Supreme Court Confirms: GST Authorities Cannot Seize Cash and Silver During Search – Only Goods Related to Tax Evasion Can Be Seized Under Section 67

The Hon'ble Supreme Court of India in Commissioner of CGST vs. Deepak Khandelwal [SLP (Civil) Diary No(s). 31886 of 2024 and Others] [[2024] 89 GSTL 193 (SC)] dated August 14, 2024 held that the seizure of cash and silver bars recovered during search was not sustainable as these were not subject matter of supply and evasion of tax. The Court affirmed the Delhi High Court's judgment that the purpose of Section 67 of the CGST Act was not recovery of tax but to empower authorities to unearth tax evasion. The Court held that only those goods which were subject matter of supply and consequent evasion of tax could be seized under Section 67 of the GST Act, and since no case under Article 136 of the Constitution had been made out for interference against the impugned judgment, the Special Leave Petition filed by Revenue was dismissed.

FACTS OF THE CASE

The Revenue (Commissioner of CGST) (hereinafter referred to as "the Petitioner") filed a Special Leave Petition before the Hon'ble Supreme Court challenging the judgment of the Hon'ble Delhi High Court in Deepak Khandelwal v. Commissioner of CGST [2023] (Delhi) (hereinafter referred to as "the impugned judgment").

In the impugned judgment, the Hon'ble Delhi High Court had held that various types of movable assets which might be found during search, although broadly falling under the definition of 'goods' under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "the CGST Act"), could not be seized. The High Court observed that only those goods which were subject matter of supply and consequent evasion of tax could be seized under Section 67 of the CGST Act. Further, the High Court held that seizure of documents or books or things was permissible only for aid in proceedings that might be instituted under the Act and these were required to be returned when no longer required.

The High Court had therefore held that the seizure of currency and silver bars in this case on the ground of it being unaccounted wealth was not sustainable as the purpose of Section 67 of the CGST Act was not recovery of tax but to empower authorities to unearth tax evasion.

The High Court accordingly directed the authorities to return the seized currency and silver, more so when these had not been relied upon in the notice issued subsequently (hereinafter referred to as "the SCN").

Aggrieved by the impugned judgment, the Revenue filed the present Special Leave Petition (hereinafter referred to as "the SLP") before the Hon'ble Supreme Court under Article 136 of the Constitution of India.

ISSUE

Whether the seizure of cash and silver bars recovered during search under Section 67 of the CGST Act is sustainable when such items were not the subject matter of supply and consequent evasion of tax?

HELD BY THE COURT

The Hon'ble Supreme Court of India in Commissioner of CGST vs. Deepak Khandelwal [[2024] 89 GSTL 193 (SC)] held that:

The Court observed that no case for interference was made out in exercise of its jurisdiction under Article 136 of the Constitution of India. The Court affirmed the impugned judgment of the Delhi High Court which had held that various types of movable assets which might be found during search, although broadly falling under the definition of 'goods' under the CGST Act, could not be seized, and only those goods which were subject matter of supply and consequent evasion of tax could be seized under Section 67 of the CGST Act.

The Court upheld the High Court's finding that seizure of documents or books or things was permissible only for aid in proceedings that might be instituted under the Act and these were required to be returned when no longer required. The Court affirmed that the seizure of currency and silver bars on the ground of it being unaccounted wealth was not sustainable as the purpose of Section 67 of the CGST Act was not recovery of tax but to empower authorities to unearth tax evasion. The Court noted that the seized currency and silver had not been relied upon in the notice issued subsequently.

Accordingly, the Special Leave Petitions filed by the Revenue were dismissed.

RELEVANT SECTIONS

• "Section 67 of the Central Goods and Services Tax Act, 2017 (CGST Act)" – Power of inspection, search and seizure

• "Section 67 of the Delhi Goods and Services Tax Act, 2017" – Power of inspection, search and seizure

• "Article 136 of the Constitution of India" – Special leave to appeal by the Supreme Court

PARI MATERIA / CASES REFERRED

1. Deepak Khandelwal v. Commissioner of CGST: [2023]S– The Hon'ble Delhi High Court held that various types of movable assets found during search, although broadly falling under the definition of 'goods' under the CGST Act, could not be seized. Only those goods which were subject matter of supply and consequent evasion of tax could be seized under Section 67 of the CGST Act. The High Court further held that the purpose of Section 67 was not recovery of tax but to empower authorities to unearth tax evasion. The High Court directed the return of seized currency and silver bars. This judgment was affirmed by the Supreme Court in the present case.

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