Inspection, Search, Seizure, Offences and Penalties: formula sheet

Key formulas

Who can authorise

Proper officer not below Joint Commissioner, with reasons to believe, authorises in writing any other officer of central tax

Applies to inspection under s.67(1) and search and seizure under s.67(2). He may also search and seize himself under s.67(2).

Trigger for inspection

Reason to believe: (a) suppression, excess ITC or contravention to evade tax by a taxable person; or (b) transporter/warehouse keeper holds goods that escaped tax or keeps accounts or goods so as to cause evasion

Inspection is of places of business of the taxable person, transporter, or owner/operator of warehouse, godown or other place.

Trigger for search and seizure

Reason to believe: goods liable to confiscation, or documents, books or things useful or relevant to proceedings, are secreted in any place

Can follow an inspection or be independent of it.

Return of documents

Documents not relied upon for the notice: return within 30 days of issue of the notice

Retention of seized documents is only as long as necessary for examination and inquiry or proceedings.

Time limit for notice on seized goods

No notice within 6 months of seizure → goods returned; extendable by proper officer for up to a further 6 months on sufficient cause

Extension needs sufficient cause shown. The total cannot go beyond twelve months.

Provisional release

Seized goods released on bond and security as prescribed, or on payment of applicable tax, interest and penalty

Manner and quantum of bond and security are prescribed in the rules.

Seizure of documents produced before officer

Reason to believe person evaded or is attempting to evade tax → seize accounts, registers or documents produced before him, for reasons recorded in writing, with a receipt

Retained as long as necessary for proceedings or prosecution.

Who authorises arrest

Commissioner's order → authorised central tax officer arrests (s. 69(1))

Needs reasons to believe an offence in s. 132(1)(a)-(d) punishable under clause (i) or (ii), or s. 132(2).

Arrest thresholds

Clause (i): amount > ₹5 crore. Clause (ii): > ₹2 crore up to ₹5 crore

Amount means tax evaded, ITC wrongly availed or utilised, or refund wrongly taken. Five hundred lakh rupees = ₹5 crore.

Default status of offences

All offences: non-cognizable and bailable (s. 132(4))

Subject to the exception in s. 132(5).

Exception

s. 132(1)(a)/(b)/(c)/(d) punishable under clause (i) (> ₹5 crore) = cognizable and non-bailable (s. 132(5))

Only these four clauses, only in the highest tier.

Production before Magistrate

Arrest for s. 132(5) offence: inform grounds + produce before Magistrate within 24 hours (s. 69(2))

Applies to the cognizable, non-bailable category.

Bail position

Arrest for s. 132(4) offence: admit to bail, or forward to Magistrate's custody (s. 69(3)(a))

Subject to the Code of Criminal Procedure, 1973.

Summons duty

Summoned person must attend in person or by authorised representative and state the truth (s. 70(1A))

Inquiry is a judicial proceeding under IPC sections 193 and 228 (s. 70(2)).

Sanction

No prosecution without previous sanction of the Commissioner (s. 132(6))

Prosecution is separate from arrest.

Section 71(1): who may access

Officer authorised by proper officer (not below Joint Commissioner) → access to any place of business of a registered person

Purpose: audit, scrutiny, verification and checks to safeguard revenue. No 'reason to believe' is required.

Section 71(2): time to produce records

Records must be made available within a period not exceeding 15 working days from the demand, or further period allowed

The further period is allowed by the officer, audit party or nominated accountant. The duty falls on the person in charge of the place.

Section 71(2): records that may be demanded

Declared records; trial balance or equivalent; audited annual accounts (where required); cost audit report (s.148 Companies Act, 2013); income-tax audit report (s.44AB, Income-tax Act, 1961); any other relevant record

Learn the six items as a list. The cost audit and tax audit reports apply only 'if any'.

Section 68: goods in movement

Conveyance carrying consignment above specified value → carry prescribed documents and devices; on interception → produce them and allow inspection of goods

The value limit is as specified by the Government. Documents are validated in the prescribed manner.

