► Date : May 31, 2022

Search, Seizure, and Arrest under GST

Where there are rules, there are rule breakers. To combat this, every tax administration has a search, seizure, and arrest provisions to:

• Protect interests of genuine taxpayers
• Safeguard dues of the Govt.
• Prevent evasion of taxes

What is the meaning of the term “Search”?

The term ‘search’ refers to an action of a government official to go, look through or carefully examine a place, area, person, object etc. to find something concealed or for the purpose of discovering evidence of a crime.

What is the meaning of the term “Seizure”?

The term ‘Seizure’ is not defined under the GST Law. Seizure is the power of an officer to keep the property of the person in question in their physical custody.

The basic difference between search and seizure is that in search, the officer does not have the power to confiscate the property of the person.

Who can order for Search and Seizure under the provisions of CGST Act?

An officer of the rank of Joint Commissioner or above can authorize an officer in writing to carry out search and seize goods, documents, books or things. Such authorization can be given only where the Joint Commissioner has “reasons to believe” that any goods liable to confiscation or any documents or books or things relevant for any proceedings are hidden in any place.

Case law: R. J. Trading Co. Vs Commissioner of CGST, Delhi North & Ors. (Delhi High Court) Search and Seizure carried out by the Inspector of CGST without authority of a proper jurisdictional officer is unlawful – Delhi High Court

What is meant by ‘reasons to believe’?

Reason to believe is:

1. to have knowledge of facts which, although not amounting to direct knowledge, would cause a reasonable person, knowing the same facts, to reasonably conclude the same thing.

2. As per Section 26 of the IPC, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.”

3. ‘Reason to believe’ contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration.

4. It must be and must be that of an honest and reasonable person based on relevant material and circumstances.

When can goods be confiscated?

As per section 130 of SGST/SGST Act, goods become liable to confiscation when any person does the following:

• supplies or receives any goods in contravention of any of the provisions of this Act or rules made thereunder leading to evasion of tax.
• does not account for any goods on which he is liable to pay tax under this Act.
• supplies any goods liable to tax under this Act without having applied for the registration.
• contravenes any of the provisions of the CGST/ SGST Act or rules made thereunder with intent to evade payment of tax.

Power of Officer during search

An officer carrying out a search has the power to

1. search for and seize goods (which are liable to confiscation) and documents, books or things (relevant for any proceedings under CGST/SGST Act) from the premises searched

2. break open the door of the premises authorized to be searched if access to the same is denied.

3. Similarly, while carrying out search within the premises, he can break open any almirah or box if access to such almirah or box is denied and in which any goods, account, registers or documents are suspected to be concealed.

4. He can also seal the premises if access to it denied.

Procedure of conducting search

Section 67(10) of CGST/SGST Act prescribes that search must be carried out in accordance with the provisions of Code of Criminal Procedure, 1973. Section 100 of the Code of Criminal Procedure describes the procedure for search.

Search Warrant and its contents

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 details:

• the violation under the Act,
• the premise to be searched,
• the name and designation of the person authorized for search,
• the name of the issuing officer with full designation along with his round seal,
• date and place of issue,
• serial number of the search warrant,
• period of validity i.e., a day or two days etc

What are the safeguards provided in GST Act(s) in respect of Search or Seizure?

Certain safeguards are provided in section 67 of CGST/SGST Act in respect of the power of search or seizure. These are as follows:

• Seized goods or documents should not be retained beyond the period necessary for their examination.
• Photocopies of the documents can be taken by the person from whose custody documents are seized.
• For seized goods, if a notice is not issued within six months of its seizure, goods shall be returned to the person from whose possession it was seized. This period of six months can be extended on justified grounds up to a further period of maximum six months.
• An inventory of seized goods shall be made by the seizing officer.
• Certain categories of goods to be specified under CGST Rules (such as perishable, hazardous etc.) can be disposed of immediately after seizure
• Provisions of Code of Criminal Procedure 1973 relating to search and seizure shall apply. However, one important modification is in relation to sub-section (5) of section 165 of Code of Criminal Procedure – instead of sending copies of any record made in course of search to the nearest Magistrate empowered to take cognizance of the offence, it must be sent to the Principal Commissioner/ Commissioner of CGST/ Commissioner of SGST

What is meant by the term “arrest”?

