GST Inspection, Search and Seizure

Topics covered in this article are as follows:

1. Introduction
2. Difference between Inspection and Search
3. Provisions regarding initiation of ‘Inspection’ under GST
4. Provisions regarding initiation of ‘Search and Seizure’ proceedings in GST
5. Meaning of Reason to believe
6. Term ‘Secreted Place’ under Section 67(2) is really secreted?

GST Search Seizure Summon & Arrest presents a detailed commentary on search, seizure, summons and arrest proceedings under Goods and Services Tax Law. This book covers Sections 67, 69, 70, 83 & 132-138 of the Central Goods and Services Tax Act, 2017 and the corresponding Rules made thereunder

1. Introduction

In any tax administration the provisions for Inspection, Search and Seizure are provided to protect the interest of genuine taxpayers as the Tax evaders by evading the tax get an unfair advantage over the genuine taxpayers. These provisions are also required to safeguard and protect interest of revenue. It may be mentioned that the options of Inspection, Search and Seizure should be exercised only in exceptional circumstances and as a last resort.

Thus, to ensure that these provisions are used properly, effectively and the rights of taxpayers are also protected, it is stipulated that Inspection, Search or Seizure can only be carried out by a proper officer as envisaged by legislatures (i.e. rank of Joint Commissioner or above in GST law), only when such proper officer has ‘reasons to believe’ regarding the existence of such exceptional circumstances.

It is well-settled law that search and seizure being an inroad on the fundamental right of citizen which adversely affects his reputation and paralyze his business. Therefore, while exercising such powers, the authorities should be rather careful and cautious and must exercise it strictly under the authority of the law¹.

2. Difference between Inspection and Search

‘Inspection’ is a softer provision than search which enables officers to access any place of business of a taxable person or of a person engaged in transporting goods or who is an owner or an operator of a warehouse or godown, whereas ‘Search’, in simple language, denotes an action of 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.

Under GST, inspection, as well as search, can be carried out only after authorization by a proper officer not below the rank of Joint Commissioner and such proper officer must have reason to believe for the existence of exceptional circumstances to justify invoking provisions of Search and Seizure. Sections 67 to 72 of the CGST Act read with rules 139 to 141 of CGST Rules deal with powers and procedure of Inspection, Search & Seizure.

It is imperative to mention here that application of the provisions of the Code of Criminal Procedure arises only when the premises are searched and not inspected².

3. Provisions regarding initiation of ‘Inspection’ under GST

Sub-section (1) of section 67 of the CGST Act empowers proper officer to conduct an inspection at the business place of the taxpayer. Section 67(1) reads as below:

“Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that:

(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,

he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.”

Some of the key aspects of the above provisions are as under:

(a) Authorisation of Inspection has to be given by the officer of the rank of Joint Commissioner and above.

(b) Authorising officer must have reason to believe about Taxable person that—

(i) Suppressing of any transaction relating to the supply of goods or services or both; or

(ii) Suppressing Stock in hand; or

(iii) Claiming of excess Input Tax Credit; or

(iv) Indulging in contravention of any of the provisions of the law to evade tax; or

(c) Authorising officer must have reason to believe that, transporter is keeping the goods which has escaped tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax; or

(d) Authorising officer must have reason to believe that owner or operator of warehouse or godown or any other place is keeping the goods which has escaped tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax.

It needs to be noted here that, Authorisation for the purpose of Inspection under section 67(1) of the CGST Act, should be in writing and in prescribed form³. Rule 139 of the CGST Rules envisage procedural aspects of Inspection, Search and Seizure. Rule 139 of the CGST Rules read as follows:

“(1) Where the proper officer not below the rank of a Joint Commissioner has reasons to believe that a place of business or any other place is to be visited for the purposes of inspection or search or, as the case may be, seizure in accordance with the provisions of section 67, he shall issue an authorisation in FORM GST INS-01 authorising any other officer subordinate to him to conduct the inspection or search or, as the case may be, seizure of goods, documents, books or things liable to confiscation.

(2) Where any goods, documents, books or things are liable for seizure under sub-section (2) of section 67, the proper officer or an authorised officer shall make an order of seizure in FORM GST INS-02.

