Kerala High Court: GST Officers Cannot Seize Cash Unless It Is Stock-in-Trade

Introduction

The High Court of Kerala recently adjudicated the legality of actions taken by the GST authorities in the case of Centre C Edtech (P.) Ltd. v. Intelligence Officer, Intelligence Unit, State Goods and Service Tax Department, Kerala[i], concerning the seizure of cash from a taxpayer’s premises and its subsequent requisition by the Income Tax Department (‘ITD’). The judgment raises vital questions on the limits of statutory powers, the interaction between tax statutes, and constitutional constraints on coercive action by state agencies.

Brief Facts

• The State GST Department ('Department') initiated proceedings under s. 74 of the Central Goods and Services Act, 2017 (‘CGST Act’) and the State Goods and Services Act, 2017 (‘SGST Act’) during which it seized Rs. 29,11,900 and Rs. 10,58,860 in cash from the premises of service providers.

• Subsequently, this cash was handed over to the ITD pursuant to a requisition under s. 132A of the Income-tax Act, 1961 (‘IT Act’).

• The aggrieved appellants filed writ petitions seeking the return of the cash, contending that the GST authorities lacked statutory authority to seize cash unless it constituted stock-in-trade.

• The learned Single Judge disposed of the writ petitions, directing the appellants to approach the ITD for the release of the cash, while allowing the Department to proceed with adjudication under s. 74(1) of the CGST/SGST Acts.

• Dissatisfied with the decision, the appellants filed writ appeals, arguing that the initial seizure itself was illegal, and hence the subsequent handover to the ITD was void in law.

Held

• The Division Bench allowed the writ appeals, holding that the initial seizure by the GST authorities was without lawful authority and hence illegal ab initio.

• The High Court observed that a. 265 and a. 300A of the Constitution of India prohibit the expropriation or retention of property without the authority of law.

• It relied on Sabu George & Ors. v. Sales Tax Officer[ii], affirmed by the Supreme Court in Sales Tax Officer (IB) & Ors. v. Sabu George & Ors.[iii] which held that the power to seize ‘things’ does not extend to cash unless it forms part of the dealer’s stock-in-trade.

• The Court criticised the Department’s disregard of binding precedent and ruled that the subsequent transfer to the ITD could not cure the illegality of the initial seizure.

• In view of the above observations, the High Court issued the following directions:

a. The ITD was directed to release the full amounts to the appellants within 10 days, by transferring the same to their respective bank accounts.

b. Proceedings under s. 74(1) of the CGST/SGST Acts would continue from the present stage, with full opportunity for hearing to the appellants.

c. The ITD’s proceedings under s. 132A for assessment under ss. 153A or 153C of the IT Act would continue independently, without treating the earlier seizure as valid under s. 132A.

Our Analysis

This judgment of the Kerala High Court comes at a time when Courts across the country are grappling with differing interpretations of the powers conferred on GST authorities, particularly with respect to the seizure of cash. The primary bone of contention lies in the interpretation of the word ‘things’ under s. 67(2) of the CGST Act, which empowers GST officers to seize goods, documents, books, or things during search proceedings. While the statute does not define the term ‘things’, its scope has been expansively interpreted by some High Courts and narrowly by others, leading to an uncertain legal environment.

A prominent decision relied upon by GST authorities to justify the seizure of unaccounted cash is the ruling of the Madhya Pradesh High Court in Kanishka Matta v. Union of India[iv], where it was held that the word ‘things’ under s. 67(2) includes money. Enforcement officers have frequently invoked this interpretation to support the seizure of currency during GST raids. However, this interpretation has not been favoured by other high courts. In Deepak Khandelwal v. Commissioner of CGST Delhi[v], the Delhi High Court, applying a purposive interpretation, held that s. 67 does not empower GST officers to seize cash merely on the grounds that it is unaccounted for. Similarly, in K.M. Food Infrastructure Pvt. Ltd. v. Director General, DGGI Headquarters[vi], the Delhi High Court reaffirmed that the seizure of cash is not contemplated under s. 67(2) unless it can be directly linked to the taxable stock or business activity.

The present case establishes an important precedent on the limitations of the Department’s authority in matters of seizure and retention of cash. The judgment reaffirms constitutional protections against unauthorised seizure of property and underscores the necessity for tax authorities to act within their legally defined powers. The ruling clarifies that while the GST authorities are empowered to seize certain assets under the CGST and SGST Acts, their powers do not extend to the seizure of cash unless it forms part of the stock-in-trade of a business. The ruling stands as a warning against the misuse of 'seizure' powers under the GST regime. It reminds authorities that legal propriety cannot be compromised even in high-value tax evasion investigations.

Moreover, this decision by the Kerala High Court has significant implications for inter-agency collaboration in tax enforcement. While the ITD may have independent powers under s. 132A of the IT Act, such powers cannot be retroactively invoked to validate an act which was non-est in law from the outset. The High Court rightly placed the burden on the Income Tax Department to establish a lawful basis for their actions afresh, rather than leaning on an illegal seizure by another agency. This case thus sets a precedent that compliance with constitutional and statutory requirements is non-negotiable, even for powerful enforcement agencies.

End Notes

[i] [2025] 171 taxmann.com 659 (Kerala), 27.01.2025.

[ii] (IB) & Ors.[(2023) 153 taxmann.com 46.

[iii] [(2023) 153 taxmann.com 138.

[iv] [2020] 120 taxmann.com 174.

[v] [2023 SCC OnLine Del 4985].

[vi] [2024 SCC OnLine Del 928].

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