#TaxmannPPT | How to Handle Search, Seizure & Arrest under GST? | NITYA Tax Associates

PRACTICAL INSIGHTS - HOW TO HANDLE SEARCH, SEIZURE, ARREST, PROSECUTION AND RECOVERY UNDER GST?

Key Accolades About NITYA Tax Associates 

Law firm specializing in Indirect Taxes, Legal Metrology and other Allied Laws

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Serving diverse clientele comprising India’s leading Domestic and Multinational corporates

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Team of 5 Partners and 50+ members with experience in India’s leading Accounting and Law Firms

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Service areas include Advisory, Litigation, Healthcheck, Policy Advocacy, Compliances etc.

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TABLE OF CONTENTS

CONCURRENT JURISDICTION

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SECTION 6 OF CGST ACT

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 SGST Officers authorized to be Proper Officers for CGST Act

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 Proper Officer issuing an order under CGST Act, must also issue an order under SGST / UTGST Act under intimation to Jurisdictional Officer of ST / UT​

 If any proceedings on a subject matter initiated by SGST Authority, no parallel proceedings to be initiated by CGST Authority​  Any remedy against an order passed by CGST Authorities shall not lie before SGST / UTGST Authorities

PRINCIPLES ADDUCED FROM JUDICIAL PRCEDENTS

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Overlapping of jurisdictional power -Leads to situation of utter chaos

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 Section 6(2) of CGST Act akin to Section 9(2) of CST Act

 Cross empowerment for the purpose of assessment and collection of tax  SGST Authorities can enforce provisions of CGST Act

MEANING OF SUBJECT MATTER

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 Term ‘subject matter’ defined as ‘things in dispute’ (Black's Law Dictionary)

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 Courts interpreted ‘subject matter’ as same cause of action for same dispute​ involved in a proceeding before proper officer​  ‘Proceedings on a subject matter’ has been distinguished from ‘investigation’ and ‘enquiry’ proceedings

‘Objective and Purpose’ of Section i.e., No Overlapping of Jurisdiction

PRE-INVESTIGATION PREPARATIONS

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WHO CAN INVESTIGATE Entrusted Powers

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 To inspect, search and seize

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Who can Investigate?

Proper Officers who are assigned functions

 To access business premises  To inspect goods in movement

External Agencies like DRI, DGGI etc.

 To summon  To arrest

Concurrent jurisdiction

RECORDS TO BE MAINTAINED BY TAXPAYER  Manufacturing records like stock records of goods received and supplied, balance of stock, raw materials, FG, scrap etc.

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 Records of inward and outward supply and details of suppliers and recipients

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To be maintained minimum for 72 months from due date of annual return or till one year after conclusion of litigation or investigation, whichever is later

 Electronic record can be imports maintained backcharge up, shall be  Record of output tax payable and paid, and with reverse available at place of business  Record of ITC availed, utilized and reversed  Entry shall not be erased, effaced or overwritten, attestation record of removed  Records to be/ maintained

by Agententries  Record shall supplied be serially numbered  Record of Works Contract  To be produced on demand  All supporting documents prescribed under law

RECORDS FOR INVESTIGATION Record to be produced in stipulated time  Trial balance or equivalent ©NITYA Tax Associates. All Rights Reserved

 Statement of annual financial accounts, duly audited, wherever required  Cost Audit Report  Income Tax Audit Report  Any other relevant record

Additional documents practically sought  Various reconciliations like GSTR-1 and 3B, GSTR-3B and 2A / 2B, 9 / 9C, GSTR-3B, data of Import, E-Way Bill, 26AS, audited financials etc.  Taxpayers must maintain the reconciliations to avoid delays and issue of unwarranted notices

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INSPECTION, SEARCH AND SEIZURE

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ACCESS TO BUSINESS PREMISES (SECTION 71)

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Access to business premises

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Has Reasons to Believe

Inspect books of account, documents, computers, computer programs, computer software etc.

Proper Officer, not below the rank of Joint Commissioner

For carrying out audit, scrutiny, verification and checks To submit documents within stipulated time period

INSPECTION, SEARCH AND SEIZURE (SECTION 67) Suppression of transaction or stock of goods

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Excess ITC / refund

Has Reasons to Believe

ITC basis bogus invoices Section 2(85) of CGST Act Maintained accounts in manner Proper Officer, not likely to cause evasion below the rank of • Joint Business is ordinarily carried on Commissioner Escaped payment of tax • Maintains books of accounts •

Transaction not supported by Place where taxable person e-wayengaged bill through an agent

Other reason to believe that goods / documents / books / things useful in proceedings, secreted

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Inspect place of business Section 67(1)

Place of Business?

