The Bombay High Court has delivered a decisive ruling that cash cannot be seized under the CGST Act merely on suspicion of关联 tax evasion without a direct, documented nexus to the proceedings. The judgment reinforces that statutory powers of seizure are not open-ended and must strictly comply with the conditions laid down in Section 67(2). This decision sets a critical precedent for enforcement agencies operating under indirect tax laws.
Background & Facts
The Dispute
The petitioner, Smruti Waghdhare, proprietor of M/s. Platinum International, challenged the seizure of ₹1 crore in cash - ₹60 lakhs from her office premises (Premises No. 19) and ₹40 lakhs from her parents’ residence - by officers of the Directorate General of GST Intelligence. The seizure occurred during searches conducted on 27th and 28th June 2023, triggered by allegations that her friend, Hitesh Chheda, was operating a fake invoicing racket from her premises to claim fraudulent Input Tax Credit (ITC).
Procedural History
- 27 June 2023: Seizure of ₹40 lakhs from petitioner’s parents’ residence under Form GST INS-02.
- 28 June 2023: Seizure of ₹60 lakhs from Premises No. 19 under Form GST INS-02.
- 10 April 2024: Statements recorded under Section 70 of CGST Act by both petitioner and Hitesh Chheda, wherein Chheda admitted the ₹60 lakhs belonged to the petitioner and had no connection to his business.
- 21 July 2023: Hitesh Chheda arrested under Section 132(1) of CGST Act; released on bail on 5 September 2023.
- 8 March 2025: Writ Petition filed under Article 226 of the Constitution challenging the legality of the seizures.
Relief Sought
The petitioner sought: (a) quashing of the seizure orders; (b) direction to deposit the seized cash in court registry; (c) production of search authorizations; and (d) immediate release of cash with interest.
The Legal Issue
The central question was whether cash qualifies as a 'thing' under Section 67(2) of the CGST Act such that it can be seized without a direct, documented link to GST-related proceedings, and whether the absence of recorded 'reasons to believe' renders the seizure illegal.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that: (i) cash is not a 'good', 'document', 'book', or 'thing' under Section 67(2) unless it is demonstrably connected to GST evasion; (ii) the department failed to record any 'reason to believe' as mandated by law; (iii) the seized cash was not secreted but held openly for medical expenses of her elderly mother; (iv) the statements of Hitesh Chheda and the petitioner themselves confirmed ownership and lack of connection to fake invoicing; and (v) no notice under Section 67(7) was issued within six months, mandating return of seized property.
For the Respondent
The respondents contended that: (i) cash can be treated as a 'thing' under Section 67(2), citing Smt. Kanishka Matta v. Union of India; (ii) the seizure was justified due to the scale of alleged GST evasion (₹312.8 crores) and the petitioner’s alleged complicity by allowing her premises to be used; (iii) the petitioner’s own statement admitting she gave the premises to Chheda for personal use supported the inference of involvement; and (iv) the seizure was necessary to prevent dissipation of proceeds of crime.
The Court's Analysis
The Court undertook a rigorous textual and contextual analysis of Section 67(2) of the CGST Act, emphasizing that seizure is permissible only if the officer has 'reason to believe' that the item seized is 'useful or relevant to any proceedings under this Act' and is 'secreted' in a place. The Court held that the term 'thing' cannot be stretched to include cash unless there is a rational, documented connection between the cash and GST-related fraud.
"The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence."
The Court relied on the Supreme Court’s ruling in ITO v. Lakhmani Meval Das, which requires that reasons for belief must have a 'live link' or 'rational connection' to the formation of belief. Here, the department relied solely on the association between the petitioner and Hitesh Chheda, without any evidence linking the cash to fake invoices, ITC claims, or GST transactions. The Court noted that the seizure was based on an uncorroborated statement of a third party, and the petitioner’s own statement confirmed ownership and purpose.
Further, the Court emphasized that Section 67(7) mandates return of seized goods if no notice is issued within six months. No such notice was issued, making the retention of cash unlawful. The Court also rejected the respondents’ claim that they could transfer the cash to the Income Tax Department, noting that the CGST Act confers no such power.
The Court found the seizure arbitrary, perverse, and legally unsustainable. The absence of recorded reasons, failure to establish relevance, and violation of procedural safeguards rendered the entire action void.
The Verdict
The petitioner won. The Court held that cash cannot be seized under Section 67(2) of the CGST Act without a direct, documented nexus to GST proceedings and that the absence of recorded 'reasons to believe' renders such seizure illegal. The impugned seizure orders were quashed, and the respondents were directed to return the ₹1 crore to the petitioner with interest within two weeks.
What This Means For Similar Cases
Cash Is Not Automatically a 'Thing' Under Section 67(2)
- Practitioners must now challenge seizures of cash where no documentary or transactional link to GST evasion is established.
- Enforcement agencies must record specific reasons connecting the cash to suspected fraud - mere association with a suspect is insufficient.
- Seizure of cash based on third-party statements without corroboration will be deemed arbitrary.
Procedural Compliance Under Section 67(7) Is Mandatory
- If no notice is issued within six months of seizure, the seized property must be returned - regardless of the nature of the investigation.
- Extensions under Section 67(7) require 'sufficient cause' to be recorded; blanket extensions will not be tolerated.
- Failure to issue notice invalidates retention, even if the investigation is ongoing.
Ownership and Purpose Must Be Respected
- Seizure cannot be justified on the basis of presumed ownership or alleged complicity without direct evidence.
- Evidence of legitimate purpose (e.g., medical expenses) strengthens the claimant’s position and shifts the burden to the state to disprove ownership.
- Courts will not permit revenue authorities to bypass civil remedies by treating cash as forfeitable without due process.
