Inspection , search and seizure have been inbuilt measures under fiscal law since its inception . It is a settled belief that no fiscal law can be effective without such enforcement measures . GST Regime has also incorporated this concept and has envisaged suitable measures and provisions regarding inspection , search and seizure in order to curb the tendencies relating to evasion of tax. Whereas section 67 of the Central Goods and Services Act , 2017 ( hereinafter referred to as the Act ) envisages the power and related provisions with respect to inspection , search and seizure , section 69 of the Act embodies the power to arrest which was not part of earlier VAT regime  . Similar provisions are embodied in UPGST Act , 2017 . Thus to conduct and carry out proceedings of inspection , search and seizure in the GST regime , a close study of the aforesaid provisions becomes inevitable .

Clause (a) sub-section (1) of section 67 of the Act envisages that where the proper officer who should not be below the rank of Joint Commissioner , has reason to believe that a taxable person has  –

(i)  suppressed any transaction which relates to supply of goods or services or    both , or

(ii)   suppressed any transaction relating to the stock in his hand , or

(iii)  claimed input tax credit in excess to what is due under the Act , or

(iv)  contravened any provisions of the Act or the rules made thereunder to evade tax under the Act ,

such proper officer may authorise in writing any other officer subordinate to him  to inspect any places of business of the taxable person .

Clause (b) of sub-section (1) of section 67 of the Act envisages that where the proper officer who should not be below the rank of Joint Commissioner , has reason to believe that any person –

(i) is engaged in the business of transporting goods , or

(ii) is an owner or operater of a warehouse , or godown or any other place ,

and such person-

(a) is keeping goods which have escaped payment of tax or

(b) has kept his books or goods in such manner that it is likely to cause evasion of tax payable under the Act ,

such proper officer may authorise in writing any other officer subordinate to him  to inspect any places of business of the person or persons engaged in the business of transporting the goods or the owner or the operator of warehouse or godown or any other place .

 Thus the provisions of sub-section (1) empower the proper officer who should not be below the rank of Joint Commissioner to authorise any other officer subordinate to him  to inspect the places of business of any taxable person or any person who is engaged in the business of transporting the goods or is an owner or operator of warehouse or godown or any other place , if he has reason to believe that such person or persons are indulged in the evasion of tax payable under the Act .

 It is significant to note that the proper officer shall issue authorisation in FORM GST INS-01 authorising any officer subordinate to him to conduct the inspection or search under sub-section (1) of section 67 .

It is reiterated that the powers to authorise to inspect the places of business under sub-section (1) are conferred on the officer of the rank of Joint Commissioner and above only.

Sub-section (2) of section 67 envisages that if as a result of inspection carried out according to sub-section (1) or otherwise , the proper officer has reason to believe   that –

(i) any goods which are liable for confiscation or

(ii) any documents or books or things which may be useful or relevant in any proceedings under the Act ,

are secreted at any place , he may authorise any other officer subordinate to him to search and seize such goods ,  documents or books or things . He may also himself conduct such search and seizure if he so desire . However this sub-section clarifies that such proper officer shall not be below the rank of Joint Commissioner.

 It is significant to note that according to sub-rule(1) of rule 139 of CGST Rules, 2017        ( similar provisions are embodied in UPGST Rules , 2017 ) the proper officer shall issue authorisation in FORM GST INS-01 authorising any officer subordinate to him to conduct the inspection or search or , as the case may be , seizure of goods , documents , books or things liable to confiscation.

It is pertinent to note that according to sub-rule (2) of Rule 139 of CGST Rules , 2017       (similar provisions are embodied in UPGST Rules , 2017 )  where any goods ,   documents, books or things are liable for seizure under sub-section (2) of section 67 , the proper officer or authorised officer shall make an order of seizure in FORM GST INS-02

The first proviso to sub-section (2) of section 67 clarifies that where it is not practicable to seize any goods , then the proper officer or the officer authorised by him may serve on the owner or the custodian of goods an order that he shall not remove or part with or otherwise deal with such goods without the previous permission of such officer . Sub-rule(4) of Rule 139 envisages that such an order by the proper officer or the authorised officer shall be issued in FORM GST INS-03 .

Sub-rule(5) of Rule 139 envisages that 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 .  Thus it is quite evident that such an inventory has to be made comprehensively .

