Revenue Department cannot seize cash during the inspection

Dhanya Sreekumari Vs State Tax Officer (IB) (Kerala High Court)

The Hon’ble Kerala High Court in Dhanya Sreekumari v. State Tax Officer (IB) [WP(C) No. 21772 of 2022 dated June 27, 2023] held that cash not being a stock-in-trade of the assessee, was not a thing that ought to have been seized and directed the Revenue Department to release the cash seized to the assessee.

Facts:

Dhanya Sreekumari (“the Petitioner”) is engaged in the manufacture and sale of Idly, dhosa batter etc. An inspection was conducted by the Revenue Department (“the Respondent”) in the manufacturing unit and at the residence of the Petitioner and seized INR 32,73,900 as cash and pay-in slips amounting INR 21,02,000 and passed a seizure order dated June 13, 2022.

The Petitioner contended that pay-in-slip for depositing a further sum of INR 8,00,000 was also present in the safe from which a sum of INR 11,71,900 was seized, but the same had not been noted in the order of seizure.

Petitioner preferred representation before the Respondent to return the seized cash as early as on June 22, 2022 but no action was taken by the Respondent.

The Petitioner was of the view that seizure of cash was unwarranted since the investigation was on alleged evasion of tax thus, the Respondent is not entitled to seize cash by invoking the power available under Section 67 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

The Petitioner filed writ before the Hon’ble Kerala High Court to release the cash.

Issue:

Whether Revenue Department can seize cash during the inspection?

Held:

The Hon’ble Kerala High Court in WP(C) No. 21772 of 2022 held as under:

• Observed the contention of Revenue Department that, the word ‘things’ in Section 67(2) of the CGST Act will include cash also and hence the seizure of cash was very much in accordance with the law.
• Opined that, cash not being a stock-in-trade of the Petitioner, was not a thing that ought to have been seized, and the seizure was one year back, so there is no reason to retain it any further.
• Held that, court directed the respondent to release the cash seized from the Petitioner.

Our Comments:

The Hon’ble Kerela High Court has correctly held that cash is not a stock-in-trade thus cannot be seized. Attention is invited to the similar case Arvind Goyal CA v. Union of India & Ors. [W.P.(C) 12499/2021 dated January 19, 2023] wherein the Hon’ble Delhi High Court held that seizure under Section 67 of 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 GST officers of taking away currency was illegal and without any authority of law.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

The petitioner is running an industrial unit that is involved in the manufacture and sale of Idly/Dosa batter, Parotta (half-cooked), Chappathi, etc. It is stated that the Unit has been functioning from the year 2010 onwards, and the 1^st petitioner was awarded the Best Woman Entrepreneur Award 2016 by the Government of Kerala. The 1st petitioner is marketing her products through the 2^nd petitioner. An Investigating Team represented by the 1^st respondent conducted an inspection of the Manufacturing Unit as well as the residence of the 1st petitioner. The team found Rs.32,73,900/- kept as cash and seized the same as per the order of seizure dated 13.06.2022, a copy of which has been produced as Ext.P1. It can be seen from Ext.P1 that along with cash, pay-in slips for depositing an amount totalling Rs.21,02,000/- were also seized by the respondents. According to the petitioner, pay-in-slip for depositing a further sum of Rs.8,00,000/- was also present in the Safe from which a sum of Rs.11,71,900/- was seized, but the same had not been noted in the order of seizure. The case of the petitioner is that the respondents are not entitled to seize cash by invoking the power available under Section 67 of the CGST Act. The petitioner has also preferred Ext.P4 representation before the 4^th respondent for the return of the seized cash as early as on 22.06.2022. When no action was forthcoming, the writ petition was filed seeking direction for the return of the cash and for quashing Ext.P1 to the extent it seizes the cash. In the alternate, there is also a prayer for a direction to consider and pass orders on Ext.P4 application.

2. The 4^th respondent has filed a counter affidavit. It is stated in paragraph 4 that on preliminary verification, it is found that there is tax evasion. It is contended that the word ‘things’ in Section 67(2) will include cash also, and hence the seizure of cash was very much in accordance with the law. It is also submitted that if the cash seized is released, it will disintegrate the entire proceedings of verification of the seized article, which is in progress. Reliance is also placed on the judgments in Smt. Kanishka Matta V. Union of India & Ors. ([2021] 89 GSTR 56 (MP)), BA Continuum India Pvt. Ltd V. Union of India and Others ([2021] 89 GSTR 73 (Bom)) and the decision of Delhi High Court in WP(C) No.12499/2021 in support of the contention that cash can also be seized under Section 67 of the CGST Act.

3. Heard the counsel for the petitioner and Smt.Thushara James, learned Senior Government Pleader for the respondents.

4. The counsel for the petitioners placed before me the judgment of a Division Bench of this Court in W.A.No.514 of 2023 filed against the judgment of a Learned Single Judge in W.P. (C)No.39406 of 2022. The said writ petition was also concerning the release of seized cash. The learned Single Judge had directed the concerned Officer to consider and pass orders on the representation preferred for the release of cash, rejecting the contention of the assessee that the seizure of cash was unwarranted since the investigation was on alleged evasion of tax. The Division Bench, after considering Section 67 of the CGST Act, held that the authority to seize” things” may include cash in appropriate cases, but it was unwarranted in the case before the Division Bench. The Court specifically held that in an investigation aimed and detecting tax evasion under the CGST Act, the Court fails to see how cash can be seized, especially when it is an admitted case that the cash did not form part of the stock-in-trade of the appellant’s business. In the said case, the appellant was involved in the business of quarry. The Court also considered the findings of the Intelligence Officer in the said case that it was suspicious as to why large amounts had been kept idle without being deposited in the Bank. The Court held that such findings only reveal the extent to which the authorities under the Act are misinformed of their powers and the limits of their jurisdiction. It was observed that the said findings might be justified if the Officer was an Officer attached to the Income Tax Department and that in the context of the GST Act, the findings are wholly irrelevant. On the above said findings, the Division Bench directed the respondents therein to forthwith release the cash against a receipt to be obtained from the appellant. In the case on hand also, it is admitted that the petitioners are engaged in the manufacture and sale of dosa/idly batter, etc., and that cash has been seized from the house. An additional fact is that the authorities had also seized pay-in-slips which would show that the cash was intended to be deposited in the Bank. As observed by the Division Bench, the cash being not a stock-in-trade of the petitioners, was not a thing that ought to have been seized. The seizure was one year back, and there is no reason to retain it any further.

5. In the above circumstances, the writ petition is disposed of directing the respondents to release the cash seized from the petitioners forthwith, at any rate, within a week from the date of receipt of a copy of this judgment.

*****

(Author can be reached at info@a2ztaxcorp.com)