Taxation Laws Project

On

GST : Analysis and Procedure Related to Search and Seizures

Submitted to:

Dr. Archana Shyam Gharote

Faculty of Taxation Laws

Submitted by:
Arpit Parakh
Roll no. 33
Semester V, Section A
B.A. LL.B. (Hons.)

Submitted on:3rd September, 2019

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Uparwara Post, Abhanpur, Atal Nagar (C.G.) – 492002 I | P a g e

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 DECLARATION OF ORIGINALITY
I, Arpit Gupta, have undergone research of the project work titled “GST : Analysis and
Procedure Related to Search and Seizures , as a student of Taxation Laws. I hereby declare
that this Research Project has been prepared by the student for academic purpose only, and is the
outcome of the investigation done by me and also prepared by myself under the supervision of
Dr. Archana Shyam Gharote , Faculty of Taxation Laws, Hidayatullah National Law University,
Raipur. The views expressed in the report are personal to the student and do not reflect the views
of any authority or any other person, and do not bind the statute in any manner.
I also declare that this Research Paper or any part, thereof has not been or is not being submitted
elsewhere for the award of any degree or Diploma. This report is the intellectual property of the
on the part of student research work, and the same or any part thereof may not be used in any
manner whatsoever in writing.

Arpit Parakh
Roll. No. 33
Semester V, Section A

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 ACKNOWLEDGMENT

I feel highly elated to work on the project GST : Analysis and Procedure Related to Search
and Seizures. The practical realization of the project has obligated the assistance of many
persons. Firstly, I express my deepest gratitude towards Dr. Archana Shyam Gharote, Faculty of
Taxation Laws, to provide me with the opportunity to work on this project. Her able guidance
and supervision in terms of her lectures were of extreme help in understanding and carrying out
the nuances of this project. I would also like to thank The University for providing extensive
database resources in the library and for the internet facilities provided by the University. Some
typography or printing errors might have crept in, which are deeply regretted. I would be grateful
to receive comments and suggestions to further improve this project.
Arpit Parakh
Roll. No. 33
Semester V, Section A

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TABLE OF CONTENTS

S.no Particulars Pg.no

1. Declaration of Originality I

2. Acknowledgments II

3. Introduction 01

4. Research Methodology 02

5. Objective 02

6. Scope of Study 02

7. Methodology 02

8. Area of Study 03

9. Sources of Study 03

10. Tools of Observation 03

11. Organization of Study 03

12. Need of Constitutional Amendment and Relevance of GST 04

13. Advantages and Disadvantages of GST 09

14. Future of GST 15

15. Search and seizure under GST 22

16. Conclusions 32

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 17. References 33

CHAPTER-1
INTRODUCTION
GST stands for Goods and Services Tax which replaced the previous structure of Indirect
Taxation. Tax as a source of revenue is important for economy. The main source of revenue for
government of India is from tax. Direct and indirect taxes are the two main source of tax
revenue. When the impact and incidence falls on same person it is called direct tax. When the
impact and incidence falls on different person that is when burden can be shifted to other person
it is called indirect tax. The indirect tax system is currently mired in multi-layered taxes levied
by the Centre and state governments at different stages of the supply chain such as excise duty,
octroi, central sales tax (CST) and value-added tax (VAT), among others. First Indirect Tax
Reform occurred in India when the Modified Value Added Tax (MODVAT) was introduced for
selected commodities in 1986 to replace the Central Excise Duty. The other reforms are the
introduction of service tax in 1994, decision to introduce VAT in 1999, introduction of
Constitution Amendment Bill on GST in 2011.1

Goods and Services Tax (GST) is also an indirect tax which was introduced in India on 1 July
2017 and was applicable throughout India which replaced multiple cascading taxes levied by the
central and state governments. It was introduced as The Constitution (One Hundred and First
Amendment) Act 2017,2 following the passage of Constitution 122nd Amendment Bill. The GST
is governed by a GST Council and its Chairman is the Finance Minister of India. Under GST,
goods and services are taxed at the following rates, 0, 5%, 12%, 18% and 28%. There is a special
rate of 0.25% on rough precious and semi-precious stones and 3% on gold.3 In addition a cess of
15% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and

1
Dr. R. Runa, GST IN INDIA: AN OVERVIEW, INT‟L E&R J., E-ISSN No. 2454-9916 | Volume 3, Issue 2, Feb
2017.
2
THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016, Amendment No. 101 of
September 8, 2016.
3
"All your queries on GST answered". The Hindu. Retrieved 2017-06-30.
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tobacco products.4 GST was initially proposed to replace a slew of indirect taxes with a unified
tax and was therefore set to dramatically reshape the country's 2 trillion dollar economy. 5 The
rate of GST in India is between double to four times that levied in other countries like
Singapore.6

Traditionally India's tax regime relied heavily on indirect taxes. Revenue from indirect taxes was
the major source of tax revenue till tax reforms were undertaken during nineties. The major
argument put forth for heavy reliance on indirect taxes was that the India's majority of population
was poor and thus widening base of direct taxes had inherent limitations. But the Indian system
of indirect taxation is characterized by cascading, distorting tax on production of goods and
services which leads to hampering productivity and slower economic growth. There were endless
taxes in preceding system few levied by Centre and rest levied by state, to remove this
multiplicity of taxes and reducing the burden of the tax payer a simple tax was required and that
is Goods and Service Tax (GST). This project report throws an insight into the Goods and
Service Tax concept, advantages, disadvantages and international scenario.

