GST Authorities Cannot Seize Cash Unless It Forms Part of Stock in Trade: High Court Ruling
The Kerala High Court, in a significant judgment, held that GST authorities have no power to seize cash from a service provider’s premises, except when it forms part of stock in trade. This ruling arose from the case Centre C Edtech (P.) Ltd. v. Intelligence Officer, Office of Intelligence Unit, State GST Department, Kerala.
The case clarifies the limitations of GST authorities under Section 74 of the CGST/SGST Act, 2017 and the implications of transferring seized cash to the Income Tax Department under Section 132A of the Income Tax Act, 1961.
Background of the Case
Facts
- The GST department seized Rs. 29,11,900/- and Rs. 10,58,860/- from the premises of service providers during proceedings initiated under Section 74 of the CGST Act.
- The amount was later transferred to the Income Tax Department based on a requisition under Section 132A of the Income Tax Act, 1961.
- The assessee challenged the legality of the seizure before the Kerala High Court, arguing that GST authorities had no power to seize cash unless it was part of stock in trade.
Legal Issues Raised
- Can GST authorities seize cash from a business premises under Section 74 of the CGST Act?
- Does transferring the seized cash to another department validate the original seizure?
- What are the consequences of illegal seizure under the GST law?
Court’s Analysis and Judgment
1. Power of GST Authorities to Seize Cash: Section 74 Analysis
The CGST Act, 2017, empowers GST officers to initiate proceedings under Section 74 when they suspect tax evasion due to fraud, suppression, or misrepresentation. However, the law does not explicitly grant the power to seize cash from a business premises unless it is part of stock in trade.
The High Court relied on previous rulings, including Sabu George & Ors. v. Sales Tax Officer (IB) & Ors., which held that GST officers cannot seize cash unless it is part of taxable goods or services.
2. Illegality of Cash Transfer to Income Tax Department: Section 132A of IT Act
The Kerala High Court held that the subsequent transfer of the illegally seized cash to the Income Tax Department under Section 132A of the IT Act did not validate the original seizure. The Court reaffirmed that a wrongful act cannot be legitimized by a subsequent legal action.
3. Violation of Constitutional Rights: Articles 265 & 300A
The judgment highlighted Articles 265 and 300A of the Indian Constitution, which ensure that:
- No tax shall be levied or collected except by the authority of law (Article 265).
- No person shall be deprived of their property except by authority of law (Article 300A).
The Court ruled that the GST department’s actions were unconstitutional and directed an immediate refund of the seized amount.
Key Takeaways from the Ruling
1. GST Authorities Cannot Seize Cash Unless It’s Stock in Trade
This ruling establishes that cash is not considered ‘goods’ under GST laws unless it is stock in trade. Seizing cash without clear authority violates Section 74 of the CGST Act.
2. Illegal Seizures Cannot Be Validated by Transfers
Even if another government department (such as the Income Tax Department) requests the seized cash, its transfer does not validate the original illegal seizure.
3. Businesses Have the Right to Challenge Illegal Seizures
Assessees can file writ petitions under Article 226 of the Constitution if their property is seized without proper legal backing.
4. Proceedings Can Continue Without Seizure
The ruling clarified that the GST department can continue its investigation under Section 74, but without unlawfully holding the seized cash.
Final Directions from the Court
- The Income Tax Department was ordered to return the cash to the assessee within 10 days.
- The GST department was instructed to continue its proceedings without treating the cash seizure as valid.
- The proceedings under Section 132A of the Income Tax Act for assessment purposes could continue, but the cash seizure could not be considered lawful.
Key Takeaways
For Taxpayers:
✔ GST officers cannot seize cash unless it is proven to be stock-in-trade. ✔ If your cash is seized unlawfully, you can challenge the seizure in court. ✔ Even if cash is transferred to another department, courts can order its return. ✔ Always maintain proper books of accounts to substantiate cash holdings.
For Tax Authorities:
✔ Must adhere to legal provisions and avoid exceeding their statutory powers. ✔ Should only seize goods or documents explicitly allowed under the law. ✔ Should not assume that interdepartmental transfers validate illegal seizures. ✔ Follow due process under Section 74 for fraud investigations without overreach.
Conclusion
This landmark ruling reinforces taxpayer rights and ensures that GST authorities do not exceed their legal powers. Businesses should be aware of their legal remedies under CGST law and constitutional provisions to protect themselves from unlawful actions by tax authorities.
Further more, The Kerala High Court’s ruling in Centre C Edtech (P.) Ltd. vs. GST Intelligence Officer sets a crucial precedent for taxpayers and GST authorities alike. By clarifying the limits of seizure powers under Section 74 of the CGST Act, the court has reaffirmed constitutional protections against arbitrary confiscation of property. Businesses should be aware of their legal rights in tax investigations and seek judicial intervention if their property is seized unlawfully.
This judgment is a landmark decision reinforcing taxpayer
protections and ensuring that tax enforcement is carried out within constitutional
and legal boundaries.