Introduction
The Hon’ble Supreme Court of India dismissed a Special Leave Petition (‘SLP’) in the matter of Commissioner of CGST v. Deepak Khandelwal[i] filed by the tax department challenging the decision of the Delhi High Court in the matter of Deepak Khandelwal v. Commissioner of CGST, Delhi West[ii]. Before the Delhi High Court, the primary issue was whether the proper officer had the authority under s. 67 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) to seize currency and other valuable assets. The High Court held that such seizures were unsustainable under the provision.
Brief Facts
On 28.01.2020, search proceedings were conducted at the residence of Deepak Khandelwal (Respondent’) under s. 67(2) of the CGST Act, leading to the seizure of cash and silver bars. Subsequently, on 11.11.2020, a notice under s. 74 of the CGST Act was issued to the Respondent for demand and penalty.
The Respondent wrote to the Commissioner of CGST (‘Petitioner’) on 23.3.2021 requesting the return of seized cash and silver bars. He contended that even if s. 67(7) of the CGST Act is applied, no notice had been issued within six months from the date of seizure, thereby making the items eligible for return.
Thereafter, the Respondent filed a Writ Petition in the High Court, contending that the Petitioner lacked the authority under s. 67 of the CGST Act to seize cash.
The High Court ruled in the Respondent’s favour, ordering the return of the seized items and cash. The Petitioner, therefore, preferred to appeal through this SLP.
Held
The Supreme Court dismissed the petition, holding that no case for interference was made under a. 136 of the Constitution of India.
The Delhi High Court had observed that while a search may uncover various movable assets technically qualifying as ‘documents or books or things’, only assets directly involved in, or suspected of being involved in, tax evasion may be seized.
The Delhi High Court, therefore, opined that s. 67 of the CGST Act makes it clear that the word ‘things’ is required to be read ejusdem generis with the preceding words ‘documents or books’.
The Court further observed that seizure is only allowed to support ongoing proceedings, and if the seized items are not relevant to those proceedings, they cannot be seized or must be returned according to s. 67(3) of the CGST Act.
The Delhi High Court thereafter clarified that s. 67 of the CGST Act is not intended for asset seizure as a means of tax recovery, and therefore, applying the principle of purposive interpretation, the Court held that the scope of s. 67 of the CGST Act cannot be extended to justify the seizure of assets merely on the basis that they are unaccounted for.
Therefore, the High Court allowed the writ petition and directed the Respondents to release the currency and other valuable assets seized during the search proceedings.
Our Analysis
The Supreme Court’s dismissal of this SLP, affirming the Delhi High Court’s ruling, is a significant development in the interpretation of s. 67 of the CGST Act. The Court restates that unless they are directly related to tax evasion proceedings, the GST search and seizure laws cannot be used as an excuse to seize valuable items like cash and silver bars. Through this ruling, the Court has prevented any overreach and upheld the restricted scope of tax authorities’ authority under GST law.
The ruling underscores the importance of statutory interpretation, ensuring that s. 67 is not misused to enforce indirect taxes in areas governed by other laws, such as the Income-tax Act, 1961. This distinction is essential because it would blur the lines of jurisdiction between various tax laws and may result in disproportionate and capricious actions against persons and corporations if tax authorities were permitted to confiscate unaccounted cash and assets during GST searches.
This decision is especially important since it settles a controversial matter that has been interpreted differently by several High Courts. Meanwhile, the Delhi High Court held that cash and silver bars could not be seized under s. 67, the Madhya Pradesh High Court, in Kanishka Matta v. Union of India[iii], previously ruled otherwise, permitting such seizures. The ruling by the Supreme Court now supports the Delhi High Court’s purposive interpretation. It guarantees that tax authorities won’t arbitrarily confiscate cash and other assets that represent unaccounted wealth under the guise of GST enforcement.
This ruling supports the fundamental legal principle of purposive interpretation, reaffirming that s. 67 of the CGST Act is intended to assist with tax compliance rather than serve as a tool for tax recovery. This distinction is important because it protects due process and prevents tax authorities from abusing their search authority. Thus, this ruling establishes a strong precedent that shields taxpayers from capricious asset seizures and guarantees that GST enforcement stays within the bounds set forth by law.
End Notes
[i] 2024 SCC OnLine SC 2589 dated 14.08.2024.
[ii] [2023] 153 taxmann.com 443 (Delhi).
[iii] [2020] 120 taxmann.com 174 (Madhya Pradesh).
Authored by the Metalegal Editorial Board, the views expressed are personal and do not constitute legal advice or opinion.