The term ‘arrest’ has not been defined in the CGST/SGST Act. However, as per judicial pronouncements, it denotes ‘the taking into custody of a person under some lawful command or authority’. In other words, a person is said to be arrested when he is taken and restrained of his liberty by power or color of lawful warrant.

When can the proper officer authorize ‘arrest’ of any person under CGST / SGST Act?

The Commissioner of CGST/SGST can authorize a CGST/SGST officer to arrest a person if he has reasons to believe that the person has committed an offence attracting a punishment prescribed under section 132(1) (a), (b), (c), (d) or Sec 132(2) of the CGST/SGST Act. This essentially means that a person can be arrested only where the tax evasion is more than 2 crore rupees or where he has been convicted earlier under CGST Act

What are the safeguards provided under CGST /SGST Act for a person who is placed under arrest?

There are certain safeguards provided under section 69 for a person who is placed under arrest. These are:

If a person is arrested for a cognizable offence, he must be informed in writing of the grounds of arrest and he must be produced before a magistrate within 24 hours of his arrest.

If a person is arrested for a non- cognizable and bailable offence, the Deputy/ Assistant Commissioner of CGST/SGST can release him on bail and he will be subject to the same provisions as an officer in-charge of a police station under section 436 of the Code of Criminal Procedure, 1973; ii. All arrest must be in accordance with the provisions of the Code of Criminal Procedure,1973 relating to arrest.

What are the precautions to be taken during arrest?

The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrest and the procedure thereof must be adhered to. It is therefore necessary that all field officers of CGST/SGST be fully familiar with the provisions of the Code of Criminal Procedure, 1973.

One important provision to be taken note of is section 57 of Cr.P.C., 1973 which provides that a person arrested without warrant shall not be detained for a longer period than, under the circumstances of the case, is reasonable but this shall not exceed twenty-four hours (excluding the journey time from place of arrest to the Magistrate’s court). Within this period, as provided under section 56 of Cr.P.C., the person making the arrest shall send the person arrested without warrant before a Magistrate having jurisdiction in the case.

In a landmark judgment in the case of D.K. Basu v. State of West Bengal reported in 1997 (1) SCC 416, the Hon’ble Supreme Court has laid down specific guidelines required to be followed while making arrests. While this is in relation to police, it needs to be followed by all departments having power of arrest. These are as under:

• The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name tags with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.
• The police officer carrying out the arrest shall prepare a memo of arrest at the time of arrest and such memo shall be attested by at least one witness, who may be either a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. It shall also be counter signed by the arrestee and shall contain the time and date of arrest.
• A person who has been arrested or detained and is being held in custody in a police station or interrogation center or other lock up, shall be entitled to have one friend or relative or other person known to him or having interest in his welfare being informed, as soon as practicable, that he has been arrested and is being detained at the particular place, unless the attesting witness of the memo of arrest is himself such a friend or a relative of the arrestee.
• The time, place of arrest and venue of custody of an arrestee must be notified by the police where the next friend or relative of the arrestee lives outside the district or town through the Legal Aid Organization in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.
• An entry must be made in the diary at the place of detention regarding the arrest of the person which shall also disclose the name of the next friend of the person who has been informed of the arrest and the names and particulars of the police officials in whose custody the arrestee is.
• The arrestee should, where he so requests, be also examined at the time of his arrest and major and minor injuries, if any present on his/her body, must be recorded at that time. The ‘Inspection Memo’ must be signed both by the arrestee and the police officer effecting the arrest and its copy provided to the arrestee.
• The arrestee should be subjected to medical examination by the trained doctor every 48 hours during his detention in custody by a doctor on the panel of approved doctors appointed by Director, Health Services of the concerned State or Union Territory, Director, Health Services should prepare such a panel for all Tehsils and Districts as well.
• Copies of all the documents including the memo of arrest, referred to above, should be sent to the Magistrate for his record.
• The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation.
• A police control room should be provided at all district and State headquarters where information regarding the arrest and the place of custody of the arrestee shall be communicated by the officer causing the arrest, within 12 hours of effecting the arrest and at the police control room it should be displayed on a conspicuous notice board.

