CMA Final · Indirect Tax Laws and Practice

Inspection, Search, Seizure, Arrest and Prosecution: formula sheet

Full chapter guide

Key formulas

Who authorises (Section 67(1) and (2)): Proper officer not below Joint Commissioner → written authorisation → other central tax officer; The belief must be formed by the senior officer. Under sub-section (2) he may also search and seize himself.
Trigger for inspection: Reasons to believe: suppression, excess ITC or contravention to evade tax; or goods escaped tax or accounts kept to cause evasion; Clause (a) covers taxable persons. Clause (b) covers transporters and owners or operators of warehouses, godowns or any other place.
Trigger for search and seizure: Reasons to believe: goods liable to confiscation, or documents, books or things relevant to proceedings, are secreted; May follow an inspection or be done otherwise.
Where seizure is not practicable: Order not to remove, part with or otherwise deal with goods without previous permission; Rule 139(4) prescribes FORM GST INS-03 for this order.
Return of documents (Section 67(3)): Documents not relied upon in the notice → returned within 30 days of issue of notice; Seized documents are otherwise retained only as long as necessary.
Return of goods (Section 67(7)): No notice within 6 months of seizure → goods returned; extension up to a further 6 months for sufficient cause; Maximum period is therefore 12 months. The proper officer grants the extension.
Forms under Rule 139: Authorisation: FORM GST INS-01; Seizure order: FORM GST INS-02; Prohibition order: FORM GST INS-03; Rule 139(5): the seizing officer prepares an inventory and gets it signed by the person from whom items are seized.
Provisional release (Section 67(6)): Bond + security as prescribed, or payment of applicable tax, interest and penalty; Applies to goods seized under sub-section (2).
Authorisation for inspection/search/seizure: Proper officer (not below Joint Commissioner) → FORM GST INS-01 → subordinate officer; Rule 139(1). Issued where there are reasons to believe a place is to be visited under section 67.
Order of seizure: Goods, documents, books or things liable to seizure under section 67(2) → FORM GST INS-02; Rule 139(2). Made by the proper officer or an authorised officer.
Order of prohibition: Seizure not practicable → FORM GST INS-03; Rule 139(4). Owner or custodian cannot remove or deal with goods without prior permission.
Inventory: Description, quantity or unit, make, mark or model (where applicable); signed by the person from whom seized; Rule 139(5). Covers goods, documents, books or things.
Provisional release: bond: Bond for the value of the goods in FORM GST INS-04; Rule 140(1). Bond is on value of goods, not on tax.
Provisional release: security: Bank guarantee = applicable tax + interest + penalty payable; Rule 140(1). Applicable tax includes central tax, State/UT tax and cess, if any.
Failure to produce goods: Security encashed and adjusted against tax, interest, penalty and fine, if any; Rule 140(2).
Time limit for notice after seizure: Notice within 6 months of seizure, extendable by up to 6 months for sufficient cause; otherwise goods returned; Section 67(7) and its proviso.
Who can order arrest: Commissioner, by order, authorises an officer of central tax (Section 69(1)); Requires reasons to believe that the person committed an offence in clause (a), (b), (c) or (d) of Section 132(1), punishable under clause (i) or (ii) of Section 132(1) or Section 132(2).
Arrestable tax limit: Tax evaded / ITC wrongly availed or utilised / refund wrongly taken > ₹200 lakh; Above ₹500 lakh: clause (i), up to 5 years and fine. Above ₹200 lakh up to ₹500 lakh: clause (ii), up to 3 years and fine. Repeat conviction: up to 5 years and fine.
General rule on cognizance and bail: All offences: non-cognizable and bailable, except Section 132(5); Stated in Section 132(4).
Cognizable and non-bailable offences: Clauses (a), (b), (c), (d) of Section 132(1) + punishable under clause (i) (> ₹500 lakh); Section 132(5). All three conditions must be met.
Production before Magistrate: Arrest for Section 132(5) offence: inform grounds + produce before Magistrate within 24 hours; Section 69(2).
Bail for other arrests: Section 132(4) offence: admitted to bail, or in default forwarded to Magistrate's custody; Section 69(3)(a), subject to the Code of Criminal Procedure, 1973. Under Section 69(3)(b), a Deputy or Assistant Commissioner has police-station-officer powers for release on bail in non-cognizable and bailable cases.
Sanction for prosecution: Previous sanction of the Commissioner; Section 132(6).
Above ₹500 lakh: Imprisonment up to 5 years + fine; Section 132(1)(i). Applies to the offences listed in 132(1), based on tax evaded, ITC wrongly availed or utilised, or refund wrongly taken.
₹200 lakh to ₹500 lakh: Amount > ₹200 lakh and ≤ ₹500 lakh: imprisonment up to 3 years + fine; Section 132(1)(ii).
₹100 lakh to ₹200 lakh: Amount > ₹100 lakh and ≤ ₹200 lakh: imprisonment up to 1 year + fine; Section 132(1)(iii). Only for an offence under clause (b), the fake invoice offence.
False records (clause f): Imprisonment up to 6 months, or fine, or both; Section 132(1)(iv). Applies to committing or abetting clause (f).
Repeat conviction: Up to 5 years + fine for second and every later offence; Section 132(2).
Minimum term: Not less than 6 months, unless special and adequate reasons are recorded; Section 132(3). Applies to imprisonment under (i), (ii), (iii) and sub-section (2).
Cognizable and non-bailable: Clause (a), (b), (c) or (d) AND punishable under clause (i) (> ₹500 lakh); Section 132(5). All other offences are non-cognizable and bailable under 132(4).
Sanction: No prosecution without previous sanction of the Commissioner; Section 132(6).
Compounding amount range (Section 138(2)): Minimum 25% of tax involved; maximum 100% of tax involved; The actual amount is as prescribed in Rule 162(3A), within this range.
Rule 162(3A): clauses (a), (c), (d), (e) of Section 132(1): Punishable under clause (i) of s.132(1): 50% to 75% of the amount. Punishable under clause (ii): 40% to 60% of the amount.; Amount means tax evaded, ITC wrongly availed or utilised, or refund wrongly taken.
Rule 162(3A): clauses (f), (h), (i) of Section 132(1): 25% of tax evaded; Same for both punishment categories.
Rule 162(3A): attempt or abetment: 25% of the amount of tax evaded, ITC wrongly availed or utilised, or refund wrongly taken; Applies to attempt or abetment of offences in clauses (a), (c) to (f), (h) and (i).
More than one category: Compounding amount = the higher amount prescribed; Proviso to Rule 162(3A).
Punishment bands (Section 132(1)): Above ₹500 lakh: up to 5 years and fine. Above ₹200 lakh up to ₹500 lakh: up to 3 years and fine. Above ₹100 lakh up to ₹200 lakh: up to 1 year and fine, for a clause (b) offence only. Clause (f): up to 6 months or fine or both.; Imprisonment under clauses (i) to (iii) is normally not less than six months, unless the court records special and adequate reasons (Section 132(3)).
Second conviction (Section 132(2)): Up to 5 years and fine; Applies to each subsequent conviction.
Rule 162 timelines: Order within 90 days of receipt of application; pay compounding amount within 30 days of receiving order; Failure to pay in 30 days makes the order void.

