Power of search and seizure in any system of jurisprudence is an overriding power of the state to provide security and that power is necessarily regulated by law.
In any tax administration system, the statutory provisions relating to Inspection, Search, Seizure, and Arrest are integral to ensuring the integrity of the tax regime. These provisions are primarily enacted to safeguard the interests of bona fide taxpayers, who comply with the law, and to curb the malpractices of tax evaders, who, by willfully avoiding tax liabilities, obtain an unlawful and inequitable advantage over compliant taxpayers.
Such measures are not merely punitive but serve a deterrent function, thereby promoting voluntary compliance and maintaining fiscal discipline. Moreover, these provisions are essential to protect and secure the legitimate revenue interests of the Government, ensuring that public funds due under law are neither evaded nor withheld. By enabling effective enforcement, these powers create a level playing field and uphold the rule of law within the taxation framework.
It is a matter of concern that instances have been reported where GST officers, in the course of enforcement actions, have allegedly adopted coercive or high-handed measures while dealing with taxpayers. Even Justice DY Chandrachud in Supreme Court also commented in April 2021 that ‘Parliament intended GST as Citizen-Friendly Tax Structure, but its purpose is lost by the manner in which It Is enforced’.
To safeguard the interests of taxpayers and uphold the fundamental rights of citizens under the Constitution of India, any officer authorising an inspection or search must first record, in writing, the “reasons to believe” that justify such action. This requirement ensures that the power to intrude upon an individual’s privacy—an essential facet of the right to life under Article 21—is not exercised arbitrarily. A search can only be authorised when there are compelling grounds to believe that there has been a violation of the tax laws warranting such an intrusion. Importantly, the due process of law must be strictly adhered to at every stage. In the context of taxation, a reasonable suspicion of undisclosed or concealed income or assets, based on tangible information or credible evidence, is deemed sufficient for issuance of a valid search warrant.
In this article, we aim to explore the significance of the concept of “Reasons to Believe” as a prerequisite for granting authorisation for search under the Goods and Services Tax (GST) regime. We will examine the legal necessity and procedural safeguards associated with recording such reasons, and analyze the potential consequences of non-compliance by the authorised officer. Most importantly, this article will delve into the issue of adequacy and sufficiency of the “Reasons to Believe” as recorded by the officer empowered to authorise a search, and assess whether such recordings stand the test of legal scrutiny.
Necessity of “Reasons to Believe” – Concept and Scope
“Reasons to Believe” are very fundamental and essential ‘ingredients’ that must be shown to exist prior to grant of authorization by Joint Commissioner or any other officer in Form INS-01, who will be empowered to discharge duties as the ‘Authorized Officer’ for inspection or search & Seizure of the premises or goods.
It is very well evident from the provisions of Section 67 that Proper Officer (Joint Commissioner or above) must have Reason to believe before authorising any action of Inspection or Search & Seizure as well.
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.
‘Reasons to believe’, must be only in respect of the ‘contraventions’ listed in section 67 that apply to taxable person.
As per Rule 139 where Form GST INS-01 is prescribed as the format of authorization to be granted by Joint Commissioner. This format shows the specific ‘contraventions’ potentially involved, that support the request for authorization.
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 other laws like Income Tax Law.
According to sub-section 10 of section 67 the provisions of the Code of Criminal Procedure, 1973, relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted. Since the Central Goods and Services Tax Act, 2017 itself makes reference to provisions of an external statute, namely the Code of Criminal Procedure, 1973, while prescribing the procedure for actions such as inspection or search, it is logical and legally tenable to draw interpretative guidance from other analogous statutes when examining the concept of “Reasons to Believe” under GST. This comparative approach helps in understanding the depth, scope, and judicial expectations surrounding this foundational requirement, especially in the absence of a detailed definition within the GST law itself.
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”.
“Reasons to believe” is more than a ‘suspicion’ but less than ‘evidence in possession’ about a potential tax evasion. 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. The recording of reasons should reflect that the officer has genuinely applied his mind and not acted on directions or assumptions.
The true scope and interpretation of the term “Reasons to Believe” can be better understood by referring to judicial pronouncements of various High Courts and the Hon’ble Supreme Court of India:-
Over time, the judiciary has laid down clear parameters to distinguish between mere suspicion and a bona fide belief based on tangible material, thereby providing much-needed clarity on the legal threshold required for authorising a search.
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).
That means reasons to believe must be strong & compelling and 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.
The belief recorded must have a rational connection or a relevant bearing to the formation of the belief and should not be extraneous or irrelevant to the purpose of the section.
Hon’ble supreme court in the case of ‘ITO vs 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 reason for the formation of the belief must be held in good faith and should not be a mere pretence.
