Seizure of Cash made during investigation - Legality under GST?
SEPTEMBER 23, 2020
By K Srinivasan
THE term 'seizure' ironically has not been defined in the respective laws of Central Excise, Customs and Service Tax or even under the newly made GST Law.
In Law Lexicons, 'seizure' is defined as the act of taking possession of property by an officer under legal process. It generally implies taking possession forcibly contrary to the wishes of the owner of the property or who has its possession and who is unwilling to part with the possession. It may not always be synonymous with manual detention or physical retention.
Distinction in Law between Detention, Seizure and Confiscation
Denial of access to the owner of the property or the person who possesses the property at a particular point of time by a legal order/notice is called detention. The purpose of detention is to prevent that property being removed or used by the owner of the property or the person who possesses the property for some time.
In detention, the possession of the property is not taken away by the department but in seizure the possession is transferred from the owner to the department.
The detention order is served when it is not practicable to seize the goods at that particular point of time. Secondly, when it is suspected that the goods are liable to confiscation, then detention order is issued.
SEIZURE NOT A ROUTINE
Seizure of offending goods and documents are made under Customs and Central Excise provisions but in Service Tax only documents were seized and in fact it has been held in several cases that cash and goods can't be seized as a matter of routine and to be resorted to only very exceptionally.
As soon as the suspicion is converted into reasonable belief, after enquiry/ investigation, the detained goods are formally seized because seizure can be made only on the basis of reasonable belief that the goods are liable to confiscation.
Taking possession by the department is necessary condition of seizure. It may happen that physical removal of goods is not possible then also it can be seized by the department by giving notice to that effect to the owner or who has the possession of goods.
Confiscation is done by an order issued by a competent authority which attains finality and then only the ownership transferred to the Government.
The ownership of seized goods is suspended till finalization of the adjudication proceedings. If it is not confiscated, then the ownership is again transferred to the original owner of the goods.
LEGALITY OF SEIZURE OF CASH
Often cash is received for the goods sold or services rendered by a business. It is understandably the most common, convenient and widely accepted mode of exchange.
The presence of cash in any business establishment is natural and, therefore, it is highly un-understandable to frown upon the presence of cash during any tax investigation and what is still worse is the temptation on the part of the officials to seize it without realising the lack of authority to do so under various indirect tax legislations.
Many a time, cash found available in the business premises is seized and taken away by the department without examining the factual veracity of the statement obtained as to whether the same is detainable or not.
When fair explanation for cash holding is offered at the time of search, and if the money is duly accounted for, it is imperative to desist from the act of seizure of cash during an investigation by the tax officials.
Let us now examine the power to seize in general, as available in the various Indirect tax statutes -
UNDER THE CENTRAL EXCISE LAW
The Central Excise Act, 1944 gives power to Central Excise officer to search premises and seize the goods if he has a reason to believe that the goods are removed with the intention to evade duty. The power to search, retain or seize the goods was enumerated in Rule 22 and Rule 23 of the Central Excise Rules, 2002, the same read as follows:
Rule 22 - Access to a registered premises.
(1) An officer empowered by the [Commissioner or Commissioner, as the case may be] in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
(2) Every assessee, [as importer who issues invoices on which CENVAT credit can be taken] and first stage and second stage dealer shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of -
(i) all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;
(ii) all the records prepared and maintained for accounting of transaction in regard to payment for input services and their receipt or procurement; and
(iii) all the financial records and statements (including trial balance or its equivalent).
(3) Every assessee, [an importer who issue an invoices on which CENVAT credit can be taken] and first stage and second stage dealer shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the [Principal Commissioner or Commissioner, as the case may be] or the Comptroller and Auditor General of India, or cost accountant or chartered accountant nominated under section 14A or section 14AA of the Act
Rule 23 - Power to stop and search.
Any Central Excise Officer may search any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with the intention of evading duty.
The above said rules give power to seize the goods only. The officer of the Central Excise can seize the goods or detain the goods if there is a violation in payment of Central Excise duty.
In the case of 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 seize any goods, in the hope of ultimately discovering some basis or ground to justify the search or seizure .
But in no circumstances he has the power to seize the cash available at the premises searched, under the Central Excise rules.
As no power is available with the Central Excise officer to seize the cash as per statutory provisions of the Central Excise Act and Rules, usually the provisions available in the Custom Act are invoked. Section 121 of the Custom Act 1962 gives the officer of the department to seize the cash/ Indian currency.
The same reads as follows:
SEIZURE UNDER THE CUSTOMS LAW
SECTION 121 - Confiscations of sale-proceeds of smuggled goods
Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods, then such sale-proceeds thereof shall be liable to confiscation.
Indeed the above said section authorizes the officer to seize the cash but the same is to be exercised with great caution. The proceeds must be related to the sale of goods which are liable for confiscation.
