In any established systematic state, revenue collected in form of taxes from citizens is the backbone for public expenditure and welfare. The legislature frames various laws and the citizens are implied to follow the word of law and discharge their duty as taxpayers. But humans have tendency to do what is best for them, even though this might contradict the law and invite legal trouble. This is where the government uses its power to unravel the dubious methods involved in such adventure.
Section 67 of CGST Act, 2017 empowers officers appointed by central government to conduct search and inspection on those taxpayers, who they believe, might have violated provisions of GST law. Provisions on same lines have also been enshrined in various State GST laws, to conduct search and inspections.
It is worthy to note that Code of Criminal Procedure (Now replaced by Bhartiya Nagarik Suraksha Sanhita) relating to search is also applicable to search and seizure under GST. Now let us dive deeper into Section 67 of CGST Act, 2017 to understand the procedure of search, inspection & seizure under GST regime.
INSPECTION
Section 67(1) provides that inspection to be conducted must be authorized by officer not below the rank of Joint Commissioner, if he has reasons which warrant such inspections. The reasons believed for authorization of an inspection may include:-
- Suppression of any transaction
- Excess claim of ITC in contravention to provisions of GST
- Violation of any provisions of the GST
- Transporter and warehouse owner/operator has kept goods which have escaped payment of tax or their actions might cause evasion of tax
The apex court has directed that mechanism of inspection & search under GST is drastic and reasons for such inspection & search must be of extra ordinary nature, orders for inspection should be not be passed as routine matters. Authorization for inspection is issued in FORM GST INS-01.
The place which can be inspected under sub-section 1 includes business premises and any other place which is believed to be fit for such inspection by Joint Commissioner. The provision of inspection of “Any other place” has been used by authorities to conduct inspection at residential place of taxpayers also, and the same has been held as legally permissible by judiciary but provided solid grounds for such action are properly recorded and privacy safeguards are adhered to.
SEARCH & SEIZURE
Section 67(2) grants powers to officers not below rank of Joint Commissioner to authorize search of any secreted goods, documents, books or things, and seizure of the same, if they are reasoned to be relevant for proceedings. Reasons for seizure can be from results of inspection or otherwise. Order for such seizure is made in FORM GST INS-02.
The Hon’ble Supreme Court, in case of Deepak Khandelwal [S.L.P. (Civil) No. 31886/2024 – S.C.] [Writ Petition (Civil) No. 6739/2021- DELHI], upheld the views of Delhi High Court that for seizure of items other than goods involved in supply, only that material, which is relevant for investigation and which provides as evidence for proceedings, only can be seized. It was also held that any unaccounted monies or assets, not relevant for proceedings, are not under purview of GST authorities for confiscation.
Any books, documents and things seized, which have not been relied upon for issue of notice shall be returned within 30 days from date of issue of notice.
If any goods, which are selected for seizure, but for any reasons cannot be seized, officers can bind the taxpayer or custodian for safe keeping of such goods. The owner or custodian who is ordered to safe keep such goods, must take prior permission before disposing or parting with such goods. Order is made in FORM GST INS-03 for mandating owner or custodian for safe keeping.
Section 67(5) provides a very practical right to taxpayers. It provides that taxpayer can make copies of documents seized, after taking permission of officer, only at a place designated by officer. Although, officer can deny such request if it is presumed to be prejudicial to investigation.
Also, under section 67(6), goods seized can be released on execution of bond for value of goods, in FORM GST INS-04 along with furnishing of security equivalent to amount applicable of tax, interest and penalty. The government has also empowered officers to dispose any goods seized if they are of perishable/hazardous nature.
THE AFTERMATH
The mechanism under section 67 is only for investigation and discovery of facts, upon which authorities can issue notice for demand and recovery. Section 67(7) also provides that if no notice is issued within six month from the date of the seizure, then the goods seized shall be returned to the person from whom such goods were seized. The period of limitation can be further extended for upto six months.
A relevant case here is of Dayal Products [S.L.P. (Civil) No. 44119/2025- S.C.] [Writ Tax No. 1319/2024- ALLAHABAD]. In the said case, excess stock was found during inspection under section 67, as a result the authorities initiated proceedings under section 130, which provides for penalty and confiscation. The taxpayer contested that mechanism of GST law mandates that notice for findings of inspection must be served under section 73 or 74 and not under section 130. This view was upheld by both, Hon’ble Allahabad High Court and then Hon’ble Supreme Court.
It is lucid now that provisions for inspection, search and seizure under GST cannot be used arbitrary by the authorities and bonafide meaning must be given to each element, for exercising the vested power and respecting rights of taxpayers.
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