The Indian GST is structured for efficient tax collection, reduction in corruption, easy inter-state movement of goods etc.
Keeping in mind the government’s anti-tax evasion scheme, GST also has strict provisions to inspect and search places of business for suspected tax evaders.
Inspection and Search under GST
What is the difference between search & inspection?
‘Search’ involves an attempt to find something. Search, in tax/legal parlance, is an action of a government official (a tax officer or a police officer, depending on the case) to go and look through or examine carefully a place, person, object etc. in order to find something concealed or to discover evidence of a crime. The search can only be done under the proper and valid authority of law.
‘Inspection’ is the act of examining something, often closely. In tax/legal language, it is a softer provision than search. It enables officers to access any place of business of a taxable person and also any place of business of a person engaged in transporting goods or who is an owner/operator of a warehouse or godown.
Who can order for Inspection under GST and when?
If Joint Commissioner of SGST/CGST (or an officer of higher rank) “has reasons to believe” that –
In order to evade tax, any person has-
- Suppressed any transaction of supply
- Suppressed any transaction of stock in hand
- Claimed input tax credit in excess
- Violated of any of the provisions
- Any transporter or owner/operator of a warehouse has kept goods which have escaped tax payment or has kept accounts and/or goods in such a way as to evade tax
—-then he can authorize any other officer of CGST/SGST (in writing) to inspect places of businesses of:
- the taxable person or
- the transporter or
- owner/operator of warehouse
He can also examine any other place if he sees fit.
What is meant by ‘reasons to believe’?
Reason to believe is to have knowledge of facts (although not amounting to direct knowledge), which would cause 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.
Is it necessary to record the ‘reasons to believe’ in writing, before issuing order for Inspection/Search/Seizure?
GST revised Model Law does not mention recording the reasons to believe. In fact, Finance Act 2017 has amended Sec 132(1) & (1A) of Income Tax Act retrospectively stating, that reason to believe, shall not be disclosed to any person or any authority or the Appellate Tribunal.
Who can order search under GST and when?
On the basis of results of inspection or any other reason, Joint Commissioner of SGST/CGST or a superior officer can order for a search if he has “reasons to believe” –
- There are goods which are liable for confiscation
- Any documents or books or other things which will be useful during proceedings and are hidden somewhere
He can, on his own or through an authorized officer, search and seize the goods and documents.
Seizure under GST
What is meant by seizure?
The term ‘seizure’ has not been specifically defined in the GST Revised Model Law. In legal parlance, seizure is the act of taking over something or someone by legal process or force, such as the seizure of evidence found at the scene of a crime. It generally implies taking possession forcibly against the wishes of the owner.
What is the difference between Seizure and Detention?
Not allowing the owner any access to the seized goods by a legal order/notice is called detention. However, the ownership & possession of goods still lie with the owner. It is issued when it is suspected that the goods are liable to confiscation.
Seizure is taking over or actual possession of the goods by the department. But the ownership is still with the owner. Seizure can be made only after inquiry/investigation that the goods are liable to confiscation.
What happens if it is not possible to seize the goods?
If it is not practicable to seize the goods, the proper officer will order the owner not to remove these goods without prior permission of the officer.
How long will the books/documents remain with the officer?
The officer will keep the books and documents as long as it is necessary for examination and inquiry. Other books which are not relevant to the issue of notice, will be returned within 30 days from the date of notice.
What are the powers of the officer authorized to search?
The officer authorized to search will have the power to seal the door of the premises. He can also break open the door of any premises if access is denied. He can also break open any cupboard or box in which goods, books, documents etc. are suspected to be concealed.
What happens after seizure?
- The person, whose documents are seized, can make copies only in the presence of an officer of CGST/SGST.
- The seized goods will be released, on a provisional basis, on a bond and furnishing of a security. Applicable tax, interest and penalty will also have to be paid.
- If notice is not issued within six months (extendable by 6 more months) of the seizing the goods, they will be returned.
- If the goods are hazardous or perishable or there is lack of storage space then the Central or a State Government will notify the officer to dispose of the goods.
- Such goods which are to be disposed of will be listed properly by the officer.
Does the Code of Criminal Procedure apply in such cases?
The provisions of the Code of Criminal Procedure will apply to search and seizure.
Other ways to check/inspect
The Commissioner of CGST/SGST or an authorized officer can purchase any goods and/or services from a taxable person. This will be done to check the issue of tax invoices, whether they are maintained correctly, and whether GST amount is clearly displayed. When the goods are returned, the amount will have to be refunded by the taxable person and the sales invoice will be canceled.
Arrest under GST
If the Commissioner of CGST/SGST believes a person has committed an offence u/s 132, he can be arrested by any authorised CGST/SGST officer. Please click here to know more about arrest under GST.
GST also has provisions for interception and inspection of goods in transit.