To combat tax evasion, India's Goods and Services Tax (GST) framework includes stringent measures for inspecting and searching business premises suspected of tax avoidance.

Recent Updates on Seizure under GST

December 21st, 2021

Officials can issue notices under Section 74 to multiple individuals for tax underpayments or fraudulent Input Tax Credit (ITC) claims. Effective January 1st, 2022, officers gained the authority to confiscate and seize goods or vehicles even after concluding proceedings against all parties responsible for specific or general penalties.

February 1st, 2021 (Union Budget 2021 Outcomes)

1. For orders concerning the detention and seizure of goods and conveyances, a 25% penalty payment is now required when filing an appeal application under Section 107 of the CGST Act. The effective date for this change is pending notification.
2. The processes for seizure and confiscation of goods and conveyances during transit have been separated from the tax recovery procedures outlined in Section 74.
3. Section 129 has been disconnected from Section 130. Consequently, proceedings related to the detention, seizure, and release of goods and conveyances in transit will be distinct from the imposition of penalties for the confiscation of such items.

GST Inspection Procedures

When Can a GST Inspection Occur?

A Joint Commissioner or a higher-ranking officer may initiate an inspection if they possess "reasons to believe" that an individual is evading tax by:

• Concealing supply transactions.
• Hiding physical stock.
• Illegitimately claiming excessive input tax credit.
• Breaching any GST regulations.
• A transporter, warehouse owner, or operator is storing goods that have evaded tax or is maintaining records in a manner designed to avoid tax liabilities.

In such circumstances, the officer can issue an authorization in Form GST INS-01, empowering any officer to inspect the business premises of:

• A taxable individual.
• A goods transporter.
• A warehouse owner or operator.

The authorizing officer may also deem it necessary to inspect other locations.

Defining 'Reason to Believe'

'Reason to believe' implies possession of factual information, not necessarily direct personal knowledge, that would lead any rational individual to reach a similar conclusion. According to the Indian Penal Code, 1860, a person has 'reason to believe' something if they have adequate grounds for that belief, and not otherwise. This concept represents an objective assessment derived from thoughtful examination and evaluation, distinguishing it from mere subjective opinion. It relies on concrete facts rather than interpretative perspectives.

Requirement for Documenting 'Reasons to Believe'

The GST Act does not mandate that the 'reasons to believe' must be documented in writing before an inspection, search, or seizure order is issued. Furthermore, the Finance Act 2017 retrospectively amended Sections 132(1) & (1A) of the Income Tax Act, specifying that these 'reasons to believe' are not to be disclosed to any individual, authority, or the Appellate Tribunal.

GST Search Operations

Search vs. Inspection: Key Distinctions

Search entails actively looking for hidden items or evidence of an offense. In a legal context, a search involves an official (e.g., a tax or police officer) meticulously examining a location, person, or object to uncover concealed items or criminal evidence. Such operations require proper legal authorization.

Inspection refers to the act of scrutinizing something, often in detail. In legal and tax terms, it is a less intrusive measure than a search. It allows officers to enter and examine the business premises of a taxable individual, or the premises of a transporter, warehouse owner, or godown operator.

Authority and Grounds for Ordering a GST Search

A Joint Commissioner of SGST/CGST or a higher-ranking officer may order a search, either independently or via an authorized subordinate, if they have "reasons to believe" based on inspection findings or other intelligence that:

• Goods subject to confiscation are present.
• Relevant documents, books, or other items crucial for legal proceedings are concealed.

Upon such belief, the officer can proceed to search for and seize the identified goods and documents.

Seizure Procedures under GST

Defining Seizure in GST

While not explicitly defined in GST law, 'seizure' in legal contexts refers to the forceful acquisition of property or a person through legal means, akin to seizing evidence at a crime scene. It typically involves taking possession against the owner's will.

Seizure vs. Detention: Understanding the Difference

Detention occurs when an owner is denied access to goods via a legal order or notice, while retaining ownership and possession. This action is taken when goods are suspected of being subject to confiscation. Seizure, conversely, involves the department taking physical possession of the goods, though ownership remains with the original owner. Seizure is only permissible after an inquiry or investigation confirms that the goods are liable for confiscation.

Seizure Operational Guidelines

The designated officer will issue a seizure order using FORM GST INS-02.

Powers of an Authorized Searching Officer

An officer authorized to conduct a search possesses the authority to:

• Seal the entrance of a premises.
• Force open the door of any premises if entry is refused.
• Break open any cupboard or container suspected of holding concealed goods, books, or documents.

Actions When Seizure is Impracticable

Should physical seizure of goods prove impractical, the authorized officer will issue an order in FORM GST INS-03, prohibiting the owner from moving the goods without official consent.

Retention Period for Documents and Books

Officers may retain books and documents for the duration required for examination and inquiry. Documents not relevant to the notice's issuance must be returned within 30 days of the notice date. Seized goods can be provisionally released if the owner furnishes a bond for their value using FORM GST INS-04 and provides a bank guarantee as security for the total amount due (tax, interest, and penalties). Failure to present the provisionally released goods on the specified date and location will result in the encashment of the security, which will then be applied against the outstanding amount.

Post-Seizure Procedures

Following a seizure, the following protocols apply:

1. Individuals whose documents have been seized are permitted to make copies, but only in the presence of an authorized officer.
2. If no notice is issued within six months of the goods' seizure (with a possible extension of an additional six months), the goods must be returned.
3. The government has the authority to publish a list of hazardous or perishable items that can be disposed of immediately upon seizure.
4. All seized goods must be meticulously itemized by the officer.

Applicability of the Code of Criminal Procedure

The principles outlined in the Code of Criminal Procedure govern search and seizure operations under GST.

Alternative Inspection Methods

A Commissioner or an authorized officer may acquire goods or services from a taxable individual to verify the accuracy of tax invoices issued, proper record maintenance, and clear display of GST amounts. Upon returning the goods, the taxable person must issue a refund, and the original sales invoice will be canceled.

Arrest Provisions Under GST

If a Commissioner determines there is a belief that an individual has committed an offense under Section 132, that individual may face arrest under GST regulations. Further details on this topic are available in the article arrest under GST. Additionally, GST legislation includes clauses for the interception and inspection of goods in transit.