DGGI is not allowed to seize cash from the premises of any person.

The Hon’ble Delhi High Court in the case of M/s. K.M. Food Infrastructure Pvt. Ltd. v. The Director General, DGGI [Writ Petition (Civil) 328 of 2024 dated February 13, 2024] held that the word “things” appearing in Section 67 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) does not include “money”. The CGST Act does not support such an action of forcibly taking over the possession of the currency from the premises of any person. Therefore, the action on the part of the DGGI to seize the cash was illegal and arbitrary.

Facts:

The Director General of Goods and Service Tax Intelligence (“the Respondent”) conducted a search at the business premises of Mr. Mukesh Kapoor, Director of M/s. K.M. Food Infrastructure Pvt. Ltd., and M/s. Apparent Marketing Pvt. Ltd. (“the Petitioners”) (3 Petitioners) as per the Authorisation for Search dated October 03, 2021. During the course of the search, various documents/records viz. balance sheets, bilty books, purchase invoices, e-way bills, GST sales ledger, etc., belonging to said companies were resumed vide Panchnama dated October 04, 2021. Another search was conducted vide Authorization for Search dated October 03, 2021. The Respondents took search of the premises belonging to the Petitioner, the said premise was under renovation, and nothing incriminating was found.

Thereafter, the Respondents conducted search of another premise from where they found various records, such as purchase/invoices, bank account details, sale invoices, directorship details, etc. as well as electronic devices viz. mobile phones of the Director of the Petitioners. They also found Rs. 1,90,66,000/- from the said premises vide Panchnama dated October 04, 2021.

The Petitioner sent an e-mail dated December 05, 2021 to the Respondent, stating that cash found during the search at the Petitioner’s residence, belonged to the Petitioners and provided the bifurcation as follows :-

The Respondents on December 01, 2023, returned the documents and mobile phones seized during the search conducted on October 04, 2021. However, the currency seized was not returned to the Petitioners. The Respondents filed a short reply, stating that the cash amount seized from the residential premises of the Petitioner, that they could not provide any satisfactory reply for the possession of the said amount. The said amount was deposited in the bank and converted into fixed deposit with an Auto Renewal Option. Further, during the course of investigation, no evidence was extracted that could substantiate that the cash so seized was representing the sale proceeds of unaccounted goods.

However, a letter dated October 23, 2023 was written to the Income Tax Authorities to take over the custody of fixed deposit of Rs. 1,90,66,000/- and to take requisite action as deemed fit under the Income Tax provisions.

Hence, aggrieved by the Impugned Order, the Petitioner filed the present writ petition.

Issue:

Whether the DGGI have the power to seize the cash under Section 67 of the CGST Act?

Held:

The Hon’ble Delhi High Court in Writ Petition (Civil) 328 of 2024 ­­­­­­ held as under:

• Observed that, as per Section 67 (2) of the CGST Act, a Proper Officer, not below the rank of Joint Commissioner, is empowered to authorize any person of the Central Tax to inspect any place of business of a taxable person or persons engaged in the business of transporting or storing of goods under sub-section (1) of Section 67 of the CGST Act. Such inspection can be authorized only if the Proper Officer has the reasons to believe that the taxable person has either suppressed any transaction relating to the supply of goods or services or both or suppressed the stock of the goods in hand, or has claimed Input Tax Credit (“ITC”) in excess of his entitlement or has otherwise contravened any provision of the CGST Act or the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) made thereunder to evade payment of tax. Power of inspection under sub-section (1) of Section 67 of the CGST Act is conferred to extract any evasion of tax or any attempt to evade tax and this provision is not meant for recovery of tax or for securing the same.
• Noted that, sub-section (2) of Section 67 of the CGST Act specifies the power to seize the goods. If the Proper Officer has reasons to believe that any goods which are liable for confiscation or any documents or books or things which in his opinion would be useful and relevant for any proceedings under the CGST Act are secreted at any place, he may either search and seize the said goods, documents or books or things. The Second Proviso to sub-Section (2) of 67 of the CGST Act clarifies that insofar as the seized documents or goods or things are concerned, the same shall be retained only so long as it is necessary for their examination and any inquiry or proceedings under the Act.
• Opined that, sub-section (7) of Section 67 of the CGST Act specifies that where the goods are seized under sub-section (2) of Section 67 of the CGST Act and no notice, in respect thereof is given within the period of six months of the seizure of the goods, the goods are required to be returned to the person from whom the same was seized. This period of six months can be extended by a further period not exceeding six months on sufficient cause being shown under proviso to Section 67 (7) of the CGST Act. Further, in the current case the cash was seized vide Panchnama dated October 04, 2021, and in accordance with sub-section (7) of Section 67 of the CGST Act thereof, when 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. On this ground also, the Petitioners are entitled to the return of resumed cash.
• Opined that, cash 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.
• Relied on, the case of Kanishka Matta v. Union of India [W.P. (C) No. 8204/2020], decided on August 26, 2020, wherein Madhya Pradesh High Cout interpreted the word “things” appearing in Section 67 (2) of the CGST Act to include the money.
• Relied on, Shabu George v. State Tax Officer (IB), State GST Department, Aluva (2023) 9 Centax 28 (Ker.), again the question was whether the word “thing” in the CGST Act would include cash, the Division Bench of the Kerala High Court after considering the decision of Madhya Pradesh High Court held in favour of the assessee holding that 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. The aforesaid decision of the Kerala High Court received the stamp and approval of the Hon’ble Supreme Court, inasmuch as, the Special Leave Petition was dismissed.
• Relied on, Deepak Khandelwal Vs. Commissioner of CGST Delhi West (2023) 9 Centax 244 (Delhi), the Madhya Pradesh court while applying the principle of purposive interpretation, the Court held that the power under Section 67 of the CGST Act cannot be read to extend to enable the seizure of assets on the ground that the same are not accounted for.
• Observed that, there is no evidence that the cash so seized was representing the sale proceeds of unaccounted goods. Therefore, it could not have been seized under the provisions of the CGST Act as the seizure is limited to the goods liable for confiscation. Therefore, there is no reason for the retention of the cash amount by the Respondents.
• Observed that, Petitioners had not handed over the cash to the concerned Officers voluntarily. The action taken by the Officers was therefore a coercive action. The CGST Act does not support such an action of forcibly taking over the possession of currency from the premises of any person.
• Held that, action on the part of the Officers of the Respondents seizing the cash was illegal and arbitrary. Petitions were therefore allowed with directions to the Respondents to immediately remit the proceeds of the fixed deposit (along with interest) to the bank account of the entities/persons from whose possession the same was resumed during the search conducted on October 04, 2021. It is however clarified that the Respondents are not barred from taking action or instituting any other proceedings under the CGST Act in accordance with the law.

Source from: https://www.a2ztaxcorp.com/dggi-is-not-allowed-to-seize-cash-from-the-premises-of-any-person/