Search and seizure Section 67(2)

INSPECTION, SEARCH AND SEIZURE (SECTION 67)

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Taxpayer must ensure

Identify Officer before entering premises

Officer carrying search warrant (INS-01)

Two independent witnesses accompanying Officer

Taxpayer can take photocopy of seized documents

If anything seized, Officer must issue Seizure Order (INS-02)

Officer prepares Panchnama

Release of goods allowed on provisional basis. Default release if SCN not issued within 6 months from seizure Seizure of documents and goods, no arrest and no recovery contemplated No statement can be recorded under Section 67 14

PRINCIPLES ADDUCED FROM JUDICIAL PRCEDENTS  Power to authorize inspection, search and seizure provided to officer of rank of JC and above

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 JC need to issue such Authorization in writing with ‘reason to believe’  ‘Reason to believe’ - If has sufficient cause to believe. Belief must be of honest and reasonable person and based on relevant materials and circumstances  Taxpayer has right to receive copy of documents taken in custody without giving any justification  While taxpayers has right to seek copies of seized documents, revenue has right to refuse their provision based on cogent reasons  The term ‘things’ in Section 67 has wider meaning and will include money

 If transaction not recorded in regular books - intention to evade tax. Expression ‘in any place’ covers disclosed as well as undisclosed places of businesses  In case of residence – can break/open any almirah/cupboards/devices.

Complete sealing of premises illegal  Search can only be done of premises mentioned in the warrant 15

GUIDELINES FOR INVESTIGATION

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Guidlines for department

To do’s during investigation

 Check authorization  Must identify themselves by showing  Audit under Section 65 andidentity search card under Section 67 can continue parallelly and ask for reason to believe Can taxpayer ask for Co-operate and supply reasonalltodocuments believe? sought by Proper  Must have valid authorization  Allegations of harassment and high handedness to be substantiated Officer  Must obtain signatures on authorization  Recovery of amount during investigation – whether voluntary?  Submit verified data and seek time wherever necessary  DIN on authorization Recovery of amount to take place in terms of Section 73 / 74 only  Take copies of seized documents, panchnama and seizure memo and obtain receiving on each document  Authorized premises alone can summoned be searched  Rights of the person submitted  In search of residence, lady officer is necessary Instruction 01/2022-23 dated 25.05.2022 – No recovery unless amount payable pursuance Can the officersindirect Do not contestbecame on legal aspects, provide onlyoffactual an Order switching video cameras details  Panchnama to be recorded, each page must be signed, off? must carry date and time  Need not deposit any tax under insistence / pressure of Proper Officer  Register protest immediately, if amount deposited due to coercion

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SUMMONS

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POWER TO SUMMON (SECTION 70) Consequences of nonappearance

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Provision

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Proper Officer (Superintendent) to summon

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To give evidence or produce document or any other thing

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Judicial Proceeding u/s 193 and 228 of IPC

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Non-compliance punishable u/s 172, 174 & 175 of IPC

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Imposition of penalty upto Rs.25,000/- for nonappearance u/s 122(3)(d) of CGST Act

Guidelines for issue of summons •

Shall be used as last resort.

Not to be used for top management

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Summons by Superintendent to be issued after obtaining written approval of officer not below rank of Assistant Commissioner

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Record brief of proceedings and statement to be recorded during office hours

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To be issued only when inquiry initiated

GUIDELINES FOR TENDERING STATEMENT

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To do’s for taxpayers

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Relevancy of statements

Delve upon facts and answer precisely •

Can be used for proving, in any prosecution, of an offence

Retraction of statement

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Taxpayer can retract statement, if statement tendered under threat, coercion or inducement

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Practice before presentation

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Consultant / AvoidCan divulging additional Advocateon accompany? information subject

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Court may admit it as evidence in interest of justice

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Retraction shall be undertaken at the earliest

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Note all undertakings given during statement

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Statement used to corroborate main evidence

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No value of retracted statement unless court rules it as after thought

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To re-write statement after its completion

ARREST

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COGNIZABLE V. NON-COGNIZABLE Non-cognizable

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Cognizable

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S. 2(c) – Arrest without warrant

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Serious in nature – murder, rape, dowry, etc.

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Offences non-bailable in nature

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Warrant from Court not required for arrest

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Can investigate without Magistrate’s permission

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S. 2(l) – No arrest without warrant

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Less serious in nature – assault, cheating, etc.

