FEBRUARY 28, 2024

By Vijay Kumar

WHEN I have a little too much cache in my computer, I am asked to clear some of it for better performance. But I am on too much cash, especially when GST officers are round the corner.

Can GST officers seize cash?

I wrote about this earlier Can cash be seized during GST search? A recent Delhi High Court judgement [K M FOOD INFRASTRUCTURE PVT LTD Vs THE DIRECTOR GENERAL DGGI - 2024-TIOL-242-HC-DEL-GST] compels me again.

A search was carried out by DGGI Officers on 04.10.2021 at the business premises of KM. During the course of search, various documents/records namely, balance sheets, bilty books, purchase invoices, e-way bills, GST sales ledger etc., were resumed vide Panchnama dated 04.10.2021.

Thereafter, the officers conducted search of another premises viz. C-5, Court Lane, Civil Lines, Delhi, from where, they resumed various records/documents, such as purchase invoices, bank accounts details, sale invoices, directorship details etc. as also electronic devices viz. mobile phones of the Director of the companies. They also resumed Indian Currency totalling to Rs. 1,90,66,000/- from the said premises vide Panchnama dated 04.10.2021.

The Officers on 01.12.2023, returned the documents and mobile phones seized during the search conducted on 04.10.2021. However, the currency seized was not returned.

The Department stated that the cash amount of Rs. 1,90,66,000/- was seized from the residential premises of Mr. Mukesh Kapoor as he could not provide any satisfactory reply for the possession of the said amount. It has also been stated that the said amount was deposited in the bank and converted into fixed deposit with Auto Renewal Option.

It has also been stated that during the course of investigation, no evidence could be unearthed that the cash so seized was representing the sale proceeds of unaccounted goods. However, a letter dated 23.10.2023 has been written to the Income Tax Authorities to take over the custody of fixed deposit of Rs. 1,90,66,000/- with request to take requisite action as deemed fit under the Income Tax provisions.

The aggrieved parties filed writ petitions in the Delhi High Court praying for issuance of directions declaring resumption of currency as recorded vide Panchnama dated 04.10.2021 as illegal, arbitrary and contrary to the provisions of law and for further directions to the respondents to return the resumed currency to the petitioners.

In a recent order in the case, [K M FOOD INFRASTRUCTURE PVT LTD Vs THE DIRECTOR GENERAL DGGI - 2024-TIOL-242-HC-DEL-GST] the Delhi High Court observed,

Sub Section (2) of Section 67 of the Act specifies the power to seize the goods. If the proper Officer has reasons to believe that any goods which are liable for confiscation or any documents or books or things which in his opinion would be useful and relevant for any proceedings under the Act are secreted at any place, he may either search and seize the said goods, documents or books or things. The Second Proviso to sub-Section (2) of 67 of the Act clarifies that insofar as the seized documents or goods or things are concerned, the same shall be retained only so long as it is necessary for their examination and for any inquiry or proceedings under the Act.

Sub Section (7) of Section 67 of the Act specifies that where the goods are seized under sub-Section (2) of Section 67 of the Act and no notice, in respect thereof is given within the period of six months of the seizure of the goods, the goods are required to be returned to the person from whom the same were seized.

The expression 'goods' is defined in Sub-section (52) of Section 2 of the Act as under:

"(52) "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;"

Thus, cash is clearly excluded from the definition of the term 'goods' as the same falls squarely within the definition of the word 'money' as defined in Sub-section (75) of Section 2 of the Act.

In the case of Kanishka Matta - 2020-TIOL-1445-HC-MP-GST, Madhya Pradesh High Court rejected the prayer for the release of cash that was seized from the premises of the petitioner. The Court held that the word "thing" in Section 67 (2) would include money.