 The second proviso to sub-section (2) of section 67 envisages that the documents or books or things seized shall be retained by such officer only for such period of time as may be necessary for the examination and for any enquiry or proceedings under the Act .

Sub-section (4) of section 67 empowers the officer authorised under sub-section (2) to search and seize the requisite documents , books or things with the power-

(i) to seal or break open the door of any premises or

(ii) to break open any alrimrah , electronic devices , box , receptacle ,

where access to such premises , almirah , electronic devices , box or receptacle is denied during the operation of search and seizure and the authorized officer has reason to believe that at such places any relevant goods , accounts , registers or documents of the person are suspected to be concealed .

Sub-section (3) of section 67 envisages that-

(i) such documents , books or things as have been seized under the provisions of sub-section (2) of section 67 , or

(ii) any other documents , books or things produced by a taxable person or any other person ,

which are not to be relied upon or are not required for the issue of notice under the Act or the rules made thereunder , shall be returned to such person within a period not exceeding thirty days of issue of the said notice .

Sub-section (5) of section 67 envisages that the person from whom custody the documents are seized under sub-section (2) , shall be entitled to make copies thereof or take extracts therefrom . It is pertinent to note that such activity shall be carried out in the presence of an authorised officer at such place and time as indicated by such officer in this behalf . However such making of copies or taking of extracts may be denied if in the opinion of the proper officer this will prejudicially affect the investigation .

It is pertinent to note that the denial for providing the copies of and extracts from the seized documents is to be made by the proper officer and not by the authorised officer . This is very significant provision embodied in sub-section (5) of section 67 .

 Sub-section (6) of section 67 envisages that the goods which have been seized under sub-section (2) shall be released –

(i) on the provisional basis , upon execution of a bond and furnishing a security , in such manner and of such quantumj , respectively as may be prescribed or

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

It is pertinent to note that Rule-140 of the CGST Rules , 2017 ( similar provisions are embodied in UPGST Rules , 2017 ) envisages following provisions regarding bond and security for release of seized goods :

“140 (1) The seized goods may be released on a provisional basis upon execution of a bond for the value of the goods in FORM 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.  

Explanation.- 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 (15 of 2017).

(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.”

Sub-section (7) of section 67 envisages that where any goods are seized under sub-section (2) and no notice has been issued in respect of such goods within six months of the seizure of goods , such goods shall be returned to the person from whom custody such goods were seized .

However the proviso to this sub-section provides that the aforesaid period of six months may be extended by the proper officer on sufficient cause being shown , for a further period not exceeding  six months . It is significant to note that this period is to be extended by the proper officer and is to be extended on the basis of the sufficient reasons shown by the authorised officer who has seized the goods .

Sub-section (8) of section 67 envisages that in respect of –

(i) perishable or hazardous nature of any goods ,

(ii) depreciation in the value of goods with the passage of time ,

(iii) constraints of storage space for the goods ,or

(iv) any other relevant considerations ,

the Government may specify , by notification , the goods or class of goods which shall be disposed of by the proper officer in the prescribed manner , as soon as it is possible after their seizure under sub-section (2) .

It is pertinent to note that aforesaid disposal of specified goods shall be made by the proper officer and not by the authorised officer who has seized the goods . The manner in which such goods shall be disposed of is provided by the corresponding rule 141 of the CGST Rules , 2017 ( similar procedure is embodied in UPGST Rules , 2017 ) which embodies following procedure :

“141. Procedure in respect of seized goods.-

(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.

(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 Commissioner 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.”

It is significant to note that the Central Government by Notification No. 27 / 2018 – Central Tax Dated 13th June , 2018 has notified the goods or the class of goods ( hereinafter referred to as said goods ) mentioned in the Schedule below , which shall , as soon as may be after their seizure under sub-section (2) of section 67 of the Act , be disposed of by the proper officer , having regard to the perishable or hazardous nature , depreciation in value with the passage of time , constraints of storage space  or any other relevant considerations of the said goods.

