[Opinion] Search – Not an Ordinary Course of Action under Section 67 of GST

S.V.S. Raghavendra Rao & S.V.S.N. Sasidhar Rao – [2022] 145 taxmann.com 360 (Article)

The proper officer who has reason to believe that a taxable person has suppressed any transaction relating to supply of goods or services or both to evade tax under this Act, can initiate search under section 67(1) of CGST/SGST act. To conduct search to a business premises, the procedure prescribed under rule 139 of CGST/SGST has to be followed. And if necessary, the proper officer can proceed for assessment under section 65(7) OR section 73 with prior authorisation from joint commissioner or any authority as prescribed under CGST/SGST Act. 

1. Procedure to be Followed by the Proper Officer

Sec 67 of CGST/SGST Act–  (1) 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;

(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.

Rule 139 (1) of CGST/SGST Rules-  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.

Therefore, it is important to note that, the Proper Officer to issue Search & Seizure Authorisation is “an officer not below the rank of Joint Commissioner, who has reas+on to believe that the taxable person has evaded the tax by suppression of transactions or by other reasons as specified under sec 67(1)”. He may authorise any officer subordinate to him to conduct inspection or search under Sec 67 of CGST/SGST Act. 

2. Reasons to Believe 

Section 26 of IPC the Reasons to believe means,

“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 an honest and reasonable one based on relevant material and circumstances.

CASE Law: The Hon’ble Gujarat High Court in the case of Sanjay Mukeshbhai Patel v. State of Gujarat [2022] 140 taxmann.com 525, adjudged that,

“A word of caution needs to be sent to the Respondent Officers. Bereft of the facts of the present case, and more so considering that GST Act has only been five years old, it is expected that the Respondent Officers exercise restraint while dealing with search, inquiry or issuance of summons and subsequent interrogation. Merely because the section empowers the Officers to carry out an investigation or inquiry, does not give them unbridled power to infringe upon a citizen’s fundamental right guaranteed under Article 21 of the Constitution of India. I hope and trust that the respective State government will formulate certain guidelines enlisting the procedure to be followed by the Officers while ensuring liberty of citizens is maintained at all points of time. This is over an above the direction issued by my esteemed senior sister Justice Gokani in the operative order of the decision.”

CASE Law: The Hon’ble Madras High Court in the case of Tvl. Rising International Co. v. Commissioner Of Central GST & CE [2020] 121 taxmann.com 261 adjudged that-

“The case on hand, bare assertion has been made that the impugned proceedings were initiated based on the intelligence developed by CGST (HPU), Madurai that the petitioner is evading GST by misdeclaring the goods while importing. But not a scrap of material was produced before the court. The recitals set out in the order of seizure and the order of prohibition indicate that the formation of the requisite belief is predicated on the scrutiny of the books of account, registers and documents found during the search. This is sufficient to invalidate the entire proceedings.” 

3. Officer Should Have Authorisation to Conduct Search Under Sec 67 (1) Of CGST/SGST

The Search Authorization in Form GST INS-01 issued shall be serially numbered containing System Generated Document Identification Number (ARN Number) and such number shall be generated in the Enforcement Module compulsorily on each and every Search Authorization. No manual GST INS-01 shall be issued by Proper Officers. If any Search Authorization does not contain the System Generated Document Identification Number then it shall be presumed as unauthorized one.

CASE Law: Hon’ble High Court of Gujarat at Ahmedabad in the case of Prakashsinh Hathisinh Udavat v. State of Gujarat [2019] 112 taxmann.com 124 adjudged that-

“However, in the affidavit-in-reply filed by the respondent No.4 or even on the basis of the record, no material has been produced before this court to show that respondent No.4 was authorised by the proper officer to search any premises or seize any goods, documents, books or things under sub-section (2) of section 67 of the GGST Act in the case of the petitioner. Thus, it is an admitted position that the respondent No.4 – Assistant Commissioner was not conferred any power under sub-section (2) of section 67 of the GGST Act to carry out any search or inspection as stated in the order of seizure dated 25.10.2018. The impugned order has therefore, been passed without any authority of law. In the opinion of this court, when an officer functioning under the GGST 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 officer.”

4. Search Under Sec 67 (1) is Only to Collect Evidences.

The procedure prescribed under Rule 139 of GST Rules, 2017 shall be followed for conducting Search & Seizure under Sec 67(1) and sec 67(2). Upon possessing the Search & Seizure Authorisation in Form GST INS-01, the Authorised Officer shall conduct the search of the authorised premises by drawing the Panchanama containing the recovered documents/data/books. The Proper Officer issuing Search Authorisation shall maintain the Search & Seizure Registers indicating the details of name of the Search Authorised Officer, Designation, Date of issue of Search Authorisation, Name of the assessee, GSTIN, Brief description of reasons to believe in authorising the Search, Result of the Search, details of goods/ documents/books/things seized during search, etc., Similarly the Authorised Officer shall record in his Search & Seizure Register the details of search viz., name of assessee, GSTN, Result of search, goods/documents/books/things seized by him during search etc., in each case.

Form GST INS 1 – Authorisation for Inspection or Search [See Rule 139 (1)] – Whereas information has been presented before me and I have reasons to believe that— M/s. has suppressed transactions relating to supply of goods and/or services OR has suppressed transactions relating to the stock of goods in hand, OR has claimed input tax credit in excess of his entitlement under the Act OR has claimed refund in excess of his entitlement under the Act OR has indulged in contravention of the provisions of this Act or rules made thereunder to evade tax under this Act;

CASE Law: The Hon’ble High Court of Gujarat in the case of Paresh Nathalal Chauhan v. State of Gujarat [2020] 113 taxmann.com 462/79 GST 105 adjudged that –

“It is a matter of deep regret that the Chief Commissioner of State Tax has attempted to justify such wrongful action on the part of the officers of the department by placing reliance upon the provisions relating to power of investigation under an earlier enactment to justify the actions of the concerned officers who were exercising powers of search and seizure under section 67(2) of the GST Acts.

One would expect the higher officer to reprimand the subordinate officers for their unauthorised actions. But in this case, the higher ups, for reasons best known to them are trying to shield the actions of the subordinate officers though they are not in a position to show the relevant provisions of law under which such officers were empowered to act in this manner. All that the court can say at this stage is that the reports submitted of the Chief Commissioner in response to the orders dated 25.10.2019 and 20.11.2019, do not meet with the standards expected from an authority of his stature. Lastly the court may sound a word of caution to the authorities exercising powers under the GST Acts. Subsection (2) of section 157 of the GST Acts says that no suit, prosecution or other legal proceedings shall lie against any officer appointed or authorised under the Act for anything which is done or intended to be done in good faith under the Act or the rules made thereunder. An action like the present one which is not contemplated under any statutory provision and which infringes the fundamental rights of citizens under article 21 of the Constitution of India may not be protected under this section. An action taken may be said to be in good faith if the officer is otherwise so empowered and he exceeds the scope of his authority. However, in a case like the present one where the authorisation was for search and seizure of goods liable to confiscation, documents, books or things and the concerned officer converted it into a search for a person and an investigation, which is not otherwise backed by any statutory provision, it may be difficult to accept that such action was in good faith. Protection of such action under section 157 of the GST Acts may unleash a regime of terror insofar as the taxable persons are concerned. However, the court found it necessary to pass the present order to curb any further abuse of powers in this manner by the authorities under the GST Acts.”

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