INTRODUCTION
1.1 Quasi judicial powers and police powers of tax authorities 1
1.2 Safeguards available to taxpayer 2
1.3 Jurisprudence under pre-GST laws applicable to GST law 3
INSPECTION, SEARCH AND SEIZURE
2.1 Inspection, search and seizure
2.2
2.2.1
2.2.2
2.2.3
2.2.4
2.3.1
2.3.2
2.3.3
2.3.4
2.3.5
2.3.6
2.3.7
2.3.9
2.3.10
2.3.11
2.3.12
2.3.13
2.3.14
2.3.15
2.3.16
2.3.17
2.3.18
2.3.19
2.2.3.1
2.4 Powers of inspecting officer to break open almirah, etc.
2.5 Entitlement to copies of seized documents
2.5.1 Copies of relied upon documents to be given
2.5.2 Return of non-relied documents
2.6
2.6.1
2.6.2
2.6.3
2.6.4
2.6.5
2.6.6
2.7
2.8
3.1
3.2
3.3
3.4
3.5
3.6
3.2.1
SUMMONS FOR ATTENDANCE AND PRODUCTION OF DOCUMENTS
3.7 Details
3.8
3.9
3.8.1
3.8.2
3.8.3
3.8.4
3.8.5
3.8.6
4.1
AUDIT AND ACCESS TO BUSINESS PREMISES
4.1.5
4.1.6
4.1.7
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
DETENTION, SEIZURE AND RELEASE OF GOODS AND CONVEYANCES IN TRANSIT
5.1 Persons and situations covered 76
5.2 Release of goods, documents or vehicle 77
5.3 Section 129 not to be invoked in certain cases 78
5.4 Detention for suspicion over mis-classification is not valid 79
5.5 Goods detained while transported inter-State - Amount under CGST Act alone payable for release 80
5.6 Service of order of detention/seizure 80
5.6.1 Passing of order mandatory even if dues are paid 80
5.6.2 Service of order on driver not valid as he is not the ‘person aggrieved’ 81
5.7 Release of detained/seized goods 81
5.8 Hearing before passing order mandatory 82
5.9 Penalty not paid within prescribed period - Goods or conveyance can be disposed 83
5.10 Detention of goods/conveyance - High Court orders 84
5.11 Detention – Quantum of penalty in case of minor discrepancies in documents 88
5.12 Consignee entitled to file appeal against detention/ seizure order 88
5.13 Section 129 is not invocable when goods are lying in godown
5.14 Rules for detention and seizure
5.15 Interplay of section 129 with section 130
DEMANDS AND ADJUDICATION
6.1 Demand of tax under section 73 90
6.1.1 Situations covered 90
6.1.2 Show cause notice mandatory 91
6.1.3 System generated notice without mention of specific provision not valid 93
6.1.4 Silent show cause notice not sustainable 94
6.1.5 Monetary limits for issuance of SCN and adjudication 94
6.1.6 Invocation of writ jurisdiction at SCN stage 95
6.1.7 SCN in violation of natural justice - Writ remedy available 95
6.1.8 SCN cannot be issued to reagitate settled issues 96
6.1.9 SCN cannot be issued to legal heirs of deceased when provision therefor absent 97
6.1.10 Show cause notice must not pre-judge the issue 97
6.1.11 Person to whom SCN is not issued cannot be proceeded against 98
6.1.12 Mention of wrong section may not be fatal to SCN 99
6.1.13 Issue not raised in SCN cannot be agitated later 100
6.1.14 SCN must be unambiguous 100
6.1.15 Unsigned SCN - Proceedings void ab initio101
6.1.16 Notice and orders without digital signature invalid 101
6.1.17 Orders and communication from the department is not SCN 102
6.1.18 Internal order of department is not SCN 102
6.1.19 SCN cannot be issued when audit report is not adverse 102
6.1.20 Show cause notice to non-existent company post amalgamation void 103
6.2 Hearing 104
6.2.1 Hearing and assessment on same day 104
6.2.2 Personal hearing is mandatory in all cases except when reply of noticee is accepted 105
6.2.3 Order passed without providing record of personal hearing not sustainable
6.2.4 Telephone calls and e-mails not substitute for hearing
6.2.5 Necessity of oral hearing
6.2.6 Personal hearing must be granted to assessee even if statute does not provide
6.2.7 Effective hearing
6.3 Demand of interest and penalty
6.3.1 Demand of interest
6.3.2 Interest cannot be recovered before adjudication is completed
6.3.3 Interest - Quantum cannot be fixed unilaterally
6.3.4 Notice for penalty mandatory
6.4 Time limit for issuance of SCN
6.5 Clubbing of SCN for multiple tax periods
6.6 Statement is deemed as SCN for subsequent periods 116
6.7 Payment of tax with interest before SCN - SCN not to be issued
6.8 Consent for waiver of SCN obtained by coercionWaiver is bad in law
6.9 Deemed conclusion of proceedings
6.9.1 Reworking of tax payable after deemed conclusion not valid
6.10.1
6.10.2 Order must be speaking order enabling the person aggrieved to understand the reason
6.10.3 Order passed on date of show cause notice not sustainable
6.10.4 Service of orders
6.10.5 Assessing Officers perform quasi judicial functions
