Technological Innovations in GST Inspection and Seizure

Section 67: Powers of Inspection, Search, and Seizure

Section 67 of the CGST Act, 2017 , gives tax authorities the power to inspect, search, and seize goods, documents, books, and other items. The foundation for initiating these actions is the “reason to believe” standard. This standard is not explicitly defined in the law but is based on a reasonable and prudent person’s belief that there’s a reason to suspect tax evasion.

• Inspection: An inspection can be initiated if the proper officer has a reason to believe that a taxable person has suppressed any transaction, claimed excess input tax credit (ITC), or contravened any provisions of the act with an intent to evade tax. It can also be done on a transporter or a person engaged in transporting goods.
• Search: A search is a more intrusive action, requiring a search warrant or an authorization from the proper officer. It is carried out when there is a reason to believe that any goods liable to confiscation or any documents or things useful for tax evasion proceedings are secreted in a place.
• Seizure: Seizure involves taking possession of goods, documents, or “things” that are liable for confiscation. The definition of “things” has been a point of debate, particularly concerning cash. According to a circular issued by the Central Board of Indirect Taxes & Customs (CBIC), cash can be seized if it is suspected to be stock-in-trade (e.g., in the case of a business dealing in cash), but generally, it is not subject to seizure under Section 67. The CBIC has also issued specific instructions on how to handle seized assets to avoid ambiguity and disputes.

Data-Driven Risk Assessment in Enforcement

The GST Network (GSTN) and other government portals have integrated data analytics and machine learning to create a more objective and consistent risk assessment system. The Data Analytics Wing of GSTN uses a risk-based approach to identify potential tax evaders.

• E-way Bill Analytics: The e-way bill system (a government-mandated electronic document required for the movement of goods) is a primary source of data. Anomalies like repeated transport of goods with the same e-way bill number, mismatched distances, or frequent cancellations are flagged for further scrutiny.
• AI and Machine Learning Algorithms: These algorithms analyze vast datasets, including GSTR returns (GSTR-1, GSTR-2A, GSTR-3B), e-way bills, and other third-party data. They identify patterns indicative of tax evasion, such as:
  • Mismatch in GSTR-1 and GSTR-3B: Invoices reported in GSTR-1 but tax not paid in GSTR-3B.
  • Mismatch between GSTR-2A and GSTR-3B: Claiming excess ITC than what is reflected in the supplier’s GSTR-1.
  • Suspicious transactions: Businesses with unusual turnover, dormant status, or those making transactions with known shell companies.
• Predictive Analytics: The system uses predictive analytics to score taxpayers based on their risk profile. This allows for a more targeted enforcement approach, reducing the burden on compliant taxpayers and ensuring that inspections are based on concrete data rather than subjective judgment.

Improving Documentation and Record-Keeping

Government initiatives aim to streamline documentation and record-keeping, reducing disputes and improving efficiency.

• Electronic Invoicing (E-invoicing): The e-invoicing system, mandatory for businesses above a certain turnover, requires them to generate and upload invoices on the Invoice Registration Portal (IRP). This creates a secure, tamper-proof record of all B2B transactions.
• Centralized Database: The GSTN acts as a centralized database where all returns, invoices, and e-way bills are stored. This ensures that all records are digitally available to tax authorities and taxpayers, reducing the reliance on manual paperwork.
• Digital Signatures: Government platforms encourage the use of digital signatures for document submission, enhancing the security and authenticity of records.

Streamlining Seizure and Provisional Release Processes

The government has taken steps to expedite the provisional release of seized goods to minimize business disruptions.

• Digital Workflows: The GST portal provides a framework for taxpayers to file applications for the provisional release of seized goods electronically. This reduces the manual back-and-forth between departments.
• Security Deposits: The CGST Act provides a clear mechanism for the provisional release of seized goods upon furnishing a security deposit equivalent to the tax, interest, and penalty. Circulars from the CBIC have specified the procedures to be followed, ensuring a transparent and timely process.

Enhancing Delegation and Rights Awareness

The government has made efforts to increase transparency and accountability in the delegation of authority and to make taxpayers aware of their rights.

• Delegation of Powers: The CBIC issues circulars and orders that clearly define the delegation of powers to different officers, such as superintendents, assistant commissioners, and commissioners. This helps in mapping the accountability structure.
• Taxpayer’s Rights: The CBIC and other government bodies regularly publish circulars, FAQs, and advisories to inform taxpayers about their rights during inspection, search, and seizure. These rights include the right to a search warrant, the presence of two independent witnesses, and the right to have a lawyer present. The GST Portal also provides a dedicated section for taxpayers to access these resources.

Conclusion

The Indian government, through its various arms like the CBIC and GSTN, is increasingly leveraging technology to reform GST enforcement. The shift toward data-driven risk assessment, electronic invoicing, and digital workflows aims to address the shortcomings of the traditional system. These reforms are part of a broader strategy to create a more transparent, efficient, and fair tax administration system, fostering a better relationship between taxpayers and the authorities.