Seized gold jewellery claimed as business stock-in-trade-tax officials ordered to release it without bank guarantee or security
The dominant issue was whether gold jewellery constituting stock-in-trade, seized by the tax department, could be retained or released only upon furnishing a bank guarantee. The HC held that, under the proviso to s.132(1)(iii) of the Income-tax Act, stock-in-trade is not liable to seizure; if such goods are nonetheless seized, the department cannot justify continued retention or condition release on security. On the facts, the petitioners prima facie discharged the burden to establish the nature and source of the assets, attracting the first proviso to s.132B(1)(i) and the relevant Board instruction. The HC directed release of the seized jewellery without insisting on any security.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the seized gold jewellery was established, on the material placed before the authorities and the Court, to belong to the business entity and to constitute its stock-in-trade, such that denial of release on the ground of absence of item-wise inventory particulars was unsustainable.
(ii) Whether, once the jewellery was found to be stock-in-trade and its nature and source were explained through contemporaneous records, the Revenue could insist on release only upon furnishing of a bank guarantee.
(iii) Whether the impugned refusal to release the jewellery warranted interference, and what relief and safeguards were appropriate while clarifying that tax assessment powers remained unaffected.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Proof of ownership/stock-in-trade and effect of non-itemised stock register
Legal framework (as discussed by the Court): The Court considered that requisition proceedings invoked the search-related regime and expressly addressed the statutory restraint on seizure of stock-in-trade under the proviso to section 132(1)(iii), and also considered the release principle reflected in the first proviso to section 132B(1)(i) in the context of explanation of nature and source.
Interpretation and reasoning: The Court found that voluminous contemporaneous business records (purchase invoices and register for bullion, job-work/karigar vouchers evidencing conversion into ornaments, stock registers evidencing movement of bullion/finished goods, sales invoices and registers, and GST returns) were produced for the relevant period and were not disputed by the Revenue; the impugned order did not allege these records to be false or concocted. A decisive circumstance was that the exact net weight recorded in the stock register as handed over to the partner on the date in question matched the net weight seized the same day, which the Court treated as a clinching fact rather than coincidence. The Court also relied on the pattern in the stock register showing regular business practice of partners taking goods out and returning them. The presence of business invoices in the same bag at the time of seizure and the consistent stand in statements that the jewellery was business stock further supported the conclusion.
Conclusions: The Court held that the refusal to release based on alleged deficiencies in item-wise description was untenable. The absence of item-wise particulars (pieces/type) was not a valid basis to deny release because no legal mandate to maintain item-wise inventory was shown; the explanation that wholesale jewellery stock is maintained by weight (grams) aligned with the petitioner's contemporaneous documents (including vouchers and invoices reflecting weight) and commercial logic (conversion/reconversion and design changes). The Court was satisfied that the seized jewellery belonged to the business and constituted its stock-in-trade.
Issue (ii): Whether release could be conditioned on furnishing a bank guarantee
Legal framework (as discussed by the Court): The Court examined the statutory position that stock-in-trade cannot be seized under the proviso to section 132(1)(iii), and applied the first proviso to section 132B(1)(i) together with the Board instruction relied upon in argument to the extent it contemplated release where nature and source are explained.
Interpretation and reasoning: The Court rejected the Revenue's submission that release should be subject to a bank guarantee. It reasoned that where the law does not permit seizure of stock-in-trade, it would be illogical to allow continued retention and require security for release of goods that could not have been seized. Further, the Court considered that the petitioners had discharged the onus to explain nature and source through undisputed records, bringing the case within the release principle under the first proviso to section 132B(1)(i) and the relevant part of the Board instruction discussed (release without insisting on security where explanation is furnished). The Court also distinguished the decisions relied on by the Revenue because they did not concern seizure of stock-in-trade and involved situations where the concerned parties themselves were prepared to furnish a bank guarantee.
Conclusions: The Court conclusively held that no bank guarantee or security could be insisted upon for release in the circumstances, since the jewellery was established as accounted stock-in-trade and was not liable to seizure.
Issue (iii): Interference with the refusal order; directions; effect on assessment
Interpretation and reasoning: Given the undisputed documentary trail, the weight-wise match between recorded outward movement and seized quantity, and the rejection of item-wise inventory as a determinative requirement, the Court found the impugned refusal order unsustainable and required to be set aside. At the same time, the Court maintained a clear separation between release of stock-in-trade and the Department's power to assess tax liability.
Conclusions: The Court quashed the refusal order and directed release of the seized jewellery to the business entity within the stipulated time. It expressly clarified that the view taken was prima facie for the purpose of release and would not restrict the Income Tax Authorities from making assessment and, if legally permissible, bringing the value of the ornaments to tax in accordance with law.
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AI Drafter ✕
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