Seizure During Search Proceedings under GST: Brief View

The legal framework for seizure during search proceedings under the GST Act, 2017, aims to strike a balance between the government’s need to enforce tax compliance and the taxpayer’s rights. While it gives authorized officers considerable power to seize goods and documents in cases of suspected tax evasion, it also places strong safeguards, including the need for reasons to believe, issuance of search warrants, and proper documentation, to ensure that the power is exercised judiciously. This framework ensures transparency and accountability in search and seizure operations, preventing misuse and upholding taxpayer rights.

Legal Frame work for Seizure during Search Proceedings:

• Section 67 of the CGST Act, 2017 provides the legal basis for search and seizure operations.
• Under this section, an authorized officer of the GST department can conduct searches and seize goods, documents, or other things that may be liable for confiscation or that can be used as evidence of tax evasion or fraud.

The power to seize is a preventive measure aimed at safeguarding the interest of revenue while an investigation is in progress. It is a coercive measure and must be exercised judiciously.

The legal provisions pertaining to Seizure during Search proceedings are contained in:

(i) Provisos to Section 67(2), Section 67(3), Section 67(5), Section 67(6), Section 67(7), Section 67(8) and Section 67(9) of the CGST Act, 2017. (Section 67(2), (3), (5) (6), (7), (8) & (9) of CGST Act, 2017)

(ii) Rule 139(2), Rule 139(3), Rule 139(4) and Rule 139(5), Rule 140 and Rule 141 of the CGST Rules, 2017. (Rule 139(2), (3), (4), (5) & 140, 141 of CGST Rules, 2017)

(iii) The Seizure Authorization is issued in Form GST INS 01. The Order of Seizure is issued in Form GST INS 02. The Order of Prohibition is issued in Form GST INS 03. The Bond for Provisional Release of goods is called Form GST INS 04. The Release Order of goods is issued in Form GST INS 05.

• Section 67 of the CGST Act, 2017 is the key provision that governs search and seizure. It empowers authorized GST officers to inspect, search, and seize goods, documents, or things when they have reasons to believe that a taxpayer is evading tax or hiding evidence.
• The officer must follow the principles of natural justice and ensure that the seizure is conducted legally and fairly.

Key Points:

Key provisions under Section 67 include:

• Search and Inspection: The officer can enter any premises for inspection.
• Seizure: If the officer believes goods are liable to confiscation or documents/books relevant to proceedings are being hidden, they may seize them.
• Seizure Record: An inventory of seized items must be prepared.

Reasons to believe for Seizure during Search Proceedings:

The officer must have “reasons to believe” that:

• The goods are liable to confiscation, or
• Any documents or books or things which, in his opinion, will be useful for or relevant to any proceedings under the Act, are secreted in any place.

The term “reasons to believe” is essential because it safeguards against arbitrary actions. These reasons must be recorded in writing and should be based on tangible evidence or information rather than mere suspicion.

(I) For authorizing or carrying out Search, reasons to believe have to be formed by the Proper officer. A Search Authorization is issued in Form GST INS 01 by the Proper Officer if he has reasons to believe that goods liable to confiscation and documents or books or things which, in the opinion of the Proper officer, shall be useful for or relevant to any proceedings under the CGST Act, 2017, are secreted in any place.

(II) The Search Authorization in Form GST INS 01 issued by the Proper officer itself permits the seizure of such goods, documents, books or things if they are found during the Search proceedings.

Key Points:

The term “reasons to believe” is a safeguard under the GST law to prevent arbitrary actions by tax officers. Before proceeding with a search or seizure, the officer must:

• Be convinced, based on tangible information or evidence, that the goods or documents are related to an offense.
• These reasons must be recorded in writing before carrying out the search or seizure.

Typically, the reasons could include:

• Non-payment of GST or fraud.
• Goods being held for the purpose of evading tax.
• Concealment of records that are relevant for GST compliance or investigation.

What can be seized during Search Proceedings:

The following items may be seized during search proceedings under the GST Act:

• Goods: Goods that are not accounted for in the books of accounts or goods liable for confiscation can be seized.
• Documents or Books: Any books, registers, records, documents, or electronically stored data that may be relevant for investigation or inquiry.
• Things: Any other things which may be instrumental in determining tax liabilities or useful as evidence, including computers or other electronic devices.

The following can be seized during Search proceedings-

(i) Goods liable to confiscation which are secreted in any place and are found during Search.

(ii) Documents or books or things which are useful for or relevant to any proceedings under the CGST Act, 2017, which are secreted in any place and are found during Search.

Key Points:

Under GST law, the following items may be subject to seizure during search proceedings:

• Goods: Any goods which are not accounted for in the taxpayer’s records and are suspected of being used for tax evasion.
• Documents or Books: Books of accounts, registers, records, and any other relevant documents, including electronic records that provide evidence of GST liability or tax evasion.
• Other Things: Items such as computers, hard drives, or other materials used for maintaining accounting records, which may be relevant for investigation or inquiry.

Manner of Seizure during Search Proceedings:

• The officer must issue a search warrant authorizing the search and seizure.
• The seizure must be conducted in the presence of at least two independent witnesses.
• The officer must prepare an inventory of all goods, documents, or things seized.
• The person in charge of the premises must be informed of the reasons for seizure and the nature of items seized.

Key Points:

During Search proceedings, goods or documents or books or things are seized under an Order of Seizure in Form GST INS 02. The Order of Seizure contains the following important details:

(i) Document Identification Number (DIN) of the Order of Seizure.

(ii) Address of the premises at which seizure has taken place.

(iii) Details of the Goods or documents or books or things which are seized.

(iv) Names and addresses of Panchas.

  The search must be carried out based on a search warrant issued by a competent authority.

  The authorized officer conducting the search must be present in the premises and conduct the seizure in the presence of at least two independent witnesses.

  The officer must inform the person in charge of the premises about the reasons for the search and the intended seizure.

  The officer should prepare an inventory of the seized goods, documents, or things and provide a copy to the person from whose premises the seizure is being made.

Preparation of Inventory:

• An inventory of all seized items must be prepared at the time of seizure.
• This inventory must be signed by the authorized officer, witnesses, and the person from whose premises the seizure was conducted.

The inventory should include detailed descriptions of the goods, documents, or things seized, including their value, quantity, and nature

(I) Detailed inventory should be prepared of the seizures made at the premises itself. It is necessary to record the exact place from where seizures have been made as it helps to establish the ownership at a later stage. The details of all the marks of identification found on the goods under seizure should be mentioned while preparing the inventory and full signature of the person in charge of the premises being searched and that of the Authorised officer with date and his office seal should be taken. The pages of all the seized documents should be got numbered. The blank pages should be cancelled and numbered. The signatures of the witnesses on first and last pages of the numbered files/registers should also be obtained.

(II) All extracts taken should be properly authenticated. In the case of seizure of loose papers, they should be arranged in bundles in a folder or stitched on the left-hand top. Each paper should be numbered, signed by the authorized representative of the taxpayer, the authorised officer and the witnesses. However, where the number of papers is large, the pages can be numbered and sealed on a side. In the inventory, it may be mentioned that a particular bundle of papers contains specific number of pages.

(III) After the inventory has been prepared, the seized documents etc. should be packed in separate packages and handed over to an officer designated by the leader of the search party. It will be more appropriate if the seized documents etc. are kept in a trunk belonging to the Department or in a particular almirah, which has been taken into custody by the search party.

Key Points:

During the seizure process, the officer must prepare a detailed inventory of the goods or documents seized. This inventory includes:

• A list of all items seized.
• Description, quantity, and value of the goods (in case of goods seizure).
• Details of the documents or records, including digital records if applicable.

The inventory must be signed by:

• The authorized officer,
• The witnesses present during the search,
• The owner or the person in charge of the premises.

Order of Prohibition in case of goods which are not seized:

If the officer, for some reason, does not seize certain goods but believes they may later become liable for seizure, he may issue an Order of Prohibition. This order prohibits the movement, disposal, or tampering of the goods until further notice. The goods remain under observation, and no legal rights to transfer or deal with them are permitted.

(I) In certain situations, it may not be practicable to seize the goods which have been found during Search. In such cases, an Order of Prohibition in Form GST INS 03 is served on the owner or custodian of goods.

(II) The Order of Prohibition contains the following important details:

(i) Document Identification Number (DIN) of the Order of Prohibition.

(ii) Address of the premises where the goods have been found.

(iii) Name and designation of the Authorized officer.

(iv) Name and address of the Panchas.

(v) Details of the Goods in respect of which Order of Prohibition is issued.

(III) The Order of Prohibition also contains the directions that the owner or custodian of goods shall not remove, part with, or otherwise deal with the goods except with previous permission of the Proper officer.

In certain circumstances, the GST officer may not immediately seize the goods but may issue an Order of Prohibition. This order prevents the taxpayer from moving, disposing of, or altering the goods or documents in question until the conclusion of proceedings.

This provision is used when the officer believes the goods may later be required for seizure or further investigation.

Manner in which goods or things shall be dealt with immediately after their seizure:

• Once seized, the goods or things must be stored securely.
• The officer must ensure that the items are stored in a place authorized by the Commissioner, in compliance with rules for safekeeping.
• The officer may also put the seized goods under prohibition orders to prevent their disposal.

(I) Generally, the seized goods or things are kept in the custody of the Department after their seizure. However, in some situations, the seized goods or things are entrusted for safe custody upon the owner or custodian from whom they have been seized.

(II) The person who is entrusted with safe custody of the goods or things is directed not to remove, part with, or otherwise deal with the goods or things except with previous permission of the Proper Officer.

(III) The document under which the custody of the goods or things is given, is called ‘Supardginama’. The ‘Supardginama’ forms a part of the Order of Seizure in Form GST INS 02. This part of the Order of Seizure is left unfilled in cases where the custody of the seized goods or things is being taken by the Department itself.

(IV) Seized goods should be inspected from time to time by the officers to ensure the safety of the goods, particularly when the seized goods have been handed over under Supardginama.

(V) Similar precautions are required to be taken even in respect of goods placed under detention.

After seizure, the GST officer must:

• Store the seized goods in a secure location approved by the Commissioner.
• Take appropriate steps to ensure the integrity and security of the seized goods.

The officer must also issue a seizure memo, acknowledging the possession of the goods, and hand over a copy to the taxpayer.

Manner in which documents or books shall be dealt with immediately after their seizure:

• The officer may examine and photocopy or scan the seized books or documents.
• The officer must ensure the safety and confidentiality of the seized records.
• If required, the officer may make certified copies and return the original documents to the owner unless further retention is necessary for investigation.

(I) Unlike in the case of seized goods or things, there is no provision to entrust the custody of seized documents or books with any person. Documents or books have to be necessarily kept in the custody of the Department itself after their seizure.

(II) The person from whose custody documents are seized, shall be allowed to make copies or take extracts of the seized documents so that his business operations are not affected.

(III) However, the permission to make copies or take extracts can be refused by the Proper officer, if in the opinion of the Proper Officer, giving the copies or extracts will prejudicially affect the investigation.

(IV) This situation generally arises when a number of leads are being explored simultaneously and divulging the information contained in the seized documents may expose or reveal the further course of action which may be taken by the Department.

(V) The Proper Officer who may refuse to give this permission is the Additional Commissioner or Joint Commissioner of Central Tax according to Circular No. 3/3/2017 –GST dated 5th July 2017.

Key Points:

  The seized documents or books, including electronic records, must be secured and safely stored.

  The officer is allowed to take photocopies or digital copies of the seized documents for further investigation.

  The taxpayer may request certified copies of the seized documents, especially if these are needed for running the business.

