2023 (10) TMI 1339 - HC - GST

Silver Bars Seized Under Section 67 CGST Act Ruled Improper Due to Lack of Conclusive Tax Evasion Evidence

HC ruled that silver bars seized under Section 67 of CGST Act were improperly confiscated. The court found insufficient evidence of tax evasion and ... Seizure of silver bars - seized silver was procured using the cash generated from the clandestine removal of the packaging material supplied by the petitioner firm - scope of Section 67 of the CGST Act - Reasons to believe - HELD THAT:- The officer while conducting the search may find various types of moveable assets. However, only those goods can be seized which are liable for confiscation while exercising the powers under Section 67 of the CGST Act - It is significant to note that the exercise of power under Section 67 pre-supposes ‘the reason to believe’ that a taxpayer has suppressed any transaction relating to supply of goods or services. The search in the present case was carried out after recording the reasons to believe that the petitioner is engaged in clandestine manufacturing and supply of their product, that is, various types of laminations. Therefore, silver, though being a movable asset, is not “goods” liable for confiscation while exercising the power under Section 67 of the CGST Act in relation to the products being traded by the petitioner. The argument that the petitioner has not been able to produce lawful evidence of purchase of silver is of no consequence insofar as the action under Section 67(2) of the CGST Act, as initiated in the present case, is concerned. As far as the argument that in the subsequent investigation the petitioner is found to be trading in silver is concerned, it is clarified that the respondents are not precluded from proceeding further with the investigation and taking appropriate action under the Act. There is no dispute that in case the respondents have reason to believe that the petitioner has suppressed any transaction, in relation to the supply of goods and services, that may involve silver, in contravention of any provisions of the CGST Act or the rules made thereunder, an appropriate action under Section 67 of the Act can be initiated - the respondents are directed to forthwith release the silver bars and coins seized from the petitioner during the search conducted on 07.02.2023. Let a fresh copy of the affidavit filed on behalf of the petitioner be supplied to Mr. Tripathi - List on 30.11.2023. ISSUES PRESENTED AND CONSIDERED 1. Whether silver bars and coins seized during a search can be lawfully seized under Section 67 of the CGST Act when the search was based on belief of clandestine manufacture/supply of laminated products (i.e., whether silver constitutes 'goods' liable for confiscation in that context). 2. Scope and limits of the Proper Officer's power under Section 67(2) CGST Act to seize 'goods', 'documents', 'books' or 'things', including the meaning of 'things'. 3. The evidentiary threshold - nature of the 'reason to believe' required for seizure under Section 67 - and whether subsequent investigative findings (alleged clandestine trading in silver) validate past seizure or permit later action. 4. Whether failure to produce purchase evidence for the seized silver justifies retention or confiscation under the search powers invoked. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of seizure of silver under Section 67 when search related to clandestine trade in laminated products Legal framework: Section 67(2) CGST Act permits search and seizure of goods which the Proper Officer has reason to believe are liable for confiscation; seizure of documents/books/things is limited to those useful or relevant to proceedings under the Act. Precedent treatment: The Court follows the reasoning of its earlier decision (Deepak Khandelwal) analysing the scope of Section 67, treating that authority as squarely applicable. Interpretation and reasoning: The definition of 'goods' (all movable property except money and securities) must be read in context of Section 67(2) to mean goods that are the subject matter of taxable supplies and which the officer believes are liable for confiscation. Silver, though movable property, is not necessarily the subject matter of the supplies (laminations) that motivated the search; therefore silver was not seizure-worthy on that basis. Officers may encounter various movable assets during search, but only those goods for which there is reason to believe they are liable for confiscation may be seized under Section 67. Ratio vs. Obiter: Ratio - the seizure power under Section 67(2) is limited to goods believed to be liable for confiscation in relation to the suspected taxable activity; incidental discovery of other valuable movable property (here, silver) not linked to the suspected supplies does not justify seizure. Obiter - incidental comments on types of movable assets found during searches. Conclusion: Seizure of silver in a