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.

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.

Section 67(1)

Reason for Inspection

Where the PO, 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

has suppressed the stock of goods in hand, or

has claimed ITC 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,

Authorisation to inspect

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 go down or

any other place.

“Reason to believe” means having knowledge of facts (although does not mean having direct knowledge), that would make any reasonable person, knowing the same facts, to reasonably conclude the same thing.

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

Who may authorize for inspection?

inspection can be carried out by a proper officer only upon a written authorization given by an officer of the rank of Joint Commissioner or above.

Question & Answer

Section 67(2)

Where the proper officer, not below the rank of Joint Commissioner,

either pursuant to an inspection carried out u/ss (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 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:

Question & Answer

Rule 139(1)

Where the PO 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, seizure as per section 67,

he shall issue an authorisation in GST INS-01 authorising any other officer subordinate to him to conduct the inspection or search or, seizure of goods, documents, books or things liable to confiscation.

Section 67(11)

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.

Rule 139(2)

Where any goods, documents, books or things are liable for seizure u/s 67(2)

the proper officer or an authorised officer shall make an order of seizure in FORM GST INS-02.

Rule 139(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.

Section 67(4)             

The officer authorised u/ss (2) 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.

Question & Answer

Rule 139(3)

The PO 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.

1^st Proviso to Section 67(2) read with Rule 139(4)

Where it is not practicable to seize any such goods,

the PO or the authorised officer may serve on the owner or the custodian of the goods,

an order of prohibition in GST INS-3 that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer.

2^nd Proviso to Section 67(2)

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.

Section 67(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 30 days of the issue of the said notice.

Section 67(5)

The person from whose custody any documents are seized u/ss (2)

shall be entitled to make copies thereof 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.

Section 67(12)

The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.

Section 67(6) read with Rule 140(1)

The goods so seized u/ss (2) shall be released, on a provisional basis,

upon execution of a bond for the value of the goods in GST INS-04 and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable or

on payment of applicable tax, interest and penalty payable, as the case may be.

Explanation to Rule 140(1)

For the purposes of the rules under the provisions of this Chapter, the “applicable tax” shall include central tax and State tax or central tax and the Union territory tax, as the case may be and the cess, if any, payable under the Goods and Services Tax (Compensation to States) Act, 2017.

Rule 140(2)

In case the person to whom the goods were released provisionally fails to produce the goods at the appointed date and place indicated by the proper officer, the security shall be encashed and adjusted against the tax, interest and penalty and fine, if any, payable in respect of such goods.

Section 67(7)

Where any goods are seized u/s (2) and no notice in respect there of is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized:

Proviso to Section 67(7)

The period of 6 months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months

Section 67(8)

The Government may, having regard to

the perishable or hazardous nature of any goods,

depreciation in the value of the goods with the passage of time,

constraints of storage space for the goods or

any other relevant considerations,

by notification, specify the goods or class of goods which shall, as soon as may be after its seizure u/ss (2), be disposed of by the proper officer in such manner as may be prescribed.

Section 67(9)

Where any goods, being goods specified u/ss (8), have been seized by a PO, or any officer authorised by him u/ss (2),

he shall prepare an inventory of such goods in such manner as may be prescribed.

Rule 141(1)

Where the goods or things seized are of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and penalty that is or may become payable by the taxable person, whichever is lower, such goods or, as the case may be, things shall be released forthwith, by an order in FORM GST INS-05, on proof of payment.

Rule 141(2)

Where the taxable person fails to pay the amount referred to in sub-rule (1) in respect of the said goods or things, the [1][proper officer] may dispose of such goods or things and the amount realized thereby shall be adjusted against the tax, interest, penalty, or any other amount payable in respect of such goods or things.

Section 67(10)

The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure,

shall, so far as may be, apply to search and seizure under this section

subject to the modification that section 165(5)of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.

The written authority to conduct search is generally called search warrant. The competent authority to issue search warrant is an officer of the rank of Joint Commissioner or above. A search warrant must indicate the existence of a reasonable belief leading to the search. Search Warrant should contain the following details:

 the violation under the Act,

 the premise to be searched,

 the name and designation of the person authorized for search,

 the name of the issuing officer with full designation along with his round seal,

 date and place of issue,

 serial number of the search warrant,

 period of validity i.e. a day or two days etc.

Instruction-no-01-2020-21-gst-investigation-dated-02-02-2021

All the search shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973. Thus following guidelines must be adhered to while carrying out search proceedings:

i)

Authorised officer must have valid and justifiable reasons for search and must be in writing

The officer issuing authorisation for search should have valid and justifiable reasons for authorizing a search, which shall be duly recorded in the file.

Search should be carried out only with a proper search authorisation issued by a competent authority.

ii)

DIN must be for search authorisation

The instructions related to generation of DIN for each search authorization shall be scrupulously followed by the officer authorizing search.

iii)

Warrant must be for person who is to be searched

The premises of a person cannot be searched on the authority of a search warrant issued for the premises of some other person, Where a search warrant, through oversight, has been issued in the name of a person who is already dead. the authorised officer should report to the Competent Authority and geta fresh warrant issued in the names of the legal heirs.

iv)

There must be lady office for search of residence

In case of search of a residence, a lady officer shall necessarily’ be part of the search team,

v)

Search

The search shall be made in the presence of two or more independent witnesses who would preferably be respectable inhabitants of the locality, and if no such inhabitants are available or willing, the inhabitants of any other locality should be asked to be witness to the search.

PSL employees, Bank employees ete, may be included as witnesses during sensitive search Operations to maintain iransparency and credibility. The witnesses should be informed about the purpose of the search and their duties.

vi)

Officer shall show their identity cards

The officers conducting the search shall first identify themselves by showing their identity cards to the person in-charge of the premises.

vi)

Officer and witness shall offer their personal search

Before the start of the search, the officers as well as the independent witnesses shall offer their personal search.

After the conclusion of the search all the officers and the Witnesses should again offer themselves for their personal search.

vii)

Search authorization shall be executed before start of search

The search authorization shall be executed before the start of the search and the same shall be shown to the person in charge of the premises to be searched and his/her signature with date and time shall be obtained on the body of the search authorization.

The signatures of the witnesses with date and time should also be obtained on the body of the search authorization.

viii)

Panchnama of the proceedings should be prepared

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. It should be ensured that time and date of start of search and conclusion of search must be mentioned in the Panchnama. The fact of offering personal search of the officers ‘and witnesses before initiation and after conclusion of search must be recorded in the Panchnama,

ix)

In the sensitive premises videography of the search proceedings

In the sensitive premises videography of the search proceedings may also be considered and the same may be recorded in Panchnama.

x)

Officer must take care of all persons present in the premises

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)

Person may be allowed to make copies of documents seized

The person from whose custody any documents are seized may be allowed to make copics 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)

Signed copy of panchnama along with annexure should be given to person in charge

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)

Each page of recorded statement must be signed by officer and person in charge

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)

Return of duly executed search authorization to original officer

After the search is over, the search authorization duly executed should be returned to the officer who had issued the said search authorization with 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.

Question & Answer