6.10.6 Binding precedents and judicial discipline
6.10.7 Per incuriam
6.10.8 Quantum of penalty
6.10.9 Self-assessed or collected but tax was not paid - Penalty mandatory
6.11 Due date for payment of amount collected as tax
6.12 Demand of tax not paid due to suppression or other reasons - Section 74
6.12.1 Fraud as per Indian Contract Act
6.12.2 Fraud cannot be inferred but needs to be proved
6.12.3 Mens rea135
6.12.4 Suppression of facts
6.12.5 Information required to be disclosed
6.12.6 Mere failure to furnish information or nonpayment of tax is not suppression
6.12.7 No suppression if returns have been filed regularly
6.12.8 Suppression is essentially a question of fact
6.12.9 No charge of suppression can lie when department in possession of all facts
6.12.10 Wilful misstatement
6.12.11 If misstatement is not wilful, extended period will not apply
6.12.12 Statement for subsequent period
6.12.13 Second show cause notice and res judicata149
6.12.14 Principle of res judicata150
6.12.15 Tax payment before SCN
6.12.16 Deemed conclusion of proceedings
6.12.17 Dues paid as per law - Further adjudication not permissible
6.12.18 Extended period for demand not invocable in cases of general understanding
6.12.19 Limitation to be counted from date of knowledge of department
6.12.20 SCN must state infractions by assessee if extended period is to be invoked
6.12.21 SCN in cases involving fake invoices
6.12.22 Demand under section 74A for the period 2024-25 onwards
6.12.23 Penalty even if mandatory, applies only if ingredients are satisfied
6.13 Right of cross-examination
6.14 Time-limit for issuing notice and passing order excludes period covered under stay
6.15 Revival of demand for normal period in certain cases
6.16 Order based on directions of higher body or court to be passed in two years
6.17 Hearing mandatory in all cases except when explanation by noticee is accepted
6.18 Order cannot travel beyond SCN
6.19 Modification of interest and penalty when tax amount modified
6.20 Proceedings deemed to be concluded if order not passed within prescribed time
6.21 Call book - Legal validity
6.22 Self-assessed tax not paid - Recovery action can be initiated
6.22.1
6.23
6.24
6.25
6.26
6.27
CONFISCATION OF GOODS OR CONVEYANCE AND PENALTY
7.1.3 Constitutional validity of power to confiscate 172
7.1.4 Ownership vests in government 172
7.1.5 Records not maintained at principal place of business - Confiscation not sustainable when intent to evade absent 173
7.1.6 Redemption fine 173
7.1.7 Quantum of fine 174
7.1.8 Option to owner of conveyance 175
7.1.9 Fine is in addition to tax and other dues 176
7.1.10 Following principles of natural justice 177
7.1.11 Confiscating conveyance without notice not sustainable 177
7.1.12 Taking possession 178
7.1.13 Sale of confiscated goods 179
7.1.14 Confiscation or penalty and other punishments 180
7.1.15 Confiscation and redemption fine under GST valid even if goods are not physically available 181
7.2 Penalty - Section 122 181
7.2.1 Specified offences as per section 122(1) 182
7.2.2 Supply without issue of invoice and issue of invoice without supply 182
7.2.3 Collection of amount as tax but failure to pay 183
7.2.4 Collection of tax in contravention of provisions and failure to pay 184
7.2.5 Penalty for failure to deduct or collect 184
7.2.6 Availing ITC without receipt of goods or services 184
7.2.7 Refund obtained by fraudulent means 185
7.2.8 Falsification of records 185
7.2.9 Failure to obtain registration and suppression of turnover 186
7.2.10 Obstructing or preventing officers from discharging statutory duties 186
7.2.11 Penalty when e-way bill is not generated 187
7.2.12 Penalty when records not maintained at place of business
7.2.13 Penalty for dealing with goods liable to confiscation 187
7.3 Quantum of penalty
7.4 Partner cannot be penalised for abetment without proof of mens rea
7.5 Penalty or fine in other cases
7.6 General penalty
7.7 No penalty for minor breaches
7.8 Penalty not covered under specified provisions but imposable
7.9 Power to waive penalty
7.10 E-way bill omission - Penalty cannot exceed ` 10,000 if tax is already paid
APPEALS AND REVISION
8.1 Appeals to Appellate Authority
8.1.1 Person aggrieved
8.1.2 Driver is not the ‘person aggrieved’ - Service of order on driver not a service
8.1.3 Electronic filing of appeal
8.1.4
8.1.5
8.1.6
8.1.7
8.1.8
8.1.9
8.1.10
8.1.11
8.2
8.3
8.1.13 Pre-deposit not required when dues already recovered by department
8.1.14 Automatic stay
8.1.15 Hearing opportunity and adjournment
