GST & IT Dept Cannot Retain Seized Cash Before Case Finalisation: Kerala HC

Introduction

The Kerala High Court recently ruled that cash seized from an assessee cannot be retained by the GST or Income Tax Department before finalising proceedings. This judgment reinforces the principle that authorities must act within their legal jurisdiction and cannot hold onto assets unlawfully.

The ruling came in response to an appeal by an assessee challenging the illegal seizure and retention of their cash. The court found that the continued withholding of the money was without legal backing, despite a requisition from the Income Tax Department under Section 132A of the Income Tax Act.

This decision has significant implications for businesses and individuals facing tax scrutiny. Let’s break down the case and its broader impact on taxpayer rights.

Case Background: Seizure of Cash & Legal Battle

• Initial Seizure: Officers from the GST Department seized cash from the assessee’s premises during proceedings initiated under Section 74 of the CGST/SGST Act.
• Handing Over to IT Department: The GST Department later transferred the seized cash to the Income Tax Department, following a requisition under Section 132A of the Income Tax Act.
• Legal Challenge: The assessee filed a writ petition seeking the return of the seized cash, arguing that the GST authorities had no power to seize cash unless it was part of stock-in-trade.
• Single Judge Ruling: The Single Judge directed the assessee to approach the Income Tax Department for cash release, leading to an appeal.

Key Legal Takeaways from the Kerala HC Judgment

1. GST Authorities Cannot Seize Cash Arbitrarily

• The GST Act does not permit the seizure of cash unless it forms part of stock-in-trade.
• Illegally seized cash cannot be retained without proper legal proceedings.

2. Income Tax Department Cannot Retain Cash Without Due Process

• Even if the Income Tax Department requisitions the cash under Section 132A, it does not make the earlier illegal seizure valid.
• Retaining such cash without a final order violates taxpayers’ rights.

3. Taxpayer Rights Upheld

• The bench ruled in favor of the assessee, ensuring that tax authorities follow due process before retaining assets.
• Businesses and individuals have the right to challenge unlawful asset seizures.

Legal Precedents & Implications for Taxpayers

Supreme Court Ruling on Section 132A

• The Supreme Court has previously ruled that a requisition under Section 132A does not validate an illegal seizure.
• Authorities must first justify the seizure before exercising their powers under this section.

What This Means for Business Owners & Professionals

• Business owners can contest illegal cash seizures and demand due process.
• Tax consultants & legal professionals should guide clients on their rights under GST and IT laws.
• Freelancers & small businesses should ensure their financial records are well-documented to avoid disputes.

How to Respond If Your Cash Is Illegally Seized

If you or your business face a similar situation, take these steps:

1. File an Immediate Objection – Raise the issue with the concerned tax authority in writing.
2. Seek Legal Recourