GST officers have no power to seize cash during search operations

Arvind Goyal CA Vs Union of India & Ors. (Delhi High Court)

The Hon’ble Delhi High Court in Arvind Goyal CA v. Union of India & Ors. [W.P.(C) 12499/2021 dated January 19, 2023] has held that, seizure under Section 67 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) is limited to goods liable for confiscation or any documents, books or things which may be useful for or relevant to any proceedings and ‘cash’ does not fall within the definition of ‘goods’ therefore, the action of Goods and Services Tax (“GST”) officers of taking away currency was illegal and without any authority of law.

Facts:

Arvind Goyal (“the Petitioner”) is a Chartered Accountant and a search proceeding was carried out at his  residence on December 4, 2020 by GST officers, AE, Delhi (“the Respondent”) and during this search, the Respondent found cash amounting to INR 1,22,87,000/- which was taken in possession, however, no seizure memo was issued, only a panchnama was drawn up which indicated that the Respondent have taken possession of certain items including cash amounting to INR 1,22,87,000/-. Further, the amount of INR 18,87,000/- was returned to the Petitioner along with the laptop and mobile phones seized during the search.

The Petitioner contended that:

• The Respondent had no reason to believe that any goods liable for confiscation were lying or any records relevant to the proceeding were available in their premises.
• Further, contended that the Respondent had no power to seize any cash in exercise of its powers under Section 67(2) of the CGST Act as currency is excluded from the definition of goods and thus cannot be seized.

The Respondent contended that they had merely “resumed” cash as is noted in the panchnama and therefore, the same cannot be considered as seizure.

Being aggrieved, this petition has been filed.

Issue:

Whether cash can be seized by the Respondent during search proceeding under Section 67(2) of the CGST Act?

Held:

The Hon’ble Delhi High Court in W.P.(C) 12499/2021 held as under:

• Observed that, a plain reading of Section 67(2) of the CGST 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”.
• Further observed that, 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 CGST Act.
• Noted that, there is no provision that entitles the Respondent to “resume” assets therefore, the action taken by the Respondent was a coercive action and no provision in the CGST Act could support an action of forcibly taking over possession of currency from the premises of any person, without effecting the same.
• Opined that, the powers of search and seizure are draconian powers and must be exercised strictly in terms of the statute and only if the necessary conditions are satisfied.
• Held that, the action of taking away currency was illegal and without any authority of law.
• Directed the Respondent to return the balance amount along with the interest accrued thereon to the Petitioner and to release the bank guarantee furnished the by Petitioner.

Our Comments:

In this regard, a contrary view has been taken by the Hon’ble Madhya Pradesh High Court in Kanishka Matta v. UOI [Writ Petition No. 8204/2020 dated August 26, 2020] in a matter challenging seizure of cash amounting to INR 66,43,130/- by the GST officials during search. The Court observed that, the word “things” appearing in Section 67(2) of the CGST Act is to be given wide meaning and any subject matter of ownership within the spear of proprietary or valuable right, would come under the definition of “thing”. Thus, it would cover cash also. Held that, a conjoint reading of Section 2(17), 2(31), 2(75) and 67(2) of the CGST Act, makes it clear that money can also be seized by authorized officer, therefore, the authorities had rightly seized the cash amount. Further, it was held that, unless and until the investigation is carried out and matter is finally adjudicated, question of releasing such amount does not arise.

The Court in the above judgment mainly relied on the word “things” as per Black’s Law Dictionary and Wharton’s Law Lexicon. Further it was observed that, it is a cardinal principle of interpretation of statute that, unreasonable and inconvenient results are to be avoided, artificially and anomaly to be avoided and most importantly, a statute is to be given interpretation which suppresses the mischief and advances the remedy.

It is pertinent to note that, Section 2(52) of the CGST Act, specifically excludes ‘money’ and ‘securities’ from the definition of the term “goods” but,  as per Section 67(2) of the CGST Act, if the proper officer 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 the CGST  Act, then, he may seize such goods, documents or books or things.

Therefore, this matter needs critical examination:

• Unless money (Currency) per se is included in the definition of “Goods”, it cannot becomes the subject matter of proceedings under the GST Law.
• Whether the term “Things” can include Currency in its ambit, even when the definition of “Goods” excludes the same.
• Even for seizure of any documents, books or things, it is important to prove by the Revenue Department, that the proper officer has reasons to believe that any goods liable to confiscation or any documents or books or things, shall be useful for or relevant to any proceedings under the CGST Act.

Hence, it may  be concluded that GST authorities does not have unconditional powers to seize cash during search operations.

Moreover, the CBIC had also issued Instruction No. 1/2022-23 [GST- Investigation] dated May 25, 2022, w.r.t. deposit of tax during the course of search, inspection or investigation wherein, it has been clarified that, there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings, to specifically state that, no recovery of tax is to be made by the GST Authorities during search, inspection or investigation under any circumstances, unless it is voluntary.

The above Instructions were issued due to alleged use of force and coercion by the GST officers for making ‘recovery’ and for getting the amount deposited during search or inspection or investigation.

Relevant Provisions:

Section 2(17) of the CGST Act:

“(17) “business” includes––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and]

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;”

Section 2(31) of the CGST Act:

“(31) “consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;”

Section 2(52) of the CGST Act:

“(52) “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; ”

Section 2(75) of the CGST Act:

“(75) “money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;”

Section 67(2) of the CGST Act:

“Power of inspection, search and seizure:

(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:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.”

