Table of Contents
Introduction
The Goods and Services Tax (GST) Act, 2017, empowers tax authorities with significant powers of search, seizure, and investigation under Section 67, which allows for the discovery of tax evasion or suppression of transactions. Among the many aspects of GST enforcement, one of the most debated issues is the seizure of cash during GST searches. Taxpayers often question whether cash can be seized during such investigations and, if so, under what legal provisions. This article provides a detailed examination of the legal framework governing the seizure of cash during GST searches, the judicial interpretation of these provisions, and the remedies available to taxpayers.
Legal Framework: Section 67 of the CGST Act
The provisions for search and seizure under the GST Act are primarily covered under Section 67, which is applicable to both the central and state GST. The section grants tax officers the power to search premises, seize goods, documents, and “things,” and to investigate suspected tax evasion activities. Below is the exact wording of Section 67:
Section 67. Power of inspection, search and seizure
(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that –
(a) a taxable person has suppressed any transaction relating to the supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act;
Or
(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,
he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.
(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things.
Meaning of “Things” in Section 67(2)
The key term that comes under scrutiny in the seizure of cash cases is the word “things” in Section 67(2). This term is crucial in understanding whether cash can be seized under the provisions of the GST Act. While “goods” are explicitly mentioned in the provision, “things” is a more general term and can encompass a wide variety of items. However, there is no clear legal definition of “things” in the GST Act, which leaves room for judicial interpretation.
In this context, various courts have analyzed the term “things” in different ways. The courts have examined whether cash, as a non-physical asset, can be classified as a “thing” under Section 67(2), and whether it can be seized during GST searches.
Judicial Interpretation and Case Law
Several significant case laws have addressed the issue of whether cash can be seized during GST searches. Here, we will look at key rulings from various High Courts to understand the legal landscape surrounding the seizure of cash during GST investigations.
1. Kanishka Matta v. State of Madhya Pradesh (2020)
In this case, the Madhya Pradesh High Court considered the seizure of cash during a GST raid. The Court ruled that the seizure of cash is permissible under the GST Act if it is found to be related to tax evasion or violations of the provisions of the Act. The Court interpreted the term “things” broadly and concluded that cash could be seized if the authorities could establish a link between the cash and the taxable activities of the individual. The Court emphasized that the seizure of cash was justified if it was believed that the cash was derived from or intended for fraudulent transactions.
2. B. Kusuma Poonacha v. Senior Intelligence Officer (2024)
In a landmark decision, the Karnataka High Court held that cash cannot be seized during a GST search unless it is directly connected to the stock of goods or services or if it can be proven to be involved in the commission of a tax evasion offense. The Court observed that cash, in its pure form, is not taxable under GST, and hence, its seizure during a GST search is not justified unless there is a clear link to tax evasion activities. The judgment set a precedent that tax authorities must establish a direct connection between the cash and the business operations to justify its seizure.
3. S.K. Traders v. Union of India (2023)
In this case, the Delhi High Court reaffirmed the view that cash found during a GST search could only be seized if it was part of the taxable person’s stock or business transactions. The Court held that cash is not typically associated with GST-related offenses and, therefore, cannot be seized unless there is direct evidence connecting the cash to tax evasion or business operations that are subject to GST. This case reinforced the principle that personal assets should not be subject to seizure under GST unless they are directly related to the tax violations being investigated.
4. Vasantha Kumar v. State of Andhra Pradesh (2024)
In another significant judgment, the Andhra Pradesh High Court clarified that cash could only be seized during a GST raid if there were reasonable grounds to believe that the cash was involved in a GST-related offense, such as tax evasion or fraudulent input tax credit claims. The Court emphasized that tax authorities must provide clear evidence of the link between the cash and tax violations before any seizure can be made. The ruling also suggested that, in the absence of such evidence, the seizure of cash would be unlawful.
5. Bharatkumar Pravinkumar & Co. v. State of Gujarat (2023)
In the Gujarat High Court, the question of whether cash could be seized during a GST search was examined. The Court concluded that unless the cash was a part of the stock in trade or could be shown to be involved in evading GST, it should not be seized. The Court interpreted the provisions in a way that restricts the seizure of cash to cases where there is tangible evidence that the cash is part of the business’s taxable activities.
Remedies for Taxpayers: Challenging Unlawful Seizures
If a taxpayer’s cash is seized during a GST search, and they believe the seizure to be unlawful, there are several remedies available:
- Filing a Representation with the Authorities
The taxpayer can submit a formal request to the GST authorities asking for the release of the seized cash. This representation must demonstrate that the cash is unrelated to any tax evasion or business transactions under GST. Supporting documentation such as bank statements, business records, and income statements can be crucial in this regard. - Appealing to Higher Authorities
If the proper officer does not release the seized cash, the taxpayer has the option of escalating the matter to higher authorities. This can involve filing an appeal with the GST Commissioner or submitting a grievance to the Appellate Tribunal for GST. - Approaching the High Court via Writ Petition
Taxpayers who believe that the seizure of cash is unwarranted can file a writ petition under Articles 226 and 227 of the Indian Constitution. High Courts have the authority to intervene and direct the release of seized assets if the seizure is found to be without valid legal grounds. - Filing an Appeal with the Appellate Authority
The taxpayer can also file an appeal before the Appellate Authority, challenging the seizure and presenting their case. This appeal will be heard by the designated appellate body, which has the authority to overturn unlawful seizures.
Final Thoughts
The legal question of whether cash can be seized during GST searches remains a complex issue that has been addressed in various ways by the Indian judiciary. While Section 67 of the CGST Act provides the power to seize “things” during a search, courts have consistently emphasized that cash should not be seized unless there is a direct link to tax evasion activities or violations of GST provisions.
Taxpayers who find themselves in a situation where their cash has been seized must be aware of their legal rights and the remedies available to them. Courts have made it clear that unlawful seizure of personal assets, including cash, is not permissible under the law, and taxpayers are entitled to challenge such actions through appropriate legal channels.
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