Quick revision

Inspection or search under section 67 needs reasons to believe, and authority from an officer not below Joint Commissioner.
The authorisation is in writing; under Rule 139 it is issued in FORM GST INS-01.
Seizure order: FORM GST INS-02. If seizure is not practicable, a prohibition order in FORM GST INS-03.
The seizing officer prepares an inventory, and the person from whom goods are seized signs it.
Seized goods can be released provisionally on a bond and security, or on payment of applicable tax, interest and penalty.
If no notice is given within six months of seizure, goods are returned; sufficient cause can extend this by up to six more months.
Documents not relied upon for a notice must be returned within thirty days of the notice.
Compounding can be applied for before or after prosecution, in FORM GST CPD-01 to the Commissioner.
The Commissioner decides within ninety days; tax, interest and penalty must already be paid.
The compounding amount must be paid within thirty days of the order, or the order becomes void.
Compounding amounts: up to 75% (minimum 50%) or up to 60% (minimum 40%) for the listed offences; 25% for others and for attempts or abetment.
Immunity can be withdrawn if the applicant concealed material particulars or gave false evidence.

Common mistakes

Saying any GST officer can order a search. Fix: Write that the proper officer must be not below the rank of Joint Commissioner. He may authorise another central tax officer in writing.
Treating inspection and search as the same thing. Fix: Inspection under Section 67(1) is a visit to places of business. Search and seizure under Section 67(2) is aimed at secreted goods, documents, books or things and allows seizure.
Saying the bond is for the amount of tax, interest and penalty. Fix: The bond is for the value of the goods. The bank guarantee covers tax, interest and penalty.
Mixing up INS-02 and INS-03. Fix: INS-02 is a seizure order. INS-03 is a prohibition order used when seizing is not practicable.
Saying all GST offences are cognizable and non-bailable. Fix: Learn the default first: Section 132(4) says non-cognizable and bailable. Section 132(5) is the narrow exception.
Treating the ₹500 lakh limit as applying to every clause of Section 132(1). Fix: Cognizable and non-bailable needs clause (a), (b), (c) or (d) and punishment under clause (i). A clause (e) or (f) offence never qualifies.
Applying the ₹100 lakh to ₹200 lakh band to every offence. Fix: That band applies only to a clause (b) offence. Other offences below ₹200 lakh are not covered by slabs (i) to (iii).
Saying all offences above ₹500 lakh are non-bailable. Fix: Non-bailable status needs clause (a), (b), (c) or (d) and punishment under clause (i). A clause (e) offence above ₹500 lakh is still non-cognizable and bailable.
Saying compounding is allowed for any offence at any time. Fix: Always check the exclusions: an earlier compounding for listed offences, an offence under clause (b), an earlier conviction by a court, and any other prescribed class.
Treating compounding as a substitute for paying tax, interest and penalty. Fix: Remember the proviso: compounding is allowed only after tax, interest and penalty are paid. The compounding amount is additional.

Exam tips

Quote the officer's rank and the words 'reasons to believe' in every Section 67 answer. Examiners look for them.
Memorise the three time periods: 30 days, six months, and the further six months. Case questions often test these.
Mention Rule 139 forms (INS-01, INS-02, INS-03) and the signed inventory to show procedural knowledge.
Link this topic to release of seized goods and arrest provisions if the question asks for the full sequence of enforcement.
Learn the four forms INS-01 to INS-04 as a sequence; MCQs often test form matching.
In numerical questions, show the bond and the security separately with their bases.
In case scenarios, check the rank of the officer and whether an inventory was prepared.
Add the six-month notice rule from section 67(7) when facts mention a delay after seizure.