Seizure of cash during GST search - Legal Aspect

This article delves into the legal framework surrounding cash seizure, the grounds on which authorities exercise these powers, and the remedies available to taxpayers in such cases.

The primary question that arises for consideration is whether the expression “things” contained in Section 67(2) of the CGST Act includes cash / currency seized during search and seizure.

Before adverting to the said question, it would be profitable to extract Section 67 which reads as under:-

“Section 67. Power of inspection, search and seizure.

(1) 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.

(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.

Provided that where it is not practicable to seize any such goods, the Proper officer, or any officer authorized by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.”

It is clear from the plain language of Sub-section (2) of Section 67 of the Act that only those goods can be seized, which the proper officer has reasons to believe are liable for confiscation. Insofar as seizure of documents or books or things is concerned, the same is permissible provided the proper officer is of the opinion that the said documents or books or things shall be useful or relevant to any proceedings under the Act.

A perusal of Section 67 (2) of the CGST Act indicates that before search and seizure was conducted, it is incumbent upon the department to come to the conclusion that it had “reasons to believe” that the subject cash was relevant or useful for any proceedings under the CGST Act. It is relevant state that in the absence of any material to indicate that the department had such reasons to believe which were recorded in writing by the respondents prior to conducting of search and seizure, the pre-condition/condition precedent for conducting the said search and if it is absent and missing, the entire proceedings of seizure order deserve to be quashed.

The following movables can be confiscated by the proper officer, pursuant to search and seizure to be conducted in a premises viz.,

(a) goods

(b) documents

(c) books and

(d) things.

The expression “things” has not been defined under the CGST Act and interpretation of the said expression came up for consideration before the Madhya Pradesh High Court in Kanishka Matta’s case [2020] 27 TAXLOK.COM 076 (MP), wherein it was held that the said expression “things” included cash / currency confiscated during search and seizure under Section 67 (2) of the CGST Act.

It is a cardinal principle of interpretation of statute that unreasonable and inconvenient results are to be avoided, artificially and anomaly to be avoided and most importantly a statute is to be given interpretation which suppresses the mischief and advances the remedy.

The law currently does not clearly distinguish between cash as personal property and cash related to business transactions.

Several high courts have ruled on cash seizures under GST which are as follows-

1. GUJARAT HIGH COURT in case of Bharatkumar Pravinkumar and Co V/s State of Gujarat [2023] 65 TAXLOK.COM 117 (Gujarat) held that Once it is found that the cash did not form a part of stock in trade, it could not have been seized.

2. KARNATAKA HIGH COURT in case of B. Kusuma Poonacha, J.K. Manjunath  v/s Senior Intelligence Officer [2024] 69 TAXLOK.COM 311 (Karnataka), held that, on careful perusal of the provisions contained in Section 67 (2) of the CGST Act and the statutory scheme envisaged therein and other relevant provisions, I am of the considered opinion that the views taken by the High Courts of Delhi, Gujarat and Kerala have laid down the correct law and the judgment of the Madhya Pradesh High Court in Kanishka Matta’s case supra [2020] 27 TAXLOK.COM 076 (MP), is not based on the correct interpretation of the said provision. Under these circumstances, I am of the view that the expression “things” contained in Section 67 (2) of the CGST Act does not include cash / currency / money found during the course of search and seizure and the respondents – revenue do not have jurisdiction or authority of law to confiscate cash / currency / money during the said process and any such confiscation would not only be illegal and arbitrary but also in clear contravention of the provisions contained in Section 67 (2) of the CGST Act. It is also significant to note that the object of Section 67 (2) of the CGST Act is not unearth unaccounted wealth (as in income tax) nor can it be said to be a mechanism for recovering tax by seizing assets, especially when there are separate mechanisms in Sections 73, 74, 78 and 79 of the CGST Act for that purpose and on this score also, I am of the view that cash / currency / money are not “things” within the meaning of the said provision and cannot be confiscated during the course of search and seizure in terms of the said provision.

It is accordingly answered by holding that the expression “things” contained in Section 67 (2) of the CGST Act does not include cash / currency / money found or recovered during the course of search and seizure under the said provision.

1. Kerala High Court in case of Shabu george, Gigi Mathew V/s State Tax Officer [2023] 58 TAXLOK.COM 091 (Kerala) held that the power of any authority to seize any `thing` while functioning under the provisions of a taxing statute must be guided and informed in its exercise by the object of the statute concerned. In an investigation aimed at detecting tax evasion under the GST Act, we fail to see how cash can be seized especially when it is the admitted case that the cash did not form part of the stock in trade of the appellant`s business.

Remedies in Case of Unlawful Seizure- If cash is seized, taxpayers have several remedies and steps they can follow:

Filing a Representation: The taxpayer can immediately file a representation with the GST department detailing the cash's legitimate source and seek its release.

Appealing to a Higher Authority: If the department does not release the cash, taxpayers can appeal to the Commissioner or file a writ petition in the High Court.

Seeking Judicial Intervention: In cases of procedural lapses or unlawful seizure, filing a writ petition in the High Court can result in a faster resolution.

Conclusion-

We can say that cash cannot be seized during the proceedings carried out u/s 67(2) of the CGST Act,2017 but insertion of specific phrase that “cash which did not form part of the Stock-in-trade of business” in judgement creates a two possibility i.e., one where the cash is generated/accumulated during the course of business and form the part of business assets and second where cash is generated/accumulated through personal source and do not form the part of business assets.

The cash accumulated through personal source and did not form the part of business assets cannot be seized.