It is well settled that mere possession of currency is no offence and cannot be seized when an explanation for the same is available. (Smt. Malhar vs CCE(1988) 33 ELT, Abdul Razak vs CC 1999(108) ELT 283 refers).
It is trite law that for invoking section 121 of the Customs Act, the following ingredients must be available:
1. There is a sale.
2. Sale must be related to the goods liable to confiscation.
3. At the time of seizure, the officer must be having reason to believe that currency seized is related to the goods liable for confiscation.
In this regard, law is settled in the following cases -
i. Indian Charge Chrome v. UOI (2003) 152 E.L.T 269 (Del HC DB).
ii. Pradeep Kumar Singh v. CC-1998 (104) E.L.T. 111.
iii. CC v. Bharat Kumar-1999 (109) E.L.T. 552.
iv. CC v. M Raja (2003) 151 E.L.T. 689.
v. J.K.S AIR TRAVELS VERSUS CHIEF COMMISSIONER OF CUSTOM - 2016-TIOL-49-HC-MAD-CUS.
The Hon'ble tribunal in the matter of M/S Standard Grease and Private Limited Vs Commissioner of Central Excise and S.T., Vapi - 2014-TIOL-3285-CESTAT-AHM(Tri.-Ahmedabad) set aside the confiscation of the cash which were even though duly accounted.
The Hon'ble Tribunal, again in the matter of Imtiyaz Iqbal Pothiawala vs Commissioner of Customs, 2016(335) E.L.T. 747 (Tri-Del.) reiterated the above said view and set aside the confiscation of cash once it was found unrelated to the smuggling activities.
AUTHOR'S COMMENT ON SMUGGLED GOODS VS GOODS
Seizure of smuggled goods under the Customs Act may have been equated to excisable goods removed in contravention of the Central Excise Rules. But the same does not logically amount to all goods and things under the allied Acts of indirect tax also having to be held in the same vein of offence.
The Customs Act, 1962 vide section 2 (22) defines goods to include currency and Negotiable instruments among vessels, aircrafts and vehicles, stores and baggage or any other kind of movable property.
Notification No. 68/63-C.E. dated 4/5/1963 issued under Section 12 of the Central Excise Act, 1944 equates references to "smuggled goods" as deemed to be references to "excisable goods which have been removed in contravention of any of the provisions of the Central Excise Rules, 1944.
And similar borrowing of powers of Central Excise Act 1944 in turn by the Finance Act, 1994 must not be mistaken to mean all goods to be equivalent to smuggled goods. And thus cash included in the definition of goods and things like that can't also be their straight equivalent of the word currency occurring in the Customs Act, 1962 mostly implying smuggled currency or proceeds of crime in its original context, to seize it during investigation in cases of Service Tax.
That would really look like a long haul or overhaul rather, like seizure of business cash has turned out to be these days during investigation by the tax officials under GST.
SEIZURE UNDER THE SERVICE TAX LAW
This section provides for search of documents, books or things by Commissioner of Central Excise or any other officer authorized by him.
The pre-condition to search is that the CCE should have reason to believe that there are certain books etc. in secret possession at any place which may be useful for any proceedings under this Act. Such reasons may or may not be recorded in writing.
Search can be done at any place which would include any house, office, building, vehicle etc. Search is supposed to be an invasion into person's privacy and it must be guided by certain principles under normal human tendency.
Finance Act, 2002 had amended section 82 to provide specifically for the power to seize documents relevant to any proceedings under the service tax law. He may authorize Assistant or Deputy Commissioner of Central Excise to search for and seize or himself search for and seize documents or books or things which in his opinion may be useful for or relevant to any proceeding under the Act .
Under section 82(1), the power to authorize for conducting search of any premises is vested in the Commissioner of Central Excise. While extending the provisions of the Customs Act, 1962 to service tax matters under section 83 of the Finance Act, 1944, it is ensured that the dispensation of the Customs Act, 1962 is in strict conformity as done in Central excise matters, so that in the final alignment everything is in place.
Accordingly, as per section 105 of Customs Act, the Assistant Commissioner or Deputy Commissioner of Central Excise is empowered to authorize any Central Excise Officer not below the rank of Sub-Inspector for search of any premises or he may himself search. Finance Act, 2011 (w.e.f. 8.4.2011) amended the power to issue search warrant at the level of Joint Commissioner and the execution of search warrant at the level of Superintendent of Central Excise.
Sec 12F of the Central Excise Act, 1944, has further amended section 82(1) of the Finance Act, 1994 relating to search provisions whereby powers have now been granted to Joint Commissioner or Additional Commissioner or any other officer up to the rank of an Inspector as notified by the Board, to search and seize.
SEIZURE OF CASH UNDER THE INCOME TAX LAW
However, under the IT Act the position is different and not in pari materia with the Indirect tax Legislations. Section 132 B (1) of the Income-tax Act provides for adjustment of assets seized even from a third party, against any existing liability. The ITAT in the case of one RAM S SARDA from whose premises they seized cash and said that the liability to pay advance tax is an existing liability and cash seized during the raid including cash including cash belonging to a third party, ought to have been adjusted against the existing liability.