Research Questions
The Paper deals with. The questions to be dealt with are:

4
"GST: Cars, durables face 28% rate; luxury vehicles to attract 15% cess", Business Standard, 18 May 2017.
5
"Film theatres in Tamil Nadu to begin indefinite strike against GST". The Hindu. 2 July 2017. Retrieved 3 July
2017.
6
"Explained: The Short, Medium and Long-Term Fallout of India‟s GST". The Wire. Wire analysis. 2 July 2017.
Retrieved 3 July 2017.
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 1. What is GST?
2. What was need to amend and replace previous Tax laws?
3. What are benefits of GST?
4. What is the future aspect of GST in India?
5. What are powers of officer authorized to searh and seizure.

Objectives of the Study

The objectives of this study are as follows:

1. To study the basics of GST.

2. To study the impact of GST.
3. To study the Flaws of the previous taxation system.
4. To study the future of GST in India.
5. To study the Provisions related to search and seizures

Scope of Study
The project encompasses the complete concept of GST. It tries to study as to why there was a
need to amend the previous tax regime and implement GST. The paper also studies about the
flaws that were prevalent in the previous tax system and how after the implementation of GST
it has improved. It also studies the future of GST in India. and gives a overview about the
powers of search and seizure under the act.

Methodology of Study
Nature of research: This research paper is analytical in nature. It analyzes the concept of
tax and how it is important for India. It analyses the previous and amended tax structure
and establish how it will be helpful for India in future.

Sources of Data: This study is done with the help of Primary as well as secondary data.
The secondary information has been obtained from published sources such as books,
journals, websites, doctrines, research works etc.

Tools of Observations

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The study uses naturalistic observation as a tool of research. The paper deals with a historical
event and thus participant observation was not possible. A huge reliance has been placed on
the secondary sources of data and research.

Organization of Study
The project has been organized into five sections. The first section deals with the introduction
of the topic followed by objectives and methodology adopted for carrying out the study. The
second section deals with GST and its historical evolution. The third section deals with impact
of GST on Indian Taxation System. the fourth section deals with criticisms, concluding
observations and suggestions,Finally fifth section deals with the powers related to search and
seizures.

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 Chapter-2
NEED FOR CONSTITUTIONAL AMENDMENT FOR GST

In 2000, an empowered committee was set up by NDA government under the chairmanship of
Asim Das Gupta to design GST model. With UPA in power union finance minister, Mr.
P.Chidambaram, proclaimed the implementation of GST from April2010 in budget of 2007and
Set up an empowered committee of state Finance ministers to work with center. Therefore, on 10
May 2007 Joint Working Group was set up by empowered committee of state finance ministers
which submitted the report in Nov 2007.First detailed discussion paper on structure of GST was
introduced by empowered committee in Nov 2009 with the objective of generating a debate and
getting the inputs from all stakeholders. It suggested a dual GST Module along with a GST
Council and finally in March 2011, constitution 115th Amendment bill was introduced to draw up
laws for implementing GST. It includes the followings:

1)Setting up of GST COUNCIL by the president within 60 days of passage of bill. The Council
will chaired by union finance minister and its members includes mos for revenue And finance
ministers of states. It will work on GST rates, exemption limits etc.

2)Setting up of a GST Dispute Settlement Authority having three members to resolve dispute
arising among states and take action against states.

3)GST Amendment Bill was referred to parliamentary committee on finance for evaluation. In
Aug 2013 the standing committee submitted the report and recommended that proposed dispute
Settlement Authority should be removed and its mechanism should be given to GST Council
itself. It also recommended that GST Council should take decision by voting rather than
consensus. The representation in the GST Council should be 1/3 from central and rest 2/3 from
states. The decision in the council should be passed with more than ¾ vote representatives
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present. The quorum of council is raised from proposed 1/3 to half by standing committee. But
the proposed 115 amendment bill was lapsed with dissolution of 15th Lok Sabha. On 19 Dec
2014 after making slight changes in GST Bill, NDA government redefined it in 16 th Lok Sabha
as 122nd Amendment of constitution. On 6 may 2015 it passed in lower house of Government.

Currently, the 122nd Constitutional amendment is crag fasted in Rajya Sabha where it has to
Passed with 2/3rd majority in order to be implemented from 1April 2016.

The Constitution provides for clear division of powers in respect of taxation between the Centre
and states. While the Centre at present does not have the right to tax sale of goods, except in the
case of inter-state sale, states cannot levy tax on services. The divisions are mentioned in the
Article 246 under the Seventh Schedule of the Constitution. The Constitution needs to be
amended to provide for giving power to both the Centre and states in respect of GST, a single tax
on goods and services.

Therefore, the very first provision of the Bill is to add Article 246A after Article 246.
It says Parliament and the legislature of every state will have the power to make laws with
respect to goods and services tax imposed by the Union or by such state.
In the case of inter-state supply of goods or services or both, only Parliament will have the
power.

There are several articles in the constitution of India which define the financial relations between
Union and States. Since GST bills involve a huge interest of the state governments, such a
historical tax reform cannot take place without making suitable changes into the constitution. For
this purpose, 101st amendment of the constitution was passed. This act received the assent of the
President of India on 8th September, 2016. The important changes made in constitution (new
articles / amended articles) via this law are as follows:

Article 246 (A)

 Both Union and States in India now have “concurrent powers” to make law with respect
to goods & services

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  The intra-state trade now comes under the jurisdiction of both centre and state; while
inter-state trade and commerce is “exclusively” under central government jurisdiction.

