Search, Seizure and Inspection are necessary tools deterring the evaders from adopting unwanted mischievous transactions, thus for genuine dealers this is a good evil in the tax laws. Search, Seizure and Inspection are necessary ingredients for any tax system so that a fear of being heavily penalized for any misdeeds towards the possible evasion of tax. The utility of Search, Seizure and Inspection is more in GST Law as its design and application is based on trust and self-declaration by the tax payers. The power of Search, Seizure and Inspection is prescribed under Section 67 of the CGST Act, 2017.
As established Judicial procedures under the tax laws of the Country needs to be followed so a proper codified procedure have been prescribed in the recently introduced GST law for the purpose of Search, Seizure and Inspection and further proceedings thereafter.
Ingredients and Steps for invoking Section 67
- The proper officer, not below the rank of Joint Commissioner should have ‘reasons to believe’: [S. 67(1)]
- For suppression of any Transaction pertaining to supply or has claimed excess ITC.
- Transporting or keeping possession of goods which have escaped payment of tax.
- The proper officer, not below the rank of Joint Commissioner could confiscate any documents or books or things based on Reasons to Believe. [S. 67(2)]
- The documents, books or things not relied upon shall be returned within 30 days. [S. 67(3)]
- The officer authorised shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied. [S. 67(4)]
- The effected person shall be entitled to make copies of documents seized or take extracts therefrom in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation. [S. 67(5)]
- The goods seized shall be released, on a provisional basis, upon execution of a bond and furnishing of a security or on payment of applicable tax, interest and penalty. [S. 67(6)]
- Goods seized shall be returned within 6 months if no notice served, but period could be extended for another 6 months by officer on sufficient cause shown. [S. 67(7)]
- Provisions of Criminal Procedure Code pertaining to Search and Seizure would be pari materia applicable to GST laws. [S. 67(10)]
- Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution. [S. 67(11)]
Circulars/ Instructions by the CBIC in order to carry on the proper Investigation and to avoid abuse of power
As per INSTRUCTION NO. 1/2020-21 [GST INVESTIGATION/F. NO GST/INV/DGOV REFERENCE/20-21], DATED 2-2-2021 the following guidelines must be adhered to while carrying out search proceedings:
| (i) | Valid and justifiable reasons for authorizing a search, which shall be duly recorded in the file. | |
| (ii) | Generation of DIN. | |
| (iii) | The premises of a person cannot be searched on the authority of a search warrant issued for the premises of some other person. | |
| (iv) | In case of search of a residence, a lady officer shall necessarily be part of the search team. | |
| (v) | The search shall be made in the presence of two or more independent witnesses. | |
| (vi) | The officers conducting the search shall first identify themselves by showing their identity cards to the person-in-charge of the premises. | |
| (vii) | The search authorization shall be executed before the start of the search and his/her signature with date and time shall be obtained. | |
| (viii) | A Panchnama containing truthful account of the proceedings of the search shall necessarily be made and a list of documents/goods/things recovered should be prepared. | |
| (ix) | In the sensitive premises videography of the search proceedings may also be considered and the same may be recorded in Panchnama. | |
| (x) | While conducting search, the officers must be sensitive towards the assessee/party. Social and religious sentiments of the person(s) under search and of all the person(s) present, shall be respected at all times. Special care/attention should be given to elderly, women and children present in the premises under search. Children should be allowed to go to school, after examining of their bags. A woman occupying any premises, to be searched, has the right to withdraw before the search party enters, if according to the customs she does not appear in public. If a person in the premises is not well, a medical practitioner may be called. | |
| (xi) | The person from whose custody any documents are seized may be allowed to make copies thereof or take extracts therefrom for which he/she may be provided a suitable time and place to take such copies or extract therefrom. However, if it is felt that providing such copies or extracts therefrom prejudicially affect the investigation, the officer may not provide such copies. If such request for taking copies is made during the course of search, the same may be incorporated in Panchnama, intimating place and time to take such copies. | |
| (xii) | The officer authorized to search the premises must, sign each page of the Panchnama and annexures. A copy of the Panchnama along with all its annexures should be given to the person-in-charge of the premises being searched and acknowledgement in this regard may be taken. If the person-in-charge refuses to sign the Panchnama, the same may be pasted in a conspicuous place of the premises, in presence of the witnesses. Photograph of the Panchnama pasted on the premises may be kept on record. | |
| (xiii) | In case any statement is recorded during the search, each page of the statement must be signed by the person whose statement is being recorded. Each page of the statement must also be signed by the officer recording the statement as ‘before me’. | |
| (xiv) | After the search is over, the search authorization duly executed should be returned to the officer who had issued the said search authorization with a report regarding the outcome of the search. The names of the officers who had participated in the search should be written on the reverse of the search authorization. If search authorization could not be executed due to any reason, the same should be mentioned in the reverse of the search authorization and a copy of the same may be kept in the case file before returning the same to the officer who had issued the said search authorization. | |
| (xv) | The officers should leave the premises immediately after completion of Panchnama proceedings. |
Judgments
Arvind Goyal CA v. Union of India, (2023) 7 Centax 119 (Del.)
