HC issued directions that no recovery should be during search/inspection under any circumstances

The Hon'ble Gujarat High Court in Bhumi Associate v. Union of India [R/Special Civil Application Nos. 2426, 2515, 2618 and 3196 of 2021 decided on February 18, 2021] passed an interim order directing the CBIC and Chief Commissioner of Central/State Tax to issue guidelines by way of suitable circular/instructions that no recovery in any mode by cheque, cash, e-payment or adjustment of Input Tax Credit ('ITC') should be made at time of search/inspection proceedings under Section 67 of the Central Goods and Services Tax Act, 2017 ('CGST Act') that deals with power of inspection, search and seizure.

Facts

Earlier, the Hon'ble Gujarat High Court in M/S Hemani Intermediates Private Limited v. Union of India [R/Special Civil Application No. 2618 of 2021, dated February 10, 2021] issued notice to the Revenue Department for undue harassment, coercion, physically violence and torture, during the search proceedings, returnable on February 16, 2021, and tagged along the writ application with Special Civil Applications Nos. 2426 and 2515 of 2021 respectively. Directed the Authorities to appear before the Court through video conferencing.

Issue

Whether the Revenue Authority can recover the amount of tax during the search or inspection procedure under undue harassment, coercion and by pressurizing the assessees?

Held

The Hon'ble Gujarat High Court in R/Special Civil Application Nos. 2426, 2515, 2618 and 3196 of 2021 as decided on February 18, 2021 held as under:

• Directed CBIC and the Chief Commissioner of Central/State Tax of the State of Gujarat, to issue the following guidelines by way of suitable circular/instructions:
  • No recovery in any mode by cheque, cash, e-payment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section 67 of the CGST Act under any circumstances.
  • Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.
  • Facility of filing complaint/grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.
  • If complaint/grievance is filed by assessee and officer is found to have acted in defiance of the afore-stated directions, then strict disciplinary action should be initiated against the concerned officer."
• Stated that, the Court does not intend to discourage or lower down the morale of all the officers but only to bring it to their notice that they should act and perform their duties within the four corners of law. They should not take law in their hands. Further, the Court has always appreciated the efforts put in by the officers in catching hold of fraudsters and all those persons involved in the huge scam of tax evasion etc. It shall be open for the officers to conduct the search proceedings under Section 67 of the CGST Act, but, strictly in accordance with law.
• Listed the matter on March 24, 2021 for hearing.

Our comments

To know more, kindly watch our video on 'When Recovery Proceedings & Provisional Attachment can be initiated by GST Dept', by CA Bimal Jain- https://www.youtube.com/watch?v=rU2nOes3hSY

Relevant Provision

Section 67 of the CGST Act

'Power of inspection, search and seizure.

67. (1) Where the 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 or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,

he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.

(4) The officer authorised under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.

(5) The person from whose custody any documents are seized under sub-section (2) shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.

(6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.

(7) Where any goods are seized under sub-section (2) and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized:

Provided that the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.

(8) The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be after its seizure under sub-section (2), be disposed of by the proper officer in such manner as may be prescribed.

(9) Where any goods, being goods specified under sub-section (8), have been seized by a proper officer, or any officer authorised by him under sub-section (2), he shall prepare an inventory of such goods in such manner as may be prescribed.

(10) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word 'Magistrate”, wherever it occurs, the word 'Commissioner” were substituted.

(11) Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.

(12) The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.”