Suspicion of Tax Evasion Cannot Create A Power to Seize Cash

Suspicion of Tax Evasion Does Not Automatically Permit Seizure

A GST search may uncover unaccounted goods, unexplained transactions or large amounts of cash. These findings may justify further investigation, but they do not give officers an unrestricted right to seize everything found. The Department must establish not only a reason to investigate, but also legal authority to seize the particular property. For example, discovering goods allegedly sold without paying tax may justify examining business records. It does not automatically authorise taking possession of cash found nearby. The nature of the property, the purpose of seizure and the conditions of the provision invoked must each be examined. Serious allegations cannot enlarge the powers granted by law.

This distinction arose in Bhagwan Tirthani, Lalit Tirthani, Manish Hazari and Puran Mal Lakhani Versus Principal Commissioner, General Goods And Service Tax Commissionerate, Jaipur and Others - 2026 (10) TMI 859 - RAJASTHAN HIGH COURT. Hon'ble Mr Justice Arun Monga and Hon'ble Mr Justice Ashutosh Kumar of the Rajasthan High Court decided D.B. Civil Writ Petition No.2128/2025. During searches on 22.11.2022, GST officers seized Rs. 47,45,000 from residential premises and 2,33,300 cigarettes, stated to be valued at Rs. 18,67,690, from the shop and godown. The Department alleged that the cash represented proceeds of unaccounted cigarette sales. The central question was whether Section 67(2) authorised seizure and retention of cash on that basis.

The petitioners maintained that Rs.1,45,000 represented family savings, while Rs.10 lakh Rs.21 lakh and Rs.15 lakh belonged respectively to the other three petitioners. The Department rejected these explanations, and the Order-in-Original dated 11.06.2024 held the cash and cigarettes liable to confiscation and imposed penalties. A statutory appeal was pending, but the writ petition was confined to the cash seizure. The legality of taking possession of the money remained separate from whether the alleged cigarette transactions attracted tax or penalties. The judgment examined the limits of Section 67(2); it did not finally decide the allegations concerning the business or accept the petitioners' explanations about the source of the cash.

An Available Appeal Does Not Bar a Challenge to the Absence of Legal Authority

The Department argued that the writ petition should not be entertained because the first petitioner had already filed an appeal under Section 107 of the CGST Act, 2017 and a further remedy was available under Section 112 of the CGST Act, 2017. Ordinarily, objections to an adjudication order should be pursued through the statutory appeal. However, the petitioners raised a different question: did Section 67(2) give the officers legal authority to seize and retain the cash in the first place? Their challenge was not limited to whether the evidence was correctly assessed.

The distinction is important. An officer may have authority to decide a matter but reach an incorrect conclusion; that error can ordinarily be challenged in appeal. A different issue arises where the action itself falls outside the power granted by law. An appellate remedy does not automatically prevent the High Court from examining an alleged absence of statutory authority. Here, deciding whether Section 67(2) authorised the cash seizure required interpreting the provision, not merely reconsidering the Department's factual findings. The jurisdictional question therefore justified examination in writ proceedings.

That examination remained narrow. It did not transfer the entire tax dispute to the High Court or establish that the High Court must entertain every challenge described as "jurisdictional". Questions concerning the cigarettes, registration requirements, statements, tax and penalties remained open for the statutory appeal or other lawful proceedings. The intervention concerned the legal basis for seizing and retaining cash, not the correctness of every finding in the adjudication order.

Unexplained Cash Does Not Become Goods Liable to Confiscation

Section 67(2) of the CGST Act, 2017 permits seizure of two categories: goods liable to confiscation and documents, books, or things useful or relevant to proceedings under the Act. These categories are not interchangeable. Finding a valuable item during a search does not, by itself, authorise its seizure. The Department must identify the category under which it acts and satisfy the conditions applicable to that category.

