• Dated 21^st April, 2026

Seizure of Cash Under Section 67 of CGST Act Held Invalid in Absence of “Reason to Believe”: Bombay High Court

BRIEF FACTS:

The Assessee, a proprietor registered under the GST law, was subjected to search and seizure proceedings by the Directorate General of GST Intelligence in June 2023. The search was conducted at her business premises, another property owned by her, and the residences of her and her parents. During the course of the search, cash amounting to Rs. 1 crore, comprising Rs. 60 lakh and Rs.40 lakh seized from different premises, was taken into custody under Section 67 of the CGST Act, 2017. The Department alleged that the cash was linked to a wider investigation involving fraudulent availment and passing of Input Tax Credit through fake invoices. Aggrieved by the seizure, the petitioner approached the High Court seeking quashing of the seizure orders and release of the cash.

ASSESSEE'S CONTENTION:

The Assessee contended that the action of the Department was wholly without authority of law. It was submitted that Section 67(2) permits seizure only of goods, documents, books or things that are useful or relevant to proceedings under the Act, and that cash does not fall within the scope of such items. The petitioner further argued that the mandatory requirement of forming and recording a "reason to believe" prior to seizure had not been complied with, rendering the action jurisdictionally defective. It was also contended that the Department had failed to establish any nexus between the seized cash and the alleged GST violations. The petitioner pointed out that no notice had been issued within the prescribed period of six months under Section 67(7), and therefore the continued retention of cash was unlawful. The ownership of the cash was also asserted, and any connection with the alleged fraudulent activities was denied.

DEPARTMENT'S CONTENTION:

The Department justified the seizure by placing reliance on the ongoing investigation into a large-scale ITC fraud involving multiple entities. It was contended that the seized cash constituted a "thing" within the meaning of Section 67(2) and was therefore liable to be seized. The Department further asserted that the cash represented unaccounted money connected with fraudulent transactions and that the premises from which the cash was recovered were being used in furtherance of such activities. It was also submitted that the investigation was at a critical stage and the seizure was necessary in the interest of revenue.

DECISION:

The Bombay High Court held that the seizure of cash was unsustainable and without authority of law. The Court observed that the existence of a valid "reason to believe" is a foundational requirement for the exercise of powers under Section 67(2), and in the present case, the Department had failed to demonstrate compliance with this requirement. The Court further noted that there was no material to establish that the seized cash was relevant or necessary for any proceedings under the CGST Act. The failure to issue a notice within the time prescribed under Section 67(7) was also held to be fatal to the continued retention of the cash. The Court additionally found that the act of transferring the seized cash to the Income Tax Department had no basis in the statutory framework of the CGST Act. In these circumstances, the seizure orders were quashed and the authorities were directed to release the seized amount to the petitioner along with applicable interest.

BTA's COMMENT:

The decision reiterates that the power of search and seizure under the GST regime is not absolute and must be exercised strictly in accordance with statutory requirements. The requirement of recording a "reason to believe" is not a mere formality but a condition precedent to the assumption of jurisdiction. The ruling also indicates that seizure of cash cannot be justified in the absence of a clear statutory basis and a demonstrable link to proceedings under the Act. Non-compliance with procedural safeguards, including the time limit prescribed under Section 67(7), renders the action vulnerable to challenge. The judgment serves as a reminder that investigative powers must operate within the confines of law and cannot be sustained on the basis of general allegations of wrongdoing.

Case Reference- Smruti Waghdhare vs Joint Director, Directorate General of GST Intelligence (Bombay High Court, Writ Petition No. 839 of 2025, decided on 10 March 2026)

Author- Shristy Pathak

Edited by- Madhurima Bose