SEARCH AND INSPECTION UNDER GST
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‘Search’ involves an attempt to find something. Search, in tax/legal parlance, is an action of a government official (a tax officer or a police officer, depending on the case) to go and look through or examine carefully a place, person, object etc. in order to find something concealed or to discover evidence of a crime. The search can only be done under the proper and valid authority of law.
‘Inspection’ is the act of examining something, often closely. In tax/legal language, it is a softer provision than search. It 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/operator of a warehouse or godown.
The term ‘seizure’ has not been specifically defined in GST. In legal parlance, seizure is the act of taking over something or someone by force through legal process, such as the seizure of evidence found at the scene of a crime. It generally implies taking possession forcibly against the wishes of the owner.
Seizure and Detention
Not allowing the owner any access to the seized goods by a legal order/notice is called detention. However, the ownership & possession of goods still lie with the owner. It is issued when it is suspected that the goods are liable to confiscation.
Seizure is taking over or actual possession of the goods by the department. But the ownership is still with the owner. Seizure can be made only after inquiry/investigation that the goods are liable to confiscation.
Code of Conduct of Search Operations
Search operations are meant to be conducted in a certain manner, which are as follows:
- Search operations should only be conducted with the help of a search warrant.
- The searching squad must always include a lady officer.
- On arrival, the proper officers must identify themselves with an identity card.
- Before starting the search, signatures must be obtained from the people in-charge of the premise, as well as the signature of two witnesses.
- The two witnesses mentioned above must observe the search. The witnesses must belong to the locality. If none of the people in the locality agree to witness, the inhabitants of another locality must be brought in to witness. The Witnesses must be briefed on the purpose of the search.
- The officers in-charge of the search must offer themselves to be personally searched both before and after the operation.
- All the details of the search should be mentioned in what is called as a Panchama/Mahazar. This must be signed by the witnesses, as well as the person in-charge of the premises.
- A copy of the Panchama/Mahazar must be given to the person in-charge of the premises.
- After the completion of the same, the search warrant must be returned to the officer who ordered the search, with a comprehensive account on the details of the search.
- The issuing authority holds the responsibility of maintaining register of records of the search warrant
The proper officer will give an order of seizure in FORM GST INS-02.
Powers of the officer authorized to search
The officer authorized to search will have the power to seal the door of the premises. He can also break open the door of any premises if access is denied. He can also break open any cupboard or box in which goods, books, documents etc. are suspected to be concealed.
If Stock is not possible to seize
If it is not practicable to seize the goods, the proper officer will order the owner not to remove these goods without prior permission of the officer. The officer will issue an order of prohibition in FORM GST INS-03.
Books and Documents remain with the officer
The seized goods can be released on a provisional basis against a bond for the value of the goods in FORM GST INS-04. The owner must also furnish a security in the form of a bank guarantee for the amount due (applicable tax, interest and penalty payable).
If the owner fails to produce the provisionally released goods at the appointed date and place then the security will be encashed and adjusted against the amount due.
During the period of search following point should keep in mind:
During the search all detail of Expenditure on which RCM apply produce before to Proper Officer.
During the Search All GST returns and Input Details produced before to Proper Officer.
During the search main object of Department is finding Short or Excess of Stock in premises. So maintain proper Register or Accounting of Stock for Produce before to Proper officer.
During Search if it is found that Actual bills not entered in records, it may be adjustable in Accounts after permission from the proper officer.
What happens after seizure
- The person, whose documents are seized, can make copies only in the presence of an officer.
- The Government can issue a list of hazardous or perishable goods which can be disposed off as soon as they are seized.
- All goods seized will be listed properly by the officer.
- If Short stock found in premises than proper officer ask the reason of shortage of Goods and if Assessee has not giver reasonable response than Proper Officer may request to pay GST, Interest and penalty Immediately as possible.
- Where the goods or things seized are of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and
penalty that is or may become payable by the taxable person, whichever is lower, such goods or, as the case may be, things shall be released forthwith, by an order in FORM GST INS-05, on proof of payment. - If Excess Stock found in premises than Proper officer may ask the reason of excess of stock and it may be bills not enter in record or it has purchased from unregister Seller but record should be present before the Proper officer.
- If Excess Stock found in premises and Assessee has not given reasonable reply for excess of stock than Proper officer may seized the Stock.
- After the date of search Within six month Proper officer may issue Show cause notice regarding Stock Detail and Reconciliation and Reason of Excess Stock.
- If notice is not issued within six months (extendable by 6 more months) of the seizing the goods, they will be returned.
- During the Proceeding of Excess stock found in premises, Assessee should produced Reconciliation statement regarding stock.
- If Assessee has reason to believe that they may contest for excess of stock he may deposit the GST and Partly payment of Penalty Min 15% for contesting of case.
- Section 67(6) specifically provides that the seized goods shall be provisionally released upon execution of bond and furnishing of security in FORM GST INS -04.
- In Case taxable person accepts the contravention, he may pay tax, Interest and penalty and obtain release of goods permanently.
- The biggest effect of search is that Income Tax Department may take action as Survey or Search.
- Short Stock will come under Short Sale and excess stock need justification for Expenditure. Both cover under unexplained Income and Expenditure and attract Tax, Penalty and Cess.
Contravention of any law is not permissible. Above article is based on real search and procedure after the search. Generally in case of search mostly shortage of Stock found in premises or without bills transport goods found which is confiscated but it is rarely excess stock found in Premises.
In my view keep record properly and satisfied to the proper officer during search will good for stopping problem for future. Practical approach and Proper books of accounts may stop the side effects of search.
CA(DR) PIYUSH KAPOOR
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