Inspection, Search & Seizure of Goods under GST

Seizure of goods is a more stringent provision under the Goods and Service Tax (‘GST’) law. A seizure operation must be authorised by an officer at the level of Joint Commissioner or a Superior Officer. Further, the relevant designated officer can authorise a search and seizure only if they have ‘reason to believe’ that the person being searched has goods liable to confiscation or any documents / books / record / things, which will be useful for or relevant to any proceedings.

All search and seizure operations under GST must be conducted in accordance with the provisions of Criminal Procedure Code, 1973.

During the search and seizure operation, any or all goods, documents, books, records or other things which would add value to the proceedings can be searched or seized. If it is not practical to seize goods or objects, then the goods or object can be detained.

All documents or objects taken during a search and seizure operation must be returned unless it is required for examination/enquiry/proceedings. If the document is not required, then it should be returned within 30 days from the issuance of show cause notice. Also, seized goods can be provisionally released by GST Authorities on execution of bond and furnishing a security or on payment of applicable tax, interest and penalty. If no notice is issued within a period of 6 months, then all such goods are to be returned to the taxpayer. In some cases, the period of 6 months can be extended by the Commissioner for another six months on sufficient cause.

In the past, the taxpayers have filed writ petitions before various High Courts seeking relief from the payment of applicable tax, interest and penalty, despite the express stipulations under Section 67 of the CGST Act.

Recently, the Supreme Court in various petitions^[1] filed before it, has held that no writ petitions should be entertained by the High Court(s) against order of seizure of goods by the GST Authorities and expressed displeasure on interim orders passed which are contrary to the provisions of Central Goods and Services Tax Act, 2017 (‘CGST Act’).

The first appeal is in the case of the State of Uttar Pradesh vs. Kay Pan Fragrance Pvt. Ltd. questioning an interim order passed by the High Court directing the release of seized goods on the deposit of security, other than cash or bank guarantee or indemnity bond.

In the second set of appeal filed by the taxpayer was to quash the seizure order passed under Section 67(2) of the CGST Act, declaring such search and seizure proceedings to be void, and restraining the GST Authorities to take any action against the taxpayer.

The Supreme Court disposed of all pending appeals, relating to seizure of goods, wherein erroneous orders were passed by High Court(s). Given below is a summary of the Supreme Court’s decision:

• When a complete mechanism is envisaged in the CGST Act and Rules for release and disposal of the seized goods, the High Court should not have entertained writ petitions questioning the seizure of goods and issued directions for its release.
• The High Court should have directed the taxpayer to the appropriate authorities for complying with the procedure prescribed in Section 67 of the CGST Act read with the relevant CGST Rules for release of seized goods.
• Taxpayers should be directed to take recourse of the relief mechanism provided under the CGST Act and Rules for release, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner as may be prescribed.
• The High Court has erroneously insisted on cash payment of tax by the taxpayer, which is contrary to Section 67(2) of the CGST Act. Consequently, the GST Authorities should not give effect to the orders passed by the High Court, which are contrary to the provisions of the CGST Act. Instead, the GST Authorities were instructed to process the claims of the taxpayer afresh, as per the provisions in Section 67 of the CGST Act read with the relevant CGST Rules.

Based on the aforesaid Supreme Court ruling, various High Courts may now refuse to exercise jurisdiction under Article 226 of the Constitution of India to provide relief to the taxpayer for seizure of goods.

Footnote

1. Civil appeal No. 8941/2019 (SLP to appeal (C) No. 25291/2019)
2. Civil appeal No. 8942/2019 (SLP to appeal (C) No. 25292/2019)
3. Civil appeal No. 8944/2019 (SLP to appeal (C) No. 25609/2019)