SEIZURE OF CASH IN GST SEARCH

[Dr. Sanjiv Agarwal]

Provisions of section 67 at a glance

The provisions of search and seizure provides enough safeguards and the GST Law stipulates that search of any place of business etc. can be carried out only under authorization from an officer not below the rank of Joint Commissioner and if he has a reason to believe that the person concerned has done at least one of the following:

1. Goods liable to confiscation or any documents/books/record/things, which may be useful for or relevant to any proceedings, are secreted in any place then all such places can be searched
2. All such goods/documents/books/record/things may be seized, however, if it is not practicable to seize any such goods then the same may be detained. The person from whom these are seized shall be entitled to take copies/extracts of seized records
3. The seized documents/books/things shall be retained only till the time the same are required for examination/enquiry/proceedings and if these are not relied on for the case then the same shall be returned within 30 days from the issuance of show cause notice
4. The seized goods shall be provisionally released on execution of bond and furnishing a security or on payment of applicable tax, interest and penalty
5. In case of seizure of goods, a notice has to be issued within six months, if no notice is issued within a period of six months then all such goods shall be returned. However, this period of six months can be extended by Commissioner for another six months on sufficient cause.
6. An inventory of the seized goods/documents/records is required to be made by the officer and the person, from whom the same are seized, shall be given a copy of the same.
7. To ensure that the provisions for search and seizure are implemented in a proper and transparent manner, the Act stipulates that the searches and seizures shall be carried out in accordance with the provisions of Criminal Procedure Code, 1973. It ensures that any search or seizure should be made in the presence of two or more independent witnesses, a record of entire proceedings is made and forwarded to the Commissioner forthwith.

Meaning of search and seizure

Search

The term ‘search’, simply denotes an action of a government machinery to go, look through or examine carefully a place, area, person, object etc. in order to find something concealed or for the purpose of discovering evidence of a crime. The search of a person or vehicle or premises etc. can only be done under proper and valid authority of law.

“Search” has not been defined in the GST law. However, Shorter Oxford English Dictionary defines “search” to mean to probe, scrutinize, examine, investigate. The rights of the state to authorize a search are well recognized and are used against those who perpetrate fraud on the revenue. There has to be compelling reasons to order for a search ie transgression into one’s privacy. In case of search, due process of law has to be followed. In case of taxes, a suspicion of undisclosed or concealed income or assets is sufficient for issuance of a search warrant.

Seizure

“Seizure” has not been defined in the GST law. In Law Lexicon Dictionary, “seizure” is defined as the act of taking possession of property by an officer under legal process. It generally implies taking possession forcibly contrary to the wishes of the owner of the property or who has the possession and who was unwilling to part with the possession.

Seizure is the outcome of search. If any documents are found during the search which need to be seized, the officials conducting the search can seize such documents etc. When power to seize exists, the power to release seized items is also implied. Once the investigation is completed, the department may retain or release the seized documents or papers or things. The investigation officer, if establishes that there has been an evasion of tax, notice under section 74 of the Act may be issued.

Seizure is taking into possession of goods in pursuance of a legal right. In COMMISSIONER OF INCOME-TAX, AND OTHERS VERSUS TARSEM KUMAR - 1986 (7) TMI 110 - SUPREME COURT , the Apex Court held that seizure implies forcibly taking something from its owner or who has possession and who was unwilling to part with such possession.

Essential conditions for Search and Seizure

There are two essential conditions for search and seizure:

1. Documents, goods books or things must be useful for or relevant to any proceedings, in the opinion of the Joint Commissioner, and
2. Joint Commissioner must have reasons to believe that such books, documents or things have been secreted i.e., hidden in any place.

Thus, reasons to believe etc become pre-conditions for conducting a search and seizure. There should not be a reason to suspect but reason to believe. Search can be conducted at any place which may not necessarily be assessee’s premises.

Retention of seized items

As per second proviso to section 67(2), the goods, 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 proceeding under the GST law.

Seizure of Cash

In SHABU GEORGE, GIGI MATHEW VERSUS STATE TAX OFFICER (IB) STATE GOODS & SERVICES TAX DEPARTMENT, JOINT COMMISSIONER (IB) STATE GOODS & SERVICE TAX DEPARTMENT, COMMISSIONER OF STATE TAXES STATE GOODS & SERVICE TAX DEPARTMENT - 2023 (4) TMI 252 - KERALA HIGH COURT , it has been held that in an investigation aimed at detecting tax evasion under GST law, cash cannot be seized, especially when cash does not form part of stock in trade of business. Court observed that while it may be a fact that Section 67(2) of the CGST Act authorizes the seizure of things, including cash in appropriate cases, we do not think that the present is a case that called for a seizure of the cash found in the premises of the appellants at the time of the search. 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. 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. It was evident from the order of the Intelligence Officer that the cash that was seized from the premises of the appellants was not the stock in trade of the quarry business that was conducted by the appellant. The findings of the Intelligence Officer that 'it is suspicious that this much amount of money kept in the house of M/s. Shabu as idle and not deposited at bank' and further 'the amount received as gift on the day of marriage has not been recorded in his income tax return and from this it is evident that the money is from illicit sources' reveal the extent to which authorities under the Act are misinformed of their powers and the limits of their jurisdiction. The aforesaid findings of the Intelligence Officer could perhaps have been justified had he been an officer attached to the Income Tax department. In the context of the GST Act, the findings are wholly irrelevant. We find that the seizure of cash from the premises of the appellants was wholly uncalled for and unwarranted. Moreover, as the respondent has retained the seized cash for more than six months and is yet to issue a show cause notice to the appellants in connection with the investigation, there can be no justification for a continued retention of the said amount with the respondent. The court therefore, allowed the appeal by directing the first respondent to forthwith release to the appellant the cash seized from the premises, against a receipt to be obtained from him. The amount shall be released to the appellant without any delay, and at any rate, within a week from the date of receipt of a copy of judgment.

The petition filed by Revenue Authorities before Apex Court has since been dismissed as reported in STATE TAX OFFICER (IB) & ORS. VERSUS SHABU GEORGE & ANR. - 2023 (8) TMI 309 - SC ORDER . It was thus, held that:

• Section 67 of CGST Act, 2017 provides for inspection, search and seizure with proper authorization and reasons therefor.
• There can be seizure of goods, documents, books or things or accounts as a consequence of search.
• However, there may not be any circumstances necessitating recovery of tax dues during the course of search or inspection or investigating proceedings.
• Kerala High Court has held that cash can not be seized when it does not form part of stock in trade and it was held to be uncalled for and unwarranted.
• SLP filed before Supreme Court stands dismissed.