8.1.16 Rejection of appeal by endorsement, not sustainable
8.1.17 Introducing additional grounds of appeal
8.1.18 Order-in-appeal
8.1.19
8.1.20
8.1.21 Period cannot stretch to decades when “where it is possible to do so” used
8.1.22
8.2.1
8.2.2
8.3.1
8.3.2
8.3.3
8.3.4
8.3.5
8.3.6
8.3.7
8.3.8
8.3.9
8.3.10
8.3.11
8.3.12
8.3.13
8.4
8.3.14
8.3.15
8.3.16
8.3.17 Tribunal is the final fact finding
8.3.18 Rectification of Mistake (RoM)
8.3.19 Scope of rectification of mistake
8.3.20 Meaning of “record” is wider
8.3.21 Rectification of mistake - Limitation Act not applicable
8.3.22
8.3.23
8.3.24
8.3.26
8.3.28
8.3.29
8.3.30
8.3.31
8.3.32
ings
8.4.1
8.4.3
8.4.4
8.4.5
8.5
8.6 Amounts as confirmed by Tribunal/High Court payable - Section
8.7
8.8 Non-appealable orders
8.9 Letter based on audit objection not an appealable order
ARREST, BAIL AND PROSECUTION
9.1 Power to arrest 258
9.1.1 Officer empowered to arrest 260
9.1.2 Reasons to believe 261
9.1.3 Specified offences 261
9.1.4 Informing grounds of arrest and production before Magistrate 262
9.1.5 Arrest and custody are different terms
9.1.6 Grant of bail
9.1.7 Applicability of provisions of Cr.P.C.
9.1.8 Onerous bail condition not sustainable
9.1.9 Bail condition not sustainable when investigation is not completed in 60 days
9.1.10 Completion of adjudication not necessary before arrest
9.1.11 Arrest/bail – CBIC Guidelines
9.2 Prosecution
9.2.1 Prosecution and adjudication
9.2.2 Specified offences - Supply without issue of invoice
9.2.3 Issue of invoice without supply of goods or services
9.2.4 Availment of ITC without receipt of goods or services
9.2.5 Collection of amount as tax but not paid to government 278
9.2.6 IPC may also be invocable if ingredients are satisfied
9.2.7 Evasion and fraud not involving specified modus operandi
9.2.8 Falsification of records or production of fake documents
9.2.9 Obstruction of officers
9.2.10 Dealing with goods liable to confiscation
9.2.11 Tampering with or destruction of evidence
9.2.12 Failure to supply information or providing false information
9.2.13 Attempt or abetment of commission of specified offences
9.2.14 Quantum of punishment
9.2.15 Sanction for prosecution
9.2.16 Sanction for prosecution only after due application of mind
9.2.17 Application to other Acts
9.2.18 Section 133 - Liability of officers and certain persons
9.2.19 Prosecution for offences by companies
9.2.20 Partners to be proceeded against for offences by firm
9.3 Compounding of offences
9.3.1 Procedures for compounding
9.3.2 Quantum of compounding
9.3.3
9.3.4
PROVISIONAL ATTACHMENT AND RECOVERY OF DUES
10.1
10.1.4
10.1.7
10.1.9 Provisional attachment - Maintenance of balance on date of attachment sufficient
10.1.10
10.1.11
10.2.10 Garnishee noticee cannot be issued to legal heirs 313
10.2.11 Service of notice directly to bank without addressing taxpayer is not valid
10.2.12 Recovery as arrears of land revenue 314
10.2.13 Recovery as court imposed fine 314
10.2.14 Recovery through attachment of interest in partnership 314
10.2.15 Modes of recovery applicable to bond 315
10.2.16 Cross-empowerment for revenue recovery 315
10.2.17 Recovery action within one month of order not sustainable 315
10.2.18 Recovery in cases of mismatch between details in GSTR-1 and GSTR-3B
10.2.19 Recovery of GST dues before expiry of appeal period - CBIC issues instructions 317
10.2.20 Recovery of dues when company sold under IBC 317
BURDEN OF PROOF
AND CERTAIN PROCEDURES 11.1 Presumption of culpable mental state
11.2 Burden of proof on person claiming ITC
11.3 Presumption as to documents
11.3.1 Sources of documents
11.3.2 Provision relevant to prosecution proceedings
11.3.3 Presumption in respect of truth of contents of documents, signature or handwriting
11.3.4 Admissibility of computer print-outs and fax copies
11.3.5 Evidentiary value of computer print-outs and data
Expert assistance
11.5 Power to take samples
11.6 Power to publish
11.7 Disclosure and sharing of information
11.7.1 GST returns in nature of personal information, cannot be disclosed under RTI
APPENDICES
APPENDIX I : Proper Officers specified for issuance of show cause notices and passing adjudication orders
APPENDIX II : Instructions on detention of goods and conveyances in transit under section 129 of CGST Act
APPENDIX III : Instructions on quoting DIN mandatorily in search authorisation, summons, arrest memo and inspection notices
APPENDIX IV : Standard Operating Procedure (SOP) issued by Andhra Pradesh Govt., for search and seizure under APGST Act
