority must form an opinion, based upon material on record, that a ground under Section 9D exists, that the opinion must be a reasoned one, and that the affected party must first have an opportunity to comment upon the material. The Court declined to rule upon the appellants’ complaints of unfairness, holding that no proceeding survived in which those principles could operate and that the arguments were of purely academic interest, and it imposed costs for the prolongation of the litigation. The decision is therefore to be cited for the endorsement of the reasoned opinion requirement, and not as authority in favour of an assessee upon the facts.

Independently of all this, the ordinary principles governing statements apply with full force. A statement said to be voluntary must be shown to be voluntary. A retracted statement requires corroboration and cannot by itself sustain a demand. Where the department relies upon the statement of a person, the dealer is entitled to an opportunity to cross-examine that person, and the denial of that opportunity is a denial of natural justice.

X. Repeated Visits And The Test Of Necessity

Section 71 does not fix a number of visits. There is no provision limiting access to once in a year or once a season. From this, the department sometimes argues that it may visit as often as it pleases.

The argument overlooks the words of the section. Access is available for checks as may be necessary to safeguard the interest of revenue. Necessity falls to be judged at the time of each access. A first visit may well be necessary. A second visit, made a few months later, with no new material and no fresh reason, covering the same ground as the first, is not rendered necessary merely because the first was. The officer must be in a position to show, from the record, why the further access was called for.

The point acquires particular force where proceedings are already pending. If a show cause notice has been issued and the dealer has filed his reply, the adjudicating authority is seized of the matter. If that authority is not satisfied with the material before him, the Act supplies the remedy. He may call for documents. He may summon persons under Section 70. He may, in an appropriate case, direct a special audit under Section 66. What he may not do is send officers to the premises, again and again, to gather material in support of a notice already issued. Such a course is an exercise of the access power for a purpose other than that for which it was conferred, and it is liable to be struck down as a colourable exercise of power.

Nor is the objection purely technical. Repeated and unexplained visits to a working industrial unit interfere with its business, unsettle its employees, and expose the proprietor to pressure. Where a pattern of such visits can be demonstrated, the dealer is entitled to invoke the protection of Articles 14 and 19(1)(g) of the Constitution and to seek appropriate directions.

Xi. Misuse Of The Registration Verification Report In Form Gst Reg-30

A related and increasingly common irregularity requires separate notice. Rule 25 of the Rules provides for physical verification of the place of business in the circumstances there specified, and the verification report is to be uploaded in FORM GST REG-30.

That form belongs to the registration process. Its purpose is to confirm the existence and the particulars of the place of business. It is not an instrument of assessment, and it is not issued under Section 71. A physical verification carried out under Rule 25 for registration purposes does not become an access under Section 71 merely because the verifying officer happened to note the stock he saw, or the number of payas and raddas, or the quantity of coal lying in the yard.

Where the department relies upon a REG-30 report to support an estimation of turnover under Section 74 or Section 74A, three objections arise at once. The report was generated for a different statutory purpose. The dealer had no notice that the particulars noted in it would be used to fix his liability. And the officer who signed it was discharging a registration function, not an audit or verification function under Section 71. A demand founded upon such a report is founded upon material collected for a collateral purpose, and it is open to challenge on that ground alone.

Part C: The Central Question, Dilution of Section 67

Xii. The Asymmetry Between Section 67 And Section 71

The distinction drawn in section VI above is not an academic one. It explains a pattern which is now unmistakable in the field, and which forms the central practical complaint of the assessee in the brick kiln matters. The department wishes to achieve the result of a search. It does not wish to bear the cost of a search. Section 71 is chosen because it is the cheapest door into the same room.

The cost of a search is a cost in procedure, and the procedure exists for the protection of the subject. Where a proper officer not below the rank of Joint Commissioner has reason to believe that a place is to be visited for the purposes of inspection, search or seizure under Section 67, Rule 139(1) requires him to issue an authorisation in FORM GST INS-01 to the officer who is to carry out the exercise. Where goods, documents, books or things are liable to seizure under sub section (2) of Section 67, an order of seizure is to be made in FORM GST INS-02. Where seizure is not practicable, a prohibition order is to be served in FORM GST INS-03. An inventory of what is seized, giving the description, the quantity or unit and the make, mark or model where applicable, is to be prepared and signed by the person from whom the goods or things were taken.

