Section 67 of the CGST or SGST Act provides that where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that a taxable person has suppressed any transaction relating to the supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit over entitlement under the Act, or has contravened provisions of the Act or rules to evade tax, he may authorise in writing any other officer of central tax to inspect any place of business of the taxable person. The same provision also applies where any person engaged in the business of transporting goods or an owner or operator of a warehouse, godown, or any other place is keeping goods that have escaped payment of tax or is maintaining accounts or goods in a manner likely to cause evasion of tax. Rule 139(1) of the CGST or SGST Rules provides that where the proper officer not below the rank of Joint Commissioner has reasons to believe that a place of business or any other place is to be visited for inspection, search, or seizure under section 67, he shall issue an authorisation in Form GST INS-01 authorising any other officer subordinate to him to conduct the inspection, search, or seizure of goods, documents, books, or other things liable to confiscation. Therefore, the proper officer who may issue a search and seizure authorisation is one not below the rank of Joint Commissioner, who has reasons to believe that the taxable person has evaded tax by suppression of transactions or by other reasons as specified under section 67(1). This officer may authorise any subordinate officer to conduct the inspection or search under the section.
Reasons to Believe
Section 26 of the Indian Penal Code defines reasons to believe as a state where a person has sufficient cause to believe a thing but not otherwise. This requires an objective determination based on intelligent care and evaluation as opposed to purely subjective consideration. It must be an honest and reasonable belief based on relevant material and circumstances. In the case of Sanjay Mukeshbhai Patel v. State of Gujarat, the Gujarat High Court emphasised that officers must exercise restraint in carrying out search, inquiry, issuance of summons, and subsequent interrogation. The court stated that the powers given under the section do not confer unbridled authority to infringe upon a citizen’s fundamental rights under Article 21 of the Constitution. It was observed that guidelines should be formulated by state governments to ensure that liberty is maintained while carrying out these actions. In the case of Tvl. Rising International Co. v. Commissioner of Central GST & CE, the Madras High Court held that proceedings initiated on the mere assertion of intelligence without any supporting material were invalid. The court noted that the order of seizure and prohibition showed that the belief was formed based on scrutiny of books, registers, and documents found during the search, which was insufficient to justify the proceedings.
The Officer Should Have Authorisation to Conduct a Search Under Section 67(1) of CGST or SGST
The search authorisation in Form GST INS-01 must be serially numbered and contain a system-generated Document Identification Number, also referred to as ARN, generated compulsorily in the Enforcement Module for each search authorisation. No manual GST INS-01 may be issued by proper officers. If a search authorisation does not contain the system-generated Document Identification Number, it is to be presumed unauthorised. In the case of Prakashsinh Hathisinh Udavat v. State of Gujarat, the Gujarat High Court held that the absence of proper authorisation rendered the search illegal. The court found no material to show that the concerned officer had been authorised by the proper officer to search any premises or seize any goods, documents, books, or things under section 67(2) of the GGST Act. The order passed was without legal authority. The court observed that highhanded and arbitrary conduct by officers acting more than their authority must be viewed seriously, and citizens subjected to unauthorised action are entitled to compensation for undue harassment.
Search Under Section 67(1) is Only to Collect Evidence
The procedure prescribed under Rule 139 of the GST Rules must be followed for conducting search and seizure under sections 67(1) and 67(2). Upon receiving authorisation in Form GST INS-01, the authorised officer must conduct the search of the authorised premises by drawing up a panchanama containing details of recovered documents, data, or books. The proper officer issuing the authorisation must maintain search and seizure registers showing the name and designation of the authorised officer, date of issue, name of assessee, GSTIN, brief reasons to believe, results of the search, and details of goods or documents seized. Similarly, the authorised officer must record in his register the details of the search, GSTIN, results, and seized goods or documents. Form GST INS-01 is the official authorisation for inspection or search under Rule 139(1) where the proper officer has reasons to believe that a taxable person has suppressed transactions relating to the supply of goods or services, stock of goods, claimed excess input tax credit or refund, or contravened provisions to evade tax. In the case of Paresh Nathalal Chauhan v. State of Gujarat, the Gujarat High Court criticised the conduct of officers who acted without statutory backing and infringed on citizens’ fundamental rights under Article 21. The court rejected the argument that such actions were protected under the good faith provisions of section 157, noting that unauthorised searches could unleash a regime of terror against taxpayers. It stressed that unauthorised actions must be curbed to prevent abuse of powers.