Schedule

(1) Salt and hydroscopic substances

(2) Raw (wet and salted ) hides and skins

(3) Newspapers and periodicals

(4) Menthol , Camphor , Saffron

(5) Re-fills for ball-pens

(6) Lighter fuel , including lighters with gas , not having arrangement for refilling

(7) Cells , batteries and rechargeable batteries

(8) Petroleum Products

(9) Dangerous drugs and psychotropic substances

(10) Bulk drugs and chemicals falling under Section VI of the First  Schedule to the Customs Tariff Act , 1975 ( 51 of 1975 )

(11) Pharmaceutical products falling within Chapter 30 of the First Schedule to the Customs Tariff Act , 1975 ( 51 of 1975 )

(12) Fireworks

(13) Red Sander

(14) Sandalwood

(15) All taxable goods falling within Chapter 1 to 24 of the First Schedule to the Customs Tariff Act , 1975 ( 51 of 1975 )

(16) All unclaimed / abandoned goods which are liable to rapid depreciation in value on account of fast change in technology or  new models etc.

(17)Any goods seized by the proper officer under section 67 of the Act , which are to be provisionally released under sub-section (6) of section 67 of the Act , but provisional release has not been taken by the concerned person within a period of one month  from the date of execution of the bond for provisional release .

Sub-section (9) of section 67 envisages that where any goods , being goods specified under sub-section (8) , have been seized by the proper officer or the authorised officer, such officer shall make the inventory of such goods in the prescribed manner .

It is pertinent to note that the manner in which inventory is to be made is embodied in sub-rule (5) of rule 139 . It is reiterated that this sub-rule envisages that 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 , documents or books or things are seized .  Thus it is quite evident that such an inventory has to be made comprehensively .

Sub-section (10) of section 67 envisages that 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 sub-section 165 of the said Act shall have effect as if for the word “Magistrate” , wherever it occurs , the word “Commissioner ” were substituted .

It is pertinent to note that sub-section (5) of Section 165 of Code of Criminal Procedure , 1973 ( 2 of 1974 ) have following provisions :

“165(5) Copies of any record made under sub-section (1) or sub-section (3) shall forthwith be sent to the nearest Magistrate empowered to take cognizance of the offence , and the owner or occupier of the place searched shall , on application , be furnished free of cost , with a copy of the same by the Magistrate . “

Sub-section (11) of section 67 envisages that 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 seize the accounts, registers or documents of such person produced before him , for reasons to be recorded in writing, and  shall issue a receipt for the same. The proper officer 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.

Thus although no specific time limit is prescribed for the retention of the accounts seized in this sub-section but it has been clearly envisaged that such time may not be beyond the time upto which any proceedings under the Act or rules made thereunder are in progress for which such seized accounts are necessary . Such proceedings may relate to related enquiry , investigation , verification ,audit , assessment, appeal etc. Once such proceedings are completed such seized accounts will have to be returned to the person from whom they have been seized .

Sub-section (12) of section 67 envisages that 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, in order to check issue of tax invoices or bills of supply by such taxable person . However 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-69 of the CGST Act , 2017 ( similar provisions are embodied in UPGST Act , 2017) embodies provisions relating to power of arrest . Such powers were not part of the erstwhile VAT regime . Sub-section (1) of this section envisages that where the Commissioner has reasons to believe that any person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of subsection (1) or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.

It is pertinent to note that clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 embody following provisions :

“132. Punishment for certain offences :

(1) Whoever commits any of the following offences, namely:—

(a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

(c) avails input tax credit using such invoice or bill referred to in clause (b);

(d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;”

 Also clause (i) , clause (ii) of subsection (1) and sub-section (2) of section 132 embody following provisions :

“132 (l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section, shall be punishable––

(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees , with imprisonment for a term which may extend to three years and with fine;”

132(2) If any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine.  

Sub-section (2) of section 69 envisages that  where a person is arrested under sub-section (1) for an offence specified under sub-section (5) of section 132, the officer authorised to arrest a person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours.

It is pertinent to note that sub-section (5) of section 132 embodies following provisions :

“132 (5) The offences specified in clauses (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.”

It is to be noted that clauses (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 and its clause (i) have been narrated in the comments of sub-section (1) of this section .

Sub-section (3) of section 69 envisages that subject to the provisions of the Code of Criminal Procedure, 1973 ( Act No. 2 of 1974 ),-

(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;

It is pertinent to note that sub-section (4) of section 132 envisages that irrespective of anything contained in the Code of Criminal Procedure , 1973 ( Act No. 2 of 1974 ) , all offences under this Act except the offences referred to in sub-section (5) shall be non-cognizable and bailable .

(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.

                                                                               ——–0——–

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