Section 72: assistance

Police, Railways, Customs, land revenue officers (including village officers), State tax and UT tax officers must assist proper officers; other classes by notification when called upon by the Commissioner

The first group is named in the Act. Others need a notification.

Punishment above ₹500 lakh

Tax evaded / ITC wrongly availed or utilised / refund wrongly taken > ₹500 lakh → imprisonment up to 5 years and fine

Section 132(1)(i). Offences under clauses (a) to (d) at this level are cognizable and non-bailable.

Punishment above ₹200 lakh up to ₹500 lakh

₹200 lakh < amount ≤ ₹500 lakh → imprisonment up to 3 years and fine

Section 132(1)(ii).

Punishment above ₹100 lakh up to ₹200 lakh

₹100 lakh < amount ≤ ₹200 lakh → imprisonment up to 1 year and fine

Section 132(1)(iii). Applies only to an offence under clause (b).

False records or information

Clause (f) → imprisonment up to 6 months or fine or both

Section 132(1)(iv).

Repeat conviction and minimum term

Second or later conviction → up to 5 years and fine; minimum 6 months unless special and adequate reasons are recorded

Section 132(2) and (3). The minimum applies to clauses (i), (ii), (iii) and sub-section (2).

Cognizable and non-bailable offences

Clauses (a), (b), (c), (d) punishable under clause (i) → cognizable, non-bailable; all others → non-cognizable, bailable

Section 132(4) and (5).

Compounding amount

Minimum 25% of tax involved; maximum 100% of tax involved

Section 138(2). Tax, interest and penalty must be paid first.

Section 125 general penalty

Penalty may extend to ₹25,000

Applies only where no penalty is separately provided in the Act. It is a ceiling ('may extend'), not a fixed amount.

Section 122(1) offence penalty

Higher of ₹10,000 and the tax evaded / tax not deducted or collected / ITC availed or passed on / refund claimed

Applies to a taxable person committing any of the listed offences (i) to (xxi).

Section 122(1A) beneficiary penalty

Penalty = tax evaded or ITC availed or passed on

On a person who retains the benefit of a transaction under clause (i), (ii), (vii) or (ix) and at whose instance it was conducted.

Section 122(1B) e-commerce operator

Higher of ₹10,000 and the tax involved had the supply been made by a registered person (other than a section 10 person)

For an operator liable to collect TCS who allows supply by an unregistered or ineligible person, or gives wrong details in the section 52(4) statement.

Section 122(2)(a): non-fraud

Higher of ₹10,000 and 10% of tax due

Registered person; tax not paid, short paid, erroneously refunded, or ITC wrongly availed or utilised.

Section 122(2)(b): fraud

Higher of ₹10,000 and 100% of tax due

Where the reason is fraud, wilful misstatement or suppression of facts to evade tax.

Section 122(3) penalty

May extend to ₹25,000

Aiding or abetting, dealing in goods liable to confiscation, not appearing on summons, not issuing or accounting for an invoice.

Section 73 order penalty

Higher of 10% of tax and ₹10,000

Determined with tax and interest in the order under section 73(9).

Section 73 time limits

Notice at least 3 months before the order deadline; order within 3 years from the due date of the annual return for the relevant year (or from the date of erroneous refund)

Applies to periods up to FY 2023-24.

Section 73 nil-penalty payment

Pay tax + interest within 30 days of the show cause notice: no penalty, proceedings concluded

Exception: self-assessed tax or tax collected but not paid within 30 days of its due date still attracts the penalty.

Payment before notice

Pay tax + interest on own or officer's ascertainment before notice: no notice or penalty for that tax

If the officer finds a shortfall, a notice is issued for the shortfall only.

Cap on redemption fine (s.130(2), first proviso)

Fine ≤ Market value of goods − Tax chargeable on them

This is only the upper limit. The officer fixes the actual fine within it.

Floor on fine plus penalty (s.130(2), second proviso)

Fine + Penalty ≥ 100% of tax payable on such goods

The test is on the aggregate of fine and penalty, not on the fine alone.