Return of seized documents or books or things:

• As per Section 67(3) of the GST Act, the seized documents, books, or things should be returned within a maximum period of 30 days from the date of issue of the notice unless they are required for further investigation.
• The authorized officer may extend this period in cases where further retention is necessary for proceedings.

(I) The seized documents or books or things should be retained only for so long as may be necessary for their examination and for any inquiry or proceedings. The seized documents or books or things should be returned at the following stages:

The copies of seized documents or books or things which are relied upon in the Show Cause Notice will be given back as part of the Show Cause Notice.

The seized documents or books or things which are not relied upon in the Show Cause Notice should be returned within 30 days of the issue of the Show Cause Notice.

(II) A preliminary scrutiny of documents at the premises of search would be desirable so as to minimize the documents being seized. Seizure of unnecessary documents during search may create avoidable problems for the Department at a later stage and therefore, must be avoided.

As per Section 67(3) of the CGST Act, any documents, books, or things that are seized must be returned within a period of 30 days from the issuance of the notice, unless further retention is necessary for ongoing proceedings or investigation.

In such cases, the officer must record reasons for the extended retention of the documents or goods.

Provisional release of seized goods:

• The person whose goods have been seized may apply for provisional release of the goods before the final adjudication is completed.
• Under Section 67(6), provisional release of the seized goods can be granted upon furnishing a bond and a security equivalent to the amount of applicable tax, interest, and penalty.
• Provisional release is allowed to prevent unnecessary business disruptions while ensuring that the revenue’s interest is secured.

(I) The seized goods can be provisionally released on the request of owner or custodian of the goods from whom they were seized. There are two requirements for Provisional release of seized goods:

(a) Bond has to be executed by the owner or custodian of the goods in Form GST INS 04 equivalent to the value of goods.

(b) Security has to be furnished by the owner or custodian of the goods in the form of a Bank Guarantee equivalent to the amount of Tax and Cess, Interest and Penalty payable in respect of the goods.

(II) The person to whom the seized goods are provisionally released will be directed to produce them on the date and place specified by the Proper officer.

(III) The Proper officer for this purpose is the Additional Commissioner or Joint Commissioner of Central Tax according to Circular No. 3/3/2017 –GST dated 5th July 2017.

(IV) If the goods are not produced on the specified date and place, the Bank Guarantee shall be encashed and adjusted against the Tax and Cess, Interest and Penalty payable in respect of the goods.

Taxpayers have the right to seek provisional release of the seized goods pending the final adjudication of the case. For provisional release:

• The taxpayer must submit a bond and security equivalent to the value of the goods or the tax liability, penalty, or interest due.
• Provisional release prevents unnecessary disruption to business operations while ensuring the government’s revenue interests are protected.

Final release of notified goods:

If, after the conclusion of proceedings, it is determined that the goods were wrongfully seized or there is no liability, the seized goods must be returned to the person from whom they were seized. The return should be done in accordance with the following:

• A proper release order must be issued by the adjudicating authority.
• The return of goods must be documented, and acknowledgment must be obtained from the recipient.

In cases where goods have perished or cannot be returned, compensation or value may be provided as per legal provisions

In some cases, goods that are seized may be notified goods (e.g., items prone to evasion like tobacco or precious metals). The final release of such goods is subject to:

• Completion of adjudication proceedings,
• Payment of applicable taxes, penalties, or fines,

Clearance from the authorized officer.

(I) Under the procedure for expedited release of notified goods, the notified goods are finally released to the person from whom they were seized.

(II) The owner or custodian from whom the notified goods were seized shall be required to pay an amount which is the lower of:

(i) Market price of the goods;

(ii) Amount of Tax and Cess, Interest and Penalty payable in respect of the goods.

(III) After the payment is made by the owner or custodian, the notified goods shall be finally released to him by a Release Order in Form GST INS 05. Unlike in the case of Provisional release of goods, no request has to be made by the owner or custodian for Final release of notified goods. It is the Department itself which will ascertain whether the seized goods are notified goods and if so, inform the owner or the custodian to pay the specified amount.