Since documents, books or things could only be seized under section 67 if same were useful or relevant to any proceedings under GST Act, therefore, seizure of currency by concerned officers was illegal and without any authority; and seized currency was returned.
Golden Cottage Industries v Union of India, 2019 (29) G.S.T.L. 587 (Guj.)
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 Supreme Court in Sheonath Singh’s case (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.
TVL. RISING INTERNATIONAL CO. v COMMR. OF CENTRAL GST & C. EX., MADURAI, 2020 (43) G.S.T.L. 3 (Mad.)
Section 67(1) of the Act employs the expression “has reason to believe”. The Hon’ble Supreme Court in Income Tax Officer, Calcutta and Ors. v. Lakhmani Mewal Das, (1976) 3 SCC 757 held that the existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the officer. It must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the authority in initiating proceedings is open to challenge. Of course, as contended by the Learned Standing Counsel for the respondents this judgment was rendered in the context of Income-tax Act as regards the reopening of the assessment where income escaped assessment. But then, the same principles will govern the case on hand also. It is true that this Court cannot sit in appeal over the satisfaction of the proper officer. It is equally true as observed in 2004 (168) E.L.T. 298 (Mad.) (Bhagwan R. Daswani v. Collector of Central Excise, Coimbatore), that whether the officer had materials to arrive at a reasonable belief or not before the search was conducted need not be tested under legal microscope.
Paresh Nathalal Chauhan v State of Gujarat, 2020 (32) G.S.T.L. 342 (Guj.)
Sub-section (2) of Section 67 does not empower the officer concerned to record statements of family members through force or coercion or to record their conversations in their mobile phones. In exercise of powers under sub-section (2) of Section 67 of the CGST Act, it is not permissible for the authorised officer to use coercive measures against family members to find out the whereabouts of the taxable person. It is shocking to see that in a premises where there are three ladies, namely, the petitioner’s mother, wife and young daughter, male officers together with a CRPF Officer have stayed throughout day and night despite the fact that the goods, articles and things were already seized on 11-10- 2019. The entire exercise carried out by the concerned officers from 12-10-2019 to 18-10-2019 was totally without any authority of law and in flagrant disregard of the provisions of the Act and the rules and in total abuse of the powers vested in them under the Act. The manner in which the officers have conducted themselves by overreaching the process of law and acting beyond the powers vested in them under sub-section (2) of Section 67 of the CGST Act needs to be deprecated in the strictest terms. Therefore, a proper inquiry needs to be made in respect of the action of the respondent officers of staying day and night at the premises of the petitioner without any authority of law.
SHREE GANESH MOLASSES TRADING CO. v. SUPERINTENDENT, OFFICE OF THE COMMISSIONER, (2023) 4 Centax 37 (Guj.)
Coercing petitioner in reversing input tax credit at midnight during search and seizure operation could not be said to be voluntary payment; ITC so reversed was to be refunded.
VALLABH TEXTILES v. SENIOR INTELLIGENCE OFFICER, (2022) 1 Centax 241 (Del.)
Where payments made during search proceedings for which acknowledgement were not issued in Form DRC-04 were not voluntary, department was to be directed to refund same along with interest.
BHUMI ASSOCIATE V UNION OF INDIA, 2021 (46) G.S.T.L. 36 (GUJ.)
We propose to pass an interim order issuing the following directions.
“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions :
(1) No recovery in any mode by cheque, cash, e-payment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.
(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.”
In the new regime of GST, the role of Search, Seizure and Inspection has tremendously increased; specialized agencies has been created within the GST Department to execute such special drives against such offenders who are involved in the chain of the transactions creating and utilizing the fictitious Input Tax Credit. The duplication of activities by multiple agencies on same set of tax payers is a big problem in the trade and industry, moreover the Search parties and sometime Notices from the investigating agencies are coming from far off places resulting into great inconvenience in clarifying their issues. The procedure prescribed under GST Act or directions given in the Judgments or instructions provided in the Circular needs to be followed in their true spirit by the Search parties rather than becoming just a mute spectator, however the taxpayer needs to be aware of these provisions so that they could legally protect themselves during and after the search.
Article by: Adv Mukul Gupta, Senior Counsel & Partner
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