Article 269A

 This Article says that in case of the inter-state trade, the tax will be levied and collected
by the Government of India and shared between the Union and States as per
recommendation of the GST Council.
 The article also makes it clear that the proceeds such collected will not be credited to the
consolidated fund of India or state but respective share shall be assigned to that state or
center. The reason for the same is that under GST, where Centre collects the tax, it
assigns state‟s share to state, while where state collects tax, it assigns Centre‟s share to
Centre. If that proceed is deposited in Consolidated Fund of India or state, then, every
time there will be a need to pass an appropriation tax. Thus, under GST, the
apportionment of the tax revenue will take place outside the Consolidated Funds. 7

Article 279-A:

This article provides for constitution of a GST council by president within sixty days from this
act coming into force. The GST council will constitute the following members:

 Union Finance Minister as chairman of the council

 Union Minister of State in charge of Revenue or Finance
 One nominated member from each state who is in charge of finance or taxation

The GST council will be empowered to take decisions on the following:

 The taxes, cesses and surcharges levied by the Union, the States and the local bodies
which may be subsumed in the goods and services tax;

7
Monika Sehrawat and Upasana Dhanda GST IN INDIA: A KEY TAX REFORM, International Journal of
Research GranthalyVol.3 Issue 12 ISSN:2350-0530(O).

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  The goods and services that may be subjected to, or exempted from, the goods and
services tax;
 Model Goods and Services Tax Laws, principles of levy, apportionment of Integrated
Goods and Services Tax and the principles that govern the place of supply;
 The threshold limit of turnover below which goods and services may be exempted from
goods and services tax;
 The rates including floor rates with bands of goods and services tax;
 Any special rate or rates for a specified period, to raise additional resources during any
natural calamity or disaster;
 Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and
Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh
and Uttarakhand; and
 Any other matter relating to the goods and services tax, as the Council may decide.

All decisions taken at the GST council will be taken based on voting. Process of voting is clearly
articulated in detail in the constitutional amendment bill.

Changes in the 7th Schedule

This amendment has made following changes in 7th schedule of the constitution:

Union List:

 The entry 84 of Union List earlier comprised the duties on tobacco, alcoholic liquors,
opium, Indian hemp, narcotic drugs and narcotics, medical and toilet preparations. After
this amendment, it will comprise of Petroleum crude, high speed diesel, motor spirit
(petrol), natural gas, and aviation turbine fuel, tobacco and tobacco products. Thus, these
are now out of ambit of GST and subject to Union jurisdiction.
 Entry 92 (newspapers and on advertisements published therein) has been deleted thus,
they are now under GST.
 Entry 92-C (Service Tax) has been now deleted from union list.

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State List

 Under State list, entry 52 (entry tax for sale in state) has been deleted.
 In Entry 54, Taxes on the sale or purchase of goods other than newspapers, subject to the
provisions of Entry 92-A of List I.; has been now replaced by Taxes on the sale of
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural
gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including
sale in the course of inter-State trade or commerce or sale in the course of international
trade or commerce of such goods.”
 Entry 55 (advertisement taxes) have been deleted.
 Entry 62 (Taxes on luxuries, including taxes on entertainments, amusements, betting and
gambling) has been replaced by these taxes only to be levied by local governments
(panchayats, municipality, regional council or district council.

Other Important amendments in existing articles

 The residuary power of legislation of Parliament under article 248 is now subject to
article 246A.
 Article 249 has been changed so that if 2/3rd majority resolution is passed by Rajya
Sabha; the Parliament will have powers to make necessary laws with respect to GST in
national interest.
 Article 250 has been amended so that parliament will have powers to make laws related
to GST during emergency period.
 Article 268 has been amended so that excise duty on medicinal and toilet preparation will
be omitted from the state list and will be subsumed in GST.
 Article 268A has been repealed so now service tax is subsumed in GST.
 Article 269 would empower the parliament to make GST related laws for inter-state trade
/ commerce.

Further, the amendment also provided that Parliament shall, by law, on the recommendation of
the Goods and Services Tax Council, provide for compensation to the States for loss of revenue

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arising on account of implementation of the goods and services tax for a period of five years.
This resulted into the Compensation Cess Bill.8

Chapter-3

ADVANTAGES AND DISADVANTAGES OF GST IN

RELEVANCE TO THE PREVIOUS TAXATION SYSTEM

One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) is all set to
integrate State economies and boost overall growth. GST will create a single, unified Indian
market to make the economy stronger. The implementation of GST will lead to the abolition of
other taxes such as octroy, Central Sales Tax (CST), State-level sales tax / Value Added Tax,
entry tax, stamp duty, telecom license fees, turnover tax, tax on consumption or sale of
electricity, taxes on transportation of goods and services, et cetera. Thus avoiding multiple layers
of taxation that used to exist in India, GST is a comprehensive tax levy on manufacture, sale and
consumption of goods and services at a national level. Through a tax credit mechanism, this tax
is collected on value-addition on goods and services at each stage of sale or purchase in the
supply chain. The system allows the set-off of GST paid on the procurement of goods and
services against the GST which is payable on the supply of goods or services. However, the end
consumer bears this tax as he/she is the last person in the supply chain.9

NEED FOR GST MODEL IN INDIA

 Earlier system allows for multiplicity of taxes; the introduction of GST is likely to rationalize
it. These taxes i.e. Excise, VAT, CST, Entry Tax have the cascading effects of taxes.
Therefore, we end up in paying tax on tax. GST will replace such taxes.
8
Ehtisham Ahmad and Satyam Poddar , GST Reform and Inter government Consideration In India LSE Law
Review.
9
K. Rajesh, An Economic Pros and Cons of Goods and Service Tax (GST) In India, (last accessed on 12-8-19, 7:27
p.m.) http://www.internationaljournalssrg.org/IJEMS/2017/Volume4-Issue5/IJEMS-V4I5P107.pdf.
14 | P a g e
 Many areas of Services which are untaxed. After the introduction of GST, they will also get
covered.
 GST will help to avoid distortions caused by preceding complex tax structure and will help in
development of a common national market. It will lead to credit availability on interstate
purchases and reduction in compliance requirements. It will further achieve uniformity of
taxes across the territory, regardless of place of manufacture or distribution.
 GST will do more than simply redistribute the tax burden from one sector or Group in the
economy to another.
 It will provide greater certainty and transparency of taxes and will further ensure tax
compliance across the country
 GST will avoid double taxation to some extent.
 The implementation of GST would ensure that India provides a tax regime that is almost
similar to the rest of world. It will also improve the International cost competitiveness of
native Goods and Services.
 GST will provide unbiased tax structure that is neutral to business processes and
geographical locations.
 Goods and Service Tax in the true spirit will have many positives for the stakeholders and

