SEARCH AND SEIZURE UNDER GST LAW (PART-1)

[Dr. Sanjiv Agarwal]

Search and Seizure

The provisions relating to search and seizure are contained in sub-sections 2 to 8 of section 67. The rules relating to search and seizure are contained in Rules 139, 140, 141 of CGST Rules, 2017.

Search and seizure provisions contained in tax statutes are provided to act as a restraint on evasion of taxes. Such powers are within the constitutional frame work and can not be considered as violative of Article 19 of Constitution of India.

Power of search and seizure in any system of jurisprudence is an overriding power of the State to provide security and that power is necessarily regulated by law – MP SHARMA VERSUS SATISH CHANDRA. DISTRICT MAGISTRATE - 1954 (3) TMI 1 - SUPREME COURT.

In  BABOO RAM HARI CHAND VERSUS UNION OF INDIA - 2014 (9) TMI 144 - GUJARAT HIGH COURT it has been held that powers to seize and confiscate are quite drastic powers, such that authority exercising the same should have reasons to believe that goods were liable therefor. It was held that passing of a composite order, i.e. panchnama –cum-seizure order is impermissible in law.

In POORAN MAL VERSUS DIRECTOR OF INSPECTION (INVESTIGATION), INCOME-TAX, NEW DELHI - 1973 (12) TMI 2 - SUPREME COURT, it has been held that the provisions are evidently directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. In the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion.

In STATE OF PUNJAB VERSUS BALDEV SINGH - 1999 (7) TMI 630 - SUPREME COURT, the Supreme Court had reiterated the concept that the welfare of an individual must yield to that of the community. However, the action of the State must be right, just and fair.

Meaning of search and seizure

Search

The term ‘search’, simply denotes an action of a government machinery to go, look through or examine carefully a place, area, person, object etc. in order to find something concealed or for the purpose of discovering evidence of a crime. The search of a person or vehicle or premises etc. can only be done under proper and valid authority of law.

“Search” has not been defined in the GST law. However, Shorter Oxford English Dictionary defines “search” to mean to probe, scrutinize, examine, investigate. The rights of the state to authorize a search are well recognized and are used against those who perpetrate fraud on the revenue. There has to be compelling reasons to order for a search ie transgression into one’s privacy. In case of search, due process of law has to be followed. In case of taxes, a suspicion of undisclosed or concealed income or assets is sufficient for issuance of a search warrant.

Seizure

“Seizure” has not been defined in the GST law. In Law Lexicon Dictionary, “seizure” is defined as the act of taking possession of property by an officer under legal process. It generally implies taking possession forcibly contrary to the wishes of the owner of the property or who has the possession and who was unwilling to part with the possession.

Seizure is the outcome of search. If any documents are found during the search which need to be seized, the officials conducting the search can seize such documents etc. When power to seize exists, the power to release seized items is also implied. Once the investigation is completed, the department may retain or release the seized documents or papers or things. The investigation officer, if establishes that there has been an evasion of tax, notice under section 74 of the Act may be issued.

Seizure is taking into possession of goods in pursuance of a legal right. In COMMISSIONER OF INCOME-TAX, AND OTHERS VERSUS TARSEM KUMAR - 1986 (7) TMI 110 - SUPREME COURT, the Apex Court held that seizure implies forcibly taking something from its owner or who has possession and who was unwilling to part with such possession.

Power to search and seizure

Search and seizure provisions contained in tax statutes are provided to act as a restraint on evasion of taxes. Such powers are within the constitutional frame work and cannot be considered as violative of Article 19 of Constitution of India

Power of search and seizure in any system of jurisprudence is an overriding power of the state to provide security and that power is necessarily regulated by law – MP SHARMA VERSUS SATISH CHANDRA. DISTRICT MAGISTRATE - 1954 (3) TMI 1 - SUPREME COURT.

In BABOO RAM HARI CHAND VERSUS UNION OF INDIA - 2014 (9) TMI 144 - GUJARAT HIGH COURT , it has been held that powers to seize and confiscate are quite drastic powers, such that authority exercising the same should have reasons to believe that goods were liable therefore. It was held that passing of a composite order, i.e. panchnama-cum-seizure order is impermissible in law.

Section 67 of CGST Act, 2017 provides for powers of inspection, search and seizure in GST regime.

As per section 67(2) of the CGST Act, 2017, where the proper officer (not below the rank of Joint Commissioner) or any officer which is authorized to do an inspection, has reasons to believe that:

• any goods are liable to confiscation, or
• any documents/books/or things, which in his opinion may be useful and relevant for any proceedings under the Act,

are secreted in any place, then, he may authorize in writing any other officer to search and seize or may himself search and seize such goods, documents or books or things and be retained for so long as may be necessary for their examination and for any inquiry or proceeding under this Act.

