Delhi High Court Upholds Procedural Safeguards in GST Seizure: Extension Beyond Six Months Requires Prior Notice and Justification

Introduction

The judgment delivered by the Delhi High Court in the case of Kashish Optics Ltd. v. Commissioner, CGST Delhi West[i] addresses a vital procedural safeguard under the Central Goods and Services Tax Act, 2017 (‘CGST Act’), particularly relating to the time-bound retention of seized goods under s.67(7). The case involved the prolonged seizure of goods by GST authorities and the subsequent denial of their release, raising serious questions on the interpretation of statutory timelines, procedural fairness, and the proper scope of seizure and confiscation powers. The Court, adopting a rights-protective and purposive approach, enforced the legislative mandate that the power to retain goods beyond six months must be exercised judicially, providing prior notice and an opportunity of hearing, and strictly within statutory timelines.

Brief Facts

• Kashish Optics Ltd. (‘Petitioner/Assessee’) challenged the continued retention of goods seized by the Commissioner, CGST Delhi West, and other departmental officers (‘Respondents’) on the basis of the search conducted on 22/23.10.2020, pursuant to which a seizure order dated 23.10.2020 came to be issued.

• The Petitioner contended that, under the CGST Act, goods seized are liable to be returned to the person from whose possession they were taken within six months from seizure.

• Further, as per the proviso to s. 67(7), the period of six months may be extended by the proper officer for a further period not exceeding six months if sufficient cause is shown.

• The Respondents brought on record the note sheet dated 16.04.2021 proposing the extension of the period of seizure under s. 67(7) by a further period of six months up to 21.10.2021. It is during this period that the notice of confiscation referable to s. 130 came to be issued on 20.10.2021.

• The Petitioner relied on ss. 110 and 124 of the Customs Act, 1962 (‘Customs Act’) and judgments rendered by the Supreme Court in Assistant Collector of Customs v. Charan Das Malhotra[ii] and I.J. Rao, Asst. Collector of Customs and Others v. Bibhuti Bhushan Bagh and Another[iii], to substantiate the averment that a person from whom goods have been seized would be entitled to be heard before the original period contemplated in the statute for seizure and retention of the goods could be extended.

• Regarding the note sheet, the Petitioner submitted that it did not refer to any germane material that could be considered sufficient to warrant an extension beyond the six-month period.

• On the other hand, the Respondents contended that s.110 of the Customs Act is different from s.67 of the Act and operates in a different field, thus cannot be held to be pari materia. Further, the file noting revealed sufficient cause for the extension of the retention of seized goods.

Held

The Delhi High Court allowed the writ petition and directed the release of the seized goods upon the petitioner depositing the amount as per the valuation dated 17.06.2021. It further ordered the GST authorities to complete any proceedings concerning the alleged violations within six weeks and return all documents and electronic devices after making official copies.

The court made several important findings:

• The High Court, upon analysing s. 67 of the CGST Act and s. 110 of the Customs Act held that the provisions are pari materia and rejected the Respondents' contention to the contrary as incorrect.

• The High Court, further referring to I.J. Rao (Supra) and s. 67 of the CGST Act held that both the Acts are fiscal statutes and seizure of documents is provided in both the Acts. The seizure is for the limited purpose of securing the interest of the concerned authorities to conduct their proceedings.

• The High Court further held that after the expiry of six months, the person whose goods are seized becomes entitled to their return, and this right cannot be defeated unilaterally by extending the period without providing notice and an opportunity of being heard to the Assessee regarding the same.

• Furthermore, the High Court held that the provision is couched in a manner to ensure that sufficient cause must be shown to the affected person. The ‘sufficient cause’ cannot mean a reason known only to the concerned officials for extending the period of seizure to the detriment of the Assessee, thereby denying him entitlement to the goods.

• On the contention of the Respondents that I.J. Rao (supra) will not apply, as r. 140 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’), provides for the provisional release of goods. The High Court held that the fact that r.140 of the CGST Rules provides for provisional release would not obliterate the proviso to s. 67(7).

• On the contention of the Respondents that the note sheet provided sufficient cause for continued seizure, the High Court held that these extracts were not in the public domain and that the Petitioner could not have had any opportunity to controvert or reply to their contents. This amounts to a unilateral act by the Respondents, depriving the Petitioner of its statutory entitlement to the goods. Thus, for this reason alone, the action of the Respondents in extending the retention of the seized goods did not satisfy the mandate of s. 67(7) of the CGST Act.

• Further, the High Court, upon reviewing the extracts of such notes, observed that the shoddy performance of the concerned officers, despite complete cooperation by the Petitioner, cannot be a sufficient cause.

• On the issue of the show cause notice being barred by limitation, the High Court refrained from delving into it, as it pertained to confiscation and not the seizure.

• Hence, the High Court allowed the release of the seized goods subject to the Petitioner depositing an amount as per the valuation.

Our Analysis

This decision constitutes a strong judicial affirmation of procedural due process in GST enforcement, particularly in respect of seizure and confiscation powers under ss. 67 and 130 of the CGST Act. The High Court correctly interpreted s. 67(7) as a time-bound and rights-sensitive provision, rather than a general administrative discretion.

The judgment is notable for recognising that ‘sufficient cause’ must be real, record-based, and subjected to adversarial scrutiny, rather than being a mere bureaucratic formality. The Court’s insistence on notice and hearing prior to extension is grounded in both constitutional principles and statutory design, echoing the jurisprudence under the Customs Act, particularly in I.J. Rao and Charan Das Malhotra (supra).

Furthermore, the Court rightly refused to be swayed by departmental justifications based on procedural inconvenience or COVID-19, particularly when the official record revealed a lack of diligence, poor documentation, and the absence of substantive rationale for the extension. The ruling also sends a clear signal that affixation is not a carte blanche to evade proper service, especially where the assessee maintains active digital and physical communication channels.

In sum, the judgment reaffirms that the seizure of goods under GST should not be used as a coercive or indefinite tool, but must be exercised with judicial oversight, time-bound discipline, and procedural fairness. It offers important guidance to both tax authorities and taxpayers on the limits of executive discretion and the procedural safeguards embedded in the CGST Act. This judgment is likely to serve as a precedent in future cases where goods are retained without a timely and lawful justification.

End Notes

[i] W.P.(C) 7741/2022 in the Delhi High Court.

[ii] [(1971) 1 SCC 697.

[iii] (1989) 3 SCC 202.

Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.