Search & seizure: the first 24 hours when GST officials show up

Section 67 of the CGST Act gives a proper officer not below the rank of Joint Commissioner the power to authorise inspection, search and seizure where they have 'reason to believe' that the taxpayer has suppressed transactions, evaded tax or kept goods liable to confiscation.

When the officers arrive, the operating company has 24 hours to set the tone of the matter for the next five years. We have walked clients through six such situations in the last three years. The pattern of what helps and what hurts is consistent.

This is not theoretical. The first 24 hours are practical.

What the officers can and cannot do

Section 67(1) authorises inspection. Officers may enter any place of business of the registered person and inspect goods, documents, books, records and any other thing useful for the proceeding.

Section 67(2) authorises search and seizure where the officer has reason to believe documents or things relevant to the proceedings are secreted. Search requires a written authorisation from the proper officer. The authorisation must specify the premises and the purpose.

Section 67(4) provides that the officer may seal premises or break open any door, almirah or receptacle where access is refused.

Section 70 authorises the officer to summon any person whose attendance is necessary to give evidence or to produce documents. Statements recorded under Section 70 are admissible.

The officers cannot: (a) enter without authorisation, (b) extend the search beyond the premises listed in the authorisation, (c) compel signatures on documents the registered person has not prepared, (d) deny the registered person the right to obtain legal counsel, (e) take statements through coercion.

Hour 0 to Hour 2: stabilise

The receptionist calls the founder. The founder is travelling. The CFO is in a board meeting. Someone in the office is talking to the officers.

Three things, before anything else.

Get a senior person to the site. CFO, COO, founder if reachable. Someone with authority to make decisions. The officers will deal with whoever is in front of them; you want that person to be senior.

Call counsel. Not the regular CA. A GST litigation counsel who has handled Section 67 actions. The conversation must happen in the first hour, even if counsel cannot physically attend.

Verify the authorisation. Ask to see Form INS-01 (Authorisation for Inspection or Search). Check: the name of the registered person matches, the premises match, the rank of the authorising officer is at or above Joint Commissioner, the date is current. Take a copy or photograph if permitted.

Hour 2 to Hour 8: the search itself

Cooperate, but on the record.

Provide what is asked, document what is taken. The officers will ask for documents — books of account, invoice files, contracts, bank statements, server access. Provide them. Keep a parallel inventory of everything provided. Two people from the company should witness every item handed over.

Insist on a panchnama. Section 67(10) requires the search to be conducted in the presence of at least two independent witnesses (panchas) called from the locality. If panchas are not present, the search is procedurally defective. Note their names, addresses and contact details — they will be needed to challenge any procedural lapse later.

Restrict the scope to the authorised premises. If the authorisation covers the office and the officers want to search the founder's residence, they need a separate authorisation. Do not voluntarily extend.

Computer and phone seizure. Section 67(2) covers electronic records. If a server or laptop is seized, insist that the seizure inventory list device IDs (serial numbers, asset tags, hard disk serial numbers). Insist on a mirror image being taken so that the business can continue operating. Many officers will agree to a forensic mirror image on the spot if a vendor is brought in.

Phones. Officers may ask the founder or executives to hand over phones. This is contested ground. Section 67 covers premises and 'things'; whether personal phones are within scope is fact-specific. If asked, the response is to consult counsel before handing over. If the officers insist, hand over with a written objection on record.

Hour 4 to Hour 12: statements under Section 70

The riskiest hour. Officers will ask senior personnel — typically the CFO, founder, and any tax-facing executive — to give statements.

Statements under Section 70 are admissible. They have been used to establish fraud, suppression and mens rea under Section 74 and Section 132 in dozens of reported orders. The person giving the statement is on oath.

Three rules.

Do not give a statement without counsel present, if avoidable. If the officers insist, the right to remain silent in tax proceedings is limited (it is not a criminal proceeding at this stage), but the right to consult counsel is generally respected. Ask for time.

Stick to facts. What is asked, answer in one sentence. Do not speculate, do not interpret. 'I do not remember' or 'I will need to check the records' are acceptable answers where the deponent does not know.

Do not make admissions on legal positions. 'We may have made an error on this' is a legal interpretation that the officer will quote in the SCN. The deponent is a witness to facts, not a legal interpreter of those facts.

If a statement gets recorded, ask for a copy before signing. Read it. Correct it. Many statements are typed up by the officer with paraphrased versions of what was said. Correct in writing on the document before signing.

Hour 12 to Hour 24: after they leave

The officers leave with documents, a seizure inventory, and statements. The work continues.

Build the search file. Within 6 hours of departure: copy of the authorisation, copy of the panchnama, copy of every statement taken (request copies if not provided on the spot), copy of the seizure inventory, list of personnel who interacted with officers, timeline of events.

Communicate internally. A short, factual note to the senior leadership and the audit committee. Avoid wider distribution — the matter will leak if too many people know.

Section 132 risk assessment. Section 132 of the CGST Act allows arrest where the tax evasion exceeds ₹5 crore and the offence is non-bailable, or ₹2 crore for bailable offences. If the search throws up indicators of an amount in this range, the immediate next step is a pre-arrest legal strategy — typically an application for anticipatory bail under Section 438 CrPC at the appropriate Sessions Court.

Preserve evidence. Do not alter, destroy or 'organise' documents that may now be relevant. The post-search instinct in companies is often to 'tidy up' the records. Resist it. Backups must be preserved as-is.

What not to do

Three behaviours that we have seen escalate the matter unnecessarily.

First, arguing with officers on the spot. The substantive merits of the case are not adjudicated by the officers conducting the search. Arguing creates a confrontational record and rarely changes the outcome of the day.

Second, voluntary deposit of disputed tax at the time of search. Some officers will suggest the registered person 'voluntarily' pay the disputed tax there and then under DRC-03, as a sign of cooperation. Without legal review of the merits, this is a bad idea. Deposits made under Section 73(5) or 74(5) extinguish certain rights and limit later defence.

Third, blanket destruction or alteration of records. This converts an audit dispute into a criminal proceeding under Section 132.

The first 24 hours of a search are about procedure, documentation and restraint. The merits get fought over the next 12 to 36 months. The case is rarely won at the search; it is often lost there.

What we do at engagement

Two deliverables, both pre-emptive.

First, a search-readiness protocol document for senior management. Five pages: who to call, what to verify, what to provide, what not to provide, what to document. Refreshed annually. Tested in a mock drill every two years.

Second, on-call counsel arrangement. A defined GST litigation counsel who can be on site within 4 hours of a search starting, anywhere in the major metros. The retainer is small (typically ₹50,000-1,00,000 per year). The value if a search happens: substantial.

If you have not done either of the above, the time to do it is before the officers arrive at reception. After they arrive, the protocol is operating against the clock.