GST INSPECTION DECODED........

Power of Inspection [Section 67(1)]

Section 67(1) provides for power of inspection of the following:

1. Place of business of a taxable person
2. Place of business of person engaged in transporting of goods
3. Place of business of owner or operator of warehouse or godown
4. Any other place

What is Inspection?

It is a liberal provision as compared to search which enable officers to access any place of business of a taxable person and also any place of business of a person engaged in transporting goods or who is an owner or an operator of a warehouse or godown.

Both 'inspection' and 'search' have not been defined in the GST Act, 2017. Inspection is nothing but verification (physical or otherwise) to ascertain facts or evidences in relation to business transactions of a taxable person. It may involve access to business premises. Inspection enables officers to access any place of business of a taxable person and also any place of business of a person engaged in transporting goods or who is an owner or an operator of a warehouse or godown.

As per Black's Law Dictionary, 'search' is 'an examination of a man's house or other buildings or premises, or of his person, with a view to the discovery of contraband or illicit or stolen property, or some evidence of guilt to be used in the prosecution of a criminal action for some crime or offence with which he is charged.'

Shorter Oxford English Dictionary defines 'search' to mean to probe, scrutinize, examine, investigate. The rights of the state to authorize a search are well recognized and are used against those who perpetrate fraud on the revenue.

It may be noted there have to be compelling reasons to order for a search ie transgression into one's privacy. In case of search, due process of law has to be followed. In case of taxes, a suspicion of undisclosed or concealed income or assets is sufficient for issuance of a search warrant.

Ingredients of inspection

Any proper officer not below the rank of Joint Commissioner can authorize other officers of CGST/SGST in writing to inspect in terms of section 67(1) of the CGST Act, 2017.

'Inspection' is a softer provision than search which enables officers to access any place of business or of a person engaged in transporting goods or who is an owner or an operator of a warehouse or godown. As discussed above the inspection can be carried out by an officer of CGST/SGST only upon a written authorization given by an officer of the rank of Joint Commissioner or above.

A Joint Commissioner or an officer higher in rank can give such authorization only if he has reasons to believe that the person concerned has done one of the following actions:

1. Suppression of any transaction relating to supply of goods or services or stock in hand
2. Claimed excess input tax credit
3. Contravention of any provisions of the Act or the Rules to evade tax
4. Transporting or keeping goods which escaped payment of tax or manipulating accounts or stocks which may cause evasion of tax.

Inspection can also be done of the conveyance, carrying a consignment of value exceeding specified limit. The person in charge of the conveyance has to produce documents/devices for verification and allow inspection. Inspection during transit can be done even without authorisation of Joint Commissioner.

The inspection under section 67(1) shall be based on 'reasons to believe'.

Accordingly, power to inspect has been granted where any proper officer (not below the rank of Joint Commissioner) has reasons to believe that:

(a) a taxable person has-

• suppressed any transaction relating to supply of goods and/or services, or
• suppressed stock of goods in hand, or
• claimed input tax credit in excess of entitlement, or
• indulged in contravention of any of the provisions of GST law or Rules made there under

with an intention to evade tax under this Act; or

(b) where any person:

• is engaged in the business of transporting goods or an owner/operator of a warehouse or a godown or any other place of keeping goods which have escaped payment of tax, or
• has kept his accounts or goods in such a manner which is likely to a cause evasion of tax payable under the Act;
• then, he may authorize in writing any other officer of CGST/SGST to inspect:
• any places of business of the taxable person, or
• any place of the persons engaged in the business of transporting goods, or
• any place of the owner or the operator of warehouse, or godown, or
• any other place.

Steps involved in inspection:

• Gathering intelligence from various sources including third parties
• Examination on material on record
• Filing note of findings for approval in form GST INS-01 for inspection (Reason to believe)
• Issuance of authorization for inspection of premises based on reason to believe
• Approval to specify as to only inspection and search to be carried out
• Authorization to be given to officer not below the rank of Assistant Commissioner.
• Ensuring that lady officer is also present in cases where inspection is at residence or where women are occupied
• Authorized officer ensuring that:

• Reach the correct location of the premises to be inspected
• Carry authorization / warrant and there identity cards
• Obtain acknowledgement of (a) and (b) above

• Carrying out the inspection only in the area covered in form GST INS-01 within the scope of reason to believe.
• Carrying out inspection only where search is note authorized (for ex-in inspection only things can be examined, inspected or observed but officers cannot break open rooms or almirah or drawers etc which is allowed only in search).
• Where inspection is ordered but it is feel that such inspection needs to be converted into a search, a further authorization should be sought.
• Ensuring that search is limited:

• Goods liable for confiscation
• Documents, books or things which are secreted at a location which is a subject of inspection and search.

The option of breaking open almirah, of box or electronic devices should be resorted to only when party is not co-operating and acess is denied.

• Secured articles may be liable to confiscation or seizure.
• It should be secured that inspection is carried out during the working hours but if required, search proceedings must not be stopped.
• On the exit of authorized officers from the premises after the search is over, the authorization granted as per form GST INS-01 is extinguished.
• Issuing order of seizure in form GST INS-02 containing details of items seized, witnesses and time of conclusion.
• Issuance of order of prohibition in form GST INS-03 for goods liable for confiscation but cannot be seized practically or where goods are logging with third parties.
• Wherever required, goods seized or confiscated can be provisionally released on furnishing of bond / security in form GST INS-04.
• Depending upon nature of goods confiscated is may be decided to dispose off the items by an order in form GST INS-05.
• To conclude the proceedings, the officers may:

• Issue SCN under section 74 or
• Dropping proceedings
• Return of seized articles / items within 6 months from the date of order of seizure.