The powers to search and seizure can be exercised in the following manner:

1. Only proper officer of the rank of Joint Commissioner or above may authorize search and seizure.
2. It can be in pursuance of inspection under section 67(1) or otherwise.
3. He should have “reasons to believe” that any goods liable for confiscation or any documents/books/things are secreted at any place which in his opinion shall be useful or relevant for any proceedings under the GST law.
4. He may authorize any other officer to carry out search and seize such goods, documents or books or things.
5. He may also search and seize himself.
6. Seizure could of goods, documents, books or things.

Any officer carrying out a search has the power to search for and seize goods (which are liable to confiscation) and documents, books or things (relevant for any proceedings under the Act) from the premises searched. During course of search, the officer has the power to seal or break open the door of the any premises authorized to be searched if access to the same is denied. Similarly, while carrying out search within the premises, he can break open any almirah, electronic devices, box, receptacle if access to such almirah, electronic devices, box, receptacle is denied and in which any goods, account, registers or documents are suspected to be concealed.

In terms of section 67(3) of CGST Act, 2017, the officer so authorized shall have the power to seal or break open the door of any premises or to break or open any almirah, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed where access to such premises, box etc is denied by the taxable person.

Proper officer not below the rank of Joint Commissioner can himself or authorize any other CGST officer in FORM GST INS-01 (Chapter-XVII-Inspection, Search and Seizure of the CGST Rules) to carry out search and seize goods, documents, books or things. Such authorization can be given only where the proper officer has reasons to believe that any goods liable to confiscation or any documents or books or other things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted / hidden in any place. Where any goods, documents, books or things are liable for seizure, the proper officer or an authorised officer shall issue an order of seizure in FORM GST INS-02.

Meaning of ‘Secreted’

“Secret” means “to hide” or “to conceal in a hiding place”. According to P. RamanathaIyer’s Law Lexicon, the word “secret” in a statute, making it a ground for attachment, that the debtor has secreted his property with an intent to defraud creditors, means to hide it or put it where officer of the law will not probably be able to find it.

What is meant by ‘secreted’ is not defined in the GST law but it can be construed that meaning and provision of word ‘secreted’ is in pari materia with section 105 of Customs Act, 1962.

In GIAN CHAND AND OTHERS VERSUS STATE OF PUNJAB - 1961 (11) TMI 1 - SUPREME COURT, the Apex Court interpreted the word ‘secreted’ as per the following extract.

 “It cannot be said that the documents have not been ‘secreted within the meaning of section 105 of Customs Act, 1962 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.

The power to search granted under section 105 of Customs Act, 1962 is a power of general search and it is not necessary for its exercise that the authorization 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.”

It may be noted that anything being secreted is crucial to framing of ‘reason to believe’. Secretion of documents, books, things, goods etc is a pre-condition for taking action under section 67(2) of CGST Act, 2017.

Places to be searched

Search can be conducted at any place which would include any house, office, building, vehicle etc. It includes the premises of any person and not just a taxable person. Search is supposed to be an invasion into person’s privacy. However, it must be guided by certain principles under normal human tendency.

Contents of Search Warrant

In terms of rule 130(1) of CGST Rules, 2017, where the proper officer not below the rank of a Joint Commissioner has reasons to believe that a place of business or any other place is to be visited for the purposes of inspection or search or, as the case may be, seizure in accordance with the provisions of section 67, he shall issue an authorisation in FORM GST INS-01 authorising any other 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.

The written authority to conduct search is generally called search warrant. The competent authority to issue search warrant is an officer of the rank of Joint Commissioner or above. A search warrant must indicate the existence of a reasonable belief leading to the search.

Search warrant should contain the following information/details:

(i)         the violation under the Act,

(ii)        the premises to be searched,

(iii)       the name and designation of the person authorized for search,

(iv)       the name of the issuing officer with full designation along with his round seal,

(v)        date and place of issue,

(vi)       serial number of the search warrant,

(vii)      period of validity i.e. a day or two days etc.

Essential conditions for Search and Seizure

There are two essential conditions for search and seizure :

1. Documents, goods books or things must be useful for or relevant to any proceedings, in the opinion of the Joint Commissioner, and
2. Joint Commissioner must have reasons to believe that such books, documents or things have been secreted i.e., hidden in any place.

Thus, reasons to believe etc become pre-conditions for conducting a search and seizure. There should not be a reason to suspect but reason to believe. Search can be conducted at any place which may not necessarily be assessee’s premises.