SEIZURE UNDER THE GST LAW
As per Section 67(1) of the CGST Act, 2017, the proper officer not below the rank of Joint Commissioner, if has reasons to believe that there is any violation or evasion of tax under the GST Acts, he may authorize in writing any other officer of the department to inspect any of the places of business of the taxable person.
Under Section 67(2) where the proper officer either pursuant to an inspection carried out under Section 67(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 the Acts, are secreted in any place, he may authorize in writing any other officer to search and seize such goods, documents, books or things.
Provisions of Section 67 of the CGST Act contains a clear provision that prior to any inspection, or as a matter prior to any search and seizure, a recording of reasons by the proper officer for such belief is a requirement of the law and only thereupon the process for search, seizure or confiscation can be undertaken.
As per Sec 67(2) ibid. 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 authorize 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.
In a recent decision of the Madhya Pradesh HC in the case of Smt.Kanishka Matta vs UOI & Ors, - 2020-TIOL-1445-HC-MP-GST it was held as follows;
That the word 'things' appearing in Section 67(2) of the CGST Act, 2017 is to be given wide meaning to include even money.
As per Black's Law Dictionary, 10th Edition, any subject matter of ownership within the spear of proprietary or valuable right, would come under the definition of 'thing' (page No.1707). Similarly, Wharton's Law Lexicon at page No.1869 and 1870, the word 'thing' has been defined and it includes "money".
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 (Interpretation of statute by Maxwel, 12th Edition, page No.199 to 205).
The same preposition of law is propounded in Craies on Statute Law, 7th Edition, page No.94).
In the interpretation of the word 'thing' money has to be included and it cannot be excluded as prayed by the petitioner from Section 67(2).
The authorities have rightly seized the amount from the husband of the petitioner and unless and until the investigation is carried out and the matter is finally adjudicated, the question of releasing the amount does not arise, is the conclusion of the decision of the Gujarat while disposing the Writ Petition filed by the wife.
AUTHOR'S COMMENT ON THE MADHYA PRADESH HC DECISION
It is not that such words as 'the official may by himself search for and seize documents or books or things which in his opinion may be useful for or relevant to any proceeding under the Act', were absent under the earlier enactments that it got introduced only now newly under the GST regime. Such phraseology had always been in use in the Act but without any precipitated actions of cash seizures as in the present.
It would appear that there was no provocation for the Gujarat HC to suddenly conclude in the recent case supra that 'things' included cash since it always did.
But, in the said process of rendering such an Obiter dictum, it makes one fear that it must not lead to a myth that the GST Act provisions of 67(2) from now on authorized officers to seize cash during investigation and, therefore, it would be all right anymore to do it mechanically in all cases in the future.
Money is a medium of exchange; it allows people to obtain what they need to live. Like gold and other precious metals, money has worth because for most people it represents something valuable. Fiat money is government-issued currency that is not backed by physical goods but by gold reserves of the issuing government.
Thus Fiat money which is the token of people's perception of worth in a modern Market Economy, the basis for why money is created and which represents its equivalent in value of goods.
It also represents the assurance of the issuing government to back its currency, and therefore has certain distinct character and therefore can't be equated to the expression 'things' occurring in a statute book without seeing it in the proper light and the surrounding Laws that prohibit its seizure in the ordinary course of investigation by tax officials.
It would look an archaic approach of referring to the explanations found from some old Lexicons to define money in a dynamic economic context and equate it to things just to find support in Law for the occurrence of the term things to include money.
Semantically it may be all right to indulge in such an academic exercise, but it is trite law that seizure of cash found in business premises during the course of investigation to be strictly shunned under indirect tax Laws, unlike under the Income tax Act where it is provided for ultimate adjustment of the Assets seized towards current tax liability, which is not the case in indirect tax Laws.
Money is a vehicle to run the business and an unwarranted seizure of it will only put breaks on the movement of the business. Not only that, the seizure of cash also affects individual liberty enshrined under Article 21 of the Constitution.
In the context of personal liberty, it is settled law now that personal liberty cannot be cut out or cut down without fair legal procedure. Detention of cash or goods by the tax authorities without reasonable cause is held violative of Article 21 of the Constitution.
So unless and until there is prima facie nexus between available cash and taxable goods sold clandestinely, the cash should not be seized nor people arrested on flimsy grounds.
Therefore, it would not be all right to seize cash unmindfully as a matter of routine during investigation, regardless of the indirect tax enactments including GST, quite contrary to the past practice of circumspection and care.
The seizure of cash certainly shouldn't be thought as the means to pressurize the business for any demand which is legally unsustainable, is the humble view of the Author.
[The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.]
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