Each of those requirements leaves a trace upon the record. The most important of them is the first. Reason to believe is not a mental state which the officer may assert at the hearing. It must exist before the authorisation is issued, it must be recorded, and once recorded it becomes capable of being tested by a Court against the material which was before the officer. That testability is the whole protection. An authorisation in INS-01 is the document which proves that the protection was observed.

Set against this, an access under Section 71 requires an authorisation by an officer of the same rank, but the Rules prescribe no form for it. There is no INS-01 to produce. No reason to believe is required to be recorded in the manner that Section 67 requires. There is no seizure order, because nothing is formally seized. There is no prohibition order. There is no inventory to be signed by the dealer, because nothing is formally taken. There is no panchnama, because there is formally no search. There are no witnesses. There is, in short, almost no paper at the end of the exercise except a report written by the officer himself in his own hand.

The attraction of that asymmetry is obvious. By walking in under Section 71 the officer obtains, in substance, everything that a search would have yielded him: entry into the premises, sight of the books, a count of the stock, a note of the rates, a sketch of the kiln, and frequently a statement from whoever happens to be present. He obtains it without recording a reason to believe which the dealer may later demand and the Court may later examine. The absence of the record is not an incidental convenience. It is the object of the choice.

Xiii. Indicia That An Access Was In Substance A Search

What a thing is depends upon what was done, and not upon what it was called. The question for the Court is therefore not what the report is headed but what the officer did. The following features, when they appear in combination, indicate that an exercise described as an access under Section 71 was in substance a proceeding under Section 67 conducted without its safeguards:

(a) The visit was unannounced, and the premises were entered by a party of officers rather than by a single officer who came to examine records.

(b) Stock was physically counted, graded, valued and reduced to figures, rather than merely examined.

(c) A statement was recorded from the person present, which Section 71 nowhere authorises.

(d) Documents, invoices, registers or electronic records were carried away, or photographed, or sealed.

(e) The report was drawn up in a format resembling a seizure memo, with particulars of stock, capacity and rate, and signed by the person present in the manner of an acknowledgement.

(f) The material so gathered was thereafter used, not for any audit or scrutiny, but as the sole foundation of a show cause notice alleging suppression.

The last of those features yields an argument of some force, and it is taken up separately in the section which follows.

Xiv. The Suppression Dilemma Under Sections 74 And 74A

A demand under Section 74, and equally under Section 74A in the cases to which it applies, can be raised only where tax has not been paid or has been short paid, or input tax credit has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts. Suppression is thus an essential ingredient of the notice. Section 67, in turn, is attracted where the proper officer has reason to believe that a taxable person has suppressed any transaction relating to supply or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement, or has otherwise contravened the Act or the Rules with intent to evade tax.

The two provisions therefore turn upon the same factual foundation. If, before the visit, the department possessed material upon which it entertained a belief that the dealer had suppressed his production or his stock, then it possessed precisely the reason to believe upon which Section 67 operates, and the route lay through an authorisation in INS-01 with all that follows from it. If, upon the other hand, the department possessed no such material before the visit, then the ingredient of suppression which Section 74 or Section 74A requires did not exist at that stage and was manufactured afterwards out of the visit report itself.

The department cannot occupy both positions. Either there was a reason to believe, in which case the safeguards of Section 67 were attracted and were bypassed; or there was none, in which case the invocation of Section 74 or Section 74A is without foundation. The dilemma should be pleaded in terms and the department should be required, in its counter affidavit, to state which limb it adopts.

The practical mode of raising the point is by sworn negative averment. The petitioner should depose, upon affidavit, that no authorisation in FORM GST INS-01 was ever issued or served; that no reason to believe was recorded or communicated; that no panchnama was drawn; that no order of seizure in FORM GST INS-02 and no prohibition order in FORM GST INS-03 were made; that no inventory was prepared or signed; that no notice of audit in FORM GST ADT-01 and no audit report in FORM GST ADT-03 were issued; and that no notice of scrutiny in FORM GST ASMT-10 preceded the proceedings. Averments in that form admit of only one answer. Either the department produces the documents, in which case the dealer knows the case he has to meet, or it does not, in which case the foundation of the proceeding stands admitted to be absent.