will lead to a better tax environment.10

IMPACT OF GOODS AND SERVICE TAX

Goods and services tax (GST) has become a reality from July 1. There are expectations that the
tax reform will boost the Indian economy and huge shift will be seen from unorganized to
organized sector. However, some near term hiccups can be seen for the next one or two quarters.
According to market experts, job creation will remain a concern as the unorganized sector shifts
towards the organized sector. Hereby mentioned are some of the crucial sectors and likely impact
of GST on them-

10
Panda Eurobond, The Impact of GST (Goods and Services Tax) on the Indian Tax Scene, SSRN ELECTRONIC
JOURNAL, https://www.researchgate.net/publication/228285785.
15 | P a g e
1. FMCG- Fast moving consumer goods sector will benefit from the GST due to the present of
big unorganized market. GST rate for products like hair oil, soaps and toothpaste has been
lowered by 500-600 bps from the previous rates.

2. Pharma and healthcare- Pharmaceutical products will see 12 per cent GST as against earlier
rate of 10 per cent. The healthcare sector will remain exempt from the GST however the
inputs by the healthcare sector will be taxed at 18 per cent leading to rise in the operating
costs.

3. Consumer durables- White good players were previously taxed at 27 per cent (including 13.5
per cent VAT) against 28 per cent under the new GST regime. There are expectations that
with GST coming in picture, there will be some increase in the prices of most consumer
durable items. However, market analysts do not see any significant impact on the margins
of the consumer durable companies post GST implementation.

4. Airlines- Travelling in business class will become expensive as after the rollout of GST, tax
rate will increase from 9 per cent to 12 per cent. However, GST on economy class is set at
5 per cent, lower than the previous 6 per cent. Aviation Turbine Fuel has kept outside the
GST and the indirect tax structure will continue. As a result, aviation companies will now
face two set of taxes, i.e. GST and indirect tax. Tax input credit under the GST is only
available on input services for economy class travel.

5. Brokers and equity investments- With the service tax being subsumed into your overall
GST, the rate of GST on financial services stands modified from 15 per cent to 18 per
cent. From a long-term investor‟s perspective, this may not be too significant since the
overall shift is just about 3 basis points. However, for short term traders, this 3 basis points
additional cost will change the economics of churning their funds in the equity markets.
Whether that actually impacts the eventual volumes and liquidity in the markets remains
to be seen. One thing investors and traders need to watch out for in the equity market is
whether this higher cost results increases the basis risk or not.

6. Cement- GST implementation is expected to be neutral for the cement industry. Earlier,
cement was taxed at 12.5 per cent excise and VAT rates between 12.5-15.5 per cent.
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 Under GST, the cement will be taxed at 28 per cent, which is nearly the same as the
current tax structure. Reduction in the prices of coal and GST will benefit cement
companies further.

7. Telecom- Under the GST regime, telecom services will be taxed at 18 per cent as against 15
per cent earlier. There are expectations that it will work as a salt on the wound for the
sector. Any price increase will further dampen the scenario.

8. Automobile and auto ancillaries- The GST rates are mostly expected to be neutral to the
auto sector except for the hybrid cars which will be taxed at the 28 per cent GST +15 per
cent cess. Most other vehicle categories will not see significant change from the current
tax structure. Tractors category will be taxed at 12 per cent against current 6-7 per cent
which will be negative for the tractor companies.11

ADVANTAGES AND DISADVANTAGES OF GST TAX IN INDIA

ADVANTAGES:

 A healthier business platform: It‟s going to ease the stress of taxes from the Indian man
ufacturers. They now have to pay lower taxes, and it will increase the scope of a better bu
siness environment and flexibility.
 Similar tax rate over the nation: Everyone wants to scrap the rates to drag higher numb
er of people towards his product. However, it has been seen in many occasions for the sta
tes to reduce the VAT prices to make it lucrative for the investors. In such cases, it‟s defi
nitely a loss for both Centre and state. Through GST you can have a uniform tax rate that
can avoid the above kind of issues.
 Can unite the whole nation from economic point of view: Similar tax rate at each state
would make a better trade in the nation among various states. At present, no tax credits ar
e offered for trading in the nation between the states. Ultimately, the whole nation can be
chained perfectly through the economic thread.

11
Economic Times, How GST will impact sectors, (Jul 02, 2019, 12.07 PM IST)
http://economictimes.indiatimes.com/markets/stocks/news/how-gst-will-impact-sectors/goods-services-
tax/slideshow/59408800.cms.
17 | P a g e
  Simple enough: GST is always simple. There would be nothing baffling remain like a m
anufacturing or service works. The entire economic processes of the nation can be fairly t
axed. You won‟t have to scratch your brain about different taxes; a single tax would fix e
verything. Undoubtedly, this is going to be simpler to get, and sleeker to operate as well.
In fact, it could be made a policy point for a better understanding of VAT for the traders.
Apparently, the whole process of management and understanding the taxation system will
be simpler.
 More number of tax payers: GST can make a higher count of the tax payers. Hence, the
cut in tax rates can be well manifested by the increase in number of tax payers.12
 Lift for the Lesser Developed States – The normal rules stay put as the 2% interstate-le
vy with the major chunk of production kept within the state itself. However, with the cha
nge in rules, the tax amount can be dispersed across the nation to offer a greater lift for th
e lesser-developed state.