For the first category, Section 2(52) expressly excludes money from "goods". The seized Indian currency therefore could not be treated as goods liable to confiscation under Section 67(2). Calling it proceeds of unaccounted sales did not change that position. For example, cigarettes and the money allegedly received from selling them are legally different: even if the cigarettes are liable to confiscation, the sale proceeds do not automatically acquire the same status. Reliance on Section 130 could not overcome this distinction. An allegation about the source of cash cannot turn money into goods that the statutory definition expressly excludes. Whether particular currency has a separate evidentiary purpose requires examination under the other part of Section 67(2).

Other statutes make the distinction clearer. Section 132(1)(iii) of the Income-tax Act, 1961, as examined in the judgment, expressly authorises seizure of money. Section 2(22) of the Customs Act, 1962 expressly includes currency within goods. These provisions show that Parliament can clearly provide for cash seizure where intended. Section 67 contains no comparable general power to seize cash or sale proceeds. Authority available under another law cannot be borrowed to justify action under the CGST Act. Any action under that other law must independently satisfy its own requirements

The Word "Things" Does Not Cover Every Asset Found During a Search

The Department relied on the word "things" in Section 67(2) to justify seizing cash. Although "things" has a wide ordinary meaning, it must be read with the surrounding words-"documents" and "books". These ordinarily contain information or provide evidence. Under the principle of ejusdem generis, a general expression following specific words takes its meaning from their common character. "Things" therefore covers other articles serving a similar evidentiary purpose, not every valuable item found during a search. A broad dictionary meaning cannot turn the provision into an unrestricted power to seize assets.

The second proviso reinforces this interpretation. Documents, books or things may be retained only for as long as necessary for their examination and for inquiry or proceedings under the Act. The purpose is to obtain and examine evidence, not simply to hold money against a possible future tax demand. For example, a record showing undisclosed cash sales may help establish the transactions. Cash found at the premises does not automatically serve the same function merely because the Department suspects it came from those sales. The reason for retaining the particular item must be connected to the statutory purpose.

Paragraph 25.10 of the judgement nevertheless recognises that currency having evidentiary value may be seized. The judgment therefore cannot be described as prohibiting the seizure of currency in every circumstance. The distinction is between particular notes needed as evidence and money retained merely as unexplained wealth or suspected sale proceeds. Possession of cash alone does not establish the necessary evidentiary purpose. Here, the notes were not shown to be required as evidence in any proceeding. Instead, the cash was treated as property liable to confiscation and retained towards possible future recovery. Section 67(2) did not authorise retention for that purpose.

Suspicion and Later Findings Cannot Make an Unauthorised Seizure Lawful

The words "reasons to believe" require more than a general suspicion of tax evasion. The belief must rest on identifiable material connected with the conditions prescribed by Section 67(2). Finding allegedly unaccounted cigarettes could justify examining their purchase and sale, but it did not prove that all cash found during the search came from those transactions. The statements and WhatsApp communications concerned the alleged cigarette trading. No account, transaction record or statement was identified that directly connected the seized money with a particular untaxed supply. Finding goods and cash during the same search did not, by itself, establish a link between them.

The alleged admission that Rs.37,45,000 belonged to petitioner No.1 did not establish the source of that money. Accepting ownership is different from admitting that the amount arose from clandestine sales. Likewise, rejecting the petitioners' explanations did not automatically prove the Department's allegation. An unsatisfactory explanation may call for further inquiry, but it cannot replace evidence supporting the conclusion reached. The weakness of a person's explanation does not itself create a legal power to seize the money.

The seizure also had to be supported by the law when it occurred. A later adjudication describing the cash as unaccounted sale proceeds could not retrospectively supply authority missing at the time of search. Later evidence may support lawful determination of tax or penalties, but that is a separate matter. A subsequent finding of tax liability cannot make an originally unauthorised seizure lawful. Investigation, liability determination, and seizure are distinct powers, and each must satisfy its own statutory requirements.

