GOODS & SERVICES TAX, AUDITS, ANTI-EVASION AND DGGSTI INVESTIGATIONS

The Goods and Services Tax, 2017 was enacted to do away with multiplicity of taxes and their cascading effect and to bring uniform tax practice throughout India. This Act is further divided into the Central Goods and Services Tax Act, 2017, the State Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017. Under the new tax regime, goods and services are divided into 5 tax slabs i.e. 0%, 5%, 12%, 18% and 28%

Inspection & Investigation

Chapter XIV of the Central Goods & Services Tax Act, 2017 deals with the procedure of inspection, investigation, search, seizure and arrest in case of suspected tax evasion. The power of the proper officer under Section 67 of the Act of 2017 for the purpose of the provisions of the Act do not take away the powers of police to investigate cognisable offences under sub-section (5) of Section 132 of the Act. Section 67 of the aforesaid act provides power to the proper officer, not below the rank of Joint – Commissioner to search, seize and inspect any business premises, on the basis of reason to believe regarding:

  • Suppression of transaction relating to service or goods.
  • Excessive claim of Input Tax Credit.
  • Violation of any other provisions of the act or the rules.

Inspection can only be carried out by an officer below the rank of Joint Commissioner, when the concerned officer has an authorisation letter from the officer of a rank of Joint Commissioner or above. The provisions of Code of Criminal Procedure relating to search and seizure shall be applicable in this act. There is no procedure mentioned in the act about how an investigation shall take place, hence, the provisions of section 100 of CrPC shall be applicable. The following principle must be observed during the investigation or search of any premises:

  • A valid search warrant is mandatory to carry out a search operation.
  • Atleast a lady officer should be accompanied by the Investigation team.
  • The person-in-charge or the owner of the premises where search is to be taken place, must ask for the identity cards of every officer of the Investigation team.
  • The search should take place in presence of two independent local person. In case of unavailability, independent person of other locality can participate. They must be briefed about the entire process before commencing the search.
  • After completion of search, a detailed report of the entire proceeding also known as Punchnama/ Mahazar, shall be made on which the two independent witnesses shall sign.
  • A copy of the Panchnama Mahazar along with its annexures should be given to the person in-charge /owner of the premises being searched under acknowledgement.
Detention of Goods:

Section 129 of the CGST, 2017 gives power to a proper officer to detain goods of any conveyance, if he has the reason to believe that the transported goods are in violation of the provisions of the Act. Goods which are stored or are kept in stock but not accounted for can also be detained. Such goods and conveyance shall be released after payment of applicable tax or upon furnishing security of equivalent amount.

Arrest under GST

The Commissioner of CGST /SGST can authorise any officer for arresting a person, if he has a reason to believe that the said person has been indulged in tax evasion of 2 crore rupees or more under GST as per the provisions of Section 131 and 132 of the Act.
Rights of the person, who is arrested:
If arrested under cognizable offence, he must be informed in writing about the grounds of his arrest and must be produced before the magistrate within 24 hours.
If arrested under non-cognizable offence, the concerned person can sought bail from concerned Deputy/ Assistant Commissioner of GST. The provisions of Section 436 of the CrPC shall apply.

Effects of these investigations

The investigation process takes month or years, which can surely squeeze out one’s patience. The concerned officers are often alleged to harass accused mentally as well as physically. The risks embedded in such investigations are also not limited to financial risks only; risks very often extend to reputational risk, business discontinuity risk, legal risk and prosecution risks. Hence, preparedness for such investigations requires a different risk mitigation approach during investigation and a different approach after issuance of show cause notice. Investigating agencies approach any issue with a strong bias towards revenue recovery, even before issuance of a show cause notice and there is always a possibility of the investigating agency to raise a demand against threat of business disruption, prosecution, etc. It is in such situations that protecting the legal rights of an organization and its people involved becomes even more important.
A typical GST evasion Investigation would involve:

  • Issuance of multiple summons to the business leadership at quick intervals
  • Recording statements of senior leadership team—the statement recording process can be lengthy and exhausting before the investigating authority
  • Threat of arrest against key members of the team
  • Search and seizure operations at business and residential premises
  • Restrain orders being issued for goods imported and used for business purposes
  • Coercive and prejudicial approach for demand of duty, without following the principals of natural justice
  • Possible reporting by the media on the investigation
  • Our team of GST specialists has the expertise to handhold guide your organization and help respond appropriately to any GST encouraged investigation. AAA support would include:
  • Advising on interplay of business facts with GST laws and procedures
  • Developing strategies for risk mitigation during adversarial investigation proceedings
  • Deploying measures to reduce the adverse outcome of litigation through well documented facts
  • Assisting in drafting appropriate written submissions/replies to Show Cause Notice
  • Continuous ideation to identify grounds of defence (legal as well as on merits)
  • Guidance on protecting the legal rights of the organization and its employees
  • Exploring alternate judicial forum to defend any coercive behaviour from the authorities.

With our experienced presence and a coordinated GST team, we endeavour to bring significant value and insight on the table which can be very helpful in quickly onboarding an experienced and time-tested thought process in cases of sudden and disruptive investigation proceedings.