Xv. The Governing Principle: Nazir Ahmad And Singhara Singh

Underlying the whole of the argument in this Part is a principle of long standing: where a statute confers a power and prescribes the manner of its exercise, the power must be exercised in that manner and in no other. The classical statement is that of the Judicial Committee in Nazir Ahmad v. King Emperor.

The principle was adopted into Indian law by the Supreme Court in State of Uttar Pradesh v. Singhara Singh, AIR 1964 SC 358, (1964) 4 SCR 485, a judgment of Sarkar, Hidayatullah and Shah, JJ. A Magistrate of the Second Class was competent to record a confession under Section 164 of the Code of Criminal Procedure only if he had been specially empowered by the State Government in that behalf. The Magistrate in that case could not show that he had been so empowered, and the Court held that his oral evidence of the confession was inadmissible, holding that the principles of Nazir Ahmad fairly covered the facts and applying them.

The parallel is close and it should be drawn expressly in argument. In Singhara Singh the officer held an office which, in the abstract, was competent to perform the act; what he lacked was the specific empowerment which the statute required before he could perform it in that case. He could not cure the want of empowerment by giving oral evidence of what he had done. So here. The officer who visits the kiln holds an office under the Act. What he lacks, where no authorisation in INS-01 was issued, is the specific empowerment which Section 67 requires before the acts of a search may be performed. He cannot cure the want of that empowerment by producing a report of what he saw.

Xvi. The Obstacle: Pooran Mal, And The Answer To It

Candour requires that the obstacle be stated along with the argument. In Pooran Mal v. Director of Inspection, the Supreme Court held that evidence is not to be excluded in this country merely because it was obtained upon an illegal search, our law not having adopted the exclusionary rule which obtains elsewhere.

That position is not of historical interest only. It was applied as recently as Naresh Kumar Garg v. State of Haryana, 2026 INSC 176, decided on 23 February 2026 by Manoj Misra and Ujjal Bhuyan, JJ. There, the search of a clinic was held to be vitiated because the raid order had been issued by the Chairperson alone and not by the District Appropriate Authority collectively; yet the Court held that the seized records and other evidence could not be discarded altogether and could still be acted or relied upon, subject to the rule of relevancy and the test of admissibility, relying upon Radha Kishan, R.M. Malkani and Pooran Mal. The department will place this line of authority in the forefront of its reply.

Two answers are available, and the second is the important one.

The first is that Naresh Kumar Garg is as useful to the assessee as it is to the department. The Court there did hold the search to be vitiated by the defect in the authorisation. What survived the defect was the evidentiary value of the material, not the validity of the exercise. The decision therefore confirms, rather than denies, that an authorisation issued otherwise than as the statute requires vitiates the proceeding taken upon it.

The second, and the answer upon which the pleading should rest, is that the contention is not met upon its own ground at all. The assessee is not, or ought not to be, contending merely that a document is inadmissible. He is contending for something anterior to admissibility. His contention is that the proceeding itself is without jurisdiction, because the officer entered under a provision whose conditions were not satisfied; and that the show cause notice is without foundation, because the reason to believe which Sections 74 and 74A presuppose was never formed and never recorded. A rule concerning the admissibility of evidence has nothing to say to either proposition. The pleading should therefore be framed, from the outset, in the language of jurisdiction and of the absence of a statutory ingredient, and never in the language of the exclusion of evidence.

Xvii. Radhika Agarwal And The Present Position

The most recent pronouncement of the Supreme Court touching this area is Radhika Agarwal v. Union of India, reported at [2025] 171 taxmann.com 832 (SC), a judgment of Sanjiv Khanna, CJI, M.M. Sundresh and Bela M. Trivedi, JJ.

The Court upheld the constitutional validity of Sections 69 and 70 of the Goods and Services Tax enactments, holding that Article 246A confers upon Parliament the competence to levy and collect the tax and that the powers to summon, to arrest and to prosecute are ancillary to that competence. To that extent the decision is against the challenge which was raised. Three features of it nevertheless assist the assessee in the situation with which this article is concerned.

