Investigations under GST

Investigations under GST

The GST law, like most of the other countries, is based on self-assessment. Nonetheless, tax evasion and frauds are still widely prevalent in the country. The GST law embodies certain provisions that empower the proper officer to inspect, search, seize, and investigate cases to check this evasion. One of the key authorities which investigate cases under GST is the Directorate General of GST Intelligence (DGGI). DGGI is an apex intelligence organization which functions under the umbrella of the CBIC. DGGI, in its previous avatar of DGCEI, was responsible to detect tax evasion and check them by ways of search, seizures, and investigations.

As DGGI functions as an extended arm of revenue, there are bound to be disputes and litigations between taxpayers and DGGI. Certain important aspects have emerged as a result of these litigations. In this blog, we have captured these judicial decisions and the principle emanating from such decisions:

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Particulars

Principle

1

Amit Joshi vs. Commissioner of CEST & ST, CGST (EAST) & ANR.

The Delhi High Court (HC) in the said case was requested by the petitioner to monitor the investigations of the case to ensure that a fair investigation was being carried out. The HC held that the presence of a lawyer is not mandatory when a proper officer under the GST Act summons a taxpayer. Further, it was held that the petitioner’s apprehension of being physically assaulted or manhandled might not be tenable; this is because it is a well- settled law that no inquiry/ investigating officer has a right to use any method which is not approved by law to extract information from a witness/suspect during examination and in case it is so done, no one can be allowed to break the law with impunity and has to face the consequences of his action.

A lawyer is not needed at the time of an investigation.

2

ID Fresh Foods (I) P. Ltd. [2020 (10) TMI 149 – AAAR, Karnataka]

The Company had applied for an advance ruling for the classification of ‘parota’. The AAR ruled that parota is classified under chapter heading 2106. The Company appealed against the said ruling before the Appellate Authority for Advance Ruling (AAAR). Here, the revenue noted that the appellant had not divulged the fact that an investigation is pending against the petitioner by the DGGI. Therefore, in light of this fact the HC declared the advance ruling void ab initio.

No advance ruling can be obtained when a DGGI investigation is pending.

3

Yogesh Kumar Goyal, Krishan Kumar Bansal vs. The Director-General of GST Intelligence, The Union of lndia [TS(DB)-GST-HC(DEL)-2021-630]

The Delhi HC granted bail to the accused as a custodial investigation is not necessary as the petitioner has been in the custody for 70 days and a complaint against them has already been filed by the DGGI. The petitioner was charged with fraudulently availing and passing of ineligible or fake ITC. Therefore, the HC directed to release the petitioners on interim bail on the condition that they furnish a personal bond of Rs. 1 lakh each with two sureties subject to the condition that petitioners will cooperate with the respondents and will join the investigation/ inquiry as and when required by the respondents and will not leave the country without the prior permission of this Court.

Custodial investigation is only permitted on a case-to-case basis.

4

M/s Swastik Ingot P. Ltd. vs. CC, GST, CX, Customs, STO, CT and GST enforcement unit [2020 (3) TMI 1178 – Orissa HC]

The petitioner in the said case received summons from the DGGI and filed a reply, the matter being pending before the CGST authorities. The authorities also seized certain documents from the petitioner in this regard. Meanwhile, the Orissa GST authorities initiated proceedings under section 70 of the CGST Act, 2017 and asked for the same documents. On receiving the application, the CGTS authorities informed the petitioners that a copy of such documents could be released.

The HC directed the petitioner to make an application to CGST authorities for obtaining a copy of the documents. The CGTS authorities were directed to release copies within three weeks of such application. The petitioner was also directed to cooperate with both CGST and SGST authorities.

Dual investigations were permitted.

5

Suresh Kumar P.P., Mr. Aboobacker Sidhique vs. The Deputy Director, The Asstt. Commissioner, Mr. Renn Abraham and ors. [2020 (8) TMI 418 Kerala High Court]

In the said case, there were simultaneous proceedings of investigations and audit going on. The High Court observed that audit u/s 65 of the CGST Act, 2017 is a routine process to be carried out by the revenue department as prescribed in the rules. However, investigation u/s 67 of the CGST Act, 2017 is a more onerous procedure which can be initiated only on the satisfaction of an officer, not below the rank of a Jt. Commissioner. The said investigation can be conducted in respect of suppression of taxable transactions, excess claim of input tax credit, contravention of the provisions of the Act and Rules, etc. Investigation is not a routine procedure like audit under section 65. Therefore, the HC did not find any infirmity in the two procedures being conducted simultaneously.

Investigation and audits can be conducted simultaneously.

The above are just few of the key decisions on investigations under GST. Under the GST law, investigations can be done through various forms which includes search, seizures, and inspection. The GST law authorizes any officer, not below the rank of Joint Commissioner to authorize a search, and seizure, if he has reasons to believe that any goods liable for confiscation or any documents or books or things relevant for any proceedings are hidden at any place. 

Certain important points to remember in case of investigations under GST are:

  1. The proper officer who authorizes inspection, search or seizure cannot be below the rank of Joint Commissioner. If otherwise, the investigation can be termed as void-ab-initio.
  2. Authorizing officers must have reasons to believe that the taxpayer has suppressed certain information or is claiming excess ITC or indulging in contravention of any provisions of the GST law to authorize an investigation.
  3. If goods are disclosed in returns of books of accounts, they cannot be termed as secreted.
  4. In all cases, principle of natural justice should always be followed.
  5. Any search without a search warrant is illegal. Further, the search warrant should have all necessary particulars.

In the past four years, there has been a slew of case laws on GST investigations, search, and seizures. The investigative arm of CBIC i.e., the DGGI has successfully completed multiple investigations and plugged revenue leakages at multiple levels. However, in certain cases, the courts have observed that the officers go beyond their power and look at each taxpayer as a defaulter. In a recent case of M/s Radha Krishan Industries v State of Himachal Pradesh & Ors, the Supreme Court slammed the manner in which GST law was being enforced by tax authorities and observed that the provisions of GST law are draconian.

Therefore, in light of the above discussion, it seems that though the investigations are necessary, the officers need to exercise their powers carefully, ensuring that no hardships are being caused to honest taxpayers in the process.

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