(3) The proper officer or an authorised officer may entrust upon the owner or the custodian of goods, from whose custody such goods or things are seized, the custody of such goods or things for safe upkeep and the said person shall not remove, part with, or otherwise deal with the goods or things except with the previous permission of such officer.

(4) Where it is not practicable to seize any such goods, the proper officer or the authorised officer may serve on the owner or the custodian of the goods, an order of prohibition in FORM GST INS-03 that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer.

(5) The officer seizing the goods, documents, books or things shall prepare an inventory of such goods or documents or books or things containing, inter alia, description, quantity or unit, make, mark or model, where applicable, and get it signed by the person from whom such goods or documents or books or things are seized.”

It is pertinent to note that, section 67(1) categorically provides that Inspection can be at the place of business of the assessee. It further needs to be noted here that section 2(85) of the CGST Act defines the phrase ‘place of business’ which reads as follows:

‘“place of business” includes—

(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or

(b) a place where a taxable person maintains his books of account; or

(c) a place where a taxable person is engaged in business through an agent, by whatever name called;’

Definition of the place of business is inclusive which includes godown or any other place where a taxable person stores his goods or maintains his books of accounts or place of agent. Accordingly, if books of accounts are being maintained or kept at residence of director or any other key managerial person the same may be treated as place of business and inspection can be carried out there as well.

4. Provisions regarding initiation of ‘Search and Seizure’ proceedings in GST

Sub-section (2) of section 67 of the CGST Act empowers proper officer not below the rank of Joint Commissioner to carry out search proceeding, provided that Joint Commissioner has reason to believe that any goods liable to be confiscation or any documents/books which in opinion are relevant for the proceedings under the Act but such documents/books/things/goods are secreted at any place. Section 67(2) and 67(3) of the CGST Act reads as follows:

“(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.”

Some of the key aspects of the above provisions are as under:

• Authorisation of Search and Seizure has to be given by the officer of the rank of Joint Commissioner and above.
• Authorising officer must have reason to believe about:

(a) Goods liable for confiscation are secreted in any place;

(b) books, documents or something, which is useful or relevant for proceeding under GST law, are secreted in any place.

• Authorisation should be in writing in Form GST INS-01 for Search.
• In case of Seizure, Order of Seizure is to be issued in Form GST INS-02.

5. Meaning of Reason to believe

It is most humbly submitted here that meaning of ‘Reason to believe’ is not defined under the CGST Act/SGST Act. It is need to be noted here that the said term is defined under section 26 of the Indian Penal Code, which reads as follows:

‘Reason to believe — A person is said to have “reason to believe” a thing, if he has sufficient cause to believe that thing but not otherwise.’

It is settled legal position that belief should be honest and reasonable belief. Hon’ble Supreme Court in the case of Barium Chemicals Ltd. v. Company Law Board AIR 1967 SC 295/[1966] 36 Comp. Cas. 639 (SC), the Supreme Court pointed out, on consideration of several English and Indian authorities that the expressions “is satisfied”, “is of the opinion” and “has reason to believe” are indicative of subjective satisfaction, though it is true that the nature of the power has to be determined on a totality of consideration of all the relevant provisions. Further, Hon’ble Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)/AIR 1976 SC 1753, the Supreme Court construed the expression “reason to believe” employed in section 147 of the Income-tax Act, 1961 and observed that the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully or truly all material facts. It is not any or every material, howsoever vague and indefinite or distant which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.

The words “where the proper officer has reasons to believe” in section 67 of the Act suggest that the belief must be that of an honest and reasonable person based upon the relevant materials and circumstances. The satisfaction has to be of the Proper Officer not below the rank of Joint Commissioner. The Proper Officer should have reasons to believe that a taxable person has suppressed any transaction relating to supply of goods or services or both. Further, Hon’ble Supreme Court in the case of Pukhraj v. D. R. Kohli 1983 (13) ELT 1360/AIR 1962 SC 1559, the Supreme Court observed as follows:

“After all, when we are dealing with a question as to whether the belief in the mind of the officer who effected the seizure was reasonable or not, we are not sitting in appeal over the decision of the said officer. All that we can consider is, whether there is ground which prima facie justifies the said reasonable belief.” (p. 1563)

Term ‘Reason to believe’ have been discussed in detail at the end of Chapter.

