Process For Inspection Under GST

Goods and Services Tax (GST) has been implemented in India since July 2017. Under the GST regime, the tax authorities may conduct inspections to verify registered taxpayers’ compliance with GST laws and regulations. The inspection process aims to detect any non-compliance, evasion of taxes, or fraudulent activities by businesses. Given the government’s anti-tax evasion scheme, the GST includes strict procedures for inspecting and searching businesses for potential tax evaders. The GST officer may carry out the inspection and will issue a notice to the taxpayer specifying the inspection date, time, and place. During the inspection, the GST officer may examine various documents and records of the taxpayer, including invoices, ledgers, and other financial documents. Taxpayers need to understand the process for inspection under GST to ensure compliance with the GST laws and regulations and avoid any potential penalties or legal consequences.

What is Inspection under GST?

The CGST/SGST Act includes a new clause called “Inspection.” Officers may access any place of business owned or operated by a taxable person, a person involved in the transportation of commodities, or a person who owns or operates a warehouse or godown under this softer provision than with a search warrant.

When Does Inspection under GST Occur?

A high-ranking officer may have reasons to believe that evading tax under the following circumstances requires inspection:

1. Suppressed all supply-related transactions
2. Suppressed stock in hand
3. Claimed a surplus of input tax credits
4. Violated any rule or regulation
5. Any transporter or owner/operator of a warehouse has retained items that have avoided tax payment or have maintained records and preserved goods in a manner that evades tax.

  Thus, he may authorise an officer in Form GST INS-01 to inspect the businesses of 

1. The taxable person,
2. The transporter, or
3. The owner or the operator of the warehouse.

What do ‘Reasons to believe’ Include?

Knowing facts that, while not equaling direct knowledge, would lead a reasonable person to draw the same conclusion given the same facts is known as having reason to believe. A person is deemed to have “reason to believe” something according to Section 26 of the IPC, 1860, “if he has sufficient cause to believe that thing but not otherwise.” “Reason to believe” refers to a conclusion based on thoughtful consideration and examination instead of purely subjective. Based on pertinent information and circumstances, it must be that of an honest and reasonable individual.

What is Search Under GST?

The term “search” refers to an act of government machinery to go, look through or carefully examine a place, area, person, object, etc., to find something concealed or to discover evidence of a crime, as noted in various judicial pronouncements and according to the law dictionary. A person, vehicle, or other objects can only be searched with the right and legitimate legal permission.

Who can Order a Search and When?

If he has “reasons to believe,” the Joint Commissioner of SGST/CGST or a higher officer may order a search based on the findings of an inspection or for any other reason.

1. Certain goods are subject to confiscation.
2. Any hidden paperwork, books, or anything else will be helpful throughout the proceedings.
3. He has the authority to search and seize the goods on his own or with the help of an authorised officer.

What is a Search warrant, and What Does it Include?

The term “search warrant” often refers to the formal authorisation to perform a search. An official with the Joint Commissioner or higher level can issue search warrants. A search warrant must state that reasonable suspicion supported the investigation. The following information should be in the search warrant:

1. The violation under the Act,
2. The area that will be searched,
3. The title and authority of the person doing the search,
4. The issuing officer’s entire name and designation, as well as his round seal,
5. Time and location of the issue,
6. Serial number of the warrant for the search,
7. Validity period, such as a day, two days, etc.

What is a Seizure under GST?

The Model GST Law doesn’t define the word “seizure.” According to the Law Lexicon Dictionary, a seizure is the action of an officer taking possession of something after receiving legal authority. It typically connotes regaining possession against the will of the property’s owner or the person in possession who was unwilling to give it up.

What is the Procedure for a Seizure?

The appropriate authority will issue a seizure order in Form GST INS-02.

The officer may seal the door of the premises permitted to search. He may also break open any premise’s door if entry is prohibited. Additionally, he can open any cabinet or box containing goods, books, documents, etc.

The appropriate officer will instruct the owner only to remove the commodities with the officer’s prior consent if it is not practical to seize them. The officer will issue an order of ban in the form of GST INS-03.

How Long will the Books and Documents Stay in the Officer’s Possession?

The officer will hold the books and documents for as long as it takes to examine and investigate them. Within 30 days after the notice date, additional books unrelated to the issue will be returned. Provisional release of the confiscated goods is possible in exchange for a bond equal to the value of the goods in Form GST INS-04. Additionally, the owner must provide a bank guarantee as security for the amount owed (applicable tax, interest and penalty payable). The security will be cashed and applied against the amount payable if the owner fails to provide the conditionally released goods at the designated date and location.

What Precedes a Seizure?

The following situations occur following a seizure: 

1. The person whose documents are taken can only make copies in an officer’s presence.
2. The goods will be restored if notice is not given within six months (which can be extended by another six months) of the seized things.
3. The government may publish a list of perishable or hazardous goods that should be disposed of after being confiscated.
4. The officer will correctly list every good they seize.

What Distinguishes a Seizure from Detention?

Detention is when the owner is denied access to the confiscated property due to a court order or notice. However, the owner of the items retains ownership and custody of the goods. It is issued when the goods are subject to confiscation. A seizure is when the department takes possession of the goods. The owner retains ownership. A seizure may be made only after determining the goods are subject to confiscation.

What is Arrest Under GST?

The CGST/SGST Act does not define the word “arrest.” However, judicial rulings mean “taking a person into custody under some valid command or authority.” In other words, when someone is taken away from their freedom and restrained by force or under the colour of a valid warrant, they are said to be arrested.

When May a Person be “Arrested” Under the CGST/SGST Act with the Relevant Officer’s Approval?

If the Commissioner of CGST/SGST has grounds to believe that a person has committed an offence carrying a penalty specified under section 132(1)(a), (b), (c), or (d) of the CGST/SGST Act, the Commissioner of CGST/SGST may allow a CGST/SGST officer to make an arrest. This means a person can only be detained if their tax evasion totals more than two crore rupees or if they have already been found guilty under the CGST Act.

What Protections are Offered to Someone Brought under Arrest by the CGST/SGST Act?

When someone is arrested, section 69 offers several protections. Which are:

1. A person who is detained for a cognisable offence must be given written notice of the reason for the detention and appear before a magistrate within 24 hours of the detention;

2. The Deputy/ Assistant Commissioner of CGST/SGST may release a person on bail if detained for a non-cognizable offence subject to bail under section 436 of the Code of Criminal Procedure, 1973; ii. All arrests must be conducted in accordance with the detention-related provisions of the Code of Criminal Procedure, 1973.

Conclusion 

The process for inspection under GST is an essential mechanism for ensuring compliance with the GST laws and regulations in India. The inspection aims to detect any non-compliance, evasion of taxes, or fraudulent activities by businesses. Taxpayers need to be aware of the process for inspection and comply with the GST laws and regulations to avoid any potential penalties or legal consequences. The GST officer may examine various documents and records of the taxpayer during the inspection, including invoices, ledgers, and other financial documents. By complying with the inspection process, taxpayers can contribute to the overall efficiency and transparency of the GST system in India.