What are the broad guidelines for arrest followed in CBEC?

Decision to arrest needs to be taken on case-to- case basis considering various factors, such as, nature and gravity of offence, quantum of duty evaded or credit wrongfully availed, nature and quality of evidence, possibility of evidence being tampered with or witnesses being influenced, cooperation with the investigation, etc. Power to arrest must be exercised after careful consideration of the facts of the case which may include:

• to ensure proper investigation of the offence.
• to prevent such person from absconding.
• cases involving organized smuggling of goodsor evasion of customs duty by way of concealment.
• master minds or key operators effecting proxy/ benami imports/exports in the name of dummy or non-existent persons/IECs, etc.
• where the intent to evade duty is evident and element of mens rea/guilty mind is palpable.
• prevention of the possibility of tampering with evidence.
• intimidating or influencing witnesses; and
• large amounts of evasion of duty or service tax at least exceeding one crore rupees.

When can the proper officer issue summons under CGST Act?

Section 70 of CGST/SGST Act gives powers to a  duly authorized CGST/SGST officer to call upon a person by issuing a summon to present himself before the officer issuing the summon to either give evidence or produce a document or any other thing in any inquiry which an officer is making. A summons to produce documents or other things may be to produce certain specified documents or things or to produce all documents or things of a certain description in the possession or under the control of the person summoned.

What                   are        the        responsibilities                      of       the        person             so summoned?

A person who is issued summon is legally bound to attend either in person or by an authorized representative and he is bound to state the truth before the officer who has issued the summon upon any subject which is the subject matter of examination and to produce such documents and other things as may be required.

What can be the consequences of non- appearance to summons?

The proceeding before the official who has issued summons is deemed to be a judicial proceeding. If a person does not appear on the date when summoned without any reasonable justification, he can be prosecuted under section 174 of the Indian Penal Code (IPC). If he absconds to avoid service of summons, he can be prosecuted under section 172 of the IPC and in case he does not produce the documents or electronic records required to be produced, he can be prosecuted under section 175 of the IPC. In case he gives false evidence, he can be prosecuted under section 193 of the IPC. In addition, if a person does not appear before a CGST/ SGST officer who has issued the summon, he is liable to a penalty up to Rs 25,000/- under section 122(3)(d) of CGST/SGST Act.

What are the guidelines for issue of summons?

The Central Board of Excise and Customs (CBEC) in the Department of Revenue, Ministry of Finance has issued guidelines from time to time to ensure that summons provisions are not misused in the field. Some of the important highlights of these guidelines are given below:

• summonses are to be issued as a last resort where assesses are not co-operating and this section should not be used for the top management.
• he language of the summons should not be harsh and legal which causes unnecessary mental stress and embarrassment to the receiver.
• summons by Superintendents should be issued after obtaining prior written permission from an officer not below the rank of Assistant Commissioner with the reasons for issuance of summons to be recorded in writing.
• where for operational reasons, it is not possible to obtain such prior written permission, oral/ telephonic permission from such officer must be obtained and the same should be reduced to writing and intimated to the officer according to such permission at the earliest opportunity.
• in all cases, where summons is issued, the officer issuing summons should submit a report or should record a brief of the proceedings in the case file and submit the same to the officer who had authorized the issuance of summons.
• senior management officials such as CEO, CFO, General Managers of a large company or a Public Sector Undertaking should not generally be issued summons at the first instance. They should be summoned only when there are indications in the investigation of their involvement in the decision- making process which led to loss of revenue.

What are the precautions to be observed while issuing summons?

The following precautions should generally be observed when summoning a person: -

• A summon should not be issued for appearance where it is not justified. The power to summon can be exercised only when there is an inquiry being undertaken and the attendance of the person is considered necessary.
• Normally, summons should not be issued repeatedly. As far as practicable, the statement of the accused or witness should be recorded in minimum number of appearances.
• Respect the time of appearance given in the summons. No person should be made to wait for long hours before his statement is recorded except when it has been decided very consciously as a matter of strategy.
• Preferably, statements should be recorded during office hours; however, an exception could be made regarding time and place of recording statement having regard to the facts in the case.

CA Twinkle Dixit