Redemption of a conveyance used for hire

Fine = Tax payable on the goods being transported

Applies where the conveyance carries goods or passengers for hire. The owner gets the option to pay this fine.

Hearing requirement (s.130(4))

No confiscation or penalty order without an opportunity of being heard

An order passed without a hearing is open to challenge.

Vesting and disposal (s.130(5)-(7))

Title vests in Government; disposal only after up to 3 months to pay fine

The officer must be satisfied the goods are not needed in other proceedings under the Act.

Quick revision

• Section 67 inspection and search need a proper officer not below the rank of Joint Commissioner, who must have reasons to believe.
• Authorisation to inspect or search is given in writing to another officer of central tax.
• Seized documents are kept only as long as necessary for examination and proceedings.
• Documents not relied upon for a notice must be returned within thirty days of the notice being issued.
• Where seizure is not practicable, the officer can order the owner not to remove or deal with the goods without permission.
• Seized goods can be released provisionally on a bond and security, or on payment of tax, interest and penalty.
• If no notice is given within six months of seizure, goods are returned; the period can be extended by up to six more months for sufficient cause.
• The person from whom documents are seized may make copies or extracts in the presence of an authorised officer, unless this would prejudice the investigation.
• Section 70 summons: the proper officer has civil court powers, and the inquiry is a judicial proceeding.
• Section 71: access to business premises is by an officer authorised by an officer not below Joint Commissioner, and records must be made available within fifteen working days of demand, unless further time is allowed.
• Section 69 arrest is authorised by the Commissioner by order, when he has reasons to believe a specified offence is committed.
• Section 20 of the IGST Act applies these CGST provisions to integrated tax mutatis mutandis.

Common mistakes

• Treating inspection and search as the same power. Fix: Inspection is entry to places of business on belief of evasion. Search and seizure needs belief that goods or documents are secreted, and allows seizing.
• Saying any GST officer can order a search. Fix: Only a proper officer not below Joint Commissioner forms the belief and authorises in writing. The authorised officer then acts.
• Saying every GST offence is cognizable and non-bailable. Fix: Remember the default: non-cognizable and bailable. Only clauses (a)-(d) in the above ₹5 crore tier are cognizable and non-bailable.
• Saying any GST officer can arrest on his own. Fix: Arrest needs the Commissioner's order authorising a central tax officer, based on reasons to believe.
• Saying section 71 needs a reason to believe that tax has been evaded. Fix: Section 71 is for audit, scrutiny, verification and checks to safeguard revenue. Reason to believe is a section 67 test.
• Stating the wrong time limit for producing records. Fix: Section 71(2) gives a period not exceeding fifteen working days from the demand, extendable by the officer, audit party or accountant.
• Treating the lowest slab as applying to every offence Fix: Remember that the ₹100 to ₹200 lakh slab is only for clause (b). Other offences in that range are not covered by that slab.
• Saying all GST offences are non-bailable Fix: Only clauses (a) to (d) punishable under clause (i), above ₹500 lakh, are cognizable and non-bailable. The rest are non-cognizable and bailable.
• Applying 10% of tax without checking the ₹10,000 floor. Fix: Always compute both figures and write the higher one. On tax of ₹60,000, 10% is ₹6,000, so the penalty is ₹10,000.
• Treating section 125 as the main penalty section. Fix: Use it only when no penalty is separately provided. Check sections 122 and 73 first.

Exam tips

• Begin every answer by naming the authority: not below Joint Commissioner, in writing.
• Quote the exact trigger phrase, reasons to believe, and link it to the facts.
• Keep the six-month and thirty-day limits separate and state the extension.
• Show a clear conclusion on validity, since case answers are marked on analysis and conclusion.
• Mention the break-open power and receipt for seized documents when facts show denied access.
• Write the section number with every statement: 69 for arrest, 70 for summons, 132(4) and 132(5) for cognizable status.
• Always compute the amount tier before answering. Examiners build facts around the ₹2 crore and ₹5 crore limits.
• Use the structure provision, facts, conclusion. Keep the conclusion to a line.