APPENDIX V : Standard Operating Procedure (SOP) issued by Andhra Pradesh Govt., for inspection of business premises under APGST Act
333
338
340
345
354
APPENDIX VI : Guidelines/instructions to be followed by departmental officers during search operation proceedings 362
APPENDIX VII : Guidelines/instructions to be followed by departmental officers for provisional attachment of property under section 83 of CGST Act
APPENDIX VIII: Test purchase under section 67(12) of TNGST Act, 2017 - SOP by Commercial Taxes Department, Tamil Nadu (Extracts)
365
370
APPENDIX IX: Guidelines for maintaining ease of doing business while conducting investigation with regular taxpayers 374
APPENDIX X: Generation and quoting of Document Identification Number (DIN) on any communication issued by the officers of the Central Board of Indirect Taxes and Customs (CBIC) to taxpayers and other concerned persons
APPENDIX XI: Communication to taxpayers through eOfficerequirement of Document Identification Number (DIN)
APPENDIX XII: Assigning proper officer under section 74A, section 75(2) and section 122 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder
APPENDIX XIII: Relevant sections of the Central Goods and Services Tax Act, 2017
2
CHAPTER
INSPECTION, SEARCH AND SEIZURE
2.1 INSPECTION, SEARCH AND SEIZURE
The title of Chapter XIV of CGST Act covers inspection, search, seizure and arrest but the provisions include the power to summon persons to give evidence and produce documents. The powers conferred on the officers under this chapter are in the nature of affecting or curtailing personal liberty of persons and therefore, necessary safeguards have been built in the provisions. Section 67 is a complete code in so far as the powers relating to inspection, search and seizure are concerned as it contains twelve sub-sections with a few proviso and clauses.
2.2 INSPECTION
The first sub-section of Section 67 of Central Goods and Services Tax Act, 2017 (CGST Act) empowers officers of and above the rank of Joint Commissioner to authorize any CGST officer to inspect any place of business of the taxable person. Inspection of business premises of transporter, owner and operator of warehouse or godown or any other place is also provided for. Owner need not necessarily be owner of goods as the words “operator of a warehouse” and “keeping goods” indicate. The place to be inspected may be managed by an operator and it need not necessarily be a godown or warehouse but can be any place but such place is the place where goods are kept.
The statute uses “proper officer” to specify as to who is empowered to authorize an inspection. “Proper officer” has been defined in Section 2(91) of CGST Act as “Commissioner or the officer of Central Tax who is assigned that function by the Commissioner in the Board.” The officer is deemed as proper in relation to discharge of any function as is required under the statute. Once the Joint Commissioner authorizes another officer, he acts as a delegate of such proper officer in respect of
inspection of business premises. “Inspect” literally means looking at a thing closely or in detail and it always has a purpose. Inspection differs from mere seeing as in the latter, no purpose can be gleaned.
As per Advanced Law Lexicon, P Ramanatha Aiyar, 6th Edition, 2019, (Law Lexicon), the word “inspect” means to look, to view or oversee for the purpose of examination and may also be for purpose of discovering and correcting errors. In the context of tax, it would also mean “examine officially”1. While power to inspect has been held to include the right to take copies2 the line of difference between inspection, search and seizure and interplay between them has often been a matter of debate. The High Court of Madras opined that inspection extends only to examination while search presupposes that something is secreted or hidden and seizure involves taking possessing against the will of the owner3. While the power to inspect, search and seize operate in distinct spheres, the statute generally lists them specifically since taxpayers may tend to challenge an act of search or seizure post inspection or during inspection. The Supreme Court in Commissioner of Commercial Taxes v. R S Jhaveri4 held that though sub-section (2) of Section 41 of Madras General Sales Tax Act, 1959 did not specifically refer to search though the proviso referred to search under warrant, the power to search was implicit in the power to inspect and it does not stand to reason that legislature gives power to inspect without power to search.