M/s R.J Trading Co. vs Commissioner of Central GST, Delhi. The officers concerned should bear in mind that the search and seizure power conferred upon them is an intrusive power, which needs to be wielded with utmost care and caution. The legislature has, therefore, consciously ring- fenced this power by inserting the controlling provision, i.e., “reasons to believe”.
It is well-established that the expression reason to believe does not carry the same connotation as say reason to suspect; the standard of belief is that of a reasonable and honest person and not one based on surmises and conjectures, or mere suspicion. It is open to the concerned authority to form a prima facie view based on evidence that may be direct or circumstantial. In other words, the belief of the concerned authority should be based on some actionable material that he has had an opportunity to peruse. Furthermore, the material placed before the concerned authority, i.e., the proper officer should have nexus with the formation of the belief.
In M/s Innovation, Secunderabad & Others v. CBEC & Others (1984) 15 ELT 91 (AP), it was held that it is well settled that an officer cannot search any premises or of seize any goods, in the hope of ultimately discovering some basis or ground to justify the search or seizure. This again clarifies the legal position that ‘Reasons to Believe’ shall pre-exists the aurthorisation of search by Joint Commissioner of GST.
In the case of N. Nagendra Rao Vs. State of AP (1994) 6 SCC 205 it was further held that forming an opinion qua reasons to believe has to be based upon material on record and the same cannot be arbitrary, capricious or whimsical and the same view was reiterated in the case of Ganga Saran Vs. ITO (1981) 130 ITR 1.
That the Hon’ble Delhi High Court in the matter of L R Gupta Vs. UOI (1992) 194 ITR 32 held that the reason to believe must be backed by adequate material and not on assumption and whims as reason to believe has a wider scope than reason to suspect.
That further in Gurmukh Singh Vs. Union of India 1984 (18) ELT 274 Hon’ble Punjab & Haryana High Court held that the search cannot be based on mere suspicion. Further it was held that where the search was conducted and certain articles were seized but the articles/materials so seized could on which the department is relying upon could give rise to nothing other than a suspicion, then the said action of search is termed as for no jurisdiction.
In conclusion, officers acting under the CGST Act, 2017 are legally required to properly record their reasons to believe before conducting a search. These reasons must be documented in line with the provisions of the CGST Act, 2017, read with the relevant sections of the Criminal Procedure Code (Cr.P.C.). The belief must be based on credible and concrete evidence—not on mere suspicion, assumptions, or hearsay. The power to search a taxpayer’s premises is a serious matter, as it directly impacts a person’s right to privacy. Therefore, it must be exercised with utmost caution and responsibility, keeping in mind the protections guaranteed under Article 21 of the Constitution of India.
LEGAL POSITION OF “REASONS TO BELIEVE” under GST:
For understanding the legal position related to ‘Reasons to Believe’ under GST, we have to analyse Section 67 of the GST which deals with the powers related Inspection, Search and Seizure under GST. Relevant extracts of the Section 67 is produced here under for reference:-
Extracts of Section 67:
(1) Where the proper officer, not below the rank of Joint Commissioner, have 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.
(2) 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:
Reasons must pre-exist and pre-date the grant of authorization:
Existence of ‘Reason to Believe’ provided jurisdiction to the ‘Joint Commissioner’ of GST to exercise power of aurthorisation of Inspection, Search & Seizure and all consequent actions taken by Authorized Officer in executing the authorization granted.
Authorization issued to inspect under section 67, being extraordinary power, must be exercised with great restraint and principles of natural justice. If Joint Commissioner is unable to justify ‘reasons to believe’, when called into question, then no demand will sustain out of such tainted proceedings. Without jurisdiction, even if there are any legitimate dues, it cannot be exacted.
Under Section 67 of the Central Goods and Services Tax Act, 2017, the Joint Commissioner is empowered to initiate three distinct types of proceedings or authorisations, each based on a reasonable belief of tax evasion or non-compliance. Each of these proceedings stems from the satisfaction of the Joint Commissioner and leads to a consequential action on “seizure” by the Proper Officer, duly authorised to carry out the inspection, search, or seizure in accordance with the law.
- Inspection: JC must have “reason to believe” that any transaction relating to taxable supply has been supressed, excess input tax credit has been availed or any person involved in transportation of goods or operator of a warehouse violates the provisions of GST has thereby escaped payment of tax.
- Inspection to be extended to search: Joint Commissioner pursuant to the Inspection carried under sub-section 1 of section 67 has “reason to believe” 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.