Cash Seizure Requires Legal Authority and Supporting Facts

The Department relied on Smt. Kanishka Matta Versus Union of India And Others - 2020 (9) TMI 42 - MADHYA PRADESH HIGH COURT. In that case, the Madhya Pradesh High Court gave "things" in Section 67(2) a broad meaning that included cash. The record contained a statement identifying the money as proceeds of untaxed pan masala sales, together with supporting investigation material. The Rajasthan High Court disagreed with that interpretation and also distinguished the facts. Here, the alleged admission concerned ownership of the money, not its origin in untaxed sales. No comparable material connected the cash to those sales. The distinction concerned both the extent of the statutory power and the evidence supporting its exercise.

In Deepak Khandelwal Proprietor M/s. Shri Shyam Metal Versus Commissioner Of CGST, Delhi West & Anr. - 2023 (8) TMI 929 - DELHI HIGH COURT, the Delhi High Court adopted a narrower approach. Section 67 was not treated as a general power to seize unexplained wealth or hold assets for tax recovery. The Court had to draw the meaning of "things" from its statutory context, particularly its association with documents and books useful as evidence. A wide dictionary meaning could not enlarge a coercive power beyond its legislative purpose. This reasoning supported the distinction between collecting evidence for an inquiry and taking possession of money merely because its source was disputed.

Smurti Waghdhare Versus Joint Director Directorate General of GST Intelligence, Mumbai, Senior Intelligence Officer Directorate General of GST Intelligence, Mumbai, Intelligence Officer Directorate General of GST Intelligence, Mumbai. - 2026 (3) TMI 582 - BOMBAY HIGH COURTlikewise supported the need for clear statutory authority and satisfaction of the conditions for seizure, including "reasons to believe". The Rajasthan High Court agreed with this approach while giving its own reasons based on the statutory scheme. It also provided an independent factual ground: even if the wider interpretation in Kanishka Matta applied, the present seizure lacked the necessary supporting material. The judgment therefore cannot be reduced to a choice between competing precedents. It examined both the law and the particular record. The disagreement remained between High Court approaches; the Supreme Court did not resolve it.

Return of the Cash Did Not Cancel the Remaining Tax Proceedings

The seizure and continued retention of Rs.47,45,000 could not be sustained under Section 67(2). The respondents were directed to return the money to the persons from whose possession it was seized within six weeks of uploading the order. However, release remained subject to any lawful claim, restraint, attachment or order under an independently applicable statutory provision. The Department could not retain the money merely because the GST dispute continued. Any restriction on its release required a separate and valid legal basis.

The petitioners were also entitled to applicable interest from the expiry of a reasonable period after seizure until actual payment. The respondents had to calculate and disburse that interest according to the governing provisions and legal principles. No fixed rate or exact starting date was specified. The direction therefore did not automatically award interest from the seizure date or at a particular percentage. The Court allowed the writ petition only to this limited extent, without costs, and awarded no separate compensation.

The other issues remained open for decision in the statutory appeal or other lawful proceedings. These included ownership of the cigarettes, alleged unaccounted trading, registration requirements, the evidentiary value of statements, and tax and penalty liabilities. Return of the cash did not establish that the business transactions were lawful or that the petitioners' explanations about its source were correct. It removed an unauthorised seizure without preventing further investigation, adjudication or recovery under validly exercised statutory powers.

Return of the cash did not certify its source or erase every possible liability. Lawful investigation, adjudication, attachment or recovery under independently applicable provisions remained available, subject to their own conditions.

Every Seizure Must Have a Clear Legal Basis

The practical lesson is to ask two questions: what is being seized, and why is it being retained? Goods liable to confiscation, articles needed as evidence and assets held to secure recovery serve different purposes. A power available for one purpose cannot automatically be used for another. For example, authority to seize records of undisclosed sales does not, by itself, authorise retaining cash against the tax that may eventually be determined.

Evidence suggesting tax evasion may justify further investigation and other lawful action. However, each step must satisfy the conditions of the provision authorising it. Section 67(2) of the CGST Act, 2017 cannot be treated as a general power to seize unexplained wealth or suspected business receipts. Where particular currency is required as evidence, its evidentiary purpose must be established; where money is sought to secure recovery, the relevant statutory power must be independently available and validly exercised. The need to protect revenue cannot replace the legal authority required to act.

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