At the stage of inspection the officer has “reason to believe” that tax has been or is being evaded. A search is conducted to discover something which is being hidden or concealed. Therefore, there is something more than the belief of the officer - an effort from the opposite person (taxpayer) to not produce documents or goods and ensure that the officer does to have access to the same. For search also, the threshold is reason to believe but at the stage of search it may involve forcible entry or access. While the words in the statute do not suggest that it is an attempt to gather proof of guilt, secreted documents/goods do evidence mala fide on part of the taxpayer.
The word secreted implies to be hidden or not disclosed to the Revenue authorities for the purposes of making a fair self-assessment. In Rajeev
1. Ramkishan Srikishan Jhaveri v. Commissioner of Commercial Taxes, Mad LJ :QD (1961-1965) Vol C252
2. Mutter v. Eastern & Mildland Ry, 57 LJ, Ch 615:38
3. Ramkishan Srikishan Jhaveri v. Commissioner of Commercial Taxes, Mad [1965] 57 ITR 664 (Mad.)
4. 1968 AIR 59 SC
Traders v. State of U.P 5 it was held that if it found that assessee has not recorded the goods found stored in his place, it raises a presumption that goods have been secreted. This would be a rebuttable presumption. The Allahabad High Court also opined that search for secreted documents need not be restricted to place of business alone:
“18. Also, to the place where the documents, books or items may be “secreted”, the Act uses the words “in any place”. Plainly, the ambit of this phrase includes both the disclosed place(s) of business and the undisclosed place(s) of business of an assessee. There is no warrant to restrict the meaning of these words to only undisclosed place of business since the Legislature has neither used any word or phrase to introduce such intendment nor otherwise there is any reason to restrict the plain grammatical meaning of those words.”
In its analysis of Section 67 of the CGST Act, the Gujarat High Court in Golden Cotton Industries v. Union of India6 opined that if proper officer had reasons to believe that the goods were liable to confiscation and such goods were likely to be secreted at a particular place, search and seizure may follow. It relied on the pronouncement of the Supreme Court in Gian Chand v. State of Punjab,7 to conclude that even if the authority has reason to believe that the goods liable to be confiscated are likely to be secreted, the authority will have the power to pass an order of prohibition pursuant to the order of seizure. The opinion of the Supreme Court in Gian Chand was as under:
“....It cannot be said that the documents have not been ‘secreted’ within the meaning of Section 105 of the Customs Act unless they are hidden or concealed. In the context of the section the word means ‘documents which are not kept in the normal or usual place’ or it may even mean ‘documents or things which are likely to be secreted’; in other words documents or things which a person is likely to keep out of the way or to put in a place where the officer of the law cannot find it. [1005 F-G].
The power to search granted under section 105 of the Customs Act is a power of general search and it is not necessary for its exercise that the authorisation should specify the documents for which search is to be made. But it is essential that before this power is exercised the preliminary conditions required by the section must be strictly satisfied that is, the officer concerned must have reason to believe that any documents or things which in his opinion are relevant for any proceeding under the Act are secreted in the place searched. [1006 C-F] 993.”
5. 2019 (29) G.S.T.L. 9/[2020] 113 taxmann.com 345 (All.)
6. [2019] 107 taxmann.com 128/75 GST 158/(29) G.S.T.L. 587 (Guj.)
7. [1962] Supp. 1 S.C.R. 364
Seizure was contended as invalid since Section 67(2) of CGST Act would apply only when goods or documents or things are secreted but the Rajasthan High Court held that documents not kept at the designated place with the intention to conceal them may also get covered under such term. In Maruti Castings v. UOI8, it said “The word ‘secreted’ is not defined under the Act, however, the same can be understood to mean anything which is concealed and in those circumstances even if the documents are not kept at the designated places where the same ought to be kept in terms of the Act and the Rules, and in case circumstances exist where the absence of the documents is with an intention to conceal them from the officers, the same can be termed as secreted.”
“Place of business” has been defined in Section 2(85) in an inclusive manner. It covers three types of places viz., a place from where the business is ordinarily carried on, a godown, warehouse and any other place where goods are stored. Such place may be the premises from where the goods or services are supplied or received. This is the primary or actual premises of the taxable person from where he conducts his business. Books of account may be maintained in a different premises like corporate office or registered office or head office or administrative office. Such premises is also a place of business. The premises of an agent, if he carries on the business on behalf of the principal is also a place of business.
