Seizure of Cash in Case of Search U/s. 67(2) of CGST Act, 2017

Understand the implications of the seizure of cash during search operations under Section 67(2) of the CGST Act, 2017. Explore recent judgments from High Courts, such as Madhya Pradesh and Delhi, addressing the legality of cash seizures. Get insights into the complexities of this issue and stay informed on the evolving legal landscape.

Section 67 (2) of the Goods & Service Tax Act, 2017 empowers the GST department to seize the such goods, documents, books or things which shall be useful for or relevant to any proceeding and are secreted in any place.

In Various cases of search, department not only seize the goods and books of accounts but also seized cash(currency) found during the course of search under the power of section 67(2) of Goods and Services Tax, 2017. Now moot question arises whether “cash” can be seized by the department u/s 67(2) of Goods and Services Tax Act, 2017.

1. The Hon’ble High Court of Madhya Pradesh in the case of Smt. Kanishka Matta VS Union of India and Others W.P. 8204/2020 had an occasion to consider this issue. The brief fact of the case before the Hon’ble High Court of Madhya Pradesh was as under:

2. That, the search operation was carried out u/s 67(2) of Central Goods and Services Tax Act, 2017 at the premises belonging to both her and her husband and a cash of Rs. 66,43,130 was seized from the petitioner. The husband of the petitioner is carrying on the business of confectionery and Pan Masala Items. During the course of search the husband of the petitioner, made a voluntary statement stating categorically that, the said cash of Rs. 66,43,130 was the sale proceeds of the illegally sold Pan Masala without payment of GST.

3. The Hon’ble MP High Court in para no. 18 & 19 of order discussed the issue as under:

4. In the case petitioner’s contention is that the word “money” is not included in Section 67(2) of the CGST Act, 2017 and therefore, once the “money” is not included under Section 67(2) of the CGST Act, 2017 the Investigating Agency/Department is not competent to seize the same.

5. Para no. 18: The core issue before this Court is that whether expression “things” covers within its meaning the cash or not. In the considered opinion of this Court, the CGST Act, 2017 has to be seen as a whole and the definition clauses are the keys to unlock the intent and purpose of the various sections and expressions used therein, where the said provisions are put to implementation. Section 2(17) defines “business” and Section 2(31) defines “consideration”. In the considered opinion of this Court a conjoint reading of Section 2(17), 2(31), 2(75) and 67(2) makes it clear that money can also be seized by authorized officer.

6. Para no. 19:  The word “things” appears in Section 67(2) of the CGST Act, 2017 is to be given wide meaning and as per Black’s Law Dictionary, 10 Edition, any subject matter of ownership within the spear of proprietary or valuable right, would come under the definition of “thing” (page No. 1707). Similarly, Wharton’s Law Lexicon at page No. 1869 and 1870, the word “thing” has been defined and it includes “money”.

7. At the last Hon’ble MP High Court gave the verdict that, authorities (GST Department) had rightly seized the amount (Cash) from the husband of the petitioner. As per judgement cash is included under the Scope of “things”.

8. The Hon’ble High Court of Delhi also has an occasion to consider the core issue whether the cash can be seized during the course of search and seizure proceedings. In the case of Arvind Goyal CA VS Union of India & Others in the W.P. (C) 12499/2021 decided on 19.01.2023, hon’ble Delhi high court considered the issue at length and concluded that, the action of taking away currency during the course of search proceeding is illegal and without any authority of law. The fact of the case was that, a search operation was conducted at the residence of petitioner by the officer of GST and found the cash aggregation Rs. 1,22,87,000 and took the possession of the said cash. The Hon’ble High Court in para no. 10, 11, 12 & 13 discuss the issue as under:

9. Para No. 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.

10. Para No. 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.

11. Para No. 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.”

1. At last Hon’ble Delhi High Court allow the writ of petitioner and overruled the decision of MP high court.

2. In the meantime, the same issue was arrived for decision before Hon’ble High Court of Kerela in the case of Shabu George VS State Tax Office (IB) in W.A 514 of 2023 and W.P. (C) 39406/2022. The issue was the same that, during the search proceeding cash was seized from the house of applicant. The Hon’ble Kerela High Court has allowed the writ of the petitioner on the grounds as under:

3. In para no. 3 of order Hon’ble Court has discussed “The power of any authority to seize any ‘thing’ while functioning under the provisions of a taxing statute must be guided and informed in its exercise by the object of the statute concerned.”

