[Opinion] From Cash to Commodities | The Evolution of ‘Goods’ in GST Legislation and Courtroom Battles

CA Yash Shah – [2023] 157 taxmann.com 100 (Article)

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. v. State of Gujarat [2023] 156 taxman.com 136/[2023] 12 Centax 63/2023 (79) G.S.T.L. 28 (Guj.) 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 v. Union of India [2023] 151 taxmann.com 228/98 GST 587/[2023] 7 Centax 119 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. 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.

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