Facts of the Case

The four petitioners, including T H Fazil, challenged the seizure of cash from their business premises pursuant to seizure memos in Form GST INS-02 dated 22.12.2020, under which amounts of Rs.31,50,000/- and Rs.3,40,000/- were seized from petitioners no.1 and no.4 respectively. Almost three years had elapsed between the seizure and the filing of the writ petition, during which the cash remained with the department. The cash included currency of the Rs.2000/- denomination that was due to cease circulation by the end of September 2023, adding practical urgency to the plea, since the petitioners risked being left holding currency that would soon no longer be legal tender for exchange. Proceedings under Section 74(1), including a DRC-01 dated 29.07.2023 and a DRC-01A intimation dated 07.10.2022, were also on record, but none of them concerned or justified the continued retention of the seized cash itself.

Issues Involved

  1. Whether GST authorities have the power under the CGST/SGST Act and Rules to seize cash from a dealer's premises during a search or inspection.
  2. Whether continued retention of seized cash for an extended period, without a show cause notice, is legally sustainable.

Petitioner's Arguments

  • The petitioners contended that GST authorities have no power under the Act and Rules to seize cash, since cash is not "stock in trade" of a dealer within the meaning of the search and seizure provisions.
  • Reliance was placed on the Division Bench ruling in Shabu George & Another v. State Tax Officer (IB) [2023 (4) TMI 252 - Kerala High Court], which held that cash retained for over six months without issuance of a show cause notice must be released.

Respondent's Arguments

  • The Government Pleader did not dispute the legal position urged by the petitioners regarding the department's lack of power to seize cash not constituting stock-in-trade.

Court Order / Findings

  • The Court, relying on Shabu George, reiterated that where seized cash has been retained by the department for a prolonged period without initiating a show cause notice in connection with the investigation, there is no justification for continued retention, and the cash must be released to the person from whom it was seized.
  • It was noted that the State's SLP against the Shabu George ruling had been dismissed by the Supreme Court, cementing the legal position.
  • The writ petition was allowed, and the respondents were directed to release the cash seized from the petitioners and credit it to their accounts within five days.

Important Clarification

GST authorities do not possess the power under the CGST/SGST Act to seize cash found at a dealer's premises during a search under Section 67, as cash is not "stock-in-trade" or goods liable to seizure under that provision. Even where cash has been seized, prolonged retention without initiating a show cause notice within a reasonable time (six months being the benchmark applied by the Kerala High Court) renders continued retention unjustified, entitling the person to its release. This position, now fortified by the Supreme Court's dismissal of the State's special leave petition against Shabu George, gives taxpayers a clear basis to seek release of cash seized during GST search operations, distinct from and independent of any ongoing adjudication of tax liability itself.

Sections Involved

  • Section 67, CGST/SGST Act, 2017 — power of inspection, search and seizure, interpreted as not extending to seizure of cash that is not stock-in-trade.
  • Section 74, CGST/SGST Act, 2017 — provision for determination of tax involving fraud, wilful misstatement or suppression, under which the related proceedings (DRC-01/DRC-01A) were initiated.
  • Form GST INS-02 — the prescribed seizure memo/order issued when goods (or, as challenged here, cash) are seized during a search.

Decision – In Favour of

The decision is in favour of the Assessee/Petitioners. The Court ordered release of the seized cash to the petitioners.

Case Details

Court: High Court of Kerala at Ernakulam
Case No.: WP(C) No.30522 of 2023
Coram: Justice Dinesh Kumar Singh
Date of Order: 18.09.2023

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