Facts of the Case

This writ petition before the Rajasthan High Court challenged the seizure of gold bullion by the Enforcement Directorate (ED) during a search conducted under Section 37 of the Foreign Exchange Management Act, 1999 (FEMA), read with Sections 132 and 132B of the Income Tax Act, 1961 (applied mutatis mutandis to such searches). This is a FEMA/search-and-seizure matter concerning smuggled-gold allegations; GST is mentioned only because the petitioner firm happened to be duly registered under the VAT/GST Act as part of establishing its bona fide trading business — no GST-law question was raised or decided.

The respondents conducted a search at the business premises of the petitioners, M/s Bhagwati Jewellers and its proprietor Ram Gopal Soni, on 15-16.02.2020, seizing 3,773.52 grams of gold bullion along with electronic devices, mobile phones and a hard disk. The petitioners contended they were engaged in the bona fide trade of gold bullion, that the seized gold was stock-in-trade duly recorded in their books of account, and that under the applicable Income Tax Act provisions stock-in-trade cannot be seized. They alleged that the raid party misbehaved with and physically assaulted the proprietor and staff, and that a representation submitted on 19.02.2020 explaining the stock-in-trade status of the gold, supported by documents, was never considered or decided by the respondents. The ED opposed the petition on the ground of an alternative statutory remedy under FEMA (adjudication under Section 16, appeal to the Appellate Tribunal under Section 19, and further appeal to the High Court under Section 35), and contended that the seizure was based on intelligence that smuggled gold was being purchased by bullion traders through hawala transactions, and that the petitioners were not cooperating with the ongoing investigation and summons issued to them.

Issues Involved

  1. Whether the writ petition was maintainable despite the alternative statutory remedies available under Sections 16, 19 and 35 of FEMA.
  2. Whether the seized gold bullion, being stock-in-trade duly recorded in the petitioners' books of account, was liable to be released under the provisions applicable to search and seizure (Section 132 and the proviso to Section 132(1)(iii) of the Income Tax Act, as made applicable to FEMA searches by Section 37).
  3. Whether the respondent authorities' failure to decide the petitioners' representation dated 19.02.2020 amounted to a miscarriage of justice warranting the Court's intervention.

Petitioner's Arguments

  • The petitioners were engaged in the genuine business of gold bullion trade, duly registered under the VAT/GST Act, and the seized gold bullion was stock-in-trade duly recorded in their regular books of account — which, under the applicable statutory scheme, could not be seized.
  • Despite pointing this out at the time of seizure and submitting a detailed representation with supporting documents on 19.02.2020, the respondents never considered or decided the representation, resulting in prolonged and unjustified retention of the gold.
  • The conduct of the raid party, including alleged physical assault on the proprietor and employees, aggravated the illegality of the seizure.

Respondent's Arguments

  • The writ petition was not maintainable given the availability of an adequate alternative statutory remedy under Sections 16, 19 and 35 of FEMA for adjudicating disputes concerning the seizure.
  • The search and seizure were based on specific intelligence that smuggled gold was being purchased by bullion traders/jewellers through hawala transactions, and the petitioners were not cooperating with the summons issued during the ongoing investigation.

Court Order / Findings

  • The Court held that the respondent authorities were under a statutory obligation, in view of the mandate applicable to search and seizure (drawing on Section 132B of the Income Tax Act as applied to FEMA searches), to consider the petitioners' representation dated 19.02.2020, supported by documentary evidence, explaining that the seized gold bullion was stock-in-trade duly accounted for in the books.
  • Since the respondents had failed to consider this representation or otherwise establish that the gold was not stock-in-trade, the Court, examining the documents placed on record, held that the seized gold bullion was indeed stock-in-trade duly accounted for in the books of account, and that the petitioners were entitled to its return.
  • The Court allowed the writ petition and directed the respondent authorities to forthwith return the 3,773.52 grams of gold bullion seized during the search, after complying with the requirement of making a note of inventory.

Important Clarification

This ruling confirms that gold bullion which is genuine stock-in-trade, duly recorded in a dealer's regular books of account, is protected from retention/seizure under the statutory scheme applicable to FEMA/Income Tax searches, and that authorities cannot simply withhold seized goods without deciding a properly substantiated representation asserting this status. The petitioner's GST/VAT registration featured only as evidence of a bona fide, registered trading business — the case does not decide any question of GST law.

Sections Involved

  • Section 37, Foreign Exchange Management Act, 1999 — Application of Income Tax Act search provisions
  • Section 132 and Section 132B, Income Tax Act, 1961 — Search, seizure and retention of assets; release of stock-in-trade
  • Sections 16, 19 and 35, Foreign Exchange Management Act, 1999 — Adjudication, appeal, and further appeal

Decision – In Favour of Petitioner (Assessee)

The Rajasthan High Court allowed the writ petition, holding that the seized gold bullion was stock-in-trade duly accounted for, and directed its immediate return to the petitioners, without deciding any GST-law question.

Case Details

  • Court: High Court of Judicature for Rajasthan, Bench at Jaipur
  • Case No.: S.B. Civil Writ Petition No. 10226/2021
  • Neutral Citation: 2023:RJ-JP:25020
  • Coram: Hon'ble Mr. Justice Ganesh Ram Meena
  • Date of Judgment: 05 October 2023 (Reserved on 12 September 2023)

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