In GST law, for registration, principal place of business and additional place/places of business are included and all such places will be ‘places of business’ as per Section 67(1). The language of Section 67(1) does not convey unequivocally that premises of vendors, debtors and others are covered. But “any other place” may be viewed as empowering the departmental officers to visit such other premises also. The provision covers the place of business of taxable person and as per Section 2(107), taxable person means a person who is registered or liable to be registered under the CGST Act. If registration has not been obtained by a person but the department entertains a view that the activity undertaken by such person is liable to tax and he is liable to take registration then notwithstanding absence of registration, premises of such person can be inspected. It will be the judgment of the officers when the decision to inspect premises is taken. 8. 2021-VIL-658-RAJ
Sub-section (1) prescribes “reason to believe” as a pre-condition before Joint Commissioner or any other officer senior to him comes to the conclusion that a particular premises needs to be inspected. Section 26 of Indian Penal Code (IPC) defines “reason to believe” in the following words - “A person is said to have “reason to believe” a thing if he has sufficient cause to believe that thing but not otherwise.”
The officer should have some material on record to form such belief and the records should reveal the reasons. This cannot be mere presumption or imagination or even apprehension as to possibility of evasion. Sufficiency of material to form such belief is not questionable but existence of the same can be examined judicially.
Differentiating the variance between “reason to believe” and “reason to doubt” the Supreme Court in Century Metal Recycling Pvt. Ltd. v. Union of India9 stated that the words “reason to believe” or “satisfaction” are positive terms which require reference to facts and figures to show existence of positive belief as opposed to “reason to doubt” which requires only an uncertainty reflecting apprehension or suspicion. However, even the doubt must be reasonable and must have a degree of objectivity and basis. In S. Narayanappa v. Commissioner of Income-tax10 it was held that “reason to believe” does not mean a purely subjective satisfaction and it must be held in good faith without being merely a pretence.
As per the Supreme Court in Gopaldas Udhavdas Ahuja v. Union of India11, propriety of belief or sufficiency of material is irrelevant but some material should have existed on which belief could have been formed. In Union of India v. Agarwal Iron Industries12 involving search and seizure under section 132(1) of Income-tax Act, 1961, the Supreme Court held that reasons are required to be recorded in the file and the same can be scrutinized by Court as to whether the authority has appropriately recorded reasons for forming an opinion.
Reasons to believe should precede sanction of search
Section 67 dealing with powers to inspect, search and seize begins with “where the proper officer has reason to believe”. The officer had signed the relevant document a day after the search. The Allahabad High Court held that entire authorisation is vitiated and search and seizure carried
9. 2019 (367) E.L.T. 3 (SC).
10. [1967] 63 ITR 219 (SC).
11. 2004 (176) E.L.T. 3 (SC).
12. 2014 (310) E.L.T. 226 (SC).
out is illegal. The authorities were directed to return the goods and documents. [Gaurav Saurav Traders and Contractors v. State of U.P 13]
Roving and fishing inquiry without reasons for inspection and search not sustainable
The Delhi High Court has held that the GST department had no reasons to initiate search proceedings as authorization issued as “patently erroneous” since the grounds mentioned are not borne out of records. In this case, inspection was carried out based on directions by Special Judge (PC Act) to ascertain source of income received by the petitioner. The Court expressed serious reservations as to whether such directions could have been issued for conducting a roving and fishing inquiry. Similar directions were given to IT and ED also. The High Court noted that directions were given by Special Judge without reference to statutory provisions under CGST Act and without being cognizant of powers of GST authorities. The Court further directed return of documents since conditions for inspection under section 67(1) of CGST Act were not satisfied. Regarding summons, it held that no further inquiry is required in so far as the directions of Special Judge are concerned. [Bhagat Ram Om Prakash Agro (P.) Ltd. v. Commissioner of Central Tax, GST 14]
2.2.3.1 Reason to believe is not synonymous with subjective satisfaction - Reason to believe is not synonymous with subjective satisfaction and in Bhagwan R. Daswani v. Collector of Central Excise, Coimbatore15 it was held that the reason to believe must be co-related to any subjective satisfaction of the officers who conducts search to a prima facie conclusion that there was evasion of payment of duty and that can be stopped by such search and seizure of available materials. Where the officer seized currency which they believed represented sale proceeds of excisable goods, it was held that there was reasonable belief. In Indru Ramchand Bharvani v. Union of India16 where various incriminating documents were found, there was discrepancy in the books and stock, and the assessee produced affidavits in support of his innocence much later, it was held that there was nexus between these materials and the formation of the belief that the goods are liable to confiscation.
Reason to believe to be held in good faith
Reason to believe must be held in good faith and it should not be mere pretence as held by the Supreme Court in Calcutta Discount Co. Ltd. v.
13. [2023] 157 taxmann.com 432 (Allahabad).
14. [2023] 154 taxmann.com 491 (Delhi).
15. [2002] 2002 taxmann.com 455/2004 (168) E.L.T. 298 (Mad.).
16. [1988] 1988 taxmann.com 601/1992 (59) E.L.T. 201 (SC).
