From Cash to Commodities: The Evolution of 'Goods' in GST Legislation and Courtroom Battles

[Yash Shah]

Introduction:

The interpretation of legal definitions plays a crucial role, in the status quo about whether the term 'goods,' as stipulated in the GST Act, includes cash. This matter holds substantial importance not only for taxation purposes but also in determining the authorities' powers of confiscation under the Act. The legislature, through the enactment of section 67 of the GST Act, has made its intentions very clear, that the seizure or confiscation of items defined as "goods" should be carried out solely to assist authorities in quantifying and demanding the tax. It is not intended as a procedural mechanism for recovering taxes. The decision by various High Courts (Gujarat, Madhya Pradesh, Delhi, Kerala) has shed light on this issue and the definition of 'goods' within the context of the Goods and Services Tax (GST) Act in India.

This article will ponder upon the different views of the Court's decisions which would not only clarify the definition of 'goods' under the GST Act but also underscore the necessity for goods to be liable for confiscation under the law.

Brief issue in discussion:

Focusing on the power of the proper officer to confiscate goods, documents, books, or things under Section 67(2), recent decision of BHARATKUMAR PRAVINKUMAR AND CO. VERSUS STATE OF GUJARAT [2023 (11) TMI 401 - GUJARAT HIGH COURT] case where the Gujarat High Court made certain observations which are important to understand:

• Guiding Principle of Authority: The authority's power to seize is guided by the object of the taxing statute and the exercise of such power must align with the purpose of the statute.
• Seizure in GST Act Investigation: In GST Act investigation for tax evasion, cash seizure is questioned. It was realized that cash is not part of the appellant's business stock in trade. And that the same seized cash is not related to the quarry business conducted by the appellant. The Intelligence Officer's findings on suspicion and unrecorded income are irrelevant under the GST Act. The officer's findings are more suited to the Income Tax department, and not applicable to GST Act.
• Judgment and Appeal Outcome: The court directs the immediate release of seized cash to the appellant.

Observation 1: Whether cash is a thing u/s 67(2)?

Ans: According to the Delhi High Court judgment ARVIND GOYAL CA VERSUS UNION OF INDIA & ORS. - 2023 (1) TMI 1028 - DELHI HIGH COURT, cash does not fall within the definition of goods, relying on the same judgement, court ruled it is not forming part of the things definition, as it should be relevant for the use in the seizure and not just any “thing”. There have been instances in income tax where the proposition is evasion of tax with respect to income, but here in GST, the provisions are to be read in reference to goods or services which is the source for taxation.

Observation 2: Is there a requirement for the proper officer to have a reason to believe for the seizure to be useful for proceedings under the CGST Act (Section 67(2))?

Ans: Yes, the Gujarat High Court clarified that when the proper officer confiscates goods, documents, books, or things under Section 67(2), there must be a reason to believe that they are useful or relevant to any proceedings under the CGST Act. In Arvind Goyal's case, the officer officially recorded the action as "resuming" cash in the panchnama, asserting that it should not be categorized as a seizure. During the proceeding, the counsel making this point was unable to identify a specific provision within the GST Act to simply "resume" cash without following established procedures. This raised a question about the legitimacy of the action, as no legal basis for such a practice is there.

Observation 3: Findings Income tax v/s GST?

Ans: There is a distinction between the powers and scope of authorities under the Income Tax department and those under the GST Act and findings related to income tax matters may not be relevant in the context of the GST Act.

Observation 4: If no notice for seizure, returnable within 6 months Section 67(7)?

Ans: The Gujarat High Court refers to sub-section (7) of Section 67, which states that if no notice is given within six months of the seizure of goods, the goods shall be returned to the person from whose possession they were seized and the court held that the petitioner is entitled to the return of the seized cash (Rs.69,98,400) as no notice was given within the stipulated six-month period.

Finding of the decision: Cash is not part of the appellant's stock in trade and therefore unauthorized seizure as per the GST Act.

Relevant Decision impacting the above Analysis:

1. SMT. KANISHKA MATTA VERSUS UNION OF INDIA AND OTHERS [2020 (9) TMI 42 - MADHYA PRADESH HIGH COURT]

1. The central issue in this case was whether the term "money" is included in Section 67(2) of the CGST Act, 2017. The petitioner argued that since "money" is not explicitly mentioned in this section, the investigating agency or department has no authority to seize it.
2. It referred to Section 2(17) which defines "business" and Section 2(31) which defines "consideration." By looking at these definitions along with Section 2(75) and 67(2), the court concluded that authorised officers can indeed seize money.
3. The term "things" in Section 67(2) should be interpreted broadly. Legal dictionaries like Black's Law Dictionary and Wharton's Law Lexicon define "thing" as something of value or ownership, which includes "money."