4. 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 assertion was made by the applicant that the money was received as gift on the day of marriage. The allegation made by Intelligence Officer that the same has not been disclosed in the Income Tax Return therefore, money is from the illicit sources. The Hon’ble Court held that, this issue can be considered by the Income Tax Department not by the GST Department. Hon’ble High Court further stressed that, the cash seized from the premises of the appellant was not stock-in-trade of quarry business that was conducted by the appellant and at last instructed for refund of amount seized from appellant.

5. The matter of Hon’ble Kerela High Court was dragged to the court of Hon’ble Supreme Court of India by the Department by a special leave petition. The Hon’ble Supreme Court of India dismissed the SLP and ordered that, we are not inclined to interfere with the judgement and order impugned in this petition. Thus, decision of Kerla High court become rule of land.

6. Ongoing through the order passed by the Hon’ble Kerela High Court, we will notice that, one new terminology/phrase has emerged out  in  the order that is the “cash did not form  part of the Stock-in-trade of ”  The court has emphasized that, cash cannot be seized specially when it is admitted that cash found did not form the part of Stock-in-trade of appellant’s business. It create an apprehension that, the cash which form the part of Stock-in-trade, could be seized during search proceeding. Let us now discuss what is the meaning and intention of the Hon’ble Kerela High Court by putting this special terminology in its order.

12. Stock-in-trade as defined in Advance Law of Lexicon as under:

Stock in trade comprises all such chattels as are acquired for the purpose of being sold, or let to hire, in a person’s trade.

1. The inventory carried by a retail business for sale in the ordinary course of business.

2. The tools and equipment owned and used by a person engaged in a trade.

3. The equipment and other items needed to run a business.

4. From the above the definition the cash cannot be considered as Stock-in-trade. Cash is the medium through which the business transactions are carried out. Cash itself is not intended for sale.

5. Now question arises what was intended by Hon’ble High Court of Kerela while putting the phrase that “cash which is form of Stock-in-trade” in order. We understand that Hon’ble Court in his wisdom intended to profound that, the cash which is accumulated and kept in the course of business is a cash which is a part of Stock-in-trade. For example, if the cash is received on sale of goods then, the sale proceed in cash is cash which is part of stock-in-trade. Further if the cash is received under a gift of personal nature, in that situation as per the intention of Hon’ble High Court the same will not qualify as cash which is a part of stock-in-trade.

6. During the course of search if amount is found at the residence premises other than business premises and stated to acquired not from the proceed of business, could be treated as cash which is not a part of Sock-in-trade. And this is the cash which cannot be seized at the time of survey. However, the cash found at the business premises and or having the direct source of business can be seized as being qualified the phrase “cash which is a part of Stock-in-trade.”

7. If we agree with this ratio of Hon’ble Kerela High Court, we can say that, the decision of MP High Court in the case of Smt. Kanishka Matta still hold good as although the cash was seized from the residential premises of the petitioner but the same was accumulated by the sale proceed of Pan Masala. In that situation the cash so found is a “cash which is a part of Stock-in-trade.” Therefore, in my view, as per the ratio of Kerela High Court the cash can be seized.

8. Conclusion- The decision of the Kerela High Court has been affirmed by the Hon’ble Supreme Court of India in which prima facie it has been held that cash cannot be seized during the proceedings carried out u/s 67(2) of the CGST Act,2017 but insertion of specific phrase that “cash which did not form part of the Stock-in-trade of business” in judgement creates a two possibility i.e., one where the cash is generated/accumulated during the course of business and form the part of business assets and second where cash is generated/accumulated through personal source and do not form the part of business assets. As per the ratio of Kerela High Court the cash generated in business and form the part of Business Assets can be seized and the cash accumulated through personal source and did not form the part of business assets cannot be seized. From the above, it is advisable to take care the facts of the case while applying the ratio of Hon’ble High Court of Kerela in any lis.

CA Anil Kumar Gupta

FCA, AICWA, LLB, DISA, CISA(USA)