Introduction
The introduction and implementation of Goods and Services Tax (GST) significantly reshaped the entire Indian indirect tax landscape by replacing multiple indirect taxes with a unified tax system. GST intends to streamline the tax administration, promote economic integration, and ultimately create a more transparent tax system and reduce the tax burden on consumers by eliminating the cascading effect of taxes. GST operates under a dual structure, comprising of Central GST (CGST) and State GST (SGST), along with Integrated GST (IGST) to tax interstate transactions. The GST Council oversees the key decision-making process under GST by promoting and fostering coordination between the Central and State Governments.
As a crucial arm of the Ministry of Finance, the Central Board of Indirect Taxes and Customs (CBIC) plays a pivotal role in formulating policies and administering GST, customs, excise, and related matters. Its responsibilities include ensuring compliance, preventing smuggling, and managing revenue collection. All tax laws include various measures to prevent tax evasion and ensure compliance. The law grants various powers to the administrative authorities appointed to enforce it. One such power widely wielded by the tax authorities under GST, is the power to investigate. This is probably one of the most feared avatars of the tax authorities as such investigations are known to be very tempestuous for the taxpayers, sometimes causing colossal disruptions for businesses.
GST investigations are conducted to enforce compliance with GST laws and regulations. Businesses suspected of underreporting sales, overstating input tax credits, or engaging in fraudulent activities such as fake invoicing are typically the focus of the scrutiny. Cross-border transactions are also monitored to ensure adherence to import/export regulations. Investigations may be triggered owing to various reasons, such as reporting by whistleblowers, data anomalies, compliance checks, or intel from disgruntled employees/associates.
Non-compliance with GST laws can lead to severe penalties, including fines, interest charges, and even criminal prosecution. It is imperative for businesses to maintain accurate records, adhere to GST regulations, and cooperate with authorities during investigations to mitigate risks and avoid legal repercussions.
Thus, navigating GST investigations requires vigilance, compliance, a proper understanding of law, and last but not least, effective cooperation with investigating authorities to ably help conclude investigations. By understanding their obligations, maintaining accurate records, and adhering to GST laws, businesses can mitigate business disruptions and unforeseen risks, ensure compliance with law, and contribute to the integrity of the tax system.
Section 67 of the CGST Act contains the provision for the power of the GST authorities to investigate. The various stages of investigation are as under1:
Information gathering powers under GST
Access to business premises
Under the GST law, authorized officer, authorized by a proper officer not below the rank of Joint Commissioner, have the authority to access any place of business of a registered person. This access is granted to inspect various items including:
The purpose of such access is to carry out audits, scrutiny, verification, and checks necessary to safeguard the interests of revenue. It's important to note that Section 71, which grants this authority, is not independent of other provisions in the law. It serves as a machinery provision to aid and assist the proper officers or auditors in accessing books and records.
While Section 67 doesn't explicitly provide for access to books and records, it empowers the proper officer to grant authorization to conduct inspections of premises. When read with Section 71, such authorized officers are empowered to inspect books and records as well. Therefore, Section 71 cannot be invoked independently of other substantive provisions such as Sections 652, 663, or 674.
Power to Summon Persons to Give Evidence and Produce Documents under GST
In the course of inquiries conducted under the CGST Act, proper officers are empowered to summon individuals deemed necessary to provide evidence or produce documents. This authority is exercised in a manner akin to civil court proceedings under the Code of Civil Procedure 1908. It's crucial to note that such proceedings are considered 'judicial proceedings' under Indian Penal Code sections 1935 and 2286.
The persons summoned are required to attend or appear before the summoning authorities in compliance with the notice of summons either in person or through their authorized representatives. Further, such person [taxpayer or authorized representative] is bound to state the truth during the examination, make statements or produce documents as required by the officer.
Even though, the law mandates the appearance of a person summoned, the tax authorities are duty bound to respect the constitutional rights of the persons being summoned, particularly Article 20(3), which prohibits compelling individuals to be witnesses against themselves. While avoiding the service of summons is unlawful, individuals summoned are not obliged to provide self-incriminating statements. The scope of summons under section 70 is broad, encompassing any inquiry, but officers aren't empowered to retain documents beyond the inquiry's scope.
The GST investigation wing has issued guidelines (instruction no. 03/2022-23 dated 17 August 2022) to ensure the judicious exercise of summoning powers. Some key points include:
- Consideration of issuing letters of requisition instead of summons.
- Requirement of prior written permission for summons issuance by Superintendents, with reasons recorded.
- Avoidance of repeated summons without ensuring service.
- Preference for digital/online statutory document access rather than summoning.
- Avoidance of summoning senior management unless clear indications of involvement exist.
- Ensuring summoning officer's presence during scheduled summons.
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Footnotes
1. Section 67 provides for the powers of inspection, search and seizure if officer has reasons to believe for evasion of taxes by the taxpayer.
2. Section 65 provides for the GST Audit by authorities
3. Section 66 provides the special audit by chartered accountant or cost accountant as appointed by the officer
4. Section 67 provides for the powers of inspection, search and seizure if officer has reasons to believe for evasion of taxes by the taxpayer
5. Section 193 of the Indian Penal Code: Whoever intentionally gives false evidence in any of a judicial proceeding, or fabricates false evidence for the purpose of being used in any stage of a judicial proceeding, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine; and whoever intentionally gives or fabricates false evidence in any other case, shall be punished with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine. Explanation 1.A trial before a Court-martial is a judicial proceeding. Explanation 2. An investigation directed by law preliminary to a proceeding before a Court of Justice, is a stage of a judicial proceeding, though that investigation may not take place before a Court of Justice.
6. Section 228 of the Indian Penal Code: Whoever intentionally offers any insult, or causes any interruption to any public servant, while such public servant is sitting in any stage of a judicial proceeding, shall be punished with simple imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