Held: Ultimately, the Madhya Pradesh High Court ruled that the GST Department rightfully seized the cash. This decision confirmed that cash is considered one of the "things" that can be seized under the law.

2. SHABU GEORGE GIGI MATHEW VERSUS STATE TAX OFFICER (IB) STATE GOODS & SERVICES TAX DEPARTMENT, JOINT COMMISSIONER (IB)  STATE GOODS & SERVICE TAX DEPARTMENT, COMMISSIONER OF STATE TAXES STATE GOODS & SERVICE TAX DEPARTMENT [2023 (2) TMI 1158 - KERALA HIGH COURT]

1. In this case, the court found that there was no valid reason for seizing the cash discovered at the appellant's premises during the search.
2. The court emphasized that any authority's power to seize items under a taxing statute should be guided by the statute's objectives.
3. In the context of investigating tax evasion under the GST Act, the court questioned the seizure of cash, especially when it was confirmed that the cash was not part of the appellant's business stock.
4. The findings of the Intelligence Officer, such as the suspicion regarding the source of the money and its unreported nature in income tax returns, were deemed irrelevant and beyond the jurisdiction of authorities under the GST Act. The court concluded that the seizure of cash was unnecessary and unwarranted.
5. The State Tax Department filed a Special Leave Petition (SLP) before the Supreme Court against the High Court's ruling.

Held: The High Court's decision, in this case, was upheld, as it determined that cash seizure in the context of GST tax evasion was not justified when the cash was not a part of the business's stock-in-trade.

3. DEEPAK KHANDELWAL PROPRIETOR M/S. SHRI SHYAM METAL VERSUS COMMISSIONER OF CGST, DELHI WEST & ANR. [2023 (8) TMI 929 - DELHI HIGH COURT]

1. Cash, is explicitly excluded from the definition of "goods." This exclusion is based on its clear categorization as "money" under the sub-section (75) of Section 2 of the Act. Cash in Indian currency is not considered "goods" because it's clearly defined as "money" in the law.
2. The term "things" in sub-section (2) of Section 67 should not be considered mutually exclusive from the term "goods." Instead, "goods" in sub-section (2) primarily pertains to items that are the subject of taxable supplies under the Act. The word "things" in the law shouldn't be seen as separate from "goods." "Goods" in this context mainly refers to items that can be taxed under the law.

Held: Goods that can be seized under sub-section (2) of the Act are those for which the proper officer has a reasonable belief that they are liable for confiscation. In other words, the key criterion for seizure is the potential for these goods to be involved in tax evasion. To seize something under the law, the tax officer must have a good reason to believe that it might be taken away because of tax problems, like tax evasion.

4. ARVIND GOYAL CA VERSUS UNION OF INDIA & ORS. [2023 (1) TMI 1028 - DELHI HIGH COURT]

1. A search operation conducted at the residence by GST officers under section 67(2) led to the discovery of cash, but no formal seizure memo was prepared for the confiscated cash, a panchnama was drawn. The absence of a seizure memo raises procedural questions regarding the legal basis for such confiscation.
2. The petitioners did not willingly surrender the cash to the officers; rather, the officers' actions were coercive in nature. The absence of a provision in the GST Act makes the officer simply "resume" assets without any legal basis from an individual's premises that too without proper procedures.

Held: The court provided clarity w.r.t Resumed assets and Seized assets and declared the action of taking away currency without issuing a seizure memo as illegal and ordered the authorities to return the remaining amount with interest to the petitioner and release the bank guarantee.

Conclusion:

In conclusion, the classification of "cash" as a "thing" under Section 67 of the CGST Act remains a contentious issue, with varying interpretations from different courts. The Delhi High Court adopts an expansive interpretation, while the Madhya Pradesh High Court offers a contrasting view, making the matter complex. The recent decision by the Kerala High Court, affirmed by the Supreme Court, suggests that cash can't be seized under Section 67(2) unless it is part of the business's assets. The key takeaway is that whether cash can be seized depends on whether it is generated or accumulated through business activities and forms part of the business assets. This implies that cash from personal sources, not linked to the business, should not be seized.

It is crucial to consider the specific facts of each case when applying the Kerala High Court's ratio. The powers of inspection, search, and seizure under Section 67 should be exercised judiciously by GST authorities, following instructions from the competent authorities. These powers are meant to protect government revenue without unduly harassing taxpayers. To ensure proper application, these provisions are to be enforced by officers of a certain rank, like Joint Commissioners, who can effectively combat tax evasion while safeguarding taxpayer rights. There are still unresolved questions regarding the applicability of Section 83, particularly concerning the provisional attachment of property and the release of seized cash after one year has passed.

Views expressed are strictly personal and cannot be considered as a legal opinion in case of any query. For feedback or queries email us yash@hnaindia.com.