Certain types of goods (such as notified goods) may be subject to strict provisions under the law. For the final release of such goods, the following conditions must be met:

• Completion of the adjudication process,
• Payment of applicable taxes, penalties, or fines.

The release must be authorized by the adjudicating authority once all legal requirements are satisfied.

Final disposal of notified goods:

If the seized goods are not released and are eventually confiscated, the GST authorities may initiate the final disposal of the goods through:

• Auction or sale by following the applicable procedures,
• The proceeds from such disposal will be used to offset the tax liability or penalties due.

(I) The seized notified goods shall be finally released after the owner or custodian makes the payment of the specified amount.

(II) However, if the payment of the specified amount is not made by the owner or custodian of the seized notified goods, the Release Order in Form GST INS 05 cannot be issued. In this situation, the Proper officer shall finally dispose the seized notified goods.

(III) The amount realized on Final disposal of the seized notified goods shall be adjusted against the Tax and Cess, Interest and Penalty payable in respect of the goods.

Issue of Show Cause Notice within six months of seizure or within extended period:

(I) The power of seizure is an extraordinary power based on the reasonable belief, therefore, the law provides that the enquiry should ordinarily be completed within six months. But visualizing at the same time that the enquiry may not be completed within the said period in certain cases owing to one difficulty or other, the law in terms of the relevant proviso authorize the Proper officer to extend the prescribed time for a period not exceeding six months on sufficient cause being shown and after following the principles of natural justice. The Proper officer for this purpose is the Principal Commissioner/Commissioner of Central Tax according to Circular No. 3/3/2017 –GST dated 5th July 2017.

If the goods are not released after adjudication, the GST authorities may initiate final disposal procedures. This may involve:

• Auctioning or selling the goods following proper procedures.
• The proceeds from the disposal are applied to offset the tax liabilities or penalties due.

In cases of perishable goods, early disposal or destruction may be ordered by the authorities.

Return of seized goods:

(I) If Show Cause Notice is not issued within six months or period as extended from the date of seizure, then the seized goods are required to be returned back/ released unconditionally to the person from whom they were seized, irrespective of whether the same were provisionally released, or finally released on payment of specified amount (if they are Notified goods), or finally disposed (if they are Notified goods) within the period of six months.

(II) The return/ release of the seized goods will not affect the legal proceedings, except to the extent that no redemption fine can be imposed after the goods are returned.

If, after the conclusion of proceedings, it is determined that the goods were not liable for seizure, the goods must be returned to the taxpayer or the person from whom they were seized. The return must be documented, and an acknowledgment must be obtained.

In cases where the goods are perishable or have already been disposed of, appropriate compensation or the monetary value of the goods may be provided to the taxpayer as per the provisions of law.

Conclusion with Key Points:-

The provisions for seizure during search proceedings under the GST Act are aimed at securing the interest of revenue while ensuring that proper procedures are followed to prevent arbitrary actions. The powers of search and seizure must be exercised with due diligence, ensuring that the taxpayer’s rights are respected, and the procedural safeguards under the law are adhered to. Proper inventory management, clear documentation, and adherence to legal formalities help ensure that the process remains transparent and legally sound.

Section 67 of the CGST Act, 2017

Section 67 is the key provision that grants GST officers the power to conduct search and seizure operations. It lays down the conditions and procedures under which such operations can be carried out.

Key Provisions under Section 67

• Inspection: GST officers are empowered to inspect places of business, books of accounts, documents, or any other places where goods or accounts may be stored if they have reasons to believe that tax evasion is occurring.
• Search: The authorized officer may conduct searches on premises, following the proper issuance of a search warrant. Searches can be conducted if the officer believes that any goods are liable to confiscation, or any documents or things that may be useful or relevant to any proceedings under GST law are secreted in the premises.
• Seizure: If during the search, the officer finds that goods or documents are likely to be hidden, destroyed, or used for the purpose of tax evasion, they may be seized. The seizure must be carried out in accordance with the principles laid out in the law, which includes proper documentation and inventory preparation.

