Cash seized during tax raids cannot be held under Section 67(2) CGST Act without proper justification

Karnataka HC held that cash/currency seized during search and seizure operations does not fall within the expression "things" under Section 67(2) of CGST Act, 2017. The court followed Delhi, Gujarat and Kerala HC precedents, rejecting Madhya Pradesh HC's contrary view in Kanishka Matta case. The seizure order was quashed as respondents failed to record reasons for believing cash was relevant to CGST proceedings and did not complete investigation within reasonable time after seizing Rs. 1,71,07,500. Court directed refund of entire amount with interest to petitioners.

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Issues Involved:
1. Whether the expression "things" contained in Section 67(2) of the CGST Act, 2017 includes cash/currency seized during the course of search and seizureRs.
2. Whether the impugned seizure order is valid, legal, and properRs.

Summary of Judgment:

Re-Point No. 1:

The primary question is whether the expression "things" in Section 67(2) of the CGST Act includes cash/currency seized during search and seizure. The court examined Section 67(2) which allows the seizure of goods, documents, books, and "things" useful or relevant to proceedings under the Act. The term "things" is not defined in the CGST Act. The court referred to the Madhya Pradesh High Court's judgment in Kanishka Matta's case, which included cash in "things," but disagreed with it, favoring the Delhi High Court's interpretation in Deepak Khandelwal's case. The Delhi High Court held that "things" should be read ejusdem generis with documents and books, meaning items that contain information useful for proceedings under the Act. The court concluded that cash/currency/money is excluded from "things" in Section 67(2) and cannot be seized under this provision. The court also noted that the object of Section 67(2) is not to unearth unaccounted wealth or recover tax, which is covered by other sections like 73, 74, 78, and 79 of the CGST Act.

Re-Point No. 2:

The impugned seizure order dated 21.09.2022 was found to be contrary to Section 67(2) of the CGST Act. The order did not provide valid reasons for the seizure of cash, only mentioning electronic devices. The court emphasized that the "reasons to believe" requirement was not met, as there was no material indicating that the cash was relevant or useful for proceedings under the CGST Act. Additionally, the respondents failed to conduct an inquiry or issue a show cause notice to the company involved even after 1.5 years, violating the provisions of Section 67(2) and (3). The court directed the respondents to refund the seized cash of Rs. 1,71,07,500/- with accrued interest to the petitioners within three weeks.

Order:

(i) The petition is allowed.

(ii) The impugned order dated 21.09.2022 is set aside.

(iii) The respondents are directed to refund the seized cash of Rs. 1,71,07,500/- with accrued interest to the petitioners within three weeks.

(iv) The respondents are not precluded from instituting or continuing any other proceedings in accordance with law.

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