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September 19, 2020

Cash can be seized during investigation – Madhya Pradesh HC

by shivam jaiswal in GST, Legal Court Judgement

Cash can be seized during investigation – Madhya Pradesh HC

The term ‘search’, in simple language, denotes an action of a government machinery to go, look through or examine carefully a place, area, person, object etc. in order to find something concealed or for the purpose of discovering evidence of a crime. The search of a person or vehicle or premises etc. can only be done under proper and valid authority of law. ‘Inspection’ is a new provision under the CGST/SGST Act.

It is a softer provision than search to enable officers to access any place of business of a taxable person and also any place of business of a person engaged in transporting goods or who is an owner or an operator of a warehouse or godown. Section 67 of the CGST Act pertains to Power of inspection, search and seizure under GST.

According to Section 67(1), where the proper officer, not below the rank of Joint Commissioner, may authorize in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place if has reasons to believe that:-

  1. a taxable person has suppressed any transaction relating to supply of goods, services or both or the stock of goods in hand, has claimed ITC in excess of his entitlement, has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act
  2. any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act.

According to Section 67(2), where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents, books or things.

Provided that where it is not practicable to seize any such goods, the proper officer, or any office authorized by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

Let us refer writ petition in the case of Smt. Kanishka Matta Vs. Union of India and Others where the petitioner before the Madhya Pradesh HC had filed a petition for issuance of an appropriate order or direction directing the Assistant Director, DGGSTI and Senior Intelligence Officer, DGGSTI to release the cash seized from the residential premises of the petitioner and her husband.

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Facts of the Case:

  • The petitioner is the wife of the Proprietor of the firm functioning in the name and style of M/s. S. S. Enterprises
  • The Firm is in the business of Confectionery and Pan Masala items.
  • The petitioner stated that search operation was carried out by the Senior Intelligence Officer at the business premises as well as residential premises and a Panchnama was drawn.
  • The respondents seized an amount to the tune of Rs.66 Lakhs as per the Panchnama prepared by them.
  • Petitioner argued that the Senior Intelligence Officer has got no power vested under Section 67(2) of the CGST Act, 2017 to effect seizure of cash amount from the petitioner nor from her husband.
  • According to the petitioner, cash cannot be treated as “Document, Book or Things” as per the definition under the definition clause of the CGST Act, 2017 and therefore, the respondents should be directed to release the cash, which they have seized.

Observation of the HC on the case diary of the respondents:

  • The statement made in the case diary revealed that the husband of the petitioner, a Pakistani National, was involved in illicit supply of Pan Masala without invoices and without payment of applicable GST (the counsel for the petitioner stated that later the husband was granted Indian citizenship).
  • The case diary also revealed that the searches were conducted at the residential premises and various godowns of the husband and his brother on the reasonable belief that the aforesaid premises were being used to secretly store goods/records/documents/things.
  • During the searches it was found that huge quantity of Pan Masala and tobacco were stored in the various godowns of Shri Sanjay Matta which was neither declared as principal place of business nor as additional place of business as mandatorily required under Section 22 of CGST Act, 2017 read with Rule 8 of CGST Rules, 2017.
  • Goods comprising of Pan Masala, Tobacco, Mouth Freshener, Confectionery, etc. valued at Rs.2.59 Crores were seized under Section 67(2) of the CGST Act read with Section 129 of the CGST Act and Section 130 of CGST Act from six godowns operated as no bills / invoices could be produced by them.
  • Unaccounted cash of Rs.66,43,130 was also seized from the residential premises of the husband.
  • Seizure was done under Section 67(2) under a reasonable belief that the aforesaid were the proceeds of the illicit supply of goods namely Tobacco and Pan Masala and would be useful for further investigation.
  • The case diary also revealed that the husband in his statement before the officers stated categorically that the value of the goods sold without any bills and invoices during the period April, 2019 to May, 2020 would be approximately 40.11 Crores in cash and the GST on the said clandestine clearance works out to Rs.18.77 Crores.

