2026 (3) TMI 582 - HC - GST

Seizure under Section 67 invalid without recorded reason to believe; seized items must be returned if no six-month notice issued.

Seizure under Section 67 is lawful only where the proper officer records a bona fide reason to believe that specific goods, documents, books or things are ... Validity Of Cash Seizure during search - treated as 'things' under Section 67(2) - statutory requirement of 'reason to believe' - failure to issue notice within six months under Section 67(7) after seizure - Statutory power to hand over seized cash to another agency. Seizure under Section 67(2) of the CGST Act - HELD THAT:- The Court held that Section 67(2) permits seizure only where the proper officer has a reason to believe that goods, documents, books or things useful or relevant to proceedings are secreted at a place. The respondents did not record any reasons to believe that the cash seized was liable to seizure or that it was useful or relevant to proceedings under the Act. On this basis the Court found the seizure to be perverse, arbitrary and without authority of law and concluded that the impugned seizure could not be sustained under Section 67(2). [Paras 9, 10, 12] The concept of “reason to believe” has been interpreted by the Supreme Court in the context of income tax re-opening proceedings in the leading case of ITO Vs. Lakhmani Meval Das [1976 (3) TMI 1 - SUPREME COURT] Seizure of the cash under Section 67(2) was unlawful and without authority of law. Effect of failure to issue notice under Section 67(7) after seizure - HELD THAT: - The Court found that Section 67(7) mandates return of goods seized under Section 67(2) if no notice in respect thereof is given within six months (subject to limited extension). The respondents had not issued the statutory notice within the prescribed period and therefore the seized cash was liable to be returned to the person from whose possession it was taken. [Paras 13] Failure to comply with Section 67(7) required return of the seized cash to the petitioner. Statutory power to hand over seized cash to another agency - HELD THAT: - The Court recorded that the respondents had handed over the seized cash to the Income Tax Department and issued notices under the Income-tax Act. The Court observed that respondents did not identify any power under the CGST Act authorising such transfer and expressed surprise at the practice. This act further demonstrated lack of lawful authority for the seizure and disposal of the cash by the respondents. [Paras 15] Handing over the seized cash to the Income Tax Department was without shown statutory authority and reinforced the illegality of the seizure and consequent disposal. Final Conclusion: The impugned seizure orders were quashed; the respondents were directed to release and pay the seized amounts to the petitioner with applicable interest. The petition is disposed of in those terms. Issues: (i) Whether seizure of cash found at premises could be validly made under Section 67(2) of the Central Goods and Services Tax Act, 2017; (ii) Whether failure to issue notice within six months under Section 67(7) of the Central Goods and Services Tax Act, 2017 requires return of seized goods (cash).Issue (i): Whether cash seized during search can be treated as 'things' under Section 67(2) of the Central Goods and Services Tax Act, 2017 and whether the seizure complied with the statutory requirement of 'reason to believe'.Analysis: Section 67(2) permits seizure of goods, documents, books or things if the proper officer has reason to believe they are useful or relevant to proceedings. The legal standard of 'reason to believe' requires a rational connection between material available to the officer and the belief that the items are relevant to proceedings; the officer must record reasons supporting that belief. The seizure of cash must satisfy these statutory preconditions and be confined to items demonstrably useful or relevant to proceedings under the Act.Conclusion: The seizure of cash was invalid. The statutory precondition of a recorded 'reason to believe' and the requisite connection to proceedings under Section 67(2) were not fulfilled; accordingly the cash seizure under that provision could not be sustained.Issue (ii): Whether, independent of issue (i), the Respondents' failure to issue the notice within six months under Section 67(7) of the Central Goods and Services Tax Act, 2017 obliges return of the seized items.Analysis: Section 67(7) mandates return of seized goods if no notice in respect thereof is issued within six months, subject only to the statutory extension. Non-compliance with this timeline triggers the statutory consequence of return to the person from whose possession the goods were seized. Where the procedural requirement is unmet and no sufficient extension is shown, the statutory consequence follows.Conclusion: The failure to issue the statutory notice within six months required return of the seized cash to the person from whose possession it was taken.Final Conclusion: The impugned seizure of cash was unlawful for lack of the statutory 'reason to believe' required by Section 67(2) and for failure to comply with the notice requirement of Section 67(7); accordingly the seizure orders were quashed and the seized cash was ordered to be released with applicable interest.Ratio Decidendi: Seizure under Section 67 of the Central Goods and Services Tax Act, 2017 is valid only where the proper officer has recorded a bona fide 'reason to believe' that specific goods, documents, books or things are useful or relevant to proceedings and notices required by Section 67(7) are issued within the statutory period; absence of these preconditions renders the seizure unlawful and mandates return of the seized items.