Importance of Limiting Search Powers Under Section 67
Search and seizure under Section 67 of the GST Act is considered an extraordinary power because it directly impacts the rights and privacy of taxpayers. The Constitution of India guarantees the right to life and personal liberty under Article 21, which has been interpreted by the judiciary to include the right to privacy. Search and seizure, when exercised without proper justification or legal authority, can infringe on these rights. Therefore, the legislature has intentionally placed safeguards, including the requirement that only an officer not below the rank of Joint Commissioner may authorise such an action, and only when there are valid reasons to believe tax evasion or similar offences have occurred. This provision aims to prevent arbitrary or excessive interference in the affairs of taxpayers and ensures that the power is used only when supported by concrete evidence or credible information. The intent is to balance the government’s need to enforce compliance with the taxpayer’s right to fair treatment.
The Meaning of Suppression and Contravention in the Context of Section 67
To authorise a search under Section 67(1), the proper officer must identify specific grounds, such as suppression of transactions or contravention of the provisions of the Act or rules. Suppression refers to the deliberate concealment of material facts or transactions that are required to be disclosed under the GST law. Examples include failure to report sales, omission of taxable supplies in returns, or hiding stock from inventory records. Contravention refers to actions that violate the provisions of the Act or rules, such as issuing invoices without the supply of goods, fraudulent claims of input tax credit, or misclassification of goods to attract a lower tax rate. The belief of suppression or contravention must be supported by tangible evidence and not based merely on suspicion or assumptions. Judicial pronouncements have consistently stressed that the belief must be reasonable, honest, and grounded in objective facts.
Procedural Safeguards in Search Authorisation
The law prescribes detailed procedural safeguards to ensure that search powers are not misused. Form GST INS-01 is a mandatory document for authorising a search, and it must be serially numbered and contain a system-generated Document Identification Number. This requirement serves as a record-keeping mechanism to enable tracking and verification of the legality of each authorisation issued. The Enforcement Module in the GST system ensures that every search authorisation is recorded electronically, which promotes transparency and accountability. In addition, the officer searching must strictly follow the provisions of Rule 139, including preparing a panchanama that records the proceedings and findings during the search. The maintenance of search and seizure registers by both the issuing officer and the authorised officer creates an audit trail, which can be reviewed later to confirm that the search was conducted within the bounds of law. The failure to follow these procedures can render the search invalid, as seen in several court cases.
Judicial Oversight on the Exercise of Search Powers
The judiciary has played a crucial role in ensuring that the powers under Section 67 are exercised responsibly. Courts have repeatedly cautioned officers to avoid high-handedness and to respect the fundamental rights of taxpayers. In multiple decisions, courts have set aside search actions where there was no valid authorisation or where the reasons to believe were not supported by evidence. For example, in cases where search actions were taken without recording the requisite reasons or where the reasons were vague and unsupported by material facts, the courts have declared such actions illegal. This judicial oversight acts as a check against misuse of authority and reinforces the requirement that the decision to authorise a search must be based on objective and relevant considerations. It also underscores the principle that extraordinary powers must be exercised with corresponding responsibility.
The Role of the Authorised Officer in Conducting Searches
Once a search authorisation is issued, the authorised officer’s role is critical in ensuring that the search is conducted lawfully and effectively. The officer must execute the search strictly within the scope of the authorisation and at the specified premises. The officer is required to record the proceedings accurately in the panchanama, including the details of documents, goods, or other items recovered or seized. The presence of independent witnesses during the search adds credibility and transparency to the process. The authorised officer must also ensure that seized items are handled and stored securely, and proper receipts are issued to the person from whom the items are seized. Any deviation from these procedures can raise questions about the legality of the search and may lead to judicial intervention. Therefore, adherence to procedural requirements is not merely a formality but a safeguard for both the taxpayer and the tax administration.
Accountability for Unauthorised Searches
The GST framework recognises the importance of accountability in the exercise of coercive powers. When an officer searches without proper authorisation, such action is not protected under the good faith clause of Section 157. Good faith requires that the officer act within the authority granted by law, even if there is an error in judgment. However, acting without authority or more than authority cannot be justified as good faith. In such cases, the courts have held that taxpayers are entitled to compensation for the harassment and loss caused by the unauthorised action. This serves as a deterrent to arbitrary actions by officers and reinforces the need for strict adherence to statutory provisions. The principle is clear that the power to search is not absolute and must be exercised within the legal framework established by the GST Acts and Rules.
