Cash Seizure Without 'Reason to Believe' Violates CGST Act: Bombay High Court

The Bombay High Court on 10 March quashed the seizure of Rs. 1 crore in cash by the Directorate General of GST Intelligence (DGGI) from Smruti Waghdhare, holding the action arbitrary and without authority under the CGST Act.

A Division Bench of Justice G.S. Kulkarni and Justice Aarti Sathe was hearing a writ petition challenging the seizure, under which Rs. 60 lakh was recovered from her premises and Rs. 40 lakh from her parents' residence during search operations.

The judges held:

“On a plain reading of the aforesaid Section, it is clear that the seizure has to be of any goods or any documents or books or things which are liable for confiscation, and for which the proper officer not below the rank of Joint Commissioner should have 'reason to believe' that the same are useful or relevant to any proceedings under the CGST Act. In the facts of the present case, the Respondent-Department has given a go-by to the expression 'reason to believe', which forms the bedrock to initiate proceedings under Section 67(2) of the CGST Act to seize goods, documents, books or things.”

Waghdhare had contended that the seizure was illegal, as cash does not fall within the category of “goods, documents, books or things” that can be seized under Section 67(2) of the CGST Act, and that the officers had failed to record any “reason to believe” before carrying out the seizure.

The GST Department, however, argued that the searches were conducted in connection with a large fake invoice and input tax credit (ITC) racket allegedly involving multiple bogus firms, and that the seized cash represented proceeds linked to such activities.

Rejecting the Department's justification, the High Court held that the mandatory requirement of “reason to believe” under Section 67(2) had not been satisfied, rendering the seizure illegal. The Court observed that the statute does not authorize seizure of cash in such circumstances and that the Department failed to show how the cash was relevant to any proceedings under the GST law.

The Bench further noted that no notice was issued within six months of seizure, as required under Section 67(7) of the CGST Act, which independently obligated the authorities to return seized items to the person from whose possession they were taken.

During the hearing, the Court also expressed surprise when it was informed that the seized cash had been handed over to the Income Tax Department, and questioned the source of such authority under the CGST Act.

Accordingly, the Court set aside the seizure orders and directed the GST authorities to release the entire amount of Rs. 1 crore to the petitioner, along with applicable interest, within two weeks. It clarified that its findings would not affect any income-tax proceedings that may be pending against the petitioner.

Appearance for the Petitioner: Mr. Abhishek Rastogi a/w Pooja Rastogi, Meenal Songire, Aarya More 

Appearance for the Respondents: Mr. Jitendra Mishra a/w Sangeeta Yadav, Rupesh Dubey & Ashutosh Mishra