AUGUST 26, 2024

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

Introduction: Supreme Court in its recent order dated August 14, 2024 passed in the case of Commissioner of CGST vs Deepak Khandelwal [2024-TIOL-79-SC-GST] dismissed a Special Leave Petition (SLP) filed by the Commissioner of CGST against the judgement of Delhi high Court, in the case of Deepak Khandelwal, Proprietor M/s Shri Shyam Metal [2023-TIOL-1007-HC-DEL-GST]. In this article let us understand the issue and questions of law raised and decided by Supreme Court.

Facts of the Case: It was alleged that Assessee M/s Shri Shyam Metal had availed Input Tax Credit of GST on the strength of fake invoices issued by various bogus and non-existent firms. During search by the Central Tax Authorities, two silver bars (weighing 44 Kgs), Currency of Rs. 7,00,000/-; and Mobile Phones, were seized by the Officers from the residential premises of Deepak Khandelwal, Proprietor M/s Shri Shyam Metal and he was also arrested the alleged offences punishable under Section 132(1)(i) of the CGST Act, 2017. Being aggrieved by the failure on the part of the Tax Authorities to release his goods even after lapse of one year from the date of the seizure, Assessee filed the write petition before Delhi High Court under Article 226 of the Constitution of India. The main question before the Delhi High Court was whether the proper officer has the power to seize the currency and other valuable assets under Section 67 of the Act, even though he has no reason to believe that the same are liable for confiscation.

The Delhi High Court allowed the petition and held that the provision of Section 67 of the Act is not to seize assets for recovering tax. Thus, applying the principle of purposive interpretation, the power under Section 67 of the Act cannot be read to extend to enable seizure of assets on the ground that the same are not accounted for.

Aggrieved by the decision of the Delhi High Court, Revenue Department filed a Special Leave Petition (SLP) before Supreme Court. After condoning the delay, the Apex Court dismissed the petition holding that no case for interference is made out in exercise of its jurisdiction under Article 146 of the Constitution of India.

Analysis of the case: Delhi High Court while allowing writ petition of Deepak Khandelwal, Proprietor M/s Shri Shyam Metal [2023-TIOL-1007-HC-DEL-GST] held that Power of Inspection under Section 67(1) of the CGST Act, 2017 is conferred on the Proper Officer to unearth any evasion of tax or any attempt to evade tax. Section 67(1) of the CGST Act, 2017 is not a provision for recovery of tax or for securing the same. From the plain language of Section 67(2) of the Act, it comes out that only those goods can be seized, which the proper officer has reasons to believe are liable for confiscation. Proper Officer can seize documents or books or things provided he is of the opinion that the said documents or books or things shall be useful or relevant to any proceedings under the Act. It was held that seizure of documents or books or things are only for the purpose of examination or inquiry or any proceedings under the Act and the seized documents or books or things can be retained only so long as it is necessary for the purpose of their examination, any inquiry, or proceedings under the Act. Section 67(7) ibid provides that if goods are seized under Section 67(2) of the Act, but no notice is served within the period of six months (extendable on sufficient cause being shown) of seizure of the goods, the goods shall be returned to the person from whom the same were seized. The contextual interpretation of all Sub-sections of Section 67 of the Act clearly indicates that the same do not contemplate seizure of valuable assets, for securing the interest of Revenue.

'Goods': Further, it may be noted that under Section 2(52) of the Act, "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". The expression 'goods' covers all movable property other than 'money' and 'securities'. 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. It was clarified that Silver bars being movable assets are not securities within the meaning of Section 2(h) of the Securities Contract (Regulation) Act, 1956. Further, it was also held that Cash (Indian currency) is clearly excluded from the definition of the term 'goods' as the same falls squarely within the definition of the word 'money' as defined under Section 2(75) of the Act.

A plain reading of Clauses (i) to (iv) of Sub-Section (1) of Section 130 of the Act indicates that 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. All 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. Purpose of Section 67 of the Act is not recovery of tax; it is not a machinery provision for enforcing a liability; it is for ensuring compliance and to aid proceedings against evasion of tax. It is clear from the Scheme of Section 67 of the Act that the word 'things' is required to be read, ejusdem generis, with the preceding words 'documents' and 'books'. 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. Hence, it was held that there is no material to indicate that the particular silver bars or cash were received by the petitioner in specie against any particular fake invoice. High Court finds that the silver bars and the cash were seized only on the ground that it was 'unaccounted wealth' and not as any material which was to be relied upon in any proceedings under the Act. The Bench clarified that even if it is accepted that the proper officer could seize the currency and other valuable assets in exercise of powers under Section 67(2) of the Act, the same were required to be returned by virtue of Section 67(3) of the Act because the silver bars and currency have not been relied upon in the notice issued subsequently. Thus, the legislature does not intend to cover 'Cash' or 'other valuable assets' under 'Goods'.

'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 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: Supreme Court, after condoning the delay, has dismissed the SLP filed by the revenue department holding that no case for interference in order of the Delhi High Court is made out in exercise of its jurisdiction under Article 146 of the Constitution of India. By applying Doctrine of Merger, judgement of the Delhi High Court has got finality. Hence, it is concluded that 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 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. 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. 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 views expressed are strictly personal.]