ITO17. The facts must be such that, a reasonable man could under the circumstances form a belief which will impel him to take action under law.18 The Allahabad High Court in Ganga Prasad Maheshwari v. CIT 19 , opined that “reason to believe” is considered to be the most salutary safeguard on the exercise of power by the officer concerned and held as follows:
‘It is made of two words “reason” and “to believe”. The word “reason” means cause or justification and the word “ believe” means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist there must be a justification for it. The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as a result of mental exercise made by him on the information received. But, the reason due to which the decision is reached can always be examined.’
2.2.3.2 Reason to believe must be formed as a result of independent inquiry - Reason to believe must be formed as a result of independent inquiry and examination of materials and conclusion cannot be borrowed from other investigating agencies. In Principal Commissioner of Income Tax, (Central) 1 v. Andaleeb Sehgal 20 the High Court held the reopening of assessment in case of the assessee relying on conclusions of the Enforcement Directorate without any link to the bribe alleged to be paid, was not valid.
Search & seizure unlawful if independent application of mind is absent
A particular Commissionerate requested the other to find out whether an entity existed and such communication did not show any goods liable to confiscation, or any documents or things or books useful or relevant for proceedings under the CGST Act, were secreted in any place. The Court held that the authorization merely reproduced the provision and independent application of mind by the officer issuing authorisation was absent and therefore, search and seizure were unlawful. In this case, the department did not rebut the contention that stock details were maintained in electronic form as per Section 35 and the High Court noted that bald assertions were made without discussing as to why documents produced/seized were not relevant. The High Court observed that the expression “reasons to believe” does not carry the same connotation as “reason to suspect” and the standard of belief is that of a reasonable and honest person and not one based on surmises and conjectures, or mere
17. [1961] 41 ITR 191 (SC)
18. Mamchand & Co. v. CIT, West Bengal II AIR 1969 Cal. 431 at 441
19. [1981] 6 Taxman 363/[1983] 139 ITR 1043 (All.)
20. [2021] 124 taxmann.com 246 (Delhi).
suspicion. The belief of the authority should be based on some actionable material that he has had an opportunity to peruse, and the material placed before the proper officer should have nexus with the formation of the belief [R.J. Trading Co. v. Commissioner21]
Sub-section (1) contains two clauses covering the persons and the activities which will afford the officer the opportunity to exercise the power to authorize inspection.
Clause (a) covers the situation of suppression of any transaction relating to supply of goods or services or both. Suppression of stock in hand is also covered under this clause. Claiming input tax credit more than entitlement or any contravention of statutory provisions will also provide the department the reason to inspect place of business. The lapses or offences mentioned are not based on any detailed probe or order but based on reasons to believe that such offence or contravention has taken place. Inspection is the first step to investigate and then find out whether such belief was true and a case is made out against the taxable person or not.
Clause (b) includes three kinds of persons viz., the transporter, the owner and the operator of a warehouse or godown or any other premises. Such persons should be involving themselves in keeping goods which have escaped payment of tax. Maintenance of accounts in a manner that is likely to cause evasion of tax is another reason for authorizing inspection of the premises.
A combined reading of both the clauses reveal that when suppression of taxable supply, wrong availment of input tax credit, storage of goods without tax payment and non-maintenance of records to facilitate non-payment of tax are suspected, then the power to inspect can be exercised. It is not actual suppression of supply but any transaction relating to supply will also get covered. The provision uses “indulged” along with contravention of provisions. This means a deliberate attempt or action to contravene is contemplated under this provision. This is clear from the words “to evade tax” used in the last portion of clause (a). When it comes to transporters or such other persons, clause (b) uses “likely to cause evasion” since these persons are facilitators to evasion by the taxable person and their activity is abetment of the offence by the taxable person.
2.3 SEARCH AND SEIZURE
Search literally means an act to find out. When something is hidden or concealed and not available readily, then the effort or exercise undertaken to find out the same is termed as search. In tax law, therefore, when a document or goods is secreted, then the provisions empower the departmental officer to search for the same in the business premises of the person concerned and to take out the same. Taking temporary custody of the goods or documents is the next logical step after search once the thing which is searched has been found. Such taking of custody or possession is nomenclatured as seizure.
Seizure involves acting against the will of the owner/possessor. In Law Lexicon seizure has also been explained as including taking into possession or taking possession under a warrant or legal right22 and the legal definition of word “seizure” is the taking possession of property by an officer under legal process.23 The words “take possession” are important and seizure must result in taking into possession of a property which was earlier not in possession24 and therefore merely holding books found lying in the premises for perusing them is not seizure and it involves doing something over and above holding an article in one’s hand.
