Case Law Details
Commissioner of CGST Vs Deepak Khandelwal (Supreme Court of India)
Summary: The Supreme Court of India dismissed the Special Leave Petition (SLP) by the Commissioner of CGST in the case against Deepak Khandelwal, thereby upholding the Delhi High Court’s decision that the seizure of cash and silver bars during a search under Section 67 of the CGST Act is not sustainable. The Delhi High Court had ruled that while Section 67 allows for the seizure of goods related to tax evasion, cash does not fall under the definition of “goods” and should not be subject to seizure. The court also noted that the purpose of Section 67 is to ensure compliance with tax regulations, not to recover unaccounted wealth, which is the domain of the Income Tax Act. Furthermore, the court highlighted that the seized items must be returned if no notice is served within six months, as mandated by Section 67(7). Despite the CGST department’s contention that the silver bars and cash were unaccounted for, the courts found that the seizure was unauthorized. Consequently, the Supreme Court’s dismissal of the SLP reinforces the legal precedent that currency and similar assets cannot be seized under the CGST Act without specific cause and due process.
Introduction: The Hon’ble Supreme Court in the case of Commissioner of CGST v. Deepak Khandelwal [Special Leave Petition (C) Diary No. 31886 of 2024 dated August 14, 2024], dismissed the Special Leave Petition (“SLP”), upheld the decision of the Hon’ble Delhi High Court, wherein the Court directed to return the seized currency and other valuable assets to the Assessee and held that the Revenue Department has no power to seize cash and any other items under Section 67 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
Facts:
The Commissioner of CGST (“the Petitioner”) conducted a search in the residential premises of Mr. Deepak Khandelwal (“the Respondent”) under Section 67(2) of the CGST Act on January 28, 2020. The search resulted in the seizure of two silver bars (weighing 29.5 Kgs. and 14.5 Kgs. respectively); Rs. 7,00,000/- Indian currency and, mobile phones. Thereafter, the Respondent was arrested by the Petitioner as it was alleged that he had committed offences, punishable under Clause (i) of Sub- section (1) of Section 132 of the CGST Act. The Respondent was released on bail on March 21, 2020. Subsequently, a Show Cause Notice was served with demand of Rs. 24,20,900, including penalties of a sum of Rs.12,10,450/-.
The Respondent, by letter dated March 23, 2021, requested, to release the goods, documents and cash seized and contended that even if the proviso to sub-section (7) of section 67 of the CGST Act was applicable, no notice was issued with respect to the seizure of goods, within a period of six months from the date of seizure. Therefore, the seized goods were liable to be restored.
The Respondent argued that the currency does not fall under the definition of goods and therefore, should not be subject to seizure under the GST provisions. The Respondent further challenged the retention of the seized items, arguing that no formal notice was issued within six months of the seizure, as required by Section 67(7) of the CGST Act, which mandates the return of goods if no notice is served within this period.
However, the Petitioner contended that currency could be seized as part of things under the CGST Act, and the Respondent had failed to provide lawful evidence of the purchase of the silver bars on account for the cash.
Hence, aggrieved by the circumstances, the Respondent filed a writ petition before the Hon’ble Delhi High Court, seeking the release of the seized items on the ground that, the Petitioner did not have the power to seize cash under Section 67 of the CGST Act.
The Hon’ble Delhi High Court in the case of Deepak Khandelwal Proprietor M/s Shri Shyam Metal v. Commissioner of CGST, Delhi West & ANR. [W.P. (C) No. 6739 of 2021 dated August 17, 2023] (“the Impugned Order”), allowed the writ petition and held as follows:
- Noted that, various types of movable assets may be found during search, although falling under definition of ‘goods’ cannot be seized. Only those goods, which are subject matter of or are suspected to be subject matter of evasion of tax would be liable for confiscation. Further, seizure of documents or books or things are permissible so as to aid in proceedings that may be instituted under the CGST Act, otherwise documents or books or things cannot be confiscated and have to be returned.
- Observed that, the purpose of section 67 of the CGST is not recovery of tax, its purpose is to empower authorities to unearth tax evasion and ensure that taxable supplies are brought to tax and, thus, proper officer has power to seize goods to ensure that taxes are paid and once department is secured in this regard, either by discharge of such liability or by such security or bond as concerned authority deems fit, goods are required to be released. Contextual interpretation of all sub-sections of section 67 of the CGST Act clearly indicates that same do not contemplate seizure of valuable assets, for securing interest of revenue. Section 67 is not a machinery provision for recovery of tax. It is for ensuring compliance and to aid proceedings against evasion of tax.
- Opined that, search and seizure operations under section 67 are not for purpose of seizing unaccounted income or assets or ensuring that same are taxed, the said field is covered by Income Tax Act, 1961.
- Held that, where currency or silver bars that were seized, could not be traced in species to any transaction which revenue required to establish in any proceedings those silver bars and cash could not be seized only on ground that it was ‘unaccounted wealth’ and not as any material which was to be relied upon in any proceedings under Act. Even if, it is accepted, which should not be, that proper officer could seize currency and other valuable assets in exercise of powers under sub-section (2) of section 67, same were required to be returned by virtue of sub-section (3) of section 67 when silver bars and currency had not been relied upon in notice issued subsequently.
Hence, aggrieved by the Impugned Order, the Petitioner filed a SLP before the Hon’ble Supreme Court of India.
Issue:
Whether seizure of cash and silver bars recovered during search is sustainable?
Held:
Top of FormThe Hon’ble Supreme Court in SLP (C) No. 018536 of 2024 dismissed the SLP and upheld the decision of the Impugned Order. Bottom of Form
Our Comments:
Section 67 of the CGST Act talks about “Power of inspection, search and seizure”. Section 67(7) of the CGST Act states that where any goods are seized under section 67(2) of the CGST Act and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized. However, the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.
In Pari Materia case of Arvind Goyal CA v. Union of India & Ors. (W.P. (C) 12499/2021 dated January 19, 2023), 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 may be useful for or relevant to any proceedings and ‘cash’ does not fall within the definition of ‘goods’. Therefore. The act of the GST officers taking away currency was illegal and without any authority of law.
(Author can be reached at [email protected])
Author Bio