Evidentiary Requirements for Authorising a Search
For a search under Section 67 to be lawful, the proper officer must base the decision on credible evidence that reasonably indicates tax evasion or other violations under the GST Acts. This evidence may arise from intelligence inputs, data analytics, information from other government departments, or discrepancies detected during audits or inspections. However, the evidence must be tangible and capable of supporting a reasonable belief. Mere suspicion or unsubstantiated allegations do not meet the legal threshold. The belief must be recorded in writing and must demonstrate a clear link between the information available and the offence suspected. Courts have consistently held that the adequacy of evidence is a matter of objective assessment, and failure to establish a sound evidentiary basis can lead to the quashing of search proceedings.
The Panchanama and Its Importance
A panchanama is a formal document prepared during the search process that records the details of the search, including the items found, the persons present, and the sequence of events. It serves as an official record that can be used in legal proceedings to demonstrate that the search was conducted in compliance with the law. The presence of independent witnesses during the preparation of the panchanama ensures transparency and reduces the scope for disputes over the conduct of the search. The panchanama must be signed by the authorised officer, the witnesses, and the occupant of the premises, if available. It should accurately list all documents, goods, or other materials seized, along with descriptions and quantities. Inaccurate or incomplete panchanamas can undermine the validity of the search and weaken the department’s case in subsequent proceedings.
Seizure of Goods, Documents, and Books
During a search, the authorised officer may seize goods, documents, books, or other items that are believed to be relevant to the investigation. The seizure must be conducted strictly within the scope of the authorisation. Goods seized must be recorded in detail, and receipts must be issued to the person from whom the goods are seized. Documents and books must be carefully handled to preserve their evidentiary value. Digital records, such as data stored on computers or other devices, may also be seized, provided the seizure is documented and carried out in compliance with applicable procedures. Improper seizure or failure to document the items seized can lead to legal challenges and potential invalidation of the proceedings.
Return and Disposal of Seized Items
The GST laws provide procedures for the retention, return, or disposal of seized goods and documents. Goods liable to confiscation may be retained until the completion of adjudication, while documents and books may be retained only for as long as necessary for the investigation. The law also requires that seized items be returned to the owner if they are no longer required for proceedings. The return of seized items must be documented to ensure accountability. Failure to return items promptly without valid reasons can result in judicial criticism and possible compensation to the affected party. These provisions ensure that seizure is not used as a punitive measure but strictly as a means to gather and preserve evidence.
Judicial Interpretations on Evidence and Seizure
Courts have examined numerous cases involving the seizure of goods and documents during searches under Section 67. In several judgments, courts have emphasised that seizure powers must be exercised cautiously and only when supported by adequate material. For example, searches and seizures conducted without recording proper reasons or without demonstrating the relevance of the seized items to the investigation have been struck down. Courts have also stressed the importance of returning seized items when they are no longer needed, noting that prolonged retention can cause undue hardship to the taxpayer. These judicial pronouncements reinforce the principle that seizure is a temporary measure aimed at aiding investigation, not a tool for harassment.
Protection of Taxpayer Rights During Search
The GST framework, as interpreted by the courts, recognises the need to protect taxpayer rights during search operations. Taxpayers have the right to be present during the search, to receive a copy of the search authorisation, and to be provided with receipts for any items seized. They also have the right to have independent witnesses present during the search. Any deviation from these rights can render the search illegal and result in the exclusion of evidence obtained through such means. Officers are expected to act with professionalism and avoid actions that could be perceived as coercive or intimidating. Respect for taxpayer rights not only upholds constitutional values but also strengthens the legitimacy of enforcement actions.
Distinction Between Inspection, Search, and Seizure
Under the GST Acts, inspection, search, and seizure are distinct powers, each with its legal requirements and implications. Inspection, under Section 67(1), is a less intrusive measure that allows officers to enter premises and examine goods, documents, and records. Search involves a more intrusive examination of premises, typically when there is reason to believe that goods or documents relevant to the investigation are concealed. Seizure is the act of taking possession of goods or documents for use as evidence in proceedings. Understanding these distinctions is important because the legal thresholds and procedural safeguards differ for each. Misuse of one power under the guise of another can lead to legal challenges and invalidation of the proceedings.