DISADVANTAGES:

 A dominating Centre: It‟s quite apparent that the whole process of GST is going to mak
e Centre a way lot powerful as the Centre has to specify the rate of revenue that has to be
shared with the states. There is every chance for some states to put up with a loss in terms
of tax sharing. In addition, the Centre might fix everything about the whole recompense.
The Centre can hike the tax rates for states for compensation. Many protests are quite obv
ious to appear.
 Not a good choice for some states: Especially, the states like Jharkhand those are more
dependent upon their products, rather than services now have to share their revenue with t
he government. It‟s going to make a huge loss for them as they don‟t have adequate servi
ce for compensation.
 Not consumer friendly: GST is going to fetch the amount from the consumers that used
not to be taken from the manufacturers through tax credit system. Undoubtedly, this will
make the consumers unhappy.

12
Top Buzz, Santosh, what is GST Tax? Pros and Cons of GST Tax in India, (last accessed on 12-8-19, 08:32 p.m.)
http://www.topbuzz.in/what-is-gst-tax-pros-and-cons-of-gst-tax-in-india.html.
18 | P a g e
  Would impact the Real-State Market – GST Tax would swell negative remarks on the
real-estate as perceived, GST will increase the cost of the new homes by 8% which in tur
n will cease the demand by 12%.
 Old Wine in a New Bottle – According to the experts, terms such as GST which include
s CGST, SGST, and IGST is nothing but just a new name in accordance with the existing
tax systems. Kind of old wine in a new bottle.
 Costlier Service – The current Service Tax stands at 15% as of now which will increase t
o 18%-20% when GST is levied. As such many services will be on the costlier side with t
elecom, airline and banking affected majorly. In fact, insurance and petroleum are also sa
id to be majorly affected by the enactment of GST Tax.

CHAPTER 4
FUTURE OF GST IN INDIA

At the stroke of midnight on the last day of June, India formally entered the Goods and Services
(GST) Tax era. There is a lot of optimism about the new regime, but also some amount of
apprehension. A lot of this concern revolves around the changes that the movement to GST
entails rather than a fear of the regulation itself. Every time there is a new rule, whether it is the
RERA [Real Estate (Regulation and Development) Act] or the bankruptcy code, there is a lot of
apprehension about the way in which the systems and processes will have to change. But these
regulations have had a positive impact and will reap economic rewards for us in the future.

Given how mammoth it is, GST was certain to attract some concerns. But we need to give the
economy some time to adjust to the new normal. Three to six months down the line, we will start
to see the incremental benefits of GST trickling in.

GST is going to be a critical reform for the Indian economy as it would simplify taxation norms
by consolidating a range of taxes under one single umbrella. At present, different states have
different tax laws. There are nearly 17 taxes that businesses pay to various authorities, making it
a cumbersome and expensive affair. GST will result in a simplified tax structure and a unified
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tax base, with common rules and administrative procedures coming into effect across the
country. It will also result in widening of the tax base to include a comprehensive list of goods
and services. This will bring in transparency and encourage investments in organized sectors,
helping the economy gather growth momentum.

BOOST TO FDI

Since GST is expected to have a massive impact across all sectors, the boost to Foreign
Direct Investment (FDI) will also be significant. Overall, we will see a major shift from the
unorganized sector to the organized one. With improved efficiency and productivity, India‟s
position as a leading market for FDI investment would be further enhanced. By simplifying
the tax structure, the government is effectively incentivizing foreign investors to increase
their investment quantum in India.

India is currently ranked 172/190 in ease of paying taxes, under the Ease of Doing Business
index published by the World Bank. The government would be hoping to significantly
improve this with the implementation of GST. The improvement in the overall economic
outlook will create a conducive environment for foreign investment, with the expectation of
faster growth driven by formalization of economy and lower compliance coupled with
existing factors like favorable demographics and low cost advantage.

BASE SET FOR STRONG GROWTH

It is estimated that from 2018-19 onwards, India should cross the 8 percent GDP growth rate
driven by the organic improvement in the economy coupled with the GST upshot.
Consumption is already on an uptick. The global economy is also improving and commodity
prices have firmed up. So when you add up all this with the fact that oil prices continue to
remain low, India is geared for strong growth going forward. In the long run, GST could
potentially add 1.5-2 percent to the GDP and I would not be surprised to see double digit
growth in the economy for a sustained period of time.13

GOODS AND SERVICES TAX NETWORK (GSTN)

13
Rashes Shah, GST: A critical reform that will drive economic growth, (Jul 15, 2017)
http://www.forbesindia.com/article/special/gst-a-critical-reform-that-will-drive-economic-growth/47571/1.
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 As per the government website on GST, "Goods and Services Tax" Network (GSTN) is a
nonprofit organization proposed to be formed for creating a website / platform for all the
concerned parties related to the GST, namely stakeholders, government and taxpayers to
collaborate on a single portal. When up and running, the portal is supposed to be accessible
to the central government which allows it to track down every transaction on its end while
taxpayers are advertised to have the ability of connecting this to their tax returns. However,
its efficacy and efficiency is yet to be tested. The IT network was touted to be developed by
unnamed private firms. The known authorized capital of GSTN is Rs.10 crores
(US$1.6 million) in which Central Government holds 24.5 percent of shares while the state
government holds 24.5 percent and rest with private banking firms for smooth running of
the transactions.14

14
Goods and Services Tax Network, (Last accessed on 9-8-2019, 09:41 a.m.), http://www.gstn.org/about-us/.
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 CHAPTER-5

SEARCH AND SEIZURES.

