GST UPDATE

Desk of CA. Praveen Sharma Series- 488

The provisions concerning search and seizure in the GST Law are accompanied by sufficient safeguards. According to these provisions, a search of any place of business can only be conducted with authorization from an officer not below the rank of Joint Commissioner. This authorization is granted if there is reason to believe that the person in question has engaged in any of the following activities:

a.     Concealment of goods liable to confiscation or relevant documents, books, records, or items.

b.    Seizure of such goods/documents/books/records is permissible, but if seizure is not practical, they may be detained. The individual from whom these items are seized is entitled to copies or extracts of the seized records.

c.     The seized documents/books/things must be retained only until they are required for examination, inquiry, or proceedings. If they are not relied upon for the case, they must be returned within 30 days of the issuance of the show cause notice.

d.    upon payment of applicable tax, interest, and penalty.

e.     A notice of seizure must be issued within six months. If no notice is issued within this period, all seized goods must be returned. However, the Commissioner may extend this period for another six months with sufficient cause.

f.     An inventory of the seized goods/documents/records must be made by the officer, and the person from whom they were seized must be given a copy of the same.

g.    To ensure transparency and proper implementation, searches and seizures must comply with the provisions of the Criminal Procedure Code, 1973. They should be conducted in the presence of two or more independent witnesses, and a record of the entire proceedings must be made and forwarded to the Commissioner promptly.

Summary of Section 67 – Inspection, Search, and Seizure:

Inspection

Section 67(1) grants the authority for inspection to the following locations:

a.     Premises of a taxable person's business.

b.    Premises of individuals engaged in the transportation of goods.

c.     Premises of warehouse owners or operators.

d.    Any other premises as deemed necessary.

What is Inspection?

The distinction between "inspection" and "search" in the GST Act of 2017 is essential, with inspection serving as a less intrusive measure compared to search. While the Act doesn't explicitly define these terms, inspection essentially involves the verification, whether physical or otherwise, to establish facts or evidence related to a taxable person's business transactions. It grants officers access to various business premises, including those involved in transporting goods or operating warehouses or godowns.

On the other hand, "search," as per Black’s Law Dictionary and the Shorter Oxford English Dictionary, entails a thorough examination or scrutiny, often aimed at uncovering contraband, illicit property, or evidence of criminal activity. The authorization for a search warrant requires compelling reasons, as it involves a transgression into one's privacy. However, in tax matters, a mere suspicion of undisclosed income or assets is adequate for the issuance of a search warrant.

The authority to conduct inspections lies with any proper officer not below the rank of Joint Commissioner. Such inspections are conducted to ascertain compliance with GST regulations and may involve accessing business premises or locations associated with the transportation or storage of goods.

Overall, while both inspection and search serve investigative purposes, inspection is considered a softer provision, primarily aimed at verifying business transactions and ensuring compliance with GST laws, without the level of intrusion associated with a search.

Power to Inspect

The authority to conduct inspections under Section 67(1) of the CGST Act, 2017 lies with any proper officer not below the rank of Joint Commissioner. This officer can authorize other officers of the CGST/SGST in writing to conduct inspections.

Inspection is considered a milder provision compared to search, enabling officers to access any place of business or premises involved in the transportation or storage of goods, such as warehouses or godowns. However, inspections can only be carried out by officers of the CGST/SGST upon written authorization by an officer of the rank of Joint Commissioner or higher.

Authorization for inspection can be granted by a Joint Commissioner or a higher-ranking officer if there are reasons to believe that the person under scrutiny has engaged in activities such as:

a.     Suppression of transactions related to the supply of goods or services or stock in hand.

b.    Claimed excessive input tax credit.

c.     Contravened any provisions of the Act or Rules to evade tax.

Inspection under Section 67(1) is authorized based on the presence of 'reasons to believe'. This provision grants the power to inspect when any proper officer, not below the rank of Joint Commissioner, holds reasonable grounds to suspect that:

a.     Goods are being transported or stored in a manner that evades tax payment, or accounts or stocks are being manipulated to facilitate tax evasion.

b.    A conveyance is carrying a consignment exceeding a specified value limit.

In such instances, the person in charge of the conveyance is obliged to produce relevant documents or devices for verification and permit inspection. It's noteworthy that inspections during transit can be conducted even without the explicit authorization of a Joint Commissioner.

Accordingly, power to inspect has been granted where any proper officer (not below the rank of Joint Commissioner) has reasons to believe that -

(a)   If a taxable person has: -

Suppressed any transaction related to the supply of goods and/or services,

Suppressed stock of goods in hand,

Claimed input tax credit in excess of entitlement, or

Indulged in contravention of any provisions of the GST law or rules made thereunder with the intention to evade tax under this Act;

(b)  Or if any person:

Is engaged in the business of transporting goods or is an owner/operator of a warehouse, godown, or any other place where goods are kept which have escaped payment of tax,

Has maintained accounts or goods in a manner likely to cause evasion of tax payable under the Act;

Then, the proper officer, not below the rank of Joint Commissioner, may authorize in writing any other officer of CGST/SGST to inspect:

Any places of business of the taxable person,

Any place of persons engaged in the business of transporting goods,

Any place of the owner or operator of a warehouse, godown, or

Any other relevant place.

To facilitate inspection and investigation, the Director General of Goods and Service Tax Intelligence (DGGSTI) is authorized to conduct investigations through its zonal offices and regional units. Instances of tax evasion detected through these investigations commonly involve the following practices:

Underpayment of tax through undervaluation of taxable goods and services.

Incorrect utilization of exemption notifications.

Erroneous availment or failure to reverse input tax credit.

Failure to remit tax on the supply of taxable goods and services (clandestine removal).

Collection of tax from customers but non-payment to the government exchequer.

Non-payment of tax under the reverse charge mechanism.

Fraudulent claiming of input tax credit based on invoices from fictitious firms.

Deceptive claiming of refunds on Integrated Goods and Services Tax (IGST) for exported goods.

Regarding parallel jurisdiction

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