Now, for extending the Inspection to Search, the Joint Commissioner must have reason to believe that must pre-exist and pre-date the grant of aurthorisation of Inspection to be extended to Search.
“The mere fact that certain material or information has come to light during the course of an inspection cannot, by itself, justify the subsequent grant of authorisation for conducting a search under Section 67 of the CGST Act. The competent authority must establish that there existed ‘reasons to believe’—based on tangible material or information already on record prior to the inspection—which warranted such a belief. The formation of such belief must precede the exercise of power, and cannot be a result of or justified retrospectively by discoveries made during or after the inspection.”
“Where the ‘reasons to believe’ recorded by the proper officer justify only an inspection under the CGST Act, invoking the power to conduct a search is impermissible. However, if the same set of reasons independently and sufficiently support both inspection and search, a combined authorisation may be legally granted. Importantly, if the reasons do not justify the conduct of a search prior to inspection—and are instead influenced or supplemented by findings during the inspection—the search authorisation would stand vitiated. Any material discovered during such an unlawfully authorised search would consequently be rendered inadmissible or tainted in law.”
- Search Joint Commissioner has “reason to believe” 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.
- Seizure by the Proper officer: The proper officer authorised by the Joint Commissioner must have record ‘Reasons to Believe’ in writing before making seizure by passing a seizure order in Form INS-02 that:
- The goods are liable to be confiscation- which are secreted and detected during search, or
- Any documents or books or things which, in his opinion, will be useful for or relevant to any proceedings under the Act, are secreted in any place and detected during search.
“Reason to Believe” is also required for Seizure consequential to the search.
A well settled Jurisprudence related to other law such as Income-Tax, Sales Tax, VAT and Customs and it can be extended to GST Legal framework that:
- ‘Reasons to Believe’ is more than a suspicion and less than evidence.
- Aurthorisation for Inspection, search and seizure to be granted only based on the ‘Reasons to Believe’ of contraventions listed in the statute.
- Aurthorisation should be granted based on the ‘Reasons to Believe’ based on material taken on record after close scrutiny of the material presented before the Joint Commissioner.
- File must mention the types of the records available, the nature of investigation made, the material provided to the JC for review, the further investigation made by the JC, the close review of the investigation done by junior staff and further investigation done by the JC and the satisfaction arrived forming the ‘Reasons to Believe’ before granting aurthorisation u/s 67.
- ‘Reasons to Believe’ must the outcome of the independent investigation done by the Joint Commissioner and conclusion drawn in an impartial manner.
- ‘Reasons to Believe’ must be recorded in writing in the file by the Proper Officer i.e Joint Commissioner before granting aurthorisation u/s 67 of the GST Act.
Author’s Opinion: As concluded above, the mere fact that certain material was discovered during the course of an inspection cannot, by itself, justify the grant of authorization to conduct a search under Section 67 of the CGST Act. It is imperative that the ‘reasons to believe’—a jurisdictional precondition for authorizing a search—must be based on material available on record prior to the inspection. These reasons must exist independently and cannot be retrospectively constructed on the basis of what is discovered during the inspection itself. However, in case of Inspection or Search under GST, a potential concern arises in practice wherein officers forming part of the inspection party or search party may, during the course of an inspection, proceed to expand its scope into a search, and subsequently attempt to justify the search authorization by relying on material discovered thereafter. In such instances, there is a risk that the reasons recorded in writing for the inspection or search—purportedly pre-existing—may, in reality, be post facto justifications, incorporating facts and evidence that came to light only during or after the inspection.
In line with the Government’s stated objective of ensuring transparency and accountability in the administration of indirect taxes through the extensive use of information technology, the Central Board of Indirect Taxes and Customs (CBIC) had, as early as 2019, introduced the system of electronic generation of Document Identification Numbers (DIN) vide Circular No. 122/41/2019-GST dated 5th November 2019, followed by Circular No. 128/47/2019-GST dated 23rd December 2019.
In the same spirit of promoting transparency and maintaining institutional checks and balances, it is respectfully submitted that the ‘Reasons to Believe’—which are required to be recorded in writing prior to the grant of inspection or search authorization under Section 67 of the CGST Act—should mandatorily be transmitted via official email to the Chairman of the CBIC. Upon receiving acknowledgment of the said communication, the Proper Officer may then proceed to issue the authorization for inspection or search in Form INS-01. Furthermore, the date & time of acknowledgment of receipt from the CBIC should be specifically noted on the face of Form INS-01 and in the remarks while generating DIN for the purpose of aurthorisation u/s 67(1) & 67(2) of the CGST Act’ 2017 in Form INS-01, thereby ensuring verifiable procedural compliance and also serve as deterrent against any potential misuse of search powers.
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