Hence, if the information is such as leads the Proper Officer to believe that the articles of search are secreted in a place, he may thereby have ‘reasons to believe’ as contemplated under section 67 of the Act and authorise in writing any other officer to search and seize such goods. All that the Court can consider is, whether there is ground which prima facie justifies the reasonable belief. Further, the statutory requirement of reasonable belief, rooted in the information in possession of Proper Officer under the Act, is to safeguard the citizen from vexatious proceedings.

‘Belief’ is a mental operation of accepting a fact as true, so, without any fact, no belief can be formed. It is true that it is not necessary for the Proper Officer under the Act to state reasons for his belief. But if it is challenged that he had no reasons to believe, in that case, he must disclose the materials upon which his belief was formed, as it has been held by the Hon’ble Supreme Court in Sheo Nath Singh v. Appellate Asstt. CIT [1971] 82 ITR 147/AIR 1971 SC 2451, that the Court can examine the materials to find out whether an honest and reasonable person can base his reasonable belief upon such materials although the sufficiency of the reasons for the belief cannot be investigated by the Court.

It is further submitted here that the Hon’ble Gujarat High Court Patran Steel Rolling Mill v. Assistant Commissioner of State Tax [2019] 101 taxmann.com 80 (Guj.) held that provision of section 67, should not be exercised as a matter of course, but only after due application of mind to the relevant factors.

It further needs to be noted here that, in Form, GST INS-02 prescribed under rule 139(2) of the CGST Rules. Rule 139 of the CGST Rules relates to inspection, search and seizure. Sub-rule (1) thereof provides for the issuance of authorisation in Form GST INS-01 by the proper officer not below the rank of Joint Commissioner authorising any officer subordinate to him to conduct the inspection or search or, as the case may be, seizure of goods, documents or things liable to confiscation. Sub-rule (2) thereof provides that any goods, documents, books or things are liable to seizure under sub-section (2) of section 67, the proper officer or an authorised officer shall make an order of seizure in Form GST-INS-02. Sub-rule (5) thereof provides that the officer seizing the goods, documents, books or things shall prepare an inventory of such goods or documents or books or things containing inter alia, description, quantity or unit, make, mark or model where applicable, and get it signed by the person from whom such goods or documents or books or things are seized.

It needs to be noted here that section 67 read with rule 139 of the CGST Rules mandate that, seizure proceedings shall be authorised by a proper officer, not below the rank of the Joint Commissioner. Hence, every search and seizure shall be authorised by the proper officer. Further, at this juncture, it is germane to refer to section 157 of the CGST Act/SGST Act which provides protection/immunity to officers of CGST/SGST officer for action taken by him in good faith. Section 157 of the CGST Act/SGST Act reads as under:

“157. Protection of action taken under this Act.—(1) No suit, prosecution or other legal proceedings shall lie against the President, State President, Members, officers or other employees of the Appellate Tribunal or any other person authorised by the said Appellate Tribunal for anything which is in good faith done or intended to be done under this Act or the rules made thereunder.

(2) No suit, prosecution or other legal proceedings shall lie against any officer appointed or authorised under this Act for anything which is done or intended to be done in good faith under this Act or the rules made thereunder.”

Thus, a bare perusal of sub-section (2) of section 157 of the CGST Act gives immunity to an officer appointed or authorised under that Act for anything which is done or intended to be done in good faith under that Act or the rules made thereunder. Thus, an officer is protected provided he is authorised to do something under the CGST Act and provided such act has been done in good faith. Hence, any search and seizure proceedings conducted by a proper officer without any proper authorising shall not get immunity under section 157 of the CGST Act and therefore liable for exemplary cost. At this juncture, it needs to be noted here that when an officer functioning under the CGST Act, acts in a highhanded and arbitrary manner in excess of the authority vested in him the same is required to be viewed very seriously. Justice demands that such citizen be compensated for the undue harassment faced by him on account of the unauthorised action of the concerned officer⁴.