Enforcement Challenges in Implementing Section 67
The enforcement of search and seizure powers under Section 67 faces several challenges, both operational and legal. Officers must ensure that their actions comply with statutory requirements while also responding promptly to intelligence inputs. Delays in obtaining authorisation can result in the loss or destruction of evidence, but rushing the process without proper reasons to believe can render the action invalid. Balancing the urgency of enforcement with the need for procedural compliance is a constant challenge. Additionally, officers often have to deal with situations where the premises to be searched are spread across multiple locations or jurisdictions, which requires coordination and clear communication between enforcement teams. Without careful planning, searches can become disorganised, leading to gaps in documentation and execution that weaken the department’s case.
The Need for Clear Operational Guidelines
While the GST Acts and Rules lay down the legal framework for search and seizure, the actual conduct of searches requires detailed operational guidelines. Such guidelines can standardise procedures across different jurisdictions, reduce the scope for arbitrary action, and ensure that officers act consistently and lawfully. Guidelines should cover aspects such as drafting and approving search authorisations, preparing for a search operation, handling seized goods and documents, and maintaining records. They should also address the rights of taxpayers during searches and the procedures for returning seized items. The absence of such guidelines can lead to variations in enforcement practices, creating uncertainty for both officers and taxpayers. Courts have, in several cases, urged the formulation of such protocols to prevent misuse of powers and protect citizens’ rights.
Best Practices for Conducting Searches
Effective and lawful searches require adherence to certain best practices. Before initiating a search, officers should ensure that the reasons to believe are documented and supported by evidence. Search authorisations must be issued in the prescribed format, with system-generated identification numbers, and must specify the premises to be searched. During the search, officers should act professionally, avoid unnecessary disruption, and ensure the presence of independent witnesses. All items seized should be recorded accurately in the panchanama, and receipts should be issued promptly. Post-search, the seized items should be secured, catalogued, and stored in a manner that preserves their evidentiary value. Officers should also prepare detailed search reports for review by senior authorities. These practices not only strengthen the legality of the search but also enhance its effectiveness in gathering usable evidence.
Consequences of Non-Compliance with Section 67 Procedures
Failure to comply with the procedures laid down under Section 67 and the relevant rules can have serious consequences for the department. Courts have not hesitated to strike down search and seizure actions that do not adhere to the statutory requirements. Evidence obtained through such actions may be excluded from proceedings, weakening the department’s case. In addition, officers responsible for unauthorised or procedurally flawed searches may face disciplinary action, and the government may be required to compensate taxpayers for losses or harassment caused. These consequences underline the importance of strict compliance with both the letter and the spirit of the law when exercising search powers.
Impact of Judicial Scrutiny on GST Enforcement
Judicial scrutiny of search and seizure actions under GST has played a significant role in shaping enforcement practices. Courts have repeatedly emphasised the need for proportionality, reasonableness, and respect for constitutional rights. This has led to a more cautious approach by enforcement officers, who are now more aware that their actions may be subject to detailed judicial review. While this scrutiny can sometimes slow down enforcement, it also promotes better preparation, documentation, and adherence to procedures, ultimately resulting in stronger cases that can withstand legal challenges. The judiciary’s role in balancing the state’s interest in tax collection with the protection of individual rights ensures that enforcement powers are exercised responsibly.
Overall Implications of Section 67 in GST Administration
Section 67 is a vital tool in the GST administration’s enforcement arsenal, allowing authorities to detect and address tax evasion effectively. However, its intrusive nature demands that it be used sparingly and with full regard for legal safeguards. When applied correctly, it can uncover significant revenue leakages and deter fraudulent practices. When misused or applied without adequate justification, it can lead to legal setbacks, public criticism, and loss of taxpayer trust. The provision’s effectiveness depends on a combination of sound legal interpretation, robust procedural compliance, and professional conduct by officers. In the long term, consistent and lawful use of Section 67 powers can enhance the credibility of the GST enforcement system, strengthen voluntary compliance, and maintain the delicate balance between state authority and individual rights.
Conclusion
The search powers under Section 67 of the GST Act are extraordinary measures, not to be exercised as part of routine administrative action. They are intended for use only when there is credible and specific evidence indicating serious violations such as tax evasion, suppression of transactions, or concealment of goods or documents. Both taxpayers and authorities must recognize that these powers are accompanied by legal safeguards to prevent misuse and protect the rights of businesses. Proper adherence to statutory conditions, judicial precedents, and procedural fairness ensures that the integrity of the tax system is maintained while avoiding unnecessary disruption to legitimate trade.