INVESTIGATIONS UNDER GST LAW

[Mr. M. GOVINDARAJAN]

Investigation

Now-a-days almost all tax laws allow the assessees to pay tax on self assessment basis.  In the tax laws, either direct taxes or indirect taxes, provisions are made for the investigation of the affairs of the assessee if it is satisfied that there is tax evasion by whatever means.  The power of inspection, search and seizure, investigation have been given to the Authorities for the conduct of inspection, investigation etc.

Section 67 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) gives powers to the proper officers not below the rank of Joint Commissioner may authorize in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.  If he,  either pursuant to an inspection carried has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorize in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things.

The person from whose custody any documents are seized shall be entitled to make copies thereof or take extracts there from in the presence of an authorized officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.

Director General of intelligence

Erstwhile Directorate General of Central Excise Intelligence (DGCEI), now renamed as Directorate General of GST Intelligence (DGGI), is an apex intelligence organization functioning under the Central Board of Indirect Taxes & Customs, Department of Revenue, Ministry of Finance, entrusted with the task of collection, collation and dissemination of intelligence relating to evasion of Goods and Services Tax (GST) (introduced w.e.f. 01.07.2017) and duties of Central Excise and Service Tax on an all India basis.   The role of the Directorate General in tackling the menace of duty evasion is manifolds. It develops intelligence, especially in new areas of tax evasion through its intelligence network across the country and disseminates such information, by issuing Modus Operandi Circulars and Alert Circulars to sensitize the field formations about the latest trends in duty evasion. Wherever found necessary, this Directorate General, on its own or in co-ordination with field formations, organizes operations to unearth evasion of GST, Central Excise Duty and Service Tax.   The DGGI has been expanded and now it comprises of 04 office of Director General (East, West North and South), 26 Zonal Units and 40 Regional Units.

DGGI has detected tax frauds to the tune of more than ₹ 1.19 lakh crore in last three years and recovered more than ₹ 29000 crore of such evaded tax. DGGI has unearthed number of modus operandi by which tax evasion was been done such as-

• short payment of tax by undervaluing taxable goods and services, 
• wrong availment of exemption notifications,
• wrong availment / non-reversal of input tax credit, 
•  non-payment of tax on supply of taxable goods and services (clandestine removal),
• tax collected but not paid to Govt. exchequer;
• non-payment of tax under reverse charge mechanism,
• fraudulent availement of input tax credit on the basis of invoices from fake firms,
• fraudulent availment of refund of IGST on export of goods, etc.

Issues in investigations

Investigations are carried out under the provisions of CGST Act and the State Goods and Services Act, 2017.    Both of the CGST Act and State Act are more less having same provisions except few provisions.  Central Tax and integrated tax have been levied by the Central Government and State tax has been levied by the State and the Union tax has been levied by the Union territory.  Both of the State and Central proper officers are having power to cause investigations. 

There are many issues arised in the matter of investigations.  IN this article the various issues arised are discussed with reference to decided case laws.

Presence of lawyer during investigation

In re ‘AMIT JOSHI VERSUS COMMISSIONER OF CEST & ST, CGST (EAST) & ANR. - 2020 (8) TMI 567 - DELHI HIGH COURT, the petitioner prayed that records of investigation be called from the office of the respondents and the court should examine the same on the touchstone of the law relating to the fair investigation.  The Court should monitor the investigation of the case till the issuance of show cause notice and/or till the filing of complaint and further direct the respondents to give bi-monthly reports to the Court about the progress of the investigation.  The respondent should be directed to conduct the investigation without use of any coercive means along with video recording of the applicants and to allow the presence of the lawyer at visible yet inaudible distance of the applicant.

The High Court held that the petitioner has been summoned by the Officers under GST Act who are not police officers and who have been conferred with the power to summon any person whose attendance they consider necessary to give evidence or to produce a document.  Therefore the presence of the lawyer is not required during the examination of the petitioner.  So far as the apprehension of the petitioner that he may be physically assaulted or manhandled is concerned, the High Court was of the opinion that it is a well settled law that no inquiry/investigating officer has a right to use any method which is not approved by law to extract information from a witness/suspect during examination and in case is so done, no one can be allowed to break the law with impunity and has to face the consequences of his action.

Non maintainability of advance ruling

Section 98(2) of the Act provides that the Authority for Advance Ruling, after examining the application for Advance Ruling may reject the application if the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act.  According to this section the application for advance ruling may be rejected if there is an investigation by the proper officer on the applicant who sought for advance ruling.

In re ‘IN RE: M/S. ID FRESH FOOD (INDIA) PVT. LTD. - 2020 (10) TMI 149 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA, the appellant filed an application before the Authority for Advance Ruling for the classification of ‘parota’.  The Authority for Advance Ruling ruled that the product ‘parota’ is classified under Chapter Heading 2106 and is not covered under Entry No. 99A of  Schedule I to the Notification No.1/2017-Central Tax (Rate), dated 28.06.2017 as amended vide Notification No 34/2017-Central Tax (Rate), dated 13.10.2017.  Against this ruling the appellant filed appeal before the Appellate Authority for Advance Ruling.  The Revenue pointed out that the appellant did not reveal the fact that an investigation is pending against the petitioner by DGGI, Chennai Zonal Unit at the time of filing application for advance ruling.  The High Court declared the advance ruling void ab initio since the petitioner suppressed the fact that an investigation is pending against his company.

