Cash cannot be seized during GST Search: High Court

Delhi High Court in the matter of Deepak Khandelwal vs Commissioner Of CGST has held that Cash cannot be seized during GST Search.

Contention of Assessee

• It is the petitioner’s case that the proper officer does not have any powers under Section 67 of the Act to seize currency as the same is not ‘goods’ as defined under the Act.
• It is contended that since no notice under Sub-section (2) of Section 67 of the Act was issued in respect of the seized silver bars, which fall within the definition of goods, within the stipulated period of six months, the said goods are liable to be released.

Contention of Department

• It was contended that silver bars and cash seized by the proper officer were not covered under the definition of ‘goods’ and therefore, there was no requirement for issuing any show cause notice for confiscation of the same.
• Further silver bars and cash were seized as ‘things’ and not as ‘goods’ that were liable for confiscation.
• The definition of the word ‘goods’ under the Act excluded ‘money’ and ‘securities’.
• It was contended that silver bars were ‘securities’ and were seized as such.

The question whether the proper officer has any power to seize cash or other asset is required to be addressed bearing in mind the aforesaid scheme of Section 67 of the Act.

Cash not ‘goods’ as defined in GST Act

• The expression ‘goods’ is defined in Sub-section (52) of Section 2 of the Act as under:
• “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”
• Cash (Indian currency) is clearly excluded from the definition of the term ‘goods’ as the same falls squarely within the definition of the word ‘money’ as defined in Sub-section (75) of Section 2 of the Act.

Silver bars not securities as per CGST Act

• The expression ‘goods’ covers all movable property other than ‘money’ and ‘securities’. The expression ‘securities’ as defined in Sub-section (101) of Section 2 of the Act has the same meaning as assigned to it in Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956.
• Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956 reads as under:

“securities” —include

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities;”

Silver bars not securities as per CGST Act

• It is at once clear from the above that silver bars being movable assets are not securities within the meaning of Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956. The contention that silver bars are ‘securities’, as advanced on behalf of the Revenue, is insubstantial. Although the definition of the term ‘securities’ is an inclusive definition, the same cannot be read in disregard of Subclauses (i) to (iii) of Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956 or the scope of that enactment. Plainly, as silver bars do not fall within the definition of ‘securities’ under Subsection (101) of Section 2 of the Act read with Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956. Thus, silver bars are included in the term ‘goods’ as defined under Sub-section (52) of Section 2 of the Act.

Cash cannot come in purview of word thing as used in Sub-section (2) of Section 67

Section 67(2)

Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the 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 proceedings under this Act.

As per court it would not be apposite to construe the word ‘things’ under Sub-section (2) of Section 67 of the Act to be mutually exclusive to the term ‘goods’.

‘Goods’ as per Sec 67(2), essentially, relates to Taxable goods, which are subject matter of supplies.

• The word ‘goods’ as defined under Sub-section (52) of Section 2 of the Act is in wide terms, but the said term as used in Section 67 of the Act, is qualified with the condition of being liable for confiscation.
• Thus, only those goods, which are subject matter of or are suspected to be subject matter of evasion of tax. During the course of search under Sub-section (2) of Section 67 of the Act, the officer conducting the search may find various types of movable assets. Illustratively, in an office premises, one may find furniture, computer, communication instruments, air conditioners etc. Those assets although falling under the definition of ‘goods’ cannot be seized, if the proper officer has no reasons to believe that those goods are liable to be confiscated.
• Sub-section (6) of Section 67 of the Act provides for provisional release of the goods so seized on payment of applicable tax, interest and penalty. This also indicates that the goods, which may be seized under Sub-section (2) of Section 67 are goods that are subject matter of evasion of tax or are supplies in respect of which the proper officer has reason to believe, taxes would not be paid.

Books and documents can be seized as they may be useful for GST proceeding

• Documents and books are also covered under the wide definition of ‘goods’ under Sub-section (52) of Section 2 of the Act but the same are not goods that are liable for confiscation.
• Seizure of such documents or books is not contemplated for the reason that they are subject matter of supplies in respect of which tax has been evaded;
• Seizure of books and documents is contemplated only for the purpose that they may contain information, which may be useful or relevant for any proceeding under the Act.

Scheme of Section 67 for the word ‘things’

• It is clear from the Scheme of Section 67 of the Act that the word ‘things’ is required to be read, ejusdem generis, with the preceding words ‘documents’ and ‘books’
• Although, documents and books are used to store information; they are not the only mode for storing information. There are several other devices that are used to store information or records such as pen-drives, personal computers, hard disks, mobiles, communication devices etc. The word ‘things’ would cover all such devices and material that may be useful or relevant for proceedings under the Act. The word ‘things’ must take colour from the preceding words, ‘documents’ and ‘books’.

When Currency notes can be seized?

• There may be cases where the Revenue finds that a particular currency note or any particular asset has evidentiary value to establish the Revenue’s case. Illustratively, a delinquent dealer supplies goods without invoices only on presentation of a currency note that bears particular number. The presentation of the currency note is used as a means of authenticating the identity of the purchaser. The number of the particular currency note is recorded in diary maintained by the purchaser. The Revenue Officer ascertains this modus operandi of evasion of taxes. The currency note, corelated with the diary, would be relevant in establishing evasion of tax in respect of certain goods.
• Undoubtedly, in such cases, the currency note is material that yields information as to the modus adopted for evading tax; the proper officer may seize the currency note for its evidentiary value and relevance in establishing evasion of tax in proceedings under the Act.

Cash or other assets, which are not required in species in aid of any proceedings, but represent unaccounted wealth, cannot be seized under Section 67 of the Act.

It is, thus, clear that the silver bars and the cash were seized only on the ground that it was ‘unaccounted wealth’ and not as any material which was to be relied upon in any proceedings under the Act.

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