Inspection, search and seizure under GST – A detailed Analysis

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Inspection under GST: In any tax administration the provisions for Inspection, Search, Seizure and Arrest are provided to protect the interest of genuine tax payers (as the Tax evaders, by evading the tax, get an unfair advantage over the genuine tax payers) and as a deterrent for tax evasion. These provisions are also required to safeguard Government’s legitimate dues. Thus, these provisions act as a deterrent and by checking evasion provide a level playing field to genuine tax payers.

It may be mentioned that the options of Inspection, Search, Seizure and Arrest are exercised, only in exceptional circumstances and as a last resort, to protect the Government Revenue.

Chapter XIV – Inspection, Search, Seizure and Arrest [Sections 67 to 71] of the CGST Act stipulates the provisions relating to inspection, search, seizure and arrest. State GST laws also prescribe identical provisions in relation to inspection, search, seizure and arrest.

When does inspection under GST occur?

A Joint Commissioner or an officer higher in rank can give such authorization only if he has reasons to believe that

(a) taxable person has done one of the following:-

  • i. suppressed any transaction of supply of goods or services;
  • ii. suppressed stock of goods in hand;
  • iii. claimed excess input tax credit;
  • iv. contravened any provision of the Act to evade tax;

(b) any person engaged in transporting of goods has kept goods which have escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax, whether or not he is a registered taxable person.

(c) an owner or an operator of a warehouse or a godown has kept goods which have escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax.

 

What is meant by ‘reasons to believe’?

Reason to believe is to have knowledge of facts which, although not amounting to direct knowledge, would cause a reasonable person, knowing the same facts, to reasonably conclude the same thing. As per Section 26 of the IPC, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.”

‘Reason to believe’ contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration. It has to be and must be that of an honest and reasonable person based on relevant material and circumstances.

As per the Indian Penal Code, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.”

Reason to believe is a determination based on intelligent examination and evaluation. It is different from a purely subjective consideration, i.e., an opinion. It is based on facts rather than an interpretation of facts.

Is it necessary to record the ‘reasons to believe’ in writing, before issuing order for Inspection/Search/Seizure?

GST Act does not mention recording the reasons to believe. In fact, Finance Act 2017 has amended Sec 132(1) & (1A) of Income Tax Act retrospectively stating, that reason to believe, shall not be disclosed to any person or any authority or the Appellate Tribunal.

Any tax law should provide powers to the enforcing officers, to check the evasion of tax. As per the dictionary meanings and as noted in different judicial pronouncements, the term ‘search’, in simple language, denotes an action of a government machinery to go, look through or examine carefully a place, area, person, object etc. in order to find something concealed or for the purpose of discovering evidence of a crime. The search of a person or vehicle or premises etc. can only be done under proper and valid authority of law.

Meaning of Seizure

The term ‘seizure’ has not been specifically defined in the GST Act. In Law Lexicon Dictionary, ‘seizure’ is defined as the act of taking possession of property by an officer under legal process. It generally implies taking possession forcibly contrary to the wishes of the owner of the property or who has the possession and who was unwilling to part with the possession.

Search & Seizure

During such inspection, if any goods which are liable for confiscation under the Act are found or any documents/books of accounts are found, which may be useful for the department in the proceedings for demand of tax, the officers conducting the inspection could search and seize such goods/documents and books.

Who can order search under GST and when?

On the basis of results of inspection or any other reason, Joint Commissioner of SGST/CGST or a superior officer can order for a search if he has “reasons to  believe” –

  • There are goods which are liable for confiscation
  • Any documents or books or other things which will be useful during proceedings and are hidden somewhere

He can, on his own or through an authorized officer, search and seize the goods and documents.

Inspection of Goods in Movement

Inspection can also be done of the conveyance, carrying a consignment of value exceeding specified limit. The person in charge of the conveyance has to produce prescribed documents/devices for verification and allow inspection. Eway Bill has been prescribed for the said purpose. The same has already been discussed in detail in Chapter-11: Accounts and Records. Inspection during transit can be done even without authorisation of Joint Commissioner.

Seizure under GST

What is meant by seizure? 

The term ‘seizure’ has not been specifically defined in GST. In legal parlance, seizure is the act of taking over something or someone by force through legal process, such as the seizure of evidence found at the scene of a crime. It generally implies taking possession forcibly against the wishes of the owner.

What is the difference between Seizure and Detention?

Not allowing the owner any access to the seized goods by a legal order/notice is called detention. However, the ownership & possession of goods still lie with the owner. It is issued when it is suspected that the goods are liable to confiscation.

Seizure is taking over or actual possession of the goods by the department. But the ownership is still with the owner. Seizure can be made only after inquiry/investigation that the goods are liable to confiscation.

Procedure for seizure

The proper officer will give an order of seizure in FORM GST INS-02.

What are the powers of the officer authorized to search?

The officer authorized to search will have the power to seal the door of the premises. He can also break open the door of any premises if access is denied. He can also break open any cupboard or box in which goods, books, documents etc. are suspected to be concealed.

What happens if it is not possible to seize the goods?

If it is not practicable to seize the goods, the proper officer will order the owner not to remove these goods without prior permission of the officer. The officer will issue an order of prohibition in FORM GST INS-03.

How long will the books/documents remain with the officer?

The officer will keep the books and documents as long as it is necessary for examination and inquiry. Other books which are not relevant to the issue of notice will be returned within 30 days from the date of notice.

The seized goods can be released on a provisional basis against a bond for the value of the goods in FORM GST INS-04. The owner must also furnish a security in the form of a bank guarantee for the amount due (applicable tax, interest and penalty payable).

If the owner fails to produce the provisionally released goods at the appointed date and place then the security will be encashed and adjusted against the amount due.

What happens after seizure?

  1. The person, whose documents are seized, can make copies only in the presence of an officer.
  2. If notice is not issued within six months (extendable by 6 more months) of the seizing the goods, they will be returned.
  3. The Government can issue a list of hazardous or perishable goods which can be disposed off as soon as they are seized.
  4. All goods seized will be listed properly by the officer.

Does the Code of Criminal Procedure apply in such cases?

The provisions of the Code of Criminal Procedure will apply to search and seizure.

Other ways to check/inspect

The Commissioner or an authorized officer can purchase any goods and/or services from a taxable person. This will be done to check the issue of tax invoices, whether they are maintained correctly, and whether GST amount is clearly displayed. When the goods are returned, the amount will have to be refunded by the taxable person and the sales invoice will be canceled.

Arrest under GST

The term ‘arrest’ has not been defined in the GST Act. However, as per judicial pronouncements, it denotes ‘the taking into custody of a person under some lawful command or authority’. In other words, a person is said to be arrested when he is taken and restrained of his liberty by power or colour of lawful warrant.

Arrests can be carried out only where the person is accused of offences specified for this purpose and the tax amount involved is more than specified limit. Further, the arrests under GST Act can be made only under authorisation from the Commissioner. Whenever the Commissioner has reason to believe that any person has committed any such offence, he can authorize any other officer subordinate to him, to arrest such person.

Various offences committed in connection with evasion of tax are also punishable with imprisonment for which purpose, the offender has to be prosecuted before appropriate Court. The nature of offences which are thus punishable with imprisonment are prescribed in Section 132 of the Act.

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