Goods Cannot Remain Detained After Expiry of the Statutory Period under Section 67(7)

Statutory Power of Seizure Is Accompanied by a Statutory Time Limit

Section 67 of the Central Goods and Services Tax Act, 2017 [CGST Act] confers substantial powers of inspection, search and seizure upon the proper officer. Under Section 67(2), where the prescribed conditions are satisfied, the proper officer may seize goods liable to confiscation and documents, books or things considered useful or relevant to proceedings under the CGST Act. Where physical seizure of the goods is not practicable, the first proviso to Section 67(2) enables the proper officer to serve an order upon the owner or custodian prohibiting removal, parting with or otherwise dealing with the goods without the officer's prior permission.

However, the power to seize goods cannot be understood in isolation from the safeguards incorporated in Section 67 itself. Section 67(7) specifically provides that where goods have been seized under Section 67(2) and no notice in respect thereof is given within six months from the date of seizure, the goods shall be returned to the person from whose possession they were seized. The proviso permits the original period of six months to be extended, on sufficient cause being shown, for a further period not exceeding six months.

The expression "shall be returned" makes the statutory consequence clear. Section 67(7) does not permit indefinite retention of seized goods merely because the investigation continues. Once the conditions contemplated by the provision are attracted, the return of the goods follows in accordance with the statutory mandate.

The Proviso Does Not Make Extension of the Six-Month Period Automatic

The proviso to Section 67(7) warrants particular attention. The basic statutory period is six months. An extension beyond that period is not automatic merely because the investigation remains incomplete. The proviso permits an extension only "on sufficient cause being shown", and even then, the further period cannot exceed six months.

The distinction is important. The main provision creates a right to return of the goods if the notice contemplated by Section 67(7) is not given within six months. The proviso creates a limited exception, permitting continuation of seizure for a further period where the statutory requirement of sufficient cause is satisfied. It would therefore be incorrect to assume that every seizure can automatically continue for twelve months. Six months is the ordinary period; a further period up to six months is a conditional extension.

Expiry of the Statutory Period Ends the Authority to Detain the Goods

The issue arose before the Bombay High Court in Abubakar Mines and Minerals Versus The Additional Commissioner (AE) CGST, Kolhapur and Another. -2026 (9) TMI 459 - BOMBAY HIGH COURT. The petitioner challenged the continued detention and prohibition of its goods under a prohibition order dated 26.09.2024. The order was issued in Form GST INS-03 under Section 67(2) read with Rule 139(4) of the CGST Rules, 2017.

The petitioner sought a declaration that the continued detention and prohibition were contrary to Section 67(7) and, consequently, sought release of the goods. Significantly, the Department itself stated in its affidavit that the prohibition order could remain effective only for the period prescribed under Section 67(7) and that, upon expiry of the permissible period, the prohibition order automatically came to an end without requiring any separate order of revocation.

The Bombay High Court accepted that there was no basis to continue the detention after the prohibition order ceased to operate and allowed the petition, directing the release of the goods. At the same time, the Court expressly protected the underlying investigation by clarifying that the release of the goods would not affect the legality of the investigation or the evidentiary material collected during its course. The judgment thus draws an important distinction between the statutory authority to continue restraining the goods and the Department's authority to continue an otherwise lawful investigation.

Extension Beyond Six Months Requires Compliance with Statutory Safeguards

The Delhi High Court examined the conditions governing an extension under the proviso in considerable detail in M/s. Kashish Optics Ltd. Versus The Commissioner, CGST Delhi West & Ors. - 2025 (3) TMI 479 - DELHI HIGH COURT. The goods were seized on 23.10.2020. Before the expiry of the original six-month period, an internal note dated 16.04.2021 proposed extending the seizure for a further six months up to 21.10.2021. However, the Department did not give the taxpayer notice of the proposed extension or an opportunity of hearing. The Court therefore examined whether the seizure period could validly be extended merely on the basis of an internal departmental decision.

The Court held that Section 67(7) of the CGST Act is pari materia with Section 110(2) of the Customs Act, 1962, and applied the principles laid down by the Supreme Court in IJ. RAO, ASSISTANT COLLECTOR OF CUSTOMS Versus BIBHUTI BHUSHAN BAGH - 1989 (5) TMI 60 - Supreme Court. Upon expiry of the original six-month period, the person whose goods have been seized becomes entitled to their return unless the period has been validly extended under the proviso. Such extension is not automatic. The words "on sufficient cause being shown" require objective consideration, and the affected person must ordinarily be given notice of the proposed extension and a limited opportunity of hearing before expiry of the original six-month period. The hearing, however, does not confer any right to disclosure of confidential material concerning the ongoing investigation.