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The petitioners have filed the present petition, inter alia, praying as under:

“(a) direct the Respondents to deposit balance sum of Rs.1,04,00,000/- taken away on 04.12.2020 during search, from the Petitioner No.2 premises and possession, and be kept in the interest-bearing fixed deposit in the name of Registrar General of this Hon’ble Court during the pendency of present writ petition.”

2. The undisputed facts are that a search operation was conducted at the residence of the petitioners on 04.12.2020, by certain officers of GST, AE, Delhi, West under Section 67(2) of the Goods and Services Tax Act, 2017 (hereafter ‘the GST Act’). During the course of the search, the officers found cash aggregating to ₹1,22,87,000/- and took possession of the said cash. Admittedly, no seizure memo was drawn in respect of the said cash. However, a panchnama was drawn up, which indicates that the concerned officers took possession of certain items including cash aggregating to ₹18,87,000/- from the room of petitioner no.1 and cash amounting to ₹1,04,00,000/- from the room of petitioner no.2. The said officers also took possession of mobile phones as well as a laptop belonging to petitioner no.1.

3. The petitioner has challenged the said search operation as unlawful on several grounds. It is contended by the petitioner that the concerned officers could have no reason to believe that any goods liable for confiscation were lying in the premises of the petitioners. It is also claimed that the concerned officers had no reason to believe that any records relevant to the proceedings would be available in the premises.

4. The petitioner also challenges the action of the concerned officers of taking possession of cash as without authority of law.

5. The respondents have filed the counter affidavit stating that a letter dated 04.12.2020 was received by CGST Delhi East Commissionerate Office from CGST Bhopal Commissionerate and the said search operations were pursuant to the said letter.

6. The Bhopal Commissionerate had informed CGST Delhi East Commissionerate that enquiries were conducted in respect of a concern named M/s Samriddhi Enterprises, holding GSTIN 23BSOPP9752K1ZY, which belongs to one Sh. Rakesh Pal and was located at Shop No.2, Kolar Road, Bhopal. He was ostensibly engaged in the trading of betel nuts, but the enquiry revealed that such trading was without actual movement of goods. It was also revealed that there was a saree shop at the said premises operating under the name of ‘Taksh Sarees’. And, no concern with the name Samriddhi Enterprises was operating from the said address.

7. Apparently, Sh. Rakesh Pal had made a statement that the said concern was opened by petitioner no.1. He also named a few other persons.

8. Admittedly, the petitioners are not assessees from whom any tax or amount is to be recovered.

9. The laptop and mobile phones, which were taken away by the concerned officers, were subsequently returned to petitioner no.1. However, the cash collected by the officers was deposited in a fixed deposit receipt in the name of the President of India.

10. In the aforesaid context, the petitioner contends that the GST officers had no power to seize any cash in exercise of its powers under Section 67(2) of the GST Act.

11. It is contended that the power under Section 67(2) of the GST Act to seize goods could be exercised only if the goods were liable for confiscation. The documents, books or things, could be seized only if the same are useful or relevant to any proceedings under the GST Act.

12. It is contended on behalf of the petitioners that currency is excluded from the definition of goods and thus cannot be seized as goods. The currency is also not useful or relevant for conducting any proceedings and therefore, there is no question of seizing currency in exercise of section 67(2) of the GST Act.

13. In view of the above, one of the principal question that requires to be addressed is whether cash can be seized by the officers under Section 67(2) of the GST Act. Prima facie, 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.”

14. However, there is no occasion for this Court to now examine the aforesaid question as it is the respondents’ stand that the cash was not seized. It is contended that the seizure memo was not prepared as the officers, who had conducted the search operation, had, in fact, not seized any cash.

15. Mr. Harpreet Singh, learned counsel for the respondents, submits that the officers had merely “resumed” cash as is noted in the panchnama and therefore, the same cannot be considered as seizure.

16. However, Mr Harpreet Singh is unable to point out any provision in the GST Act that entitles any officer of GST to merely “resume” assets. Clearly, the petitioners had not handed over the cash to the concerned officers voluntarily. Undisputedly, the action taken by the officers was a coercive action. We find no provision in the GST Act that could support an action of forcibly taking over possession of currency from the premises of any person, without effecting the same. The powers of search and seizure are draconian powers and must be exercised strictly in terms of the statute and only if the necessary conditions are satisfied.

17. In the present case, the GST officers have dispossessed the petitioners of the currency found in their premises during search operations conducted under Section 67(2) of the GST Act but have not seized the currency under the said provision. Plainly, their action in doing so is without authority of law.

18. The petitioners had also placed on record certain Whatsapp chats between the concerned officers and petitioner no.1, which indicates that the petitioners and the officers were in touch over a period of time. It also appears from the said messages that one of the officers had met the petitioners on more than one occasion. The messages for fixing the time and venue for the meeting are rather cryptic. Petitioner no.1 is also present in Court and he states that he was called by the concerned officer to meet in a park.

19. In the given facts, before proceeding further, this Court considers it apposite to give notice to the concerned officers, Mr. Vinod Prakash Sharma, Superintendent and Mr. Sandeep Dhama, and to hear them before making any adverse comments.

20. Insofar as the action of the officers of dispossessing the petitioners of their currency is concerned; it is clear that the said action of taking away currency was illegal and without any authority of law. The amount of ₹18,87,000/- has already been returned to petitioner no.1. The respondents are directed to forthwith return the balance amount along with the interest accrued thereon to the petitioners. The bank guarantee furnished by petitioner no.1 for release of currency is directed to be released forthwith.

21. Mr. Vinod Prakash Sharma, Superintendent and Mr. Sandeep Dhama are directed to be present in Court on the next date of hearing for further proceedings.

22. List on 20.02.2023.

(Author can be reached at [email protected])