In the case of Shabu George Vs. State Tax Officer 2023-TIOL-382-HC-KERALA-GST, the question was whether the word "thing" in the GST Act would include cash. The Kerala High Court after noting the decision of Madhya Pradesh High Court held in favour of the assessee observing: -

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. It is evident from the order of the Intelligence Officer that the cash that was seized from the premises of the appellants was not the stock in trade of the quarry business that was conducted by the appellant. The findings of the Intelligence Officer that 'it is suspicious that this much amount of money kept in the house of M/s.Shabu as idle and not deposited at bank and further 'the amount received as gift on the day of marriage has not been recorded in his income tax return and from this it is evident that the money is from illicit sources' reveal the extent to which authorities under the Act are misinformed of their powers and the limits of their jurisdiction. The aforesaid findings of the Intelligence Officer could perhaps have been justified had he been an officer attached to the Income Tax department. In the context of the GST Act, the findings are wholly irrelevant. We find that the seizure of cash from the premises of the appellants was wholly uncalled for and unwarranted.

The Government obviously was not happy and took the matter to the Supreme Court. The decision of the Kerala High Court received the stamp and approval of the Supreme Court as the Petition was dismissed in Special Leave Petition (Civil) Diary No. 27670/2023 holding:

We are not inclined to interfere with the judgment and order impugned in this petition. The special leave petition is, accordingly, dismissed.

The interpretation given by the Madhya Pradesh High Court also did not find favour with a Co-ordinate Bench of the Delhi High Court in the case of Deepak Khandelwal Vs. Commissioner of CGST (17.08.2023) wherein it was observed:

With much respect to the Hon'ble Court and its opinion, we are unable to persuade ourselves to adopt the said view. As noted above, the power of search and seizure are drastic powers and are not required to be construed liberally. Further, we find that the legislative intent of permitting seizure of books or documents or things in terms of Sub- section (2) of Section 67 of the Act is crystal clear and it does not permit seizure of currency or valuable assets, simply, on the ground that the same represent unaccounted wealth.

While applying the principle of purposive interpretation, the Court held that the power under Section 67 of the Act cannot be read to extend to enable the seizure of assets on the ground that the same are not accounted for. The Court observed:-

It is necessary to bear in mind that power of search and seizure is a drastic power; it is invasive of the rights of a taxpayer and his private space. Conferring of unguided or unbridled power of this nature would fall foul of the constitutional guarantees.

In the present case, the High Court also noted that: -

Investigation has revealed that there is no evidence that the cash so seized was representing the sale proceeds of unaccounted goods, therefore, it could not have been seized under the provisions of CGST Act as the seizure is limited to the goods liable for confiscation. Therefore, there is no reason for the retention of the cash amount by the respondents.

Even otherwise, in the facts of this case what is evident is that cash was seized/resumed vide Panchnama dated 04.10.2021 and in accordance with sub section (7) of Section 67 thereof, when no notice in respect thereof is given within six months of seizure of the goods, the goods shall be returned to the person from whose possession they were seized. On this ground also, petitioners are entitled for the return of resumed cash.

The Senior Standing Counsel for the Revenue submitted that the Officers had merely "resumed" the cash as is noted in the Panchnama, and therefore, the same cannot be considered as seizure. Pray, what difference does it make?

The High Court observed that undisputedly, petitioners had not handed over the cash to the Officers voluntarily. The action taken by the Officers was, therefore, a coercive action. CGST Act does not support such an action of forcibly taking over the possession of the currency from the premises of any person.

Further, it was submitted that though a letter has been written to the Income Tax Authorities on 23.10.2023 to take custody of the fixed deposit of Rs. 1,90,66,000/- with request to take action under the Income Tax provisions, it is conceded by the counsel for the respondent that till date, there is no requisition under Section 132 (A) of the Income Tax Act.

So, the High Court did not find any justification for the resumption of the cash and its continued retention by the respondents. The Court directed the Revenue:

…to forthwith remit the proceeds of the fixed deposit (along with interest) to the bank account of the entities/person from whose possession the same was resumed during search conducted on 04.10.2021.

In a delightful story, Abraham Lincoln faced with some thorny issue asked his questioner how many legs a dog would have, if we called the dog's tail, a leg. "Five," the questioner responded confident in his mathematical ability to do simple addition.

"No," Lincoln said. "Calling a dog's tail a leg, doesn't make it a leg."

Until next week