In a landmark decision that carries significant implications for the administration of tax law in India, the Supreme Court has upheld the Delhi High Court’s judgment in the case of Commissioner of CGST v. Deepak Khandelwal. The apex court dismissed the Special Leave Petition (SLP) filed by the CGST Department, thereby reinforcing the legal position that Section 67 of the Central Goods and Services Tax (CGST) Act, 2017, does not empower officers to seize cash and valuable assets unless these are directly linked to tax evasion under GST. This judgment is expected to reshape enforcement practices and reassert the principle that statutory powers must be exercised strictly within the confines of the law.
Background of the Case
The matter pertains to a search conducted on January 28, 2020, by the Central Tax authorities at the residential premises of Mr. Deepak Khandelwal, a Delhi-based trader in non-ferrous metals. During this search, officers seized two silver bars weighing 29.5 kg and 14.5 kg respectively, Indian currency amounting to Rs. 7 lakh, mobile phones, cheque books, and various documents. Mr. Khandelwal was subsequently arrested under Section 132(1)(i) of the CGST Act for alleged offences related to fake or “goodless” invoices. He was later released on bail.
While the authorities issued a show cause notice demanding Rs. 24.20 lakh (inclusive of penalties), they failed to issue a notice specifically referencing the seized silver bars and cash within the statutory six-month period mandated under Section 67(7) of the CGST Act. This procedural lapse, combined with legal questions about the scope of seizure powers under GST, led to Mr. Khandelwal filing a writ petition before the Delhi High Court.
Delhi High Court’s Interpretation of Section 67
In August 2023, the Delhi High Court ruled in favour of the taxpayer. The court held that the CGST Act provides no authority for officers to seize cash during search operations, unless such currency is directly relevant to ongoing proceedings under the Act. The High Court made an important distinction between the statutory definitions of “goods” and “money.” It noted that while silver bars are considered goods under Section 2(52) of the CGST Act, cash is defined as “money,” and explicitly excluded from the definition of goods.
Further, the court examined the language and legislative intent behind Section 67(2) of the CGST Act, which empowers officers to seize “goods liable to confiscation” and “documents or books or things” relevant to any proceedings. The term “things,” according to the court, must be interpreted in line with the principle of ejusdem generis—meaning it should be understood in the context of “documents” and “books.” Therefore, only items that may contain evidentiary information, such as electronic devices or ledgers, could fall under the purview of seizure. Valuable assets like currency or bullion, unless forming part of an evasion mechanism, are not covered by this provision.
The High Court underscored that the objective of Section 67 is not to serve as a mechanism for revenue recovery. Rather, it is a tool to investigate suspected tax evasion and to secure compliance. The power to seize unaccounted wealth, particularly when not linked to GST violations, lies with the Income Tax authorities under the Income Tax Act, 1961. Consequently, since no notice regarding the seized silver and cash was issued within the stipulated timeframe, the department was bound to return these items.
Supreme Court’s Affirmation of the High Court’s Reasoning
In 2024, the Supreme Court, led by Chief Justice B.R. Gavai and Justice Augustine George Masih, concurred with the reasoning of the Delhi High Court. The apex court dismissed the SLP filed by the Commissioner of CGST, thereby cementing the interpretation that cash and valuables not forming the subject matter of GST-related tax evasion cannot be seized under Section 67.
The Court made it clear that the authority to seize is circumscribed by statute. It reiterated that Section 67 allows the seizure of goods only when such goods are liable to confiscation. Similarly, documents, books, or other relevant “things” may be seized only if they have a direct nexus with an ongoing investigation under GST. Seizing unaccounted assets merely on suspicion, without connecting them to specific GST violations, oversteps the legislative intent and violates procedural safeguards.
Legal Interpretation and Statutory Framework
The ruling has brought into sharp focus the procedural and interpretative safeguards built into the CGST Act. Section 2(52) clearly defines goods and excludes money from this definition. Section 67(2) allows the seizure of goods liable for confiscation and of documents, books, or things that are useful or relevant to proceedings. Furthermore, Section 67(7) provides that if no notice is issued within six months from the date of seizure, the seized goods must be returned. This period can be extended by another six months for valid reasons.
This framework demonstrates that seizure powers under GST are not absolute. They must be exercised with precision, only in situations where tax evasion is apparent and where the seized items are directly tied to GST transactions. Failure to issue a notice within the stipulated time leads to automatic return of the items, emphasizing the time-bound and purpose-specific nature of these provisions.
Broader Implications for Taxpayers and Authorities
This Supreme Court ruling is a significant development for taxpayers, especially in sectors prone to frequent departmental audits and investigations. It serves as a reminder that GST officers cannot act beyond the letter of the law. Taxpayers now have judicial affirmation that arbitrary seizure of cash and valuables during search operations is not permissible unless these are directly linked to GST evasion.
For tax authorities, the judgment is a call to adhere strictly to procedural protocols. It also highlights the need for coordination with the Income Tax Department when investigations reveal unaccounted income that does not fall under the GST domain. Officers must ensure that seized items are properly documented and that notices are issued within the legal timeframe. Any deviation could render the seizure illegal and open to judicial review.
Reference to Similar Jurisprudence
The ruling is in line with previous decisions, including the Delhi High Court’s verdict in Arvind Goyal CA v. Union of India, where it was held that currency does not qualify as “goods” under the CGST Act and therefore cannot be subject to seizure under Section 67. These consistent judicial interpretations reinforce the principle that enforcement actions must remain within statutory confines and must not impinge on constitutional rights.
Conclusion
The Supreme Court’s verdict in Commissioner of CGST v. Deepak Khandelwal marks a pivotal moment in the jurisprudence surrounding the GST law in India. By delineating the scope of powers under Section 67, the Court has provided much-needed clarity and predictability in enforcement practices. The ruling ensures that investigations under GST are conducted lawfully, without infringing on the rights of taxpayers.
This case reaffirms the doctrine that statutory interpretation must be grounded in legislative intent and that taxpayer rights cannot be compromised under the guise of investigation. As India continues to refine its GST framework, such judicial oversight will be instrumental in maintaining a balance between effective tax administration and safeguarding legal due process.
Businesses, especially those in sectors vulnerable to regulatory scrutiny, would be well-advised to stay informed about their rights under the CGST Act and seek timely legal counsel. The judiciary’s message is unambiguous – compliance must be ensured, but not at the cost of overreach.