Power of Search and Seizure are very strong investigation tool in the hands of revenue
authorities, which gives enormous opportunity to gather evidences and unearth suppressed things
and information so as to properly identify evasion of payment of tax and/ or contravention of any
provisions of the law. However, such an action is having an effect of interfering into one‟s
independence in addition to having a chances of hampering business activities to some extent,
hence normally these powers are exercised as a last resort of gathering information. To ensure
safeguarding interest of regular, law abiding and honest tax payers, reasonable provisions have
been incorporated in law. The provisions of Section. 67 to 72 of the Central/ State Goods and
Services Tax Act 2017, and Rule 139 to Rule 141 of C/SGST Act deals with powers and
procedure of Inspection, Search & Seizure , summary of which can be presented as under

Chapter XIV
of C/SGST Act

Inspection [Sec. Inspection of Goods in

Search & Seizure Other provisions
67(1)] Movement [Sec. 68]
[Sec. 67(2)

Sec. 70 -
Sec. 69 - Power
power to
to Arrest Sec.
Summon Sec.
72 - Officers to
71 - Access
assist proper
to Business
officer
Premises

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Provisions of GST law are similar but not exactly same as that of pre-GST laws. Section 67
provides for Inspection as well as Search & Seizure of goods. Inspection is much softer version
of Search & Seizure and are similar to Survey as enumerated under section 133A of the Income
Tax Act 1961.

B. Initiation of Inspection Proceedings

Section 67(1) reads as “where the proper officer, not below the rank of Joint Commissioner, has
reasons to believe that;
a. a taxable person has suppressed any transaction relating to supply of goods or services or
both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement
under this Act or has indulged in contravention of any of the provisions of this Act or the rules
made thereunder to evade tax under this Act; or
b. any person engaged in the business of transporting goods or an owner or operator of a
warehouse or a godown or any other place is keeping goods which have escaped payment of tax
or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable
under this Act,
he may authorise in writing any other officer of central tax to inspect any places of business of
the taxable person or the persons engaged in the business of transporting goods or the owner or
the operator of warehouse or godown or any other place.”
Some of key aspects of above provisions are as under;
 Authorisation of Inspection has to be given by the officer of the rank of Joint Commissioner
and above.
 Authorising officer must have Reason to Believe about o Taxable person –  Suppressing of
any transaction; or
 Suppressing Stock in hand; or
 Claiming of excess Input Tax Credit; or

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 Indulging in contravention of any of the provisions of the law to evade tax; or
*transporter is keeping the goods which has escaped tax or has kept his accounts or goods
in
such a manner as is likely to cause evasion of tax
* operator of warehouse or godown or any other place is keeping the goods which has
escaped tax or has kept his accounts or goods in such a manner as is likely to cause
evasion of tax  Authorisation should be in writing in Form No. GST INS-01, for
Inspection
.  Inspection can be of Place of Business only.

Place of Business has been defined in Section 2(85) to include godown or any other place where
a taxable person stores his goods, maintain his books of accounts and place of agent.
Accordingly, if books of accounts are being maintained or kept at residence of director or any
other key managerial person the same may be treated as place of business and inspection can be
carried out there.

C. Initiation of Search & Seizure Proceedings

Section 67(2) says “where the proper officer, not below the rank of Joint Commissioner, either
pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe
that any goods liable to confiscation or any documents or books or things, which in his opinion
shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he
may authorise in writing any other officer of central tax to search and seize or may himself
search and seize such goods, documents or books or things”

Some of key aspects of above provisions are as under:

 Authorisation of Search & Seizure has to be given by the officer of the rank of Joint
Commissioner and above.
 Authorising officer must have Reason to Believe about

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  Goods liable for confiscation are secreted in any place
 Books, documents or something, which is useful or relevant for proceeding under GST
law, are secreted in any place
 Authorisation should be in writing in form GST INS-01 for Search.
 In case of Seizure, Order of Seizure is to be issued in form GST INS-02.

In search & seizure proceedings goods which are liable for confiscation can only be seized. As
per Section 130(1) of the C/SGST Act, following goods are liable for confiscation, under the
law:
(i) If supply is made in contravention of any of the provisions of GST law with intention to
evade payment of tax, or
(ii) If goods are not accounted for on which tax is liable to be paid or
(iii) If goods liable to tax are supplied without having applied for registration (30 days time
limit is there for applying registration, from the date person becomes liable for paying
tax)

D. Difference between Inspection & Search

Aspect Inspection – Sec. 67(1) Search – Sec. 67(2)

Primary Purpose Verification of transactions Unearthing of goods liable

of supplies, Stock in hand, for confiscation or Secreted
claim of ITC & Books, documents or
contravention of provisions things.
of the Act to evade tax.

Scope Inspection can be done at Search can be done at Any

Place of Business only Place including residence

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 of tax payer and/ or
employees.
Powers Forceful action (Sealing or Seal or Break Open the
Break Open) cannot be door of any premises or
adopted. break open any almirah,
electronic devices, box,
receptacle in which any
goods accounts, registers or
documents of the person are
suspected to be concealed,
where access to such
premises, almirah,
electronic devices, box or
receptacle is denied, can be
resorted.

Seizure of Goods Goods cannot be seized in Goods can be seized if they

inspection proceedings. are liable for confiscation.
If not practically possible to
seize, constructive seizure
can be there.

Seizure of Books of Books/ documents cannot Any secreted document,

Accounts/ Documents be seized in inspection books or things, which may
proceeding. be useful or relevant to any
proceedings can be seized.