First, upon the cognate provision of the Customs Act the Court held that an arrest must rest upon substantive material and not upon mere suspicion. The reasoning is directly transferable to the reason to believe which Section 67 requires. A belief which rests upon nothing which the officer can produce is suspicion by another name.

Secondly, the Court held that a person subjected to threat, force or coercion is entitled to move the Courts and to seek refund of the tax deposited, and that departmental action would follow against the officers concerned. In the kiln matters, where deposits are not infrequently obtained during or immediately after a visit, this is a remedy of real practical value. It carries a corresponding discipline for the practitioner: a deposit made under pressure is recoverable in practice only where the coercion is documented at the time, which is why the contemporaneous record of every visit, recommended in Part D below, matters so much.

Thirdly, and by way of caution, Trivedi, J. observed that the power of judicial review in relation to arrests under these statutes should be exercised very cautiously and in rare circumstances. The observation is confined to arrest. It should not be allowed to be read across, in the department’s reply, to a challenge directed at the absence of jurisdiction to enter and to proceed.

Xxi. Conclusion

Section 71 is a necessary provision. A tax administration which could never look at a dealer’s records where they are kept would be unable to perform its function, and the interest of revenue is a legitimate interest which the statute properly protects. Nothing in this article should be read as suggesting that access to business premises is in itself objectionable.

What is objectionable is the use of a limited power to achieve objects for which the legislature has provided other and more demanding procedures. When an access becomes a search, when an inspection becomes an interrogation, when a visit report becomes an assessment, and when a provision which speaks of necessity is used as a licence for repeated and unexplained intrusion, the limits of Section 71 have been crossed. The remedy in such cases lies not in a quarrel over figures but in a challenge to the foundation upon which the figures rest.

The lesson for the practitioner is that the strongest material in an estimation case is very often the department’s own paper. The visit report which the officer prepared in order to support his demand will, more often than not, contain the rate, the date, the capacity and the dimension which destroy it. It requires only to be read.

Table Of Authorities

Supreme Court

• Radhika Agarwal v. Union of India, [2025] 171 taxmann.com 832 (SC)
• G.T.C. Industries Ltd. v. Collector of Central Excise, Civil Appeal Nos. 8583-8584 of 2010 and connected appeals, decided 9 February 2023
• Naresh Kumar Garg v. State of Haryana, 2026 INSC 176, decided 23 February 2026
• Sukhwant Singh v. State of Punjab, (1995) 3 SCC 367
• State of Uttar Pradesh v. Singhara Singh, AIR 1964 SC 358, (1964) 4 SCR 485
• Pooran Mal v. Director of Inspection (citation to be verified)

Privy Council

• Nazir Ahmad v. King Emperor (citation to be verified)

High Courts

• J.K. Cigarettes Ltd., 2009 (242) E.L.T. 189 (Del.)
• Basudev Garg (Delhi High Court, Division Bench)
• Parmarth Iron Pvt. Ltd. (Allahabad High Court) (citation to be verified)

Tribunal

• Kuber Tobacco India Ltd., 2016 (338) E.L.T. 113 (Tri. Del.)
• Alliance Alloys Pvt. Ltd., 2016 (338) E.L.T. (Tri. Chan.)
• Arham Petro Products v. Commissioner of Central Tax (CESTAT, Kolkata) (appeal number and date to be verified)

Statutes, rules and forms

• Central Goods and Services Tax Act, 2017, Sections 65, 66, 67, 69, 70, 71, 73, 74, 74A and 136
• Central Goods and Services Tax Rules, 2017, Rules 25 and 139
• FORMS GST INS-01, INS-02, INS-03, REG-30, ADT-01, ADT-03 and ASMT-10
• Central Excise Act, 1944, Sections 9D, 14A and 14AA
• Central Excise Rules, 2002, Rule 22
• Customs Act, 1962, Section 138B
• Income tax Act, 1961, Sections 44AB and 133A
• Indian Evidence Act, Section 138
• Companies Act, 2013, Section 148, and Companies Act, 1956, Section 233B