Investigation at a particular place

In ‘RAJIVE AND COMPANY, RAJIVE AND COMPANY VERSUS THE ASST. COMMISSIONER, SPECIAL CIRCLE, STATE GST DEPARTMENT, STATE TAX OFFICER, THE STATE TAX OFFICER, STATE TAX OFFICER, THE JOINT/DY. COMMISSIONER, INTELLIGENCE, DEPARTMENT OF STATE GST, THE COMMISSIONER OF COMMERCIAL TAXES - 2020 (9) TMI 1060 - KERALA HIGH COURT, an investigation is ordered and was commenced into the affairs of a group concern giving under the family name of ‘Chungath’ all engaged in jewellery business.  The State Tax Officer at Ernakulam was entrusted with the continuation of proceedings after raids were conducted in various business premises of the group by State Tax Officers of the Investigation Wing stationed at the respective locations.  The prayer of the petitioner in the present writ petition is that the investigation with respect to them may be carried out by an officer at Kollam especially due to COVID situation as also due to the voluminous documents which would have to be transported to Ernakulam.  The petitioner further submitted that the lawyer who deals with the affairs of the petitioner’s also is located at Kollam.  The very same office at Ernakulam could hold sitting at Kollam.  The petitioner would bear the expenses.

The Revenue contended that hue variation of stock of gold jewellery was noticed at the branch in Ernakulam and hence the books of accounts were called for.  The major volume of the business was found in Ernakualm.  But the books of accounts are maintained at the Head Office.  Section 35 of the Act provides for the maintenance of books of account in the business premises itself.  Out of 16 business places 11 businesses were located at Ernakulam and Thrissur District coming under the Ernakulam zone of SGST Department.  Since the books of account is maintained in a digital format the specific ground raised by the petitioner cannot at all countenanced.

The High Court held that the location of the lawyer can at all be a reason for the department to carry out proceedings in a particular place.  It is for the Department to decide, which of its officers should continue the proceedings.  The assessee cannot have a choice in the matter.  The Officer cannot be independently asked to concentrate on the investigation against the petitioners since he would have other work at his office in Ernakulam.  Further the officer requires the assistance of his staff and there cannot be a shifting of office as such to Kollam.  The High Court dismissed the appeal filed by the petitioner.

Bar under section 6(2) (b)

Section 6(1) of the Act provides that without prejudice to the provisions of this Act, the officers appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act are authorized to be the proper officers for the purposes of this Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify.  Section 6(2)(b) provides that  where a proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act has initiated any proceedings on a subject matter, no proceedings shall be initiated by the proper officer under this Act on the same subject matter.

In ‘DADHICHI IRON AND STEEL PVT. LTD. VERSUS CHHATTISGARH GST THROUGH PRINCIPAL COMMISSIONER, COMMERCIAL TAX, ADDITIONAL DIRECTOR GENERAL DIRECTORATE GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE, JOINT DIRECTOR, DIRECTORATE GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE, GST, ASSISTANT DIRECTOR, DIRECTORATE GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE - 2020 (2) TMI 1241 - CHHATTISGARH HIGH COURT, the present petition has been filed questioning the investigation initiated by the respondents and the summons issued in connection with the said investigation.  The petitioner prayed to quash the investigation proceedings commenced by the proper officer of the DGGSTI and impugned summon dated 03.02.2020 against the petitioner holding the same to illegal.   The primary contention of the petitioner was that once when a show cause notice proceeding initiated by the respondents, dated 14.11.2019 is pending before the concerned authorities under the CGST, the respondents could not have issued or initiated another investigation or proceeding in respect of the same subject matter, which otherwise is not permissible under section 6(2)(b) of the Act.  The whole investigation proceeding initiated by the respondent including that of the arrest that has been mad is without and beyond jurisdiction.

The High Court did not find any substance in the arguments of the petitioner, when they said that the investigation and the proceedings initiated is one, which hit by section 6(2)(b) of the Act.  There is a clear distinction between a proceeding drawn for the demand of tax evaded by the petitioner establishment and the investigation be conducted by the Department of the DG, GST Investigation Wings in respect of the offence committed by an establishment by way of using bogus and fake invoices and illegally availing ITCs.  The High Court dismissed the writ petition filed by the petitioner.

Dual investigations

Vide lr. No. DOF No. CBEC/20/43/01/2017-GST (PT), dated 05.10.2018, the Board clarified in regard to ambiguity regarding initiation of enforcement action by the Central tax officers in case of taxpayer assigned to the State tax authority and vice versa,         that the officers of both Central tax and State tax are authorized to initiate intelligence based enforcement action on the entire taxpayer's base irrespective of the administrative assignment of the taxpayer to any authority. The authority which initiates such action is empowered to complete the entire process of investigation, issuance of SCN, adjudication, recovery, filing of appeal etc. arising out of such action.        In other words, if an officer of the Central tax authority initiates intelligence based enforcement action against a taxpayer administratively assigned to State tax authority, the officers of Central tax authority would not transfer the said case to its State tax counterpart and would themselves take the case to its logical conclusions.    Similar position would remain in case of intelligence based enforcement action initiated by officers of State tax authorities against a taxpayer administratively assigned to the Central tax authority.

