The GST Act doesn’t allow seizure of cash under Section 67

A writ petition was filed challenging the legality of the two seizure orders, through which the GST authorities seized approximately ₹1,00,00,000/- (Rupees One Crore) in cash from the premises of the Petitioner, exceeding the scope of Section 67 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the CGST Act’).

The Hon’ble Bombay High Court, in the case of Smurti Waghdhare Versus Joint Director Directorate General of GST Intelligence, Mumbai, Senior Intelligence Officer Directorate General of GST Intelligence, Mumbai, Intelligence Officer Directorate General of GST Intelligence, Mumbai. - 2026 (3) TMI 582 - BOMBAY HIGH COURT held that cash doesn’t fall within the ambit of Section 67 itself, since the same permits seizure of only goods, documents, books, and other things relevant to the proceedings, provided that the department possesses cogent reasons to believe that such items have been secreted to evade tax liability.

Facts:

The Petitioner is a proprietor of M/s Platinum International, a Mumbai-based entity duly registered under the CGST Act, specializing in the wholesale trade of ferrous and non-ferrous metals and scrap.

In the exercise of powers vested under Section 67 of the CGST Act, the Respondent authorities conducted a series of synchronized search operations across multiple locations associated with the Petitioner and the search was effected through Form GST INS-02. These operations extended beyond the principal place of business and additional premises to include the residential premises of the Petitioner, as well as the private residence of the Petitioner’s parents.

During the course of these proceedings, the Department effected a summary seizure of liquid currency totalling ₹1 Crore, wherein a sum of approximately ₹60,00,000/- (Rupees Sixty Lakhs) was seized from the commercial establishment and an additional sum of approximately ₹40,00,000/- (Rupees Forty Lakhs) was recovered and seized from the residence of the Petitioner’s parents.

The impugned search and seizure operations were predicated on a wider investigation into an expansive Input Tax Credit (ITC) racket. The Department had identified an intricate network involving approximately 155 fictitious entities established solely for the purpose of tax evasion. The investigation alleged the generation and passing of fraudulent ITC amounting to an estimated ₹312.8 crore, purportedly executed through invoices issued in the absence of any underlying supply of goods. The Department sought to connect the Petitioner to a central 'operator' of this network, asserting that the liquid currency found during the search represented the proceeds of these illicit transactions.

In response, the Petitioner moved a Writ in the High Court of Bombay seeking to quash the seizure orders and the principal sum, along with interest, be returned. The Petitioner argued that the seizure of cash was an excessive exercise of power that bypassed the mandatory safeguards of Section 67, effectively penalizing the taxpayer before any formal adjudication of liability.

Issues:

• Whether the seizure of cash of INR One Crore by the impugned seizure orders from the premises belonging to the Petitioner is justified in law?
• Whether the Respondents had the power to seize the same under the provisions of the CGST Act?

Held:

• The High Court of Bombay reaffirmed that 'reason to believe' is the jurisdictional bedrock of Section 67(2). Relying on the landmark case Income-Tax Officer, I Ward, Distt. VI, Calcutta, And Others Versus Lakhmani Mewal Das  - 1976 (3) TMI 1 - Supreme Courtprecedent, the Bench held that there must be a rational nexus and a live link between the material on record and the belief formed. In this instance, the seizure failed because the Department’s belief was speculative and lacked recorded justification.
• Adopting a strict construction of the law, the Court ruled that Section 67 of the CGST Act does not expressly permit the seizure of cash. It rejected the Department's attempt to categorize currency under the broad umbrella of 'things,' emphasizing that GST is a tax statute, not a general policing act. Powers must be exercised strictly within the written word of the law.
• The Court noted a total failure of statutory safeguards, particularly Section 67(7) of the CGST Act. Since no notice was issued within the mandatory six-month window, the legal consequence is the automatic and mandatory return of the seized assets.
• The seizure was deemed arbitrary because the Department failed to produce any documentation linking the cash to specific tax evasion or illicit origins. With the ownership of the funds undisputed, the summary confiscation was viewed as an extra-legal recovery tactic.
• The Court expressed significant displeasure regarding the transfer of the seized funds to the Income Tax Department. The Bench questioned the source of such authority, holding that GST officers possess no legal mandate to act as a conduit for other agencies without explicit statutory backing.

Our Comments:

This judgment by the Hon’ble High Court of Bombay puts an end to the 'Recovery-First' approach by affirming the stance that tax statutes must be interpreted strictly. Investigative powers cannot be expanded through a broad interpretation of the provisions.

The judgment further necessitated the requirement for Reasons to Believe to be accorded to ensure the application of mind by the Department, and non-issuance of notice under Section 67 being fatal in nature and not curable. This judgment can be widely seen as a corrective ruling against the aggressive enforcement of the GST laws, however, it doesn’t dilute the anti-evasion powers of the Department envisaged under the GST Act.

Relevant Provisions:

Section 67 - Power of inspection, search and seizure, Central Goods And Services Tax Act, 2017

67. (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.

(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.

(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.

(4) The officer authorised under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.

(5) The person from whose custody any documents are seized under sub-section (2) shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.

(6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.

(7) Where any goods are seized under sub-section (2) 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:

Provided that 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.

(8) The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be after its seizure under sub-section (2), be disposed of by the proper officer in such manner as may be prescribed.

(9) Where any goods, being goods specified under sub-section (8), have been seized by a proper officer, or any officer authorised by him under sub-section (2), he shall prepare an inventory of such goods in such manner as may be prescribed.

(10) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.

(11) Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.

(12) The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.

 (Author can be reached at [email protected])