LI Network
Published on: 23 August 2023 at 12:30 IST
The Delhi High Court has clarified that the Central Goods and Services Tax (CGST) Act does not authorize the seizure of unaccounted wealth or valuable assets for recovery purposes based on accounted income.
The Court’s decision came as it addressed a writ petition requesting the unconditional release of two silver bars and mobile phones seized from the petitioner’s residence by respondents.
A Division Bench consisting of Justice Vibhu Bakhru and Justice Purushaindra Kumar Kaurav emphasized that Section 67 of the CGST Act, 2017 is not designed to target unaccounted wealth or asset seizure for tax recovery.
The Bench further noted that Subsection (2) of Section 67 allows the seizure of books, documents, or items for examination or inquiry only if they have relevance to proceedings under the Act.
The seized items must be returned to the owner within a maximum period of thirty days if they are not used for issuing a notice under the Act or its rules.
The petitioner, represented by Advocate Rajesh Jain, had engaged in the trading of non-ferrous metals through his sole proprietorship concern, Shyam Metal. A search under Subsection (2) of Section 67 was conducted at the petitioner’s residence, leading to the seizure of certain items and currency.
This action resulted in the petitioner’s arrest for alleged offenses under Section 132(1)(i) of the Act. While the petitioner was later released on bail, the Sales Tax Officer proposed a demand of ₹24,20,900, including a penalty of ₹12,10,450, through a notice under Section 74 of the Act.
The petitioner’s plea for releasing the seized items remained unanswered, even a year after the seizure.
In response, the Court clarified that Section 67(1) empowers inspection to uncover tax evasion, not to recover taxes. Subsection (2) allows seizure of goods liable for confiscation, with books or documents seized only if they are relevant to Act proceedings.
However, the purpose of Section 67 is to reveal tax evasion and bring taxable supplies under the tax ambit.
The Court ruled that once the department is assured of tax liabilities, the goods must be released under Section 67(6) of the Act.
The Court underlined that the search and seizure actions under Section 67 are not aimed at seizing unaccounted income or assets to ensure taxation, as that falls under the Income Tax Act, 1961.
Thus, even if the petitioner couldn’t provide evidence for the seized silver bars or the cash, the seizure was unjustified under Section 67(2) of the Act. Consequently, the Court directed the respondents to immediately release the seized currency and valuable assets to the petitioner.