E. Reason to believe

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It is very well evident from the provisions of Section 67 that Proper Officer (JC or above) must
have Reason to believe before authorising any action of Search & Seizure and Inspection as well.
Term „Reason to believe‟ is not defined under the GST law, however defined in Indian Penal
Code 1860. Further the scope of the said term is more or less settled under Income Tax Law. As
per section 26 of IPC “A person is said to have “reason to believe” a thing, if he has sufficient
cause to believe that thing but not otherwise”. That means there are very less room for any doubt
or ambiguity. Reason to believe refers to a positive, strong and firm opinion based on
information and evidences. It definitely a subjective matter which may vary from case to case,
however „Reason to believe is not same as that of Reason to Suspect‟ (Indian Oil Corporation –
159 ITR 956 SC).

Hon‟ble supreme court in the case of „Lakhmani Mewal Das (103 ITR 437)‟
has held that the reason for the formation of the belief must have rational connection with or
relevant bearing on the formation of the belief. The rational connection postulates that there must
be direct nexus or live link between the material coming to the notice of the Income-tax Officer
and the formation of this belief that there has been escapement of the income of the assessee
from assessment in the particular year because of his failure to disclose fully and truly all
material facts.

The Hon‟ble court further held that it is no doubt true that the court cannot go into sufficiency or
adequacy of the material substitute its own opinion for that of the Income tax officer on the point
as to whether action should be initiated for reopening assessment. At the same time we have to
bear in mind that it is not any and every material, howsoever vague and indefinite or distant,
remote and farfetched, which would warrant the formation of the belief relating to escapement of
the income of the assessee from assessment. The fact that the words "definite information" which
were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not
there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be
taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched
and remote. The reason for the formation of the belief must be held in good faith and should not
be a mere pretence.

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F. Power to Summon & Recording of Statements

As per Section 70 of the C/SGST Act proper officer(s) under the law have the power to summon
any person whose attendance he considers necessary either to give evidence or to produce a
document or any other thing in any inquiry. The summon can be given for giving evidence by
way of statement on oath or production of any books or accounts, documents or other things.
However, summon can be issued only during pendency of any enquiry under the law. While
exercising powers to issue summons provisions of the Code of Civil Procedure, 1908 shall apply
and such enquiries shall be deemed as „Judicial Proceedings‟ under section 193 and Section 228
of IPC. That means if anyone intentionally gives false evidence in response to summon issued
under section 70, or fabricates false evidence for the purpose of being used in any stage of such
enquiry, may be punished with imprisonment which may extend to seven years, and shall also be
liable to fine.

At the time of recording of statement, it is quite possible that a person doesn‟t have exact
knowledge of facts and/or figures or might have forgot the same. In such a case the documents
can be referred to refresh memory and statements can be given accordingly. As per section 59 of
the Indian Evidence Act 1872, “a witness may, while under examination, refresh his memory by
referring to any writing made by himself at the time of the transaction concerning which he is
questioned, or so soon afterwards that the Court considers it likely that the transaction was at
that time fresh in his memory. The witness may also refer to any such writing made by any other
person, and read by the witness within the time aforesaid, if when he read it he knew it to be
correct.

As regards to presence of advocate at the time of taking statement by tax authorities, it has been
held that it is not a right of the tax payer to have its counsel along with him. However, looking to
the medical or other conditions the counsel may be allowed to attend the proceedings, however
no consultation is allowed at the time of recording the statements. Hon‟ble apex court in the case

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of „Poolpandi Vs. Sup. Central Excise (60 ELT 24)‟ while holding the same ratio observed as
that “The purpose of the enquiry under the Customs Act and the other similar statutes will be
completely frustrated if the whims of the persons in possession of useful information for the
departments are allowed to prevail. For achieving the object of such an enquiry if the
appropriate authorities be of the view that such persons should be dissociated from the
atmosphere and the company of persons who provide encouragement to them in adopting a non
– cooperative attitude to the machineries of law, there cannot be any legitimate objection in
depriving them of such company. The relevant provisions of the Constitution in this regard have
to be construed in the spirit they were made and the benefits thereunder should not be expanded
to favour exploiters engaged in tax evasion at the cost of public exchequer.

Issue of summon in any inquiry, to witness or give evidence should be reasonable and not
arbitrary. The authority issuing the summon must issue summons to a witness only when the
authority considers it necessary for summoning. This necessarily implies application of mind and
is guided by the principles of reasonableness in the matter of summoning of witness. Guiding
force for issuing summon should be „necessity of witness for the purposes of inquiry‟.

Hon‟ble Jharkhand High Court in the case of „Sudhir Deora Vs. CCE (284 ELT 326)‟ had
observed that it is quite possible that the senior most officers like managing director or General
Manager, who are at the helm of the affairs of the company might not be having knowledge of
minute operational things. The hon‟ble court held that Enquiry Officer should keep in mind that
he being an Officer authorized by law to summon anybody does not make him an Officer having
no control of reasonableness and though he has right to summon any person either the Managing
Director or the General Manager of the company or even a clerk of the company but he should
not summon unless it is required for the purpose of an inquiry.

G. Release of Goods Seized

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Section 67(6)/(7), Rule 140
Goods seized at the time of search can be released on payment of applicable tax, interest and
penalty. Alternatively the goods seized can be released provisionally on furnishing of:
-04 for value of the goods, declaring that goods shall be
produced as and when required by the proper officer and any tax, interest, penalty, fine or
other law full charges shall be paid within ten days of their demand in writing AND

f tax, interest and

penalty payable in respect of such goods.

If goods are seized in any search and no notice in respect thereof is given within six months of
the seizure of the goods, such goods shall be released to the person from whose possession they
were seized.

