In any tax-administration, there are provisions for search, inspection, arrest and seizure. These are made for protecting the interests of the legitimate tax payers (by evading tax, tax evaders might get unfair advantage over genuine tax payers). It also acts as a restraint for evasion of tax. In order to safeguard the legitimate dues of any government, these provisions are necessary. The new GST in India has been structured for effective collection of tax, reducing corruption as well as easier inter-state goods/ services movement.
Inspection & Search under the GST
Search– The term search can be ‘attempting to find something’. In the legal world, search can be an action taken by an official of the government such as police officer or tax officer (depending on the case). The process includes examining or looking carefully through any place, objects or person etc with the objective of finding something that might be hidden or concealed and can act as evidence for tax evasion. An individual can conduct ‘search’ only under valid and proper law.
Inspection– Inspection can be understood as the process of closely examining something. In legal language, the provision is softer than search. An authorised person can inspect any business place of an individual as well as any business place engaged in goods transport or operator/ owner of a godown or warehouse.
Ordering for GST Inspection
The process for GST inspection (or search, seizure and arrest) should only be exercised during exceptional circumstances and as a last resort, for protection of Government Revenue. In order to make sure that the provisions are not misused as well as the tax payers rights are effectively protected, these provisions can be carried out only when officers with Joint Commissioner ranks or above, have reasons for believing that exceptional circumstances exist.
The circumstances under which ‘reasons to believe’ provision arises are when an individual (in order to evade tax) has:
- Suppressed any supply transaction
- Suppressed any stock-in-hand transaction
- Claimed ITC (input tax credit) in excess
- Violated any ITC/ GST provision
Any warehouse operator or transporter has accumulated goods that have evaded tax payments or kept the goods/ services accounts in such manner that can evade tax.
In any of the above conditions, the Joint Commissioner can authorise CGST or SGST officer for inspecting the place of business of:
- Taxable person, or
- Transporter, or
- Operator or owner of the warehouse
When can ‘Search’ be ordered under GST?
Based on the ‘inspection’ results (or other reasons), CGST/SGST or any superior officer can authorise search order in case of below mentioned ‘reasons to believe’:
- Presence of goods that can be confiscated
- Books or documents or other items that can be deemed useful during various proceedings & are hidden
Seizure under the GST
Seizure: The new GST law has not defined ‘seizure’ specifically. As per legal parlance, a seizure can be described as process of taking someone or something under legal force. This can be seizure of evidence. A seizure is different from Detention as the latter means not allowing an owner the access to seized goods via legal notice or order. In detention, the ownership of goods lies with owner.
In case seizing of goods is not practicable or viable, the owner is ordered to keep the goods in place and not remove them without having permission for the same. The legal officer has the authority to keep documents and books until it is deemed unnecessary for inquiry and examination. If the books or documents or any evidence are considered irrelevant for the examination, it needs to be returned to the owner within thirty days from issue of the notice. CCP (Code of Criminal Procedure) will be applied in case of search and seizure.
Steps/ Conditions after Seizure
- An individual whose documents or books have been seized can only make copies in presence of a CGST or SGST officer
- Release of seized goods will be provisional and require a bond as well as furnishing a security. Applicable tax, penalty or interest will also be charged
- In case goods and perishable or hazardous or in case of lack of space, the State or Central government will be notifying disposal of these goods.
Arrest under the GST
In case of firm belief by the CGST or SGST commissioner that an individual has committed felony, an authorised CGST or SGST officer can arrest the individual.
If an individual is arrested for specific offences which involve tax amount excess of INR 200 lacs, the offence will be classified as non-cognizable & bailable. Such people will be released by Assistant or Deputy Commissioner on Bail. This will be for all cases wherein the tax amount is less than INR 500 lacs. In case tax arrests are on offence when the specified amount above INR 500 lacs, this offence will be termed cognizable & non-bailable. In these cases, only Judicial Magistrate will be considered for bail.