FEBRUARY 26, 2025

By Vijay Kumar

SOME GST officers made a courtesy call on an assessee and between coffee and conversation, they seized hard cash amounting to Rs. 39,70,760/- from the assessee and kept it in safe custody on 21.09.2023. Somehow the Income Tax department came to know about it and they sent a requisition to the GST Department. The fair GST department handed over the cash to the Income Tax Department on 26.03.2024.

The harried assessee anxiously approached the Kerala High Court. In the statement filed in the High Court, the Department submitted that as the cash is now with the Income Tax Department, the assessee should approach that Department. A single judge of the High Court held - 2024-TIOL-645-HC-KERALA-GST

Considering the said submission and the stand of the respondents that the cash amount seized from the petitioners has been handed over to the Income Tax Department in pursuance to the requisition sent by the Income Tax Department, remedy for release of the cash lies before the Income Tax Department and the petitioners are free to approach the Income Tax Department.

Aggrieved by this order of the single judge, the assessee filed a writ appeal which was decided recently. 2025-TIOL-263-HC-KERALA-GST.

The Division Bench of the High Court found force in the submissions of the assessee that the initial seizure of cash from the premises of the appellant being illegal, the continued retention of it by the GST Department of the State, and the handing over of the cash to the Income Tax Department, cannot be seen as legal acts merely because the money was now handed over to the Income Tax Department pursuant to a requisition sent by them under Section 132A of the IT Act.

The High Court held:

The initial seizure of the cash by the GST Department was blatantly illegal since it was without the authority of law. This salutary principle that prevents the expropriation of property or tax from a citizen without the authority of law finds expression in Articles 265 and Article 300A of the Constitution of India.

A Division Bench of this High Court in Sabu George & Ors. v. Sales Tax Officer - 2023-TIOL-382-HC-KERALA-GST had clearly found that the power of the GST Authorities to seize any "thing" while functioning under the provisions of the statute cannot be seen as permitting a seizure of cash from the premises of a dealer more so when the cash in question was not part of the stock in trade of the business conducted by the dealer.

This view of the Division Bench of the High Court has since been confirmed by the Supreme Court in Sales Tax Officer (IB) & Ors. V Sabu George & Ors. - 2023-TIOL-118-SC-GST.

The High Court was surprised at the action of the State GST department in resorting to such conduct despite the existence of binding precedents that forbid them from doing so. Giving surprises to the Courts is not altogether a new game for tax departments.

The High Court had no hesitation to hold that the cash amount seized from the premises of the appellants cannot be retained either by the GST Department of the State or the Income Tax Department prior to a finalisation of respective proceedings initiated by them.

Accordingly, the High Court directed:

The Income Tax Department shall forthwith, and at any rate not later than 10 days from today, release the amount of Rs. 39,70,760/- by crediting the amounts in their bank accounts.

Will the assessee get his cash back or will the Department go to the Supreme Court? Who has to go to the Supreme Court? Obviously, the Income Tax Department which has been directed to give back the amount of Rs. 39,70,760/-, but they cannot argue in the Supreme Court that the GST Department was right in seizing the currency. That, the GST Department has to do. So, GST will also move the Supreme Court. Who pays for all this? You know the answer. And there is no GST on the fees the lawyers charge the government!

The issue is already pending in the Supreme Court. In Commissioner of CGST vs Anshul Jain - 2024-TIOL-124-SC-GST, the Supreme Court on December 09, 2024 observed,

1. Heard the learned Additional Solicitor General appearing for the Revenue and perused the materials placed on record.

2. The short question of law that falls for our consideration is whether the Officers of the G.S.T are empowered to seize cash at the time of raid of the premises of the assessee in exercise of their powers under Section 67 (2) of the G.S.T. Act.

3. In short, we need to interpret the expression "and seize or may himself search and seize such goods, documents or books or things".

4. Whether the term "things" should be read ejusdem generis with goods, documents or books.

5. Issue notice, returnable in four weeks.

So, while conducting a raid, can the GST officers simply seize cash, gold, cars, TVs, liquor or anything valuable they can find, even if they are in no way connected to GST? In fact, in the Sabu George case, the High Court observed,

We must admit to being a bit puzzled by the stand taken by the said Intelligence Officer. 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.

The findings of the Intelligence Officer that it is suspicious that this much amount of money kept in the house 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. Moreover, as the respondent has retained the seized cash for more than six months and is yet to issue a show cause notice to the appellants in connection with the investigation, there can be no justification for a continued retention of the said amount with the respondent. We, therefore, allow this appeal by directing the first respondent to forthwith release to the appellant the cash seized from the premises.

The Customs Act has a specific section for this:

Section 121. Confiscation of sale-proceeds of smuggled goods. - Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale-proceeds thereof shall be liable to confiscation.

Even here, only sale proceeds of smuggled goods are liable to confiscation - not any cash lying around. Does the GST Act provide any better power to the officers?

And what do they do with the seized cash? Will they pay interest when the cash is returned?

Maybe, they can try to make the law a little clearer.

The Election Commission has a Standard Operating Procedure:

(i) In order to avoid inconvenience to the public and genuine persons and also for redressal of their grievances, if any, a committee shall be formed comprising three officers of the District. The Committee shall suo-motu examine each case of seizure made by the Police or SST or FS and where the Committee finds that no FIR/Complaint has been filed against the seizure or where the seizure is not linked with any candidate or political party or any election campaign etc., as per Standard Operating Procedure, it shall take immediate step to order release of such cash etc. to such persons from whom the cash was seized after passing a speaking order to that effect. The Committee shall look into all cases and take decision on seizure.

(ii) The procedure of appeal against seizure should be mentioned in the seizure document and it should also be informed to such persons at the time of seizure of cash. The functioning of this committee should be given wide publicity, including telephone no. of the convenor of the Committee.

(iii) All the information pertaining to release of cash, shall be maintained by the Nodal Officer expenditure monitoring in a register, serially date wise with the details regarding amount of Cash intercepted/seized and date of release to the person(s) concerned.

(iv) If the release of cash is more than Rs.10(Ten) Lac, the nodal officer of Income Tax shall be kept informed before the release is effected.

(v) All cases of seizure of cash etc., effected by F.S, SST or Police authorities shall immediately be brought to the notice of the Committee formed in the District and the Committee shall take action as per para (i) mentioned above. In no case, the matter relating to seized cash/seized valuable shall be kept pending in malkhana or treasury for more than 7(seven) days after the date of poll, unless any FIR/Complaint is filed. It shall be the responsibility of the Returning Officer to bring all such cases before the appellate committee and to release the cash/valuables as per order of the appellate committee.

If they can seize the cash legally or illegally, they must have the fortitude to release it promptly and properly.

Please also see my column Can cash be seized during GST search on AUGUST 09, 2023

Until next week

Comments/feedback welcome at vijaywrite@tiol.in or 9848111243 (WhatsApp)