In Smurti Waghdhare Vs Joint Director, the Bombay High Court examined the legality of cash seizure during a GST search under Section 67(2) of the CGST Act, 2017. The petitioner, a metal trader, faced multiple searches across business and residential premises, resulting in seizure of ₹1 crore in cash allegedly linked to a third party involved in fake billing. The Court held that cash is not automatically seizable merely by classifying it as a “thing” under the provision. It emphasized that seizure requires a valid “reason to believe” and clear relevance to GST proceedings, both of which were absent. The department failed to establish any nexus between the cash and GST evasion and did not issue notice within the prescribed time under Section 67(7). Further, transferring the cash to the Income Tax Department lacked legal authority. Consequently, the Court declared the seizure illegal, quashed the orders, and directed refund of the amount with interest.
Imagine this.
You’re running a legitimate business. One day, GST officials walk in, conduct a search… and walk away with ₹1 crore in cash from your premises and even your parents’ house.
No clear explanation. No proper linkage. Just suspicion.
Sounds extreme? Well, this is exactly what happened in a recent Bombay High Court case and what followed is a lesson every taxpayer and professional must understand.
Let’s break it down in a simple, conversational way.
The Story: What Actually Happened?
The petitioner, a proprietor engaged in metal trading, suddenly found herself in the middle of a GST investigation.
Searches were conducted across:
- Her registered office
- Another unused premise
- Her residence
- Her parents’ residence
And during these searches?
Cash worth ₹1 crore was seized:
- ₹60 lakhs from a commercial premise
- ₹40 lakhs from her parents’ house
Now, here’s where things get interesting.
The department linked the case to a third person (a friend), allegedly involved in fake billing and bogus ITC transactions. Based on that connection, they proceeded to seize the cash.
But the key question arose:
Does GST law even allow seizure of cash like this?
The Core Legal Issue
The entire case revolved around one crucial provision:
Section 67(2) of the CGST Act, 2017
This section allows GST officers to conduct search and seizure, but only under strict conditions.
Let’s simplify what the law actually says.
Understanding Section 67(2): What Can Be Seized?
Under Section 67(2), officers can seize:
- Goods liable to confiscation
- Documents
- Books
- Things (only if relevant to proceedings)
But this is critical two conditions must be satisfied:
Condition 1: “Reason to Believe”
The officer must have a genuine, recorded belief (not suspicion) that:
- Something is hidden or secreted
- And it is relevant to GST proceedings
Condition 2: Relevance to Proceedings
The seized item must be:
- Useful for investigation
- Connected to GST violations
So… Is Cash Covered Under Section 67?
The department argued:
“Cash is a ‘thing’, so it can be seized.”
Sounds logical at first glance, right?
But the Court didn’t agree.
High Court’s Observations
The Bombay High Court took a very practical and strict view:
1. Cash ≠ Automatically Seizable
The Court held:
- The law does not explicitly permit seizure of cash
- Cash is not like goods or documents linked directly to GST transactions
Just calling cash a “thing” is not enough.
2. No “Reason to Believe”
This was the biggest flaw.
The department:
- Failed to record proper reasons
- Could not show how the cash was linked to GST evasion
The Court emphasized:
“Reason to believe” is the foundation of any search and seizure.
Without it, the entire action collapses.
3. No Proof That Cash Was Relevant
Even more importantly:
- The department could not establish how the cash was useful for proceedings
- Ownership of cash was not disputed it belonged to the petitioner
4. Violation of Section 67(7)
This section says:
If no notice is issued within 6 months, seized goods must be returned.
In this case:
- No notice was issued within the prescribed time
So legally, the department had no right to retain the cash
5. Shocking Action by Department
The Court was clearly displeased when it was revealed:
The GST department had handed over the cash to the Income Tax Department
The Court questioned:
“Where does GST law give you this power?”
Answer: Nowhere.
Final Verdict
The Bombay High Court didn’t mince words.
It held that:
- The seizure was illegal
- It was arbitrary and without authority of law
Result:
- Seizure orders were quashed
- ₹1 crore to be returned with interest
Let’s Understand with a Practical Example
Example 1: Valid Seizure
Suppose during a GST raid:
- Officers find fake invoices
- Unaccounted stock
- Parallel books
These can be seized because:
- They directly relate to GST evasion
Example 2: Invalid Seizure (Like This Case)
Suppose:
- Officers find cash at your office
- No evidence links it to GST fraud
- No proper reasoning recorded
Then:
- Cash cannot be seized just like that
Important Legal Takeaways
1. “Reason to Believe” is Everything
No proper reasoning = No valid seizure
2. Cash Seizure Under GST is NOT Automatic
Just because cash is found doesn’t mean it can be taken
3. Relevance Must Be Proven
Department must show:
- How the cash is linked to GST evasion
A Practical Advisory for Taxpayers
If you ever face a GST search:
- Ask for search authorization (INS-01)
- Ensure panchnama is properly recorded
- Check if reasons are documented
- Track timelines under Section 67(7)
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