NOVEMBER 30, 2023

By Dr Sanjay Kalra, LLM., Ph.D.(GST Law), Advocate, KPS Legal

MANY a times during search under GST regime, Cash and other Valuable Assets are also seized by the GST Officers with a view to secure government revenue. However, seizure of 'Cash' and other Valuable Assets is not valid under the law. Tax Officers are empowered, under Section 67 of the CGST Act, 2017, to conduct Inspection & Search and make Seizure /confiscation of "goods" only and only if it helps them in quantifying and demanding the tax. In any case, Section 67 is not a machinery provision for recovery of tax. 

Inspection & Search : Section 67(1) of the Act empowers the proper officer, not below the rank of Joint Commissioner, to authorise to inspect any place of business of a taxable person(s) engaged in the business of transporting or storing of goods. The Proper Officer can authorise such inspection only if he has reasons to believe that the taxable person has (i) suppressed any transaction relating to supply of goods or services or both; or (ii) suppressed the stock of goods in hand; or (iii) has claimed input tax credit in excess of his entitlement; or (iv) has otherwise contravened any provision of the Act or the Rules made thereunder, to evade payment of tax, or any person keeping such goods that have escaped payment of tax or has kept his accounts or goods in such a manner, which is likely to cause evasion of tax payable under the Act. Thus, this power of inspection is conferred to unearth any evasion of tax or any attempt to evade tax. Section 67(1) of the Act is not a provision for recovery of tax or for securing the government revenue.

Seizure : In terms of Section 67(2) ibid, only those goods can be seized, which, the proper officer has reasons to believe, are liable for confiscation. Seizure of documents or books or things is permissible only if those are believed to be useful or relevant to any proceedings under the Act. Such documents or books or things shall be retained only so long as it is necessary for their examination and for any inquiry or proceedings under the Act. Section 67(3) ibid provides that such documents or books or things, whether relied or not, shall be returned within thirty days from the issue of such notice. Goods seized under Section 67(2) are required to be returned to the person if notice is not issued within six months which may be extended by a further period of six months on sufficient cause. The Hon'ble Delhi High Court in case of Baleshwari Devi - 2023-TIOL-881-HC-DEL-GST held that "Revenue Department has no power to take possession of the personal assets without official seizure under the Central Goods and Services Tax Act, 2017."

Seizure of 'Cash' or 'other Asset' : Let us analyse whether 'cash' or 'other asset' are covered under 'Goods' and / or 'any document or books or things' which are allowed for seizure under Sec 67 of CGST Act, 2017

(A) 'Goods' : As defined in Section 2(52) of the CGST Act, the expression 'goods' covers all movable property other than 'money' and 'securities'. From Section 2(75) ibid, we find that Cash /currency falls squarely within the definition of the word 'money'. The expression 'securities' as defined in section 2(101) of the Act has the same meaning as assigned to it in section 2(h) of the Securities Contract (Regulation) Act, 1956. Thus, 'Cash', being covered in 'money' is clearly excluded from the definition of the term 'goods' given under Section 2(52) ibid. Further, we also find that the term 'goods' as used in section 67(2), essentially, relates to goods, which are subject matter of supplies that are taxable under the Act. In terms of provisions of Section 130 of the CGST Act, 2017, the goods, which are supplied or received in contravention of the provisions of the Act with the intent to evade payment of tax; goods which are unaccounted for and chargeable to tax; supply of goods chargeable to tax, by a taxpayer, without applying for registration; and cases where the taxpayer contravenes any provision of the Act with the intent to evade payment of tax, are liable for confiscation. The word 'goods' as defined under section 2(52) of the Act is in wide terms, but the said term as used in section 67 of the Act, is qualified with the condition of being liable for confiscation. Thus, only those goods, which are subject matter of or are suspected to be subject matter of evasion of tax. During the course of search under section 67(2) of the Act, the officer conducting the search may find various types of movable assets. Illustratively, in an office premises, one may find furniture, computer, communication instruments, air conditioners etc. Those assets although falling under the definition of 'goods' cannot be seized, if the proper officer has no reasons to believe that those goods are liable to be confiscated. Section 67(6) of the Act provides for provisional release of the goods so seized on payment of applicable tax, interest and penalty. This also indicates that the goods, which may be seized under section 67(2) are goods that are subject matter of evasion of tax or are supplies in respect of which the proper officer has reason to believe, taxes would not be paid. Thus, the legislature does not intend to cover 'Cash' or 'other valuable assets' under 'Goods'.

(B) 'Documents or Books or Things' : Earlier, in case of Kanishka Matta v. Union of India - 2020-TIOL-1445-HC-MP-GST, the court held that the word 'things' as appearing in section 67(2) of the Act is required to be given wide meaning as per Black's Law Dictionary and Wharton's Law. It was held that the word 'thing' is defined to include 'money'. However, recently the Hon'ble Delhi High Court in the case of Deepak Khandelwal - 2023-TIOL-1007-HC-DEL-GST held that section 67(2) of the Act makes it amply clear that 'documents or books or things' may be seized if the proper officer is of the opinion that it shall be useful or relevant to any proceedings under the Act. The second proviso to Sec 67(2) ibid clearly reflects that the legislative intent of empowering seizure of documents or books or things is for enabling their use in aid of the proceedings under the Act. Once the said purpose is served, the books or documents or things seized under sub-section (2) cannot be restrained and are required to be released. Further, from the provisions of section 67 of the Act, it comes out that the word 'things' is required to be read with the preceding words 'documents' and 'books'. There are several other devices that are used to store information or records such as pen drives, personal computers, hard disks, mobiles, communication devices etc. The word 'things' would cover all such devices and material that may be useful or relevant for proceedings under the Act. It is apparent that the legislative intent in using a word of wide import is to include all possible articles that would provide relevant information, records, and material which may be useful for or relevant to proceedings under the Act.

Conclusion : On schematic reading of section 67 as well as other provisions of the CGST Act, it comes out that Section 67 of the Act is not a machinery provision for recovery of tax. Section 67 is for ensuring compliance and to aid proceedings against evasion of tax. Section 79 of the Act provides for the machinery for recovery of tax. Section 83 of the Act provides for provisional attachment of any property belonging to a taxable person to safeguard the interests of the Revenue. The search and seizure operations under section 67 of the Act are not for the purpose of seizing unaccounted income or assets or ensuring that the same are taxed. The said field is covered by the Income-tax Act, 1961. Thus, even if some unaccounted cash or valuable asset is found during the search, the same are not liable to be seized under section 67(2) of the Act. The power of the proper officer to seize books or documents or things does not extend to seizing valuable assets for the reason that they are unaccounted for or may be liable to confiscation under any other statute.

[The views expressed are strictly personal.]