TaxTMI 
TaxTMI 
The power of search and seizure under the Goods and Services Tax (GST) law is one of the strongest investigative tools available to tax authorities. However, these powers are not unlimited. They must be exercised strictly within the framework of the law and in accordance with the safeguards provided under the Central Goods and Services Tax Act, 2017 (CGST Act). A recent decision of the Bombay High Court in 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 reinforces this principle by holding that the unauthorized seizure of cash during a GST search is illegal and without authority of law.
Background of the Case
The Directorate General of GST Intelligence (DGGI) conducted search operations at the business premises as well as the residence of the petitioner under Section 67 of the CGST Act. During the course of the search, various articles were seized, including cash amounting to Rs. 1 crore.
The authorities also carried out searches at the premises of another individual, H, who occupied premises in the same building. H was arrested under Section 132(1) of the CGST Act for alleged GST offences and was later released on bail. Although the petitioner and H were friends, the petitioner maintained that they were not related persons and had no financial or business relationship that justified linking their affairs.
Following the seizure, the GST authorities handed over the cash to the Income Tax Department and notices under Section 131 were issued to both the petitioner and H. Aggrieved by the seizure of cash, the petitioner approached the Bombay High Court, contending that the action was patently illegal and beyond the powers conferred under the CGST Act.
Legal Issue
The principal question before the Court was whether the GST authorities possess the power under Section 67(2) of the CGST Act to seize cash during a search and whether such cash could subsequently be transferred to the Income Tax Department without statutory authority.
The petitioner argued that cash does not automatically fall within the category of goods, documents, books, or things liable to seizure unless it has a direct nexus with proceedings under the GST law. Furthermore, the authorities had failed to record any reasons demonstrating why the seized cash was relevant to any proceedings or liable to confiscation.
Statutory Framework
Section 67(2) of the CGST Act empowers a proper officer to search and seize goods, documents, books, or things where there are reasons to believe that such items are liable to confiscation or are useful or relevant to proceedings under the Act.
Equally important is Section 67(7), which mandates that where goods or other things are seized and no notice is issued within six months, the seized items must be returned to the person from whose possession they were taken. This period may be extended only in accordance with the provisions of the Act.
The safeguards incorporated in these provisions ensure that search and seizure powers are exercised only for legitimate statutory purposes and not arbitrarily.
Findings of the Bombay High Court
The Bombay High Court held that the seizure of the petitioner's cash was wholly unauthorized and contrary to the provisions of the CGST Act.
The Court observed that Section 67(2) requires the proper officer to possess 'reasons to believe' that the seized items are either liable to confiscation or are useful or relevant for proceedings under the Act. In the present case, the respondents failed to produce any material demonstrating that such reasons had been recorded before seizing the cash.
The Court further noted that the ownership of the Rs. 1 crore stood clearly established as belonging to the petitioner. The GST authorities failed to produce any evidence rebutting the petitioner's ownership or establishing any nexus between the cash and alleged GST violations. Consequently, the seizure was found to be arbitrary and perverse.
Another significant aspect of the judgment was the Court's finding that the mandatory requirement under Section 67(7) had been violated. No notice had been issued within the prescribed six-month period in respect of the seized cash. This statutory breach itself rendered the continued retention of the cash unlawful.
The Court also categorically held that the CGST Act does not confer any authority upon GST officers to transfer seized cash to the Income Tax Department. Such an action was found to be completely unsupported by law.
Accordingly, the High Court quashed the impugned seizure orders and directed the respondents to return the seized cash to the petitioner along with applicable interest.
Significance of the Judgment
This judgment is an important reminder that investigative powers under GST cannot be exercised beyond the limits prescribed by statute. Merely discovering cash during a search does not automatically authorize its seizure. The authorities must demonstrate a clear statutory basis for such action and must comply with all procedural safeguards.
The ruling also emphasizes the importance of recording 'reasons to believe' before exercising search and seizure powers. These reasons are not mere formalities but constitute an essential safeguard against arbitrary exercise of authority.
Further, the judgment reinforces that statutory timelines under Section 67(7) are mandatory. Failure to issue the prescribed notice within six months cannot be ignored, and continued retention of seized property becomes illegal.
Equally significant is the Court's clarification that inter-departmental transfer of seized assets must have clear statutory backing. In the absence of any enabling provision, GST authorities cannot simply hand over seized cash to another department.
Conclusion
The decision in 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 serves as a significant precedent protecting taxpayers against unauthorized seizure of cash during GST investigations. The Bombay High Court reaffirmed that statutory powers must be exercised strictly within the confines of the law and that procedural safeguards cannot be overlooked in the name of investigation.
For taxpayers, the judgment provides reassurance that arbitrary seizure of cash without recorded reasons, without compliance with statutory timelines, or without legal authority will not withstand judicial scrutiny. At the same time, it reminds tax authorities that enforcement powers under Section 67 of the CGST Act are subject to constitutional principles of legality, fairness, and due process. The ruling therefore strengthens the balance between effective tax administration and the protection of individual rights under the GST regime.
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