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Offences bailable in nature

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Require warrant from Court for arrest

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Cannot investigate permission

without

Magistrate’s

NON-BAILABLE V. BAILABLE Bailable

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Non-bailable

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S.2(a) - Bailable as per 1st Schedule or by any other law

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S.2(a) - Other than bailable offences

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Serious / heinous in nature

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Less serious in nature

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Generally punishable with more than 3 years RI

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Generally punishable with less than 3 years RI

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Bail cannot be claimed as right and Court alone can grant bail

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Bail can be claimed as right and granted as a matter of course by police officer

POWER TO ARREST UNDER GST (SECTION 69) Section 69(1) of CGST Act:

Section 132(1) of CGST Act:  Supplies without issuance of any invoice

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Empowers the Commissioner to pass an order for arrest If amount tax evaded, For specified offencesofunder SectionITC wrongly 132(1) of CGST Act availed / utilized, or refund wrongly taken

 Issues any invoice or bill without supply

 Avails ITC on bogus invoice Punishment Status  Collects tax but fails to pay to Government

Greater than 5 crores

Imprisonment up to 5 years + Fine

Cognizable & Non-Bailable

Greater than 2 crores up to 5 crores

Imprisonment up to 3 years + Fine

Non-Cognizable & Bailable

GENERAL INSTRUCTIONS FOR ARREST DK Basu (SC)

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 Arresting officers should bear accurate, clear and visible identification with their name and designation  Arrest memo: Signed by one of the relatives / respectable person of the locality and counter signed by the arrestee. Must contain date and time of arrest  Arrested person shall have the right to inform one of his relatives / friends  Arrestee should be subjected to Medical examination in every 48 hours during his detention  Arrestee should be allowed to meet his Lawyer during the interrogation  Copies of all documents including the arrest memo should be sent to the Magistrate

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ARREST (SECTION 69)

Has Reasons to Believe

Bailable – Shall be released on bail

Arrest

Non-bailable - Produce before Magistrate (within 24 hours) Court to take decision whether to grant bail or not If no bail granted and no complaint filed by Department in 60 days of arrest – default Bail

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PROSECUTION PROCESS FOR OFFENCES UNDER GST

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Investigation

by Department

S. 69 – Authorization for arrest from Commissioner

Arrest

Production before Magistrate within 24 hours and seek Judicial remand

Filing of Complaint before Magistrate for criminal prosecution

Framing of charge

Pre-charge evidence

Cognizance to be taken by Magistrate

Post charge evidence

Statement of accused

Defence evidence

Order of conviction / acquittal

RECOVERY

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RECOVERY OF TAX (SECTION 79)

Garnishee proceedings •

May deduct or order any other person to deduct

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Detaining or selling goods

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Other person from whom money is due or may become due

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Conditions •

Confirmed demand

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Due procedure should be followed before confirmation of demand

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No recovery if the period for filing of appeal has not expired

Movable or immovable property

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PROVISIONAL ATTACHMENT (SECTION 83) Section 83 of CGST Act (Till 31.12.2022)  Pending proceedings (S. 62, 63, 64, 67, 73 & 74)  Objective to protect interest of revenue  Order by Commissioner in writing (GST DRC-22) upon formation of opinion  Property of only those persons against whom proceedings pending, could be attached

Section 83 of CGST Act (From 01.01.2022)  Initiation of proceedings (Ch. XII, XIV & XV)  Objective to protect interest of revenue  Order by Commissioner in writing (GST DRC-22) upon formation of opinion  Property of third parties can also be attached

Validity of attachment - One year (Issuance of fresh order not restricted) Remedy available (Rule 159 of CGST Rules) -

File objection to Commissioner within 7 days

Commissioner to grant personal hearing

Reject or confirm attachment (GST DRC-23) File writ petition

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PRINCIPLES ADDUCED FROM JUDICIAL PRCEDENTS  Pre 01.01.2022 - Proceedings should be pending under Section 62, 63, 64, 67, 73 or 74 of CGST Act

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 Pre 01.01.2022 - Property of only such taxpayers can be attached against whom proceedings pending under above provisions Provisional attachment not justified if:  Revenue neutrality, ITC reversal to be considered  Commissioner to pass attachment Order. Power cannot be delegated  Subjective satisfaction based on credible material / information and supported by supervening factors

 Not tool to harass or ruin business - to be used sparingly as last resort  Not akin to recovery proceedings

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