The Department's internal note-sheet was found insufficient to satisfy these requirements. Apart from not having been disclosed to the taxpayer, the record itself revealed deficiencies in the description and valuation of the goods and incomplete documentation. The Court therefore found the unilateral continuation of seizure unsustainable and directed the release of the seized goods on the terms specified in the judgment. Significantly, the Court separately directed that proceedings concerning the alleged violations be concluded within six weeks, thereby maintaining the distinction between the legality of continued retention of the goods and the continuation of the underlying proceedings.

Expiry of the Six-Month Period Requires Return of Goods, Not Invalidation of a Subsequent Notice

An important distinction must be maintained between the right to continued retention of seized goods and the validity of a notice subsequently issued by the Department. In Best Crop Science Pvt. Ltd. Versus Superintendent, CGST, Delhi West And Ors. - 2023 (9) TMI 996 - DELHI HIGH COURT , the Delhi High Court considered a case in which goods were subjected to a prohibition order under Section 67(2). The Court recognised that, for the purposes of Section 67, such a prohibition order is substantially in the nature of seizure because, instead of physically removing the goods, the taxpayer is prohibited from removing, parting with, or otherwise dealing with them.

The Court clarified that Section 67(7) prescribes the consequence where the requisite notice is not issued within the stipulated period: the seized goods become liable to be returned. However, the provision does not state that a notice issued after the expiry of six months becomes invalid merely because it was issued beyond that period. Thus, expiry of the statutory period affects the Department's authority to continue retaining the goods; it does not, by itself, extinguish the power to issue a subsequent notice or render such notice invalid.

Release of Goods Does Not Necessarily Terminate the Investigation

Section 67(7) governs the period for which goods may remain seized without the notice contemplated by the provision. If that period expires, the statutory consequence in respect of the goods follows. However, evidence already lawfully collected, statements recorded, documents examined, and other investigative material do not automatically lose their legal relevance merely because continued detention of the goods can no longer be sustained.

The Court also clarified that release of the goods would not affect the investigation or the evidentiary material already collected.

A Prohibition Order Cannot Become a Device for Indefinite Control Over Goods

Another important dimension of Abubakar Mines and Minerals concerns the prohibition order. The first proviso to Section 67(2) permits such an order where physical seizure is not practicable. It restrains the owner or custodian from removing, parting with or otherwise dealing with the goods without the officer's prior permission. Although physical possession may remain with the taxpayer, the commercial effect can be substantial because the taxpayer loses the freedom to deal with those goods.

The Bombay High Court addressed the prohibition order in the context of Section 67(7) and accepted that the restraint could not continue after the period permitted by law had expired. This prevents the statutory protection against continued retention from being defeated merely because the Department adopted a prohibition mechanism instead of physically removing the goods.

The underlying principle therefore extends beyond the physical location of the goods. Whether the goods are physically seized or subjected to a prohibition against dealing with them, continued statutory restraint must remain supported by valid legal authority.

The Relevant Notice Must Be "In Respect of" the Seized Goods

The language employed in Section 67(7) is also important. The provision does not refer merely to continuation of an investigation or issuance of any communication whatsoever. It specifically uses the expression "no notice in respect thereof is given". Therefore, the mere existence of another proceeding or communication should not automatically be treated as compliance with Section 67(7); the nature and legal character of the notice relied upon must be examined in the facts of the particular case.

The safer principle is that mere pendency of an investigation cannot substitute for compliance with the statutory condition governing continued retention of the seized goods. At the same time, the precise nature of the notice satisfying Section 67(7) must be determined with reference to the statutory proceeding and the facts involved. This distinction is necessary because Section 67(7) regulates continued retention of the seized goods; it should not be converted into a general limitation provision governing every subsequent proceeding under the CGST Act.

Expiry of Statutory Authority Requires Restoration of the Goods

Section 67(7) places a clear statutory limit on the continued retention of goods seized under Section 67(2). If the notice contemplated by the provision is not given within six months, the goods must be returned unless the original period has been lawfully extended under the proviso. Any such extension is not automatic: it must be supported by sufficient cause and comply with the procedural safeguards recognised in Kashish Optics.

Abubakar Mines and Minerals Versus The Additional Commissioner (AE) CGST, Kolhapur and Another. -2026 (9) TMI 459 - BOMBAY HIGH COURT, reinforces the consequence at the end of the permissible statutory period. Once the statutory authority supporting detention or prohibition has expired, the goods cannot remain under departmental restraint merely because the investigation continues. The goods must be released, while an otherwise lawful investigation and the evidentiary material collected during it may continue to have independent legal consequences.

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