search targeted at clandestine lamination trading was not authorized under Section 67(2); silver must be released forthwith in that context (subject to re-initiation if independent reason to believe emerges). Issue 2: Scope and limits of seizure of 'documents, books or things' and meaning of 'things' Legal framework: Section 67 allows seizure of documents/books/things if the Proper Officer is of opinion they will be useful or relevant to any proceeding under the Act; retention is limited to necessity for examination/proceedings. Precedent treatment: Following the prior decision, the Court interprets 'things' as intended to be wide but to take colour from 'documents and books' - i.e., items that contain information or records useful/relevant to CGST proceedings. Interpretation and reasoning: The term 'things' should be confined to articles providing relevant information/records. The legislative use of a wide term does not permit seizure of valuable assets solely because they are unaccounted for; the seizure power does not extend to valuable assets lacking informational relevance to the proceedings. Ratio vs. Obiter: Ratio - 'things' must be items that are informative or record-bearing for tax proceedings; seizure cannot be used as a surrogate method of confiscating unaccounted valuable assets absent relevance. Obiter - broader policy observations on legislative intent to include informative materials within 'things'. Conclusion: Seizure of non-informational, valuable movable assets under the rubric of 'things' is impermissible; seizure must be limited to items bearing on tax proceedings. Issue 3: Nature of 'reason to believe' and effect of subsequent investigative findings Legal framework: Section 67 presupposes a Proper Officer's 'reason to believe' that a taxpayer has suppressed transactions relating to supply of goods or services; subsequent investigations may produce new reasons to believe, enabling further action under the Act. Precedent treatment: The decision adheres to the prior analysis requiring an antecedent reason to believe to justify seizure; it does not treat subsequent findings as retroactively validating an earlier seizure lacking requisite belief. Interpretation and reasoning: The seizure must be justified at the time by the officer's reason to believe; later discovery that the petitioner may have traded in silver does not retrospectively validate an earlier seizure of silver that was unrelated to the suspected supplies (laminations). However, respondents are not precluded from continuing investigation and, if new reason to believe arises concerning suppression of silver-related transactions, to initiate appropriate action under Section 67 then. Ratio vs. Obiter: Ratio - the temporal requirement: seizure must be supported by reason to believe existing at the time of search; subsequent investigative developments cannot validate an otherwise impermissible prior seizure. Obiter - procedural note that further action may be lawfully taken if new belief arises. Conclusion: The earlier seizure is invalid if based solely on later-acquired reasons; respondents remain free to investigate and, upon forming a fresh reason to believe, to take appropriate actions regarding silver. Issue 4: Relevance of failure to produce lawful purchase evidence for justifying seizure or retention Legal framework: Seizure under Section 67 is not a general remedy to retain valuable assets merely because purchase evidence is not produced; seizure scope is governed by liability for confiscation and relevance to proceedings. Precedent treatment: The Court reiterates that inability to produce evidence of purchase is immaterial to the validity of a seizure under Section 67 unless it connects the seized item to taxable supplies or to being liable for confiscation. Interpretation and reasoning: Lack of documentary proof of purchase does not, by itself, render movable property seizable under Section 67 where the property is unrelated to the suspected taxable transactions forming the basis of the search; the respondents did not dispute applicability of the precedent holding the same. Ratio vs. Obiter: Ratio - absence of purchase documents does not justify seizure under Section 67 unless there is a contemporaneous reason to believe the goods are liable for confiscation or relevant to proceedings. Obiter - cautionary note on evidentiary strategies in subsequent investigations. Conclusion: Failure to produce purchase evidence did not validate the seizure/retention of silver in the circumstances; release is required, subject to lawful future action if new grounds arise. Relief and procedural directions (court conclusion) Having applied the legal framework and precedent, the Court directed immediate release of the seized silver bars and coins seized on the search date; respondents may, however, pursue further investigation and appropriate proceedings under the Act if they form a fresh reason to believe relating to silver.