The Goods and Services Tax (GST) regime in India has established a structured framework for inspection, search, seizure, and arrest to deter tax evasion and ensure compliance. Understanding these provisions is crucial for businesses and individuals to navigate the GST landscape effectively. This article delves into the GST raid rules, incorporating all pertinent legal updates up to January 2025.
Table of Contents
Inspection under GST
Authority and Authorization
Under Section 67(1) of the Central Goods and Services Tax (CGST) Act, a proper officer not below the rank of Joint Commissioner must have “reasons to believe” that a taxable person has engaged in activities such as suppressing transactions, stock, or claiming excess input tax credit (ITC) to evade tax. In such cases, the officer can authorize, in writing, an inspection of the person’s business premises.
Procedure
The authorization for inspection is formalized through FORM GST INS-01, enabling the designated officer to conduct the inspection. The inspection may extend to transporters, warehouse owners, or operators if they are suspected of holding goods liable to confiscation.
Search and Seizure under GST
Conditions for Search
A search is a more intrusive action than an inspection and requires substantial justification. As per Section 67(2) of the CGST Act, if the proper officer has reasons to believe that goods liable to confiscation or any documents/books relevant to proceedings are hidden at any place, they can authorize a search and seizure operation.
Procedure
The search is conducted under a written authorization in FORM GST INS-01. If goods or documents are seized, an order of seizure is issued in FORM GST INS-02. An inventory of the seized items is prepared, detailing descriptions, quantities, and other pertinent information, and is signed by the person from whom the items are seized.
Custody and Prohibition
The proper officer may entrust the custody of seized goods to the owner or custodian, who must not deal with the goods without prior permission. If seizing the goods is impractical, an order of prohibition in FORM GST INS-03 is issued, restricting the owner from dealing with the goods without prior approval.
Arrest Provisions under GST
Grounds for Arrest
Section 69 of the CGST Act empowers the Commissioner to authorize the arrest of a person if there is a reasonable belief that the person has committed specified offenses involving tax evasion exceeding ₹2 crore. For offenses where the tax amount exceeds ₹5 crore, the offenses are cognizable and non-bailable.
CBIC Guidelines on Grounds of Arrest
The Central Board of Indirect Taxes and Customs (CBIC) has issued the guidelines pertaining to the arrest and bail in relation to offences punishable under the GST Act, 2017.
The Board has issued the guidelines in compliance of the judgement of the Delhi High Court of Delhi in case of Kshitij Ghildiyal Versus Director General Of Gst Intelligence, Delhi [W.P. (CRL) No. 3770/2024] in which it was held that the grounds of arrest have to be communicated in writing to the arrested person.
Consequences of Wrongful Arrest By GST Officer
Wrongful Arrest To Unconditional Apology: Mishal J. Shah Case A Lesson For GST Officers
Wrongful arrests by Goods and Services Tax (GST) officers have increasingly come under scrutiny, raising concerns about misuse of authority and violation of procedural safeguards. The arrest powers granted to GST officials under Section 69 of the CGST Act, 2017, have been criticized for instances where arrests have been conducted without adequate grounds or proper adherence to due process.
One of the cases in which the citizen, namely Mishal J. Shah became prey in the hands of GST officers.
Monetary limit for arrest under GST
The law lays down a stringent criteria and procedure to be followed for arresting a person. A person can be arrested only if the criteria stipulated under the law for this purpose is satisfied i.e. if he has committed specified offences (not any offence) and the tax amount is exceeding rupees 200 lakhs. However, the monetary limit shall not be applicable if the offences are committed again even after being convicted earlier i.e. repeat offenders of the specified offences can be arrested irrespective of the tax amount involved in the case.
Even though a person can be arrested for specified offences involving tax amount exceeding Rs. 200 lakhs, however, where the tax involved is less than Rs. 500 lakhs, the offences are classified as non-cognizable and bailable and all such arrested persons shall be released on Bail by Deputy/Assistant Commissioner. But in case of arrests for specified offences where the tax amount involved is more than Rs. 500 lakhs, the offence is classified as cognizable and non-bailable and in such cases the bail can be considered by a Judicial Magistrate only.
Procedure
The arrested individual must be informed of the grounds of arrest and produced before a magistrate within 24 hours. The provisions ensure adherence to legal protocols and safeguard the rights of the individual.
Legal Safeguards and Taxpayer Rights
Rights during Inspection and Search
Taxpayers are entitled to certain rights during inspection and search operations, including:
- Personal searches of women should be conducted by a female officer with strict regard to decency.
- The presence of at least two independent witnesses during the search.
- The right to have a medical practitioner during emergencies.
- The right to receive a copy of the search warrant and the seizure list.
Prohibition of Coercion
Collecting post-dated cheques under coercion during a raid is not permissible, especially when no tax demand has been confirmed or crystallized. Such actions have been deemed inappropriate by judicial authorities.
Recent Legal Updates till 2025
Amendments in 2022
Effective from January 1, 2022, officers can confiscate and seize goods or vehicles even after concluding proceedings against all persons liable to pay specific or general penalties.
Union Budget 2021 Outcomes
The Union Budget 2021 introduced significant changes:
- For orders related to detention and seizure of goods and conveyance, 25% of the penalty must be paid for making an application for appeals under Section 107 of the CGST Act.
- Seizure and confiscation of goods and conveyances in transit are now separate proceedings from the recovery of tax under Section 74.
- Section 129 has been delinked from Section 130, making proceedings related to detention, seizure, and release of goods and conveyances in transit separate from the levy of penalty for the confiscation of goods and conveyance.
Conclusion
The GST raid rules are designed to prevent tax evasion while ensuring that the rights of taxpayers are protected. Staying informed about these provisions and the latest legal updates is essential for compliance and safeguarding one’s interests. Businesses and individuals should consult with legal experts to navigate the complexities of GST laws effectively.