The appellant-assessee contended that authorisation was not legally valid since there was no averment by the Assistant Collector that the documents were “secreted”. In Durga Prasad v. H.R. Gomes, Superintendent (Preventies), Central Excise, Nagpur25, the Supreme Court held the word ‘secreted’ must be understood in the context in which the word is used in the section. In that context, it means ‘documents which are kept not in the normal or usual place with a view to conceal them’ or it may even mean ‘documents or things which are likely to be secreted’. In other words, documents or things which a person is likely to keep out of the way or to put in a place where the officer of law cannot find it.
GST officers empowered to conduct search in SEZ units
Jurisdiction of GST officer to conduct search and seizure and issue of show cause notice under section 73 of CGST Act in respect of SEZ units was decided by Gujarat High Court holding that SEZ cannot be said to be outside the territory of India. The High Court held that Central Government has authorized those officers laying down the functions of proper
22. Bai Suraj v. Haribhai Motabhai AIR 1943 Bom 54
23. Cave J. Johnson v. Hogg 52 LJQB 343: 1914 MWN 309
24. Suresh Nanda v. CBI (2008) 3 SCC 674
25. [1965] 1965 taxmann.com 2/1983 (13) E.L.T. 150 (SC).
2.3
officers under CGST Act, hence there is no conflict with section 22 of the SEZ Act which requires authorisation by Central Government. It relied on Essar Steel Limited v. UOI [2009-VIL-67-GUJ-CU]/2010 (249) ELT 3 (Guj.) to hold that entire SEZ Act, extending to whole of India would be redundant if the units were held to be beyond jurisdiction of any law. Further, a legal fiction is to be restricted to the statute which creates it and SEZ zone would be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations and it cannot be extended to hold that CGST officers cannot exercise authority over the units. The Court took note of GST registration obtained by SEZ units in this case. [RHC Global Exports (P.) Ltd. v. Union of India 26]
Sub-section (2) of Section 67 provides for both search and seizure and it empowers the same officer and of such officers higher in rank i.e. Joint Commissioner or the officer who issues authorization to undertake such exercise either himself or authorize any other officer to execute such functions. Reasons to believe should be present as to concealment of goods liable to confiscation, documents or things. Based on such belief, the proper officer in his opinion may authorize an officer to search and seize. Such opinion is with reference to utility or relevance of those which are seized for the proceedings under the CGST Act.
Subjectivity has no place in law but when revenue is required to be safeguarded, the law permits certain amount of subjectivity. When the expression “reason to believe” is read with “opinion of the officer”, it is clear that the law pre-supposes exercise of judgment in the mind of the officer. Based on the facts, materials, etc., he is required to form a view that certain items will be useful for any proceeding under the CGST Act. Section 67(2) of CGST Act is similar if not identical to Section 82(1) of Finance Act, 1994 (Service Tax statutory provisions). While discussing the power to search under Section 82, the Delhi High Court in the case of Make My Trip (India) (P.) Ltd. v. Union of India 27 held that the file notings should specify the requirement of law before search is undertaken. The Court said -
“For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that “any documents or books or things” which are useful for or relevant for any proceedings
26. [2023] 151 taxmann.com 134 (Gujarat).
27. [2016] 73 taxmann.com 31/(44) STR 481/58 GST 397 (Delhi).
under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law.”
The Madras High Court in Tvl. Rising International Co. v. Commr. of Central GST & C. Ex.,28 held that the reason for formation of belief must have a rational connection with or relevant bearing on the formation of belief and this can be examined by the Court. The assessee-petitioner challenged the validity of the search. The High Court stated that it would not examine sufficiency of reason but where no evidence was produced by the department of suppression and mis-declaration of imported goods and formation of the requisite belief was predicated on the scrutiny of the books of account, registers and documents found during the search, the search could be declared as invalid. However, the Court refrained from doing so and rather than quashing the seizure, ordered prohibition to be lifted.
Goods liable to confiscation, documents, books and things are specified for such search and seizure. Goods have been defined in section 2(52) of CGST Act as—
‘(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.’
While every kind of movable property (excluding money and securities) has been covered within the ambit of goods, for the purpose of section 67, it is only those goods which are liable to confiscation that are covered. Section 130 lists the situations when goods can be said to be liable to confiscation like non-accountal of goods which are liable to tax, supplying taxable goods without taking registration, use of conveyance in contravention of provisions and contravention of any provision with intent to evade payment of tax are the four situations where goods shall be liable to confiscation.
Sub-section (2) covers “things” which is wide in scope to include any material or object. As goods which can be seized are those which are liable to confiscation, in respect of things, such condition has not been specified. Read together and broadly interpreted, almost all the movable items can be seized. Documents have been expressly mentioned for seizure but only those which are concealed can be seized as per section 67(2). Sub-section (11) of section 67 provides for seizure of documents
28. [2020] 121 taxmann.com 261/(43) G.S.T.L. 3 (Mad.).