H. Seizure of Perishable/ hazardous Goods:

Section 67(8), Rule 141, Notification No. 27/2018(CT) Dt. 13.06.2018

If the goods seized under any search proceedings are Perishable or Hazardous in nature (as
notified) the same shall be disposed of by the proper officer as soon as possible after its seizure.
If the taxable person pays lower of „market price of such goods‟ or „demand (including interest
and penalty), which is payable or may become payable, by the tax payer‟ such goods shall be
released to him after passing the order in Form GST INS-05. If the tax payer doesn‟t pay the
amount as stated above the Commissioner will dispose of such goods and realisation proceeds
shall be adjusted against tax, interest, penalty or any other amount payable in respect of such
things.

Major goods notified for purposes of Section 67(8) i.e. to be treated as perishable or hazardous
includes newspaper, batteries, petroleum products, fireworks, chemicals, drugs, unclaimed

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technology driven goods, all goods covered under chapter 1 to 24 of the Customs Tariff Act
1975 i.e. all animals and vegetables and products made from them.

I . Release of Books/ Documents Seized

Books of accounts, documents or other things seized under section 67(2) are to be kept with
proper officer till the time they are required for verification or examination for enquiry or
proceedings under the GST law. However, after issue of notice if some documents, books or
things seized are not relied upon in for issue of notice the same shall be returned within 30 days
from the date of issue of notice. However, person from whom documents are seized shall be
entitled to make copies thereof or take extracts therefrom in the presence of an authorised
officers at such place and time as such officer may indicate in this behalf except where making
such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect
the investigation.

J. Jurisdiction for Inspection, Search & Seizure

GST is unique tax law from the aspect that its first time when State and Central governments are
Levying & Collecting tax on same taxable event simultaneously. It poses challenges before the
government for administration of assessess‟s as well. To address this challenge, Section 6 was
inserted in both the enactments i.e. State and Central to provide for cross empowerment, so that
Central Tax Officer can have jurisdiction under State Tax and vice a versa too. However, due to
enabling cross jurisdiction by section 6, every tax payer gets covered by two jurisdictional
authorities. Whereas, as enumerated by government many times, the idea was to have single
jurisdiction (or interface) for all administrative purposes. In the 9th GST Council meeting held
on 16th January 2017, to ensure its objective of single interface under GST State and Central
government decided to share tax payer base, for all administrative controls, between them in the
ration of 90 : 10 for small tax payers and 50 : 50 for other tax payers. Apart from the same it was
decided that both the Central and the State tax administrations shall have the power to take

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intelligence-based enforcement action in respect of the entire value chain. However, in the
afterward meetings of GST Implementation Committee (GIC), on 25th August and 31st August
2017, the matter in relation to principles for division of taxpayers between the centre and the
states i.e. cross empowerment were discussed and laid before GST Council again in its 21st
meeting held on 9th September 2017, whereby the same was approved. For implementation of its
decisions of cross empowerment GST council issued a circular no. 1/2017 dated 20.09.2017
mentioning its decision and principles for cross empowerment under GST for all administrative
purposes. On the basis of this circular State GST Commissioners and Chief Commissioner of
Central Taxes issued joint orders for cross empowerment, whereby it was specifically written
that to ensure single interface tax payers are divided between state and centre for all
administrative controls/ purposes. It is evident from documents of above meetings and circular
that, intelligence based enforcement action was only discussed in 9th GST Council meeting and
after that neither covered in 21st GST Council meeting nor the same was covered in authoritative
documents released for cross empowerment of the assessee‟s i.e. Circular No. 1/2017 of GST
Council and Cross Empowerment Order(s) of respective states. From above analysis, prima facie
it appears that as on date Central Tax authority can exercise jurisdiction for all purposes
(including search and seizure) under both the enactments i.e. State Tax and Central Tax for
assessee‟s assigned to it only. And on the same line for assessee‟s assigned to State, all
actions can be taken up by State Tax Authorities only. This understanding is not synchronised
with what was decided in 9th council meeting for intelligence-based enforcement actions,
accordingly needs clarification or amendment in orders

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 CHAPTER -6
CONCLUSION

GST is the most logical steps towards the comprehensive indirect tax reform in our country since
independence. GST is levied on all supply of goods and provision of services as well
combination thereof. All sectors of economy whether the industry, business including Govt.
departments and service sector shall have to bear impact of GST. All sections of economy viz.,
big, medium, small scale units, intermediaries, importers, exporters, traders, professionals and
consumers shall be directly affected by GST. One of the biggest taxation reforms in India, the
Goods and Service Tax (GST), is all set to integrate State economies and boost overall growth.
GST will create a single, unified Indian market to make the economy stronger. Experts say that
GST is likely to improve tax collections and Boost India‟s economic development by breaking
tax barriers between States and integrating India through a uniform tax rate. Under GST, the
taxation burden will be divided equitably between manufacturing and services, through a lower
tax rate by increasing the tax base and minimizing exemptions.

India is all set to introduce Goods and services tax after crossing the various hurdles in its way.
GST is a long-term strategy planned by the Government and its positive impact shall be seen in
the long run only. Also, this can happen if GST is introduced at a nominal rate to reduce the
overall tax burden of the final consumers. Let us hope GST will leave a positive impact and will
help to boost-up the Indian economy and will convert India into a unified national market with
simplified tax regime. A rising Indian economy will anyways help in the financial growth of the
common man! Let us hope this „One Nation - One Tax‟ proves to be a game changer in a
positive way and proves to be beneficial not only to the common man but to the country as a
whole. There are various challenges in way of GST implementation as discussed above in the
project report. They need more analytical research to resolve the fighting interest of various
stake-holders and accomplish the commitment for a fundamental reform of tax structure in India.

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