The power of GST authorities to conduct search and investigation is an important enforcement mechanism under the Goods and Services Tax law. However, the exercise of such powers is required to remain within the statutory framework and prescribed departmental guidelines.
In an important interim order, the Gauhati High Court has directed GST authorities not to take coercive steps against a taxpayer for payment or discharge of any alleged tax liability during an ongoing search or inspection proceeding. The Court also directed the authorities to follow the applicable GST investigation guidelines.
The order is significant because it highlights the distinction between investigation and recovery of tax liability. The fact that a search is being conducted does not, by itself, permit the authorities to compel a taxpayer to discharge an alleged liability during the search.
Background of the Case
The matter arose from a writ petition filed by M/s Deepak Construction Co., a partnership firm having its principal place of business at Hijuguri, Tinsukia, Assam.
The firm’s premises were searched by State Tax officials pursuant to an authorisation dated 15 September 2026 issued in Form GST INS-01 under Section 67 of the CGST and AGST Acts.
The search commenced on the same day and was continuing when the matter came before the Gauhati High Court. According to the petitioner, although the search had not resulted in any seizure or prohibition order, the officials continued to remain at the premises, including during business hours.
The petitioner further alleged that pressure was being exerted upon it to discharge an alleged GST liability arising from wrongful availment of certain benefits during the period when its GST registration was under suspension.
Petitioner’s Reliance on GST Investigation Guidelines
A significant aspect of the case was the petitioner’s reliance on Instruction No. 01-2022-2023 [GST – Investigation] dated 25 May 2022.
The petitioner contended that insisting upon payment or discharge of alleged tax liability during the search was inconsistent with the safeguards contained in the investigation guidelines.
The issue before the Court, therefore, was not merely whether the GST authorities could investigate the taxpayer. The broader concern was whether an ongoing investigation or search could be accompanied by coercive action requiring the taxpayer to discharge an alleged liability before the statutory process for determination and recovery had been completed.
Stand of the GST Authorities
The State opposed the allegations made by the petitioner.
The authorities submitted that there were serious allegations concerning wrongful availment of benefits and contraventions of the CGST and AGST Acts. The State further submitted that if the petitioner did not discharge any liability under the applicable GST laws, the authorities would proceed in accordance with the statutory mechanism for determination of demand and recovery.
Thus, the Revenue maintained that the alleged tax liability could be dealt with through the procedure prescribed under the GST legislation.
What Did the Gauhati High Court Hold?
After considering the submissions, Justice Manish Choudhury directed the authorities to ensure that the petitioner was permitted to carry on its normal business activities.
More importantly, the Court directed that no coercive steps should be taken against the petitioner for discharge of any liability during the inspection or search proceedings.
The Court further directed the authorities to adhere to the guidelines contained in Instruction No. 01-2022-2023 [GST – Investigation] dated 25 May 2022 until the matter is taken up on the next date.
The Court’s direction is particularly relevant because it places emphasis on procedural safeguards during GST investigation. The order does not prevent the GST authorities from conducting a lawful investigation or from taking appropriate action in accordance with law. Instead, it restrains coercive recovery during the ongoing search and requires adherence to the prescribed investigation framework.
Investigation Is Different From Recovery
One of the important practical takeaways from this order is the distinction between GST investigation and GST recovery.
A search under Section 67 of the CGST Act is an investigative mechanism. During such proceedings, the department may examine books of account, documents, records and other relevant material in accordance with law.
However, an allegation that tax is payable is not necessarily equivalent to a finally determined tax liability. The statutory framework provides procedures for determination of tax, issuance of notices, adjudication and subsequent recovery.
The Gauhati High Court’s interim direction therefore reinforces the importance of following the prescribed procedure rather than treating an ongoing search itself as a mechanism for immediate coercive recovery.
Importance for GST Taxpayers
The order is particularly relevant for businesses facing GST searches and investigations.
A taxpayer subjected to a search should carefully document the proceedings and maintain proper records of communications, statements, documents supplied and actions taken by the investigating authorities.
Where an alleged liability is raised during an investigation, taxpayers should also distinguish between:
- an allegation made during investigation;
- voluntary payment of an admitted liability;
- determination of tax liability through statutory proceedings; and
- recovery of a legally determined demand.
These stages should not automatically be treated as interchangeable.
The order also demonstrates the importance of the departmental investigation guidelines in regulating the manner in which GST investigations are conducted.
What Does the Order Mean Going Forward?
The Gauhati High Court’s order is an interim direction and should be understood in that context. It does not finally decide the underlying allegations against Deepak Construction Co., nor does it determine whether any GST liability is ultimately payable.
The Court has directed the authorities to refrain from coercive steps for discharge of liability during the ongoing search and to follow the prescribed investigation guidelines until the returnable date.
The matter is scheduled to be considered again on 12 October 2026.
Conclusion
The Gauhati High Court’s decision in M/s Deepak Construction Co. v. The Union of India & 7 Ors. is an important development concerning GST search proceedings, investigation and alleged tax liability.
The order underscores that while GST authorities possess statutory powers to investigate suspected tax violations, such powers must be exercised in accordance with the law and applicable departmental instructions.
For taxpayers, the key lesson is that an ongoing GST search should not automatically be equated with immediate recovery of an alleged liability. The statutory process and safeguards governing investigation and determination of tax liability remain relevant.
The decision is therefore likely to be closely watched by tax professionals and businesses dealing with GST investigation and search proceedings, particularly on the question of the permissible limits of departmental action during an ongoing search.