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CMA Final · Indirect Tax Laws and Practice

Inspection, Search, Seizure, Arrest and Prosecution under GST

This chapter covers the enforcement powers under GST: who can authorise an inspection, search or seizure, how seized goods are released, when arrest is possible, which acts are offences, and how prosecution or compounding ends a case. To solve questions, identify the stage, the authority, the form or time limit, and the safeguard.

What this chapter covers

This chapter is about what the department can do when it suspects tax evasion, and what protection the taxpayer has. It moves in a clear sequence: inspection, then search and seizure, then release of goods, then arrest, offences and penalties, and finally prosecution and compounding.

The core power sits in section 67 of the CGST Act. A proper officer not below the rank of Joint Commissioner must have reasons to believe that tax is being evaded. Only then can he authorise another officer in writing. The procedure is in the CGST Rules: Rule 139 prescribes FORM GST INS-01 for authorisation, FORM GST INS-02 for the seizure order, FORM GST INS-03 for the prohibition order, and the inventory. Rule 162 covers compounding of offences.

This chapter links to registration, input tax credit, invoicing, returns and demand and recovery. Most offences arise from wrong ITC, fake invoices, or tax collected but not paid. If you know those chapters well, the offences part becomes easy to apply to a case.

This chapter is largely rule-based with fixed authorities, forms, time limits and percentages, so it suits objective questions and short written answers. A case scenario can ask who may authorise a search, when seized goods must be returned, or what a compounding amount would be. Students who learn the exact conditions score steadily here, while students who remember only the general idea lose marks on details.

Inspection, Search, Seizure, Arrest and Prosecution: topics in the order to study them

  1. 1Inspection, Search and Seizure under GSTStart with section 67, because every later topic depends on who can act, on what grounds, and what the taxpayer can do.
  2. 2Release of Seized Goods and Rule 139Next learn what happens after seizure: forms, inventory, provisional release, the six-month notice limit and return of documents.
  3. 3Arrest and Bail under GSTArrest is the next level of enforcement, so study it after the search and seizure powers are clear.
  4. 4Offences and Penalties under GSTLearn the list of offences and the punishments, because prosecution and compounding both depend on which offence was committed.
  5. 5Prosecution, Compounding and Related ProvisionsEnd with how a case is closed, including the Rule 162 procedure and the compounding percentages, which build on the offences.

How to prepare Inspection, Search, Seizure, Arrest and Prosecution

Treat this chapter as a process with stages, authorities, forms and time limits. Build a one-page chain and keep adding to it.

  1. Read section 67 sub-section by sub-section and note the trigger, the authority, and the safeguard in each one.
  2. Make a table of Rule 139 items: INS-01, INS-02, INS-03 and the inventory, with who issues each and when.
  3. List every time limit in your own words: six months for notice after seizure, a further extension of up to six months, and thirty days for returning documents not relied upon.
  4. Learn the offences by the type of act, such as supplying without invoice, wrongly availing ITC, collecting tax but not paying it, and obtaining refund by fraud, and link each to your ITC and refund chapters.
  5. Learn Rule 162 as a sequence: application in CPD-01, report from the officer, order within ninety days, payment of tax, interest and penalty, payment of the compounding amount within thirty days.
  6. Practise short case questions. For each one, name the stage, the authority, the relevant provision or rule, and the outcome in one or two lines.
  7. Revise the compounding percentages and the immunity withdrawal rule at least twice, since these are easy to mix up.

Common mistakes in Inspection, Search, Seizure, Arrest and Prosecution

  • Saying any officer can order a search or inspection.

    Fix: Always state that the proper officer must be not below the rank of Joint Commissioner, with reasons to believe, and that he authorises another officer in writing.

  • Mixing up the three forms under Rule 139.

    Fix: Link each to its purpose: 01 authorisation, 02 seizure order, 03 prohibition order when seizure is not practicable.

  • Confusing the time limits after seizure.

    Fix: Write them separately: six months for notice (extendable by up to six more on sufficient cause), and thirty days only for return of documents not relied upon.

  • Applying the wrong compounding percentage.

    Fix: Identify the offence clause and which punishment clause applies. If more than one category applies, use the higher compounding amount.

  • Treating compounding as available without paying dues first.

    Fix: Remember that the application cannot be allowed until the tax, interest and penalty liable to be paid have been paid.

  • Writing long theory answers with no link to the case facts.

    Fix: Use the facts given. Name the stage, apply the rule, and give a clear conclusion in two or three lines.

Last-day revision: Inspection, Search, Seizure, Arrest and Prosecution

  • 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.

Inspection, Search, Seizure, Arrest and Prosecution practice questions

Inspection, Search, Seizure, Arrest and Prosecution in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Inspection, Search, Seizure, Arrest and Prosecution: frequently asked questions

Who can authorise inspection, search and seizure under GST?

A proper officer not below the rank of Joint Commissioner, who has reasons to believe that tax is being evaded or goods are secreted. He can authorise another officer of central tax in writing, or in the case of search and seizure, act himself.

Can seized goods be released before the case ends?

Yes. Under section 67(6), seized goods can be released on a provisional basis on execution of a bond and furnishing of security as prescribed, or on payment of applicable tax, interest and penalty.

What happens if no notice is issued after seizure?

If no notice is given within six months of seizure, the goods must be returned to the person from whose possession they were seized. The proper officer may extend this period by up to six more months if sufficient cause is shown.

How is an offence compounded under the CGST Rules?

The applicant applies in FORM GST CPD-01 to the Commissioner, before or after prosecution begins. Tax, interest and penalty must be paid first. The Commissioner decides within ninety days, and the compounding amount must be paid within thirty days of the order.

Can immunity from compounding be taken back?

Yes. Under Rule 162(8), the Commissioner may withdraw immunity if he is satisfied that the person concealed material particulars or gave false evidence in the compounding proceedings. The person can then be tried as if no immunity had been granted.