J P Chawla & Co. LLP

Understanding GST Inspection: A Deeper Dive into Compliance

Tax systems across the globe have undergone considerable transformations. Among these, the Goods and Services Tax (GST) stands out. Central to ensuring everyone abides by GST is the provision of inspections. Let’s unpack the intricacies of GST inspections, the authority it grants, and its implications for businesses.

GST Inspection

‘Inspection’ typically conjures images of rigorous examination. In the GST context, it represents the empowerment of specific officers to scrutinize the commercial premises of taxable entities, ensuring alignment with the tax system.

Who conducts the inspections?

The inspections under GST are conducted by various authorities with specific roles and responsibilities. These include the Central Government and State Governments, who have the power to carry out inspections.

The tax authorities collaborate and coordinate during the inspection process, ensuring a comprehensive approach. The inspection teams are structured and organized to efficiently handle the task at hand.

Scope and nature of GST inspections

GST inspections in India have a broad scope, covering various aspects of tax compliance. These inspections are more likely to target businesses and industries based on certain criteria. The nature of GST inspections includes surprise visits and desk-based audits, which aim to ensure tax compliance and prevent tax evasion.

During an inspection, businesses are required to provide documentation and information related to their tax obligations. This includes details of their sales and purchases, invoices, financial records, and other relevant documents. Non-compliance or failure to provide accurate information can lead to potential penalties and consequences for businesses.

It is important for businesses to be prepared for GST inspections and maintain proper records and documentation. By understanding the scope and nature of these inspections, businesses can ensure compliance and avoid any potential issues with the tax authorities.

Understanding GST inspections in India: Procedures and Protocols

During a GST inspection, there are some rules to follow. It’s crucial to know these guidelines for a smooth inspection. The tax authorities and the taxpayer both have rights and responsibilities during an inspection. Tax authorities can ask for invoices, financial statements, and other documents. They may also record statements and collect evidence. Both parties must cooperate and provide accurate information.

Once the inspection is over, post-inspection procedures begin. Tax authorities issue an inspection report with their findings and any follow-up actions required. Businesses should be aware of these procedures and address any issues raised during the inspection quickly.

The Red Flags Leading to Inspection

Why would a GST officer want to inspect a business? Several reasons can trigger this:

1. Taxable Entities Suspicions

– Hidden transactions linked to the supply of goods/services.

– Undisclosed stock details.

– Overclaimed input tax credits.

– Any breach intending to evade tax.

2. Transport and Storage Concerns

– Entities in the business of transporting goods, or those owning or operating storage spaces like warehouses or godowns, might be:

– Storing tax-unpaid goods.

– Organizing their goods/accounts in tax-evasive manners.

Laying Down the Inspection Blueprint

To keep the process transparent and systematic, there’s an established protocol for inspections. The initiation happens through a formal document, Form GST INS-01, which serves as an inspection authorization.

A Step-by-Step Guide to GST Inspection

The Central Board of Indirect Taxes and Customs (CBIC) ensures that inspections are fair and lawful. Here’s a detailed breakdown of the procedure:

Setting the Stage for Inspection

1. Documentation and Authorization: Does the Joint Commissioner have substantial reasons documented for the inspection? Is there a formal written authorization via Form GST INS-01?

2. Reason Crosscheck: It’s crucial to ensure that the stated “reason to believe” in Form GST INS-01 (either Part-A or Part-B) is evident and well-defined.

3. DIN Creation: The sanctioning officer must generate a Document Identification Number (DIN) as prescribed.

On the Ground: During Inspection

1. Gender Sensitivity: If a residential premise is the subject of inspection, the team should include a female officer.

2. Witness Involvement: Every inspection should have at least two independent onlookers. They should be apprised of the inspection’s purpose and subsequently sign the inspection authorization report.

3. Transparency in Identity: Before diving into the inspection, officers must reveal their identities to whoever is in charge of the premises.

4. Capture the Moments: In sensitive locations, officers have the liberty to video-record the inspection for added transparency.

Clarifying the Boundaries of Inspection

The GST inspection, as referenced in Section 67(1) of the CGST Act 2017, is bounded in its scope. It only extends to examining goods, books, and documents of businesses suspected of act violations.

An essential clarification, as per instructions 01/2022-2023 [GST Investigation] dated 25.05.2022, highlights that tax recovery isn’t the inspection’s objective. Taxpayers aren’t forced into on-the-spot tax payments.

GST Inspection and Search: The difference

Under the Goods and Services Tax (GST) law, the procedures and provisions for inspection and search are distinct. Both processes serve the purpose of ensuring tax compliance, but they operate under different sections of the law and have varied scopes and powers.

Inspection vs. Search:

Inspection (Section 67(1)) Officers have the authority to inspect business premises. However, they cannot confiscate goods or documents during an inspection.

Search (Section 67(2)): Here, officers have the power to search and seize goods, documents, and other relevant items if there’s a reason to believe they may aid proceedings under the GST Act.

“Reason to Believe”:

– Before initiating a search or seizure, officers must have a “reason to believe” that there’s evasion of tax.

– This phrase isn’t just an empty terminology; it requires substantive evidence or justification.

– The GST law borrows its interpretation of this phrase from Section 26 of the Indian Penal Code 1860, which essentially implies that one must have a substantial cause or justification for a particular belief.

Legal Checkpoints for Search & Seizure:

– Authorization for search must be in writing and provided in Form GST INS-01.

– There are specific forms for different actions: seizure of goods (Form GST INS-02), order of prohibition (Form GST INS-03), and release of goods on bond (Form GST INS-04).

– There are also provisions regarding the return of documents, powers to break open storage devices, making copies of seized documents, and more.

Instructions for Officers:

– Officers need to respect the principles of natural justice and the provisions of the Criminal Procedure Code 1973 during search operations.

– A detailed checklist exists for search and seizure operations, from ensuring that a lady officer is part of the team when searching a residence with women to providing copies of the Panchnama to the person in charge.

Noteworthy Judgments:

– E- Homes vs. Competition Commission of India: The Delhi High Court ruled that an order based on an investigation report that wasn’t shared with the assessee violated the principles of natural justice.

– Shabu Goerge vs. State Tax Officer- Kerala: The High Court directed the revenue to release the cash seized during an investigation. It emphasized that the power to seize should be guided by the object of the GST Act.


GST inspections serve to assure tax system adherence, safeguarding revenue flows and ensuring businesses operate under fair standards. With adequate preparedness and understanding of this thorough process, businesses can seamlessly steer through inspections, ensuring consistent compliance with the law. While search gives officers the power to search and seize goods, documents, and other relevant items if there’s a reason to believe they may aid proceedings under the GST Act.

To know more and gain insights about this topic please connect with us at  contact@jpc.co.in .