2. “Reasons to Believe” – Safeguard Against Arbitrary Action

Before initiating any search or seizure, the authorized officer must have “reasons to believe” that:

• Goods are liable to confiscation,
• Documents, books, or other things useful for the investigation are concealed in any place.

The phrase “reasons to believe” requires the officer to have a reasonable and legitimate belief based on credible information or evidence, not just suspicion. This standard protects taxpayers from arbitrary actions by tax officers and ensures the search and seizure are conducted on legal grounds.

The reasons to believe must be recorded in writing, which adds a layer of accountability and legal scrutiny.

3. Issuance of Search Warrant

A search warrant is a formal order issued by a competent authority (usually the Commissioner or another senior officer) that authorizes a GST officer to enter specific premises and conduct a search. The search warrant must specify:

• The premises to be searched,
• The officer authorized to conduct the search,
• The nature of the items or evidence sought.

Without a search warrant, a search may be considered unlawful, except in exceptional cases where immediate action is necessary to prevent the destruction or concealment of evidence.

4. Seizure Process

Procedure for Seizure:

• Inventory: The officer must prepare an inventory of the seized goods, documents, or things. The inventory should be detailed, including the quantity, description, and value of the seized items.
• Witnesses: The search and seizure operation must be conducted in the presence of at least two independent witnesses to ensure transparency and fairness.
• Seizure Memo: A seizure memo or record of seizure must be prepared, listing all items seized, which must be signed by the authorized officer, witnesses, and the person in charge of the premises (if available).

5. Handling of Seized Goods and Documents

After seizure, the GST officer must ensure that the seized goods or documents are handled according to the law:

• Storage: Seized goods must be stored in a secure, authorized place approved by the Commissioner. This ensures the safekeeping of the goods while the investigation is ongoing.
• Seized Documents: Documents seized during the search must be examined and recorded. Photocopies or electronic copies may be taken for further investigation. If required, the taxpayer can request certified copies of seized documents to continue business operations.

6. Order of Prohibition

If the GST officer does not seize certain goods or documents during the search but believes that they may be involved in tax evasion or further investigation, an Order of Prohibition may be issued. This order restricts the movement, transfer, or tampering of such goods or documents until the investigation is complete or further action is taken.

7. Return of Seized Documents or Goods

According to Section 67(3), any documents, books, or things seized by the GST officer should be returned within 30 days from the date of notice unless they are required for further investigation or legal proceedings. This provision prevents unnecessary retention of documents or goods and balances the investigative needs of the tax authorities with the rights of the taxpayer.

The taxpayer can appeal for the return of seized items if they believe they are no longer required for the investigation.

8. Provisional Release of Seized Goods

In cases where the seizure of goods disrupts business operations, the taxpayer can apply for provisional release of the seized goods. Under Section 67(6):

• Provisional release may be granted upon furnishing a bond and security for the value of the goods.
• This ensures the continuity of business operations while protecting the government’s interests through the collection of security deposits.

9. Final Adjudication and Disposal of Seized Goods

Once the investigation or proceedings are completed, a final adjudication process takes place:

• If the seized goods are found to be compliant with the law, they are returned to the taxpayer.
• If the goods are determined to be liable for confiscation (e.g., for tax evasion), they may be confiscated and disposed of according to the provisions of the GST Act. This can involve auctioning or sale of the goods.

10. Safeguards Against Abuse of Power

To prevent the misuse of seizure powers, the GST law contains several safeguards:

• Judicial Oversight: The taxpayer can appeal any seizure or search operation before the appropriate judicial authorities, ensuring the legality of the proceedings.
• Documentation: Proper documentation, including a search warrant, inventory, and seizure memo, must be maintained to ensure transparency and accountability.
• Natural Justice: The principles of natural justice ensure that the taxpayer is given the opportunity to explain or contest the seizure of goods, documents, or other things.

Disclaimer : The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The document is made with utmost professional caution but in no manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the matter given. The document is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this document will be accepted by us. Professional advice recommended to be sought before any action or refrainment