6. Term ‘Secreted Place’ under Section 67(2) is really secreted?

Sub-section (2) of section 67 of the CGST Act empowers proper officer not below rank of Joint Commissioner to carry out search proceeding, provided that Joint Commissioner has reason to believe that any goods liable to be confiscation or any documents/books which in opinion of the proper officer is relevant for the proceedings under the Act but such documents/books/things/goods are secreted at any place.

It is imperative to mention here that since it is settled position that tax laws are always interpreted in strict manner therefore one may take a view that search and seizure proceedings can be initiated by proper officer only when such proper officer have an opinion that any goods/books/documents/things which are relevant/useful to any proceedings under the CGST Act and/or rules made thereunder, are secreted at any place. However, here it is pertinent to note that, where all goods are duly recorded in the books or where all relevant books/documents/things are found at business place of taxpayers even in then the word ‘secreted’ have significant role.

The word secreted has not been defined under the Act. It is also settled principle that a word used in legislation may be given the meaning in the context in which it has been used.

It is important to note that, section 67(2) of the CGST Act/SGST Act is pari materia to section 105 of the Customs Act, 1962.

“105. Power to search premises.—(1) If the Assistant Collector of Customs, or in any area adjoining the land frontier or the coast of India an officer of customs specially empowered by name in this behalf by the Board, has reason to believe that any goods liable to confiscation, or any documents or things which in his opinion will be useful for or relevant to any proceeding under this Act, are secreted in any place, he may authorise any officer of customs to search or may himself search for such goods, documents or things.

(2) The provisions of the Code of Criminal Procedure, 1898, relating to searches shall, so far as may be, apply to searches under this section Subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word ‘Magistrate’, wherever it occurs, the words “Collector of Customs” were substituted.”

The Supreme Court in the case of Gian Chand v. State of Punjab [1961] 1961 taxmann.com 8/1983 (13) ELT 1365 (SC) had an occasion to consider the meaning of the word “secreted” within the meaning of section 105 of the Customs Act. The Supreme Court in the aforesaid decision has observed and held as under:

“…It cannot be said that the documents have not been ‘secreted within the meaning of section 105 of the Customs Act unless they are hidden or concealed. In the context of the section the word means documents which are not kept in the normal or usual place’ or it may even mean ‘documents or things which are likely to be secreted’; in other words documents or things which a person is likely to keep out of the way or to put in a place where the officer of the law cannot find it.

The power to search granted under section 105 of the Customs Act is a power of general search and it is not necessary for its exercise that the authorisation should specify the documents for which search is to be made. But it is essential that before this power is exercised the preliminary conditions required by the section must be strictly satisfied that is, the officer concerned must have reason to believe that any documents or things which-in his opinion are relevant for any proceeding under the Act are secreted in the place searched.”

In view of the above, even if the authority has reason to believe that the goods liable to be confiscated are likely to be secreted the authority will have the power to pass an order of prohibition pursuant to the order of seizure.

In Pukhraj v. D. R. Kohli 1983 (13) ELT 1360 (SC)/AIR 1962 SC 1559 the Hon’ble Supreme Court observed as follows:

“After all, when we are dealing with a question as to whether the belief in the mind of the officer who effected the seizure was reasonable or not, we are not sitting in appeal over the decision of the said officer. All that we can consider is, whether there is ground which prima facie justifies the said reasonable belief.”

If the information is such as leads the Proper Officer to believe that the articles of search are secreted in a place, he may thereby have ‘reasons to believe’ as contemplated under section 67 of the Act and authorise in writing any other officer to search and seize such goods. All that the Court can consider is, whether there is ground which prima facie justifies the reasonable belief.

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1.Bawa Gopal Das Bedi & Sons v. Union of India 1982 (10) ELT 351 (Patna).

2.S.Y. Modagekar & Sons v. CTO 1978 41 STC 298 (Kar.).

3.Form No. GST INS-01 [Rule 139(1)].

4.Prakashsinh Hathisinh Udavat v. State of Gujarat [2019] 112 taxmann.com 124 (Guj.).