JANUARY 08, 2025

By CA Hunny Munjal

1. Introduction:

THE Central Goods and Services Tax Act, 2017 ('CGST Act'), establishes a legal framework for search and seizure operations to combat tax evasion. However, the power to seize cash and other valuable assets under Section 67(2) of CGST Act has become a subject of significant legal debate. At the core of the controversy lies the interpretation of the term "things", which appears alongside "goods, documents, and books" in the provision. This article delves into judicial precedents, interpretative principles, and recent developments in cases such as Commissioner of CGST v. Anshul Jain 2024-TIOL-124-SC-GST and Commissioner of CGST Delhi West v. Gunjan Bindal 2024-TIOL-113-SC-GST, which provide critical insights into the evolving legal position on the matter.

2. Legal Framework Governing Search and Seizure under the CGST Act

Section 67 of the CGST Act empowers tax authorities to inspect, search, and seize goods, documents, books, or "things" necessary for tax proceedings. However, the scope of these powers is often challenged when cash is seized during such operations.

Key Definitions

- Goods (Section 2(52)): Includes all movable property, excluding money and securities.

- Money (Section 2(75)): Refers to legal tender, currency, and other payment instruments, explicitly excluded from the definition of goods.

These definitions create ambiguity about whether cash, as "money," can qualify as a "thing" under Section 67(2), thereby justifying its seizure.

3. Judicial Analysis of Cash and Asset Seizure in GST Investigations

- Supreme Court's Interpretation in Deepak Khandelwal

In Commissioner of CGST v. Deepak Khandelwal 2024-TIOL-79-SC-GST, the Supreme Court upheld the Delhi High Court's decision disallowing cash seizures under Section 67(2).

- Supreme Court's Interpretation in case of Shabu George

In the case of State Tax Officer (IB) Vs. Shabu George 2023-TIOL-118-SC-GST, the Revenue Authorities filed SLP before Apex Court which has been dismissed

4. High Court Precedents on Seizure Powers

- Delhi HC in Deepak Khandelwal v. Commissioner of CGST 2023-TIOL-1007-HC-DEL-GST: Held that the term "things" under Section 67(2) should be interpreted narrowly, excluding cash unless it directly relates to tax evasion.

- Kerala HC in Shabu George v. State Tax Officer 2023-TIOL-382-HC-KERALA-GST: Ruled that cash cannot be seized unless it constitutes stock-in-trade, emphasizing the principle of proportionality in enforcement actions.

- Gujarat High Court in the case of Bharatkumar Pravinkumar & Co v. State of Gujarat 2023-TIOL-1507-HC-AHM-GST wherein it was held that cash would not be considered as goods for the purpose of seizure proceedings, and it is not justified to retain cash seized by the Revenue Department for more than six months, without issuance of show cause notice.

- In Arvind Goyal CA v. Union of India & Others 2023-TIOL-124-HC-DEL-GST, a search operation was conducted at the residence of the petitioner by the officers of GST who found the cash of Rs.1,22,87,000 and took the possession of the said cash. The court observed that a plain reading of Section 67(2) of the GST Act indicates that the seizure is limited to goods liable for confiscation or any documents, books or things, which may be 'useful for or relevant to any proceedings under this Act'. Clearly, cash does not fall within the definition of goods and, prima facie, it is difficult to accept that cash could be termed as a 'thing' useful or relevant for proceedings under the GST Act. The second proviso to Section 67(2) of the GST Act also provides that the books or things so seized would be retained by the officer only so long as may be necessary 'for their examination and for any inquiry or proceedings under the Act'. It was held that seizure of cash during the course of search was without any authority of law and illegal.

3. Pending Appeals Before the Supreme Court

The Supreme Court is currently examining appeals filed by the Department challenging High Court rulings on cash seizure under Section 67:

- In Commissioner of CGST v. Anshul Jain (supra), the Court is considering whether GST officers can seize cash during searches and how the term "things" should be interpreted. The Bench has issued notice and observed that this issue requires a definitive ruling to settle conflicting judicial opinions.

- In Commissioner of CGST Delhi West & Ors. v. Gunjan Bindal & Anr. (supra), the Supreme Court has sought to resolve whether cash seizure aligns with the legislative intent of Section 67, particularly in light of the ejusdem generis principle.

These pending appeals underscore the ongoing judicial scrutiny of seizure powers under the GST Act.

4. The Ejusdem Generis Principle and Section 67

Courts have often applied the ejusdem generis [a Latin phrase that means "of the same kind"] principle to interpret the term "things" under Section 67(2):

- MP HC in Kanishka Matta v. Union of India 2020-TIOL-1445-HC-MP-GST: Stated that "things" should align with "documents" and "books," thereby excluding cash.

5. Implications for GST Enforcement and Compliance:

- Challenges in Enforcement

The judiciary's emphasis on statutory interpretation limits the arbitrary use of seizure powers, ensuring enforcement aligns with legislative intent.

- Practical Guidelines for Businesses

- Maintain Robust Records: Businesses should ensure meticulous documentation of cash transactions to mitigate risks during inspections.

- Challenge Overreach: Taxpayers can legally contest seizures that exceed statutory authority, particularly in cases involving cash.

- Legislative Clarity

The ongoing legal debates highlight the need for explicit legislative provisions clarifying the scope of "things" under Section 67(2) to ensure uniform enforcement practices.

5. Conclusion

The judicial discourse surrounding the seizure of cash and valuable assets under the CGST Act underscores the principle that enforcement powers must be exercised within the bounds of statutory intent. As highlighted in cases such as Deepak Khandelwal, Anshul Jain, and Gunjan Bindal, courts have consistently ruled that cash, unless directly linked to tax evasion, falls outside the scope of assets that can be seized under Section 67(2).

These rulings reinforce the importance of a balanced approach to enforcement, ensuring that taxpayers' rights are protected while deterring tax evasion. The pending Supreme Court decisions are expected to provide much-needed clarity on this contentious issue, shaping the future of GST enforcement in India.

[The views expressed are strictly personal.]