Search and Inspection Under Section 67: What the Law Permits and What It Requires

A departmental team arriving at a business premises is a situation almost no organisation has rehearsed. Decisions get taken in the first fifteen minutes — whether to allow access, what to hand over, who speaks, what gets signed — and those decisions shape everything that follows, including any proceeding that arises months later.

Section 67 of the CGST Act is the provision under which most of this happens. It is short, and its limits are more specific than is generally realised.

Inspection and search are not the same thing

The section contains two distinct powers, and conflating them is the first error.

Inspection under section 67(1) permits an officer to enter and inspect any place of business of a taxable person, or of a person engaged in transporting goods or operating a warehouse or godown. It is an examination power.

Search and seizure under section 67(2) is wider. It permits an officer to search a place and to seize goods, documents, books or things found there. It is available where the officer has reason to believe that goods liable to confiscation, or documents or things useful to or relevant for proceedings, are secreted in a place.

Both require a threshold to be crossed. Under section 67(1), an officer not below the rank of Joint Commissioner must have reasons to believe that a taxable person has suppressed a transaction, claimed input tax credit in excess of entitlement, contravened a provision to evade tax, or that a transporter or warehouse-keeper has kept accounts in a manner likely to cause evasion. Under section 67(2), a similar threshold must be satisfied before authorisation for search is given.

The distinction between an inspection and a search matters practically because it determines what may be taken away. An inspection does not, of itself, authorise seizure.

Where the visit is described as an audit or a verification rather than an inspection or search, different provisions apply altogether — see our note on the difference between a GST audit and an inspection.

The authorisation is the starting point

Neither power is exercisable at will by any officer. The authorisation is issued in FORM GST INS-01 by an officer not below the rank of Joint Commissioner, and it identifies the premises and the officer authorised to act.

This is the first document to ask for, and asking for it is not obstruction. It is the instrument that confers the power, and the person in charge of the premises is entitled to see it and to record its particulars — the number, the date, the issuing officer, the premises specified and the names of the officers authorised.

Two points follow. An authorisation is premises-specific; it does not travel to a different location. And “reasons to believe” is a legal standard, not a formality — it must exist, and it must be recorded, though the recorded reasons are not ordinarily furnished at the time.

What may be seized, and what may not

Section 67(2) permits seizure of goods liable to confiscation, and of documents, books or things which in the officer’s opinion will be useful for or relevant to any proceedings under the Act.

Where it is not practicable to seize the goods, the officer may instead serve an order in FORM GST INS-03 on the owner or custodian, directing that the goods not be removed, parted with or otherwise dealt with without prior permission. This is a prohibition order rather than a seizure, and it leaves the goods where they are.

The seizure itself is recorded in an order in FORM GST INS-02, and the goods and documents seized are listed in an inventory. That inventory is the single most important document generated during the proceeding. It should be read before it is signed, it should be specific rather than generic — “one laptop” is not an adequate description where the contents matter — and a copy should be obtained.

Where documents or books are seized, section 67(5) entitles the person from whose custody they were seized to make copies of or take extracts from them, in the presence of an authorised officer, except where doing so would prejudicially affect the investigation. This entitlement is frequently not exercised, and a business that parts with its only copy of a ledger without taking extracts creates avoidable difficulty for itself.

A seizure is frequently followed by a notice, and our note on the types of GST notices sets out what may arrive next.

Sealing, breaking open and access to records

Section 67(4) is the provision most likely to escalate a situation, and its scope is worth knowing precisely.

An officer authorised under section 67(2) may seal or break open the door of any premises where access is denied, and may break open any almirah, electronic devices, box or receptacle where access to it is denied and it is suspected to contain goods, accounts, registers or documents.

The power is conditioned on access being denied. It is not a power exercisable in the first instance. This is precisely why refusing entry is rarely a sensible response: it does not prevent access, and it converts a cooperative proceeding into a contested one, with consequences that carry into the record.

The corresponding obligation on the business is straightforward — provide access to the premises, to records and to systems as required by the authorisation, and record what was provided.

Rights that exist during the proceeding

Section 67(10) applies the provisions of the Code of Criminal Procedure relating to search and seizure to searches under the section, subject to modification. The practical consequences include the following.

Witnesses. A search is conducted in the presence of independent witnesses, and the proceedings are recorded in a panchnama. The person in charge should note who the witnesses were.

Timing. Searches are conducted with regard to the requirements applicable under the Code, and the record should reflect the time of commencement and conclusion.

A copy of the record. The person from whose premises documents or goods are seized is entitled to a copy of the seizure order and the inventory.

Presence of a representative. There is no bar on the presence of an advocate or an authorised representative at the premises. Their attendance does not suspend the proceeding, and officers are not obliged to wait indefinitely, but a business is entitled to summon assistance and should do so early rather than late.

Signing. Every document signed during a search — the panchnama, the inventory, any statement — becomes part of the record and is difficult to resile from later. Documents should be read before signature, and any inaccuracy should be corrected on the face of the document at the time, not raised afterwards.

Time limits on seized goods

Section 67(7) contains a limit that is frequently overlooked by the parties it protects.

Where goods are seized under section 67(2) and no notice is issued within six months of the seizure, the goods shall be returned to the person from whose possession they were seized. That period may be extended, for sufficient cause, by a further period not exceeding six months, by the proper officer.

The obligation is on the department, but the entitlement belongs to the business, and it does not enforce itself. Where six months have passed without a notice and without a recorded extension, the position should be raised in writing.

Section 67(8) allows goods of a perishable or hazardous nature, or goods subject to depreciation in value, or for other prescribed reasons, to be disposed of before the conclusion of proceedings, subject to the prescribed procedure.

Where the obligation is not met, the position should be raised in writing before considering the wider remedies against a wrongful order.

Provisional release

Seized goods need not remain in departmental custody while the matter is worked out.

Section 67(6) permits goods seized under section 67(2) to be released on a provisional basis, upon execution of a bond and furnishing of security in the prescribed manner and quantum, or on payment of the applicable tax, interest and penalty. The bond is in FORM GST INS-04, and where the department later releases the goods after the bond is executed, the order is in FORM GST INS-05.

For a business whose stock is its working capital, provisional release is often the most urgent step of all, and the application should be made promptly with a clear valuation and the security offered.

Statements recorded during a search

Statements are frequently recorded during or immediately after a search, sometimes from employees who are not in a position to speak to the matters they are asked about.

Three practical observations, none of which involve obstruction:

Answer from the record, not from memory. Where a figure or a transaction is asked about, the correct answer is often that the position will be confirmed from the records, rather than an approximation that later turns out to be wrong and has to be explained.

A statement is evidence. It carries weight in any proceeding that follows, and inconsistencies between an early statement and the documents are precisely what an adjudicating authority focuses on.

Read before signing, and take a copy. A statement recorded and signed without a copy retained is a document the business cannot check its later submissions against.

Summons for the recording of evidence is a separate power under section 70, and is governed by its own requirements.

Inconsistency between an early statement and the documents is among the most damaging things that can surface in later tax litigation.