In Commissioner of CGST v. Deepak Khandelwal, the Supreme Court of India dismissed a review petition, confirming its prior decision that the GST department must return seized assets, including cash and jewelry, to the taxpayer. The case stemmed from a GST search where valuable assets were seized from the respondent’s home, despite not being directly linked to any GST-related offenses. The Delhi High Court had previously ordered the return of these assets, ruling that Section 67 of the CGST Act does not permit the seizure of assets simply because they are “unaccounted for” without a clear connection to tax evasion. The Supreme Court’s dismissal of the review petition reinforces this principle, holding that the power of inspection, search, and seizure under Section 67 must be exercised strictly according to the law. The ruling affirms that officers must prove a clear relationship between seized goods and a GST violation for the seizure to be considered lawful, serving as an important precedent that limits the scope of the GST department’s search powers.
Facts:
The Commissioner of CGST (“the Petitioner”), challenged the relief granted to Deepak Khandelwal (“the Respondent”) following a GST search at the Respondent’s residential premises. Valuable assets, including silver bars, currency, and mobile phones, were seized during the proceedings.
The Delhi High Court, applying a purposive interpretation of Section 67 of the CGST Act, directed the release of these assets, holding that merely being “unaccounted for” does not justify their confiscation under search and seizure provisions.
The Revenue’s Special Leave Petition (SLP) against this Delhi High Court judgment had already been dismissed by the Supreme Court. The Revenue then sought review of the apex court’s order.
Issues:
- Whether, under Section 67 of the CGST Act, assets that are simply unaccounted for (but otherwise not shown to be offending goods under GST law) can be lawfully seized during search proceedings?
- Whether the earlier Supreme Court order affirming the High Court’s direction for release of seized valuables warranted review?
Held:
The Hon’ble Supreme Court in SPECIAL LEAVE PETITION NO. 18536 OF 2024 held as under:
- Observed that, there was no case made out for recall or alteration of its earlier order.
- Held that, the power of inspection, search, and seizure under Section 67 CGST Act does not extend to allow seizure of assets solely because they are “not accounted for,” unless they are otherwise shown to be offending goods or relevant to alleged tax evasion.
- Upholding its prior order, the Court declined to interfere further, confirming that valuable assets seized during the search (such as silver bars, cash, mobile phones) must be returned to the assessee where the seizure was beyond the statutory authority of the officers under Section 67.
- Held that, the review petition is dismissed in its entirety and all pending applications, if any, stand disposed of.
Our Comments:
This Supreme Court order cements the principle that GST search and seizure powers under Section 67 cannot be stretched to confiscate every unaccounted asset found during a search. The clear reaffirmation of a purposive, limited reading of seizure provisions acts as an important safeguard for taxpayers, aligning enforcement with legislative intent and rule of law. Officers must demonstrate a clear nexus between the goods seized and GST offences, failing which, release must follow. In the case of Arvind Goyal CA vs. Union of India & Ors, [W.P.(C) 12499/2021, order dated January19, 2023], the High Court of Delhi held that no provision in the GST Act 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. Similarly in the case of Deepak Khandelwal Proprietor M/S Shri Shyam Metal vs. Commissioner of CGST, Delhi West & Anr., [W.P.(C) 6739/2021, decided on August 17, 2023], the Delhi High court held that Cash is explicitly excluded from “goods,” and “things” and seizure under Section 67(2) cannot be used to confiscate unaccounted wealth unless directly linked to GST violations.
Relevant Provisions:
Section 67 of the Central Goods and Services Tax Act, 2017
“67. Power of inspection, search and seizure.-
(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that-
(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or
(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act, he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.”
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
