Delhi High Court Upholds Taxpayer's Right to Property, Rules GST Authorities Cannot Seize Valuable Assets

Delhi High Court Upholds Taxpayer's Right to Property, Rules GST Authorities Cannot Seize Valuable Assets

The Delhi High Court has issued a verdict stating that the authorities responsible for Goods and Services Tax (GST) do not possess the jurisdiction to confiscate valuable assets like silver bars and cash under Section 67 of the Central Goods and Services Tax Act (CGST Act). This holds even if these assets lack proper documentation or could potentially be subject to confiscation under a different statute.

The Court ruled that the intent behind Section 67 is to uncover instances of tax evasion and guarantee the proper taxation of taxable supplies, rather than to retrieve outstanding taxes or secure tax payments. Additionally, the Court emphasized that the authority to seize valuable assets is a significant power that must be employed prudently and exclusively in situations where compelling evidence of tax evasion exists.

Deepak Khandelwal, the proprietor of M/s Shri Shyam Metal, lodged a petition with the Delhi High Court, seeking an order that directs the GST authorities to release without any conditions two silver bars weighing 29.5 kg and 14.5 kg, a sum of ₹700,000, and mobile phones. These items had been confiscated from his residential premises.

The GST authorities confiscated these possessions from Khandelwal's residence as part of a raid. Their rationale was that these items were not properly documented and might be subject to confiscation under different laws. Conversely, Khandelwal contended that he had acquired these items legally and that the GST authorities lacked the jurisdiction to seize them.

The Delhi High Court division bench of Justices Vibhu Bakhru and Purushaindra Kumar Kaurav stressed that the power granted by Sub-section (1) of Section 67 of the CGST Act was primarily intended for conducting inspections to detect instances of tax evasion or any attempts to evade taxes. This provision was not intended to recover taxes or secure tax dues.

The Court noted that the power to seize valuable assets is a drastic power that should be exercised with caution and only in cases where there is clear evidence of tax evasion. The Court also held that the GST authorities cannot seize valuable assets simply because they are unaccounted for or may be liable to confiscation under another statute.

The Court observed that silver bars are movable assets and do not meet the definition of securities as defined in Clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956.

The argument made by the Revenue that silver bars should be classified as securities was found to be meritless. Additionally, the Court stressed that cash in Indian currency is explicitly excluded from the definition of goods.

The Court added that in cases where goods and supplies are linked to tax evasion, the proper officer has the authority to seize such items to ensure that the taxes are paid. However, the goods must be released after the department obtains assurance in the form of discharging the liability or providing the necessary security or bond, as deemed appropriate by the relevant authority. This is as per Sub-section (6) of Section 67 of the Act.

The Court also noted that the power to conduct searches and seizures is a significant power that directly affects the rights of a taxpayer and intrudes upon their private space. Granting authorities unchecked or unlimited power of this nature could violate constitutional safeguards.

The Court highlighted that a thorough examination of all subsections of Section 67 of the Act reveals that they do not intend to allow the seizure of valuable assets as a means to protect the interests of the revenue authorities.

The Court's verdict established that the procedures for search and seizure as detailed in Section 67 of the Act are not designed to confiscate undisclosed income or assets, nor are they intended to ensure their taxation. These aspects fall under the jurisdiction of the Income Tax Act. Consequently, even if the petitioner was unable to furnish proof of the acquisition of the silver bars or justify the presence of the cash discovered in their possession, these items were not subject to confiscation in accordance with Sub-section (2) of Section 67 of the Act.

The authority granted to the proper officer for the seizure of books, documents, or items does not encompass the power to seize valuable assets solely on the grounds of their lack of documentation or their potential susceptibility to confiscation under an alternate statute.

The Court additionally stressed that even if, for the sake of argument, the proper officer were legally permitted to seize currency and other valuable assets under the provisions of Sub-section (2) of Section 67 of the Act, those assets would still be mandated to be returned as stipulated by Sub-section (3) of the same section of the Act.

Taking into account the aforementioned considerations, the Court issued an order instructing the authorities to promptly release the currency and other valuable assets that had been confiscated from the petitioner during the search proceedings.