Observations of the High Court on the contention of the petitioner that money cannot be seized

  • The petitioner’s contention was that the word “money” was not included in Section 67(2) of the CGST Act, 2017 and therefore, once the “money” was not included under Section 67(2) of the CGST Act, 2017 the Investigating Agency / Department is not competent to seize the same.
  • The Court carefully went through Section 67 of the CGST Act, 2017 and the expression used in sub-section (2) of Section 67 was “confiscation of any documents or books or things, which in proper officer’s opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place”.
  • Thereafter, sub-section (2) had two provisos and first proviso related to goods and the second proviso referred to documents, books or things so seized shall be retained.
  • The core issue before this Court is that whether cash is covered within the expression “things”.
  • In the considered opinion of this Court, the CGST Act, 2017 had to be seen as a whole and the definition clauses are the keys to unlock the intent and purpose of the various sections and expressions used therein, where the said provisions are put to implementation.
  • Section 2(17) defines “business” and Section 2(31) defines “consideration”. In the considered opinion of this Court a conjoint reading of Section 2(17), 2(31), 2(75) and 67(2) made it clear that money can also be seized by authorized officer
  • The word “things” appears in Section 67(2) of the CGST Act, 2017 is to be given wide meaning and as per Black’s Law Dictionary, any subject matter of ownership within the spear of proprietary or valuable right, would come under the definition of “thing”.
  • Similarly, in Wharton’s Law Lexicon, the word “thing” has been defined and it includes “money”.
  • The Supreme Court in the case of D. Vinod Shivappa Vs. Nanda Belliappa (2006) held that, it was well settled that in interpreting a statute the court must adopt that construction which suppresses the mischief and advances the remedy. This was a rule laid down in Heydon’s case also known as the rule of purposive construction or mischief rule.
  • Therefore, keeping in view the aforesaid interpretation of the word “thing” money has to be included and it cannot be excluded as prayed by the petitioner from Section 67(2).

Observations of the High Court on the Confessional Statements which were later retracted by the husband of the respondent 

  • Much was argued by the petitioner in respect of “confessional statements” and the fact that the husband of the petitioner had retracted the same at a later stage.
  • In the case of Surjeet Singh Chhabra Vs. Union of India, the Supreme Court held that “confessional statements” made before Customs Officer though retracted within 6 days was an admission and binding since Custom Officers were not Police Officers.
  • In the present case also, the statements were made confessing the guilt by the husband of the petitioner and later on he had retracted from that statement as stated in the writ petition and therefore, in light of the Supreme Court’s judgment no relief can be granted in the present writ petition.
  • A Division Bench of this Court in the case of R. S. Company Vs. Commissioner of Central Excise dealt with “confessional statements” and decided the matter in favour of the revenue.
  • Therefore, the ground raised in the present petition that the husband of the petitioner retracted the confessional statement did not help the petitioner nor her husband in any manner.

Reference to older cases

Petitioner had placed reliance upon a judgment delivered in the case of Vinod Solanki Vs. Union of India and Another. The Apex Court had held that:

  • It was a common law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and strong evidences, which would lend adequate assurance to the court that it may seek to rely thereupon.
  • SC was not oblivious of some decisions of the Court wherein reliance was placed for supporting such contention.
  • SC stated that one must also notice that in some of the cases retracted confession was used as a piece of corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence had been recorded. (See Pon Adithan v. Deputy Director, Narcotics Control Bureau (1999))
  • The aforesaid case was a case under the Foreign Exchange Regulation Act, 1973 and the Apex Court had held that evidence brought on record by way of confession, which stood retracted must be substantially corroborated by other independent and cogent evidence, which would lend adequate assurance to the Court that it may seek to rely thereupon.
  • In the present case, the authorities were at the stage of investigation. The evidence was being collected and therefore, at this stage, the judgment relied upon by the petitioner was of no help.

Therefore, keeping in view the circumstances of the case, the material available in the case diary and also keeping in view Section 67(2) of the CGST Act, 2017, the HC was of the opinion that the authorities had rightly seized the amount from the husband of the petitioner and unless and until the investigation was carried out and the matter was finally adjudicated, the question of releasing the amount did not arise.

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