J P Chawla & Co. LLP

In the realm of Goods and Services Tax (GST), the provision of inspection under Section 67(1) holds significant importance for both tax authorities and businesses alike. It empowers GST officers to delve into the affairs of taxable persons and entities involved in the transportation of goods under specific circumstances. The Goods and Services Tax (GST) regime in India empowers tax authorities to conduct inspections under Section 67(1) of the CGST Act, 2017. These inspections play a vital role in ensuring compliance with GST regulations by both taxable persons and entities involved in the movement of goods. In this comprehensive guide, we will unravel the intricacies of Section 67(1), providing businesses with a detailed understanding of the legal provisions, procedural requirements, and implications of GST inspections. 

Understanding Section 67(1): The Legal Backbone  

In common parlance, inspection means to examine something. Under the GST regime the provision of inspection has given power to the officer not below the rank of joint commissioner or the officer authorised by him in writing to inspect the place of business of taxable person or person the business engaged in the business of transportation of goods where it is reason to believed that the 

  1. Taxable person: 
  • Suppressed any transaction relating to supply of goods or services. 
  • Suppressed the details of stock of goods in hand. 
  • Has claimed excess input tax credit. 
  • Has contravention of any provisions to evade tax. 
  1. Person engaged in transportation of goods or an owner, operator of warehouse or a godown: 
  • Keeping goods which have escaped payment of tax. 
  • Keeping his goods or accounts in manner for causing evasion of tax. 

The GST officer shall authorize in writing through the Form GST INS-01 to inspect or search the principal place or any other business place for seizure of goods, documents, books or things liable to be confiscated. In case of inspection or search as per rule 139(1) authorization in Form GST INS-01 would suffice. 

Legal Provision  
Section 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. 

As per Section 2(85) of CGST Act, place of business shall include a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or a place where a taxable person maintains his books of account; or a place where a taxable person is engaged in business through an agent, by whatever name called. 

Instruction/Step for inspection of premises 

CBIC issued Instruction No. 01/2020-2021 dated 02.02.2021 to conduct the inspection or search of a business place. the proper officer should adhere to these instructions during inspection or search, the gist of instructions is depicted below: 

  1. Has the officer not below the rank of joint commissioner recorded his reasons in the file in order to give written authorization in Form GST INS-01 to the officer subordinate to him for inspection. 
  1. Has the authorization been received by the officer in writing from the joint commissioner to conduct the inspection? 
  1. Check if the reason to believe that as mentioned in Part -A or Part-B of Form GST INS-01 is properly marked. 
  1. DIN should be generated in a given manner by the officer who is authorizing the search. 
  1. In case of inspection of residence, lady officer should be accompanying with the inspection team. 
  1. Inspection should be done in presence of two or more independent witnesses, witnesses should be informed the purpose of inspection and should sign the inspection authorization report. 
  1. Officer who is conducting inspections or search should disclose their identity to the person in charge of premises before inspection of the premises. 
  1. Videography is allowed in case of inspection of sensitive premises. 

Clarification on Voluntary Tax Payment under Section 67(1) of GST Act 

In the realm of GST inspections under Section 67(1), taxpayers occasionally choose to settle partial or full GST liabilities arising during such procedures by submitting DRC-03. However, concerns have arisen regarding allegations of coercion by officers for ‘recovery’ post-voluntary deposits. The matter has been scrutinized, emphasizing the legality of voluntary tax payments and safeguarding taxpayer interests. 

Under the CGST Act, taxpayers can initiate voluntary tax deposits through DRC-03 via the GST portal, precluding interest burdens and potential penalties. Notably, tax recovery follows due legal processes, barring arbitrary ‘recovery’ during inspections. Taxpayers retain the right to voluntary payments based on self-ascertained liabilities, with officers obligated to inform them of this provision. 

Tax authorities are instructed to promptly investigate any coercion complaints, with strict disciplinary measures against erring officers. This clarification ensures fair application of the law and protects taxpayer rights amidst GST inspections. 

The Scope and Limitations 

It’s crucial to understand that the scope of inspection under Section 67(1) is circumscribed. It primarily focuses on scrutinizing goods, books, and documents of businesses suspected of contravening GST provisions. Importantly, businesses should note that the objective of an inspection is not solely to recover taxes but to ensure compliance with the law. 

In a clarificatory note issued in 2022, it was emphasized that taxpayers are not obligated to make voluntary tax payments during inspections. This underscores the fact that inspections are primarily aimed at enforcing compliance rather than extracting immediate revenue. 

Conquering the Inspection Maze   

In conclusion, Section 67(1) inspections, when conducted judiciously and transparently, serve as a mechanism for fostering tax compliance, thereby contributing to the overarching goal of a robust and equitable GST regime. By understanding the legal provisions, adhering to prescribed protocols, and maintaining transparency, businesses can navigate through inspections with confidence, ensuring adherence to the spirit of GST laws while safeguarding their interests. 

In essence, while inspections may seem daunting, they serve as a crucial aspect of the GST enforcement framework, ensuring that businesses operate within the ambit of the law, thereby fostering trust and integrity in the tax system.