In ‘M/S BHAWANI TEXTILES VERSUS ADDITIONAL DIRECTOR GENERAL - 2020 (3) TMI 478 - GUJARAT HIGH COURT, search was carried out and investigations were initiated by Ahmadabad Zonal Unit of DGGI.  The said investigations were undertaken by them only and not transferred to any other office.  After the search was carried out a summon was issued under section 70(1) of the Act by the Deputy Commissioner of State Tax.  The grievance of the petitioner is that while the proceeding came to be initiated by the DGGI, Ahmadabad, the other authorities should not interfere with such proceedings already initiated.

The High Court held that the DGGI, Ahmadabad to look into the matter and ensure that no undue harassment is caused to the writ applicant by different authorities on the same subject matter. 

But the Orissa High Court took a different view in dual investigations.  In ‘M/S. SWATIK INGOT PVT. LTD. VERSUS CHIEF COMMISSIONER, GST, CX AND CUSTOMS, STATE TAX OFFICER, CT AND GST ENFORCEMENT UNIT - 2020 (3) TMI 1178 - ORISSA HIGH COURT, the petitioner received summons from Director General of GST and filed reply and the matter is pending in the CGST.  On the basis of intelligence report some documents have been seized from the petitioner for the purpose of proceeding.  In the meantime the Orissa GST Authorities have initiated proceeding under section 70 of the Act.  The said Authority called for some documents from the petitioner.  The said documents have already been seized by the CGST Authority.  The CGST Authorities contended that the said documents could not be released in favor of the petitioner in view of the currency of the proceeding.  If the petitioner applies for copy of the same, copies can be supplied to the petitioner. 

The High Court directed the petitioner to apply for copies of the documents required by him before the CGST Authority.  If such application is filed the copies of documents sought for shall be supplied within a period of 3 weeks from the date of his application by the CGST Authority.  The petitioner is directed to co-operate both the CGST and SGST Authorities for early disposal of the proceedings. 

Proceedings by different legislations

In ‘DINESH KUMAR GOYAL VERSUS DIR. GENERAL OF GST INTELLIGENCE - 2019 (12) TMI 1505 - CALCUTTA HIGH COURT, action was taken against the petitioner by the Directorate of Revenue Intelligence, the Director General of GST and Customs Authorities.  The High Court held that different authorities can proceed with respect to the same transaction if the liabilities arising from one transaction are in respect of different legislations under which the Authorities operate.  There is no bar and impediment in doing so.  Therefore the High Court held that the prayer of the petitioner with regard to direction jupon only one authority to proceed against the petitioner is prima facie not valid.  The respondents should be allowed to bring on record the factual matrix with regard to the summons having been issued upon the petitioner and the steps the authorities have taken.

Investigation and audit

In ‘SURESH KUMAR P.P., MR. ABOOBACKER SIDHIQUE VERSUS THE DEPUTY DIRECTOR, THE ASSISTANT COMMISSIONER, MR. RENN ABRAHAM AND OTHERS 2020 (8) TMI 418 - KERALA HIGH COURT, the challenge in the present writ petition is to simultaneous proceedings of investigation having been commenced when already an audit was in progress.  Audit under Section 65 is a routine procedure to be carried out by the Commissioner in such frequency and in such manner prescribed in the rules; which is independent of an investigation under section 67 which is a more onerous procedure which can be initiated only on the satisfaction of an officer not below the rank of a Joint Commissioner of, suppression of taxable transactions, excess claim of input tax credit, contravention of the provisions of the Act and Rules, keeping of goods and accounts in contravention of the provisions, escapement of tax, secreting of goods or materials liable to confiscation or relevant or useful in any proceedings under the Act and any act leading to evasion of tax.  Investigation is not a routine procedure as in audit under section 65.  The High Court did not find any infirmity in the audit and investigation proceedings being continued simultaneously.

Freezing of bank accounts

In M/S PADMAVATI INDUSTRIES VERSUS THE COMMISSIONER OF CUSTOMS (PREVENTIVE) , JAIPUR, THE DEPUTY COMMISSIONER OF CUSTOMS (PREVENTIVE) - 2020 (9) TMI 395 - RAJASTHAN HIGH COURT, the investigation had been initiated and was being carried out under the provisions of the CGST Act.  The petitioner contended that in such a situation freezing of the bank account by the Deputy Commissioner (Customs) under the provisions of Customs Act, 1962, in view of the investigation initiated against the petitioner by Anti–evasion wing of CGST Commissionerate, Jaipur, was not permissible.  The High Court held that the impugned order was passed before the amendment in section 110(5) of the Customs Act, 1962 had come in operation.  According to the amendment the account cannot be frozen beyond the period of one year.  The High Court allowed the petition.  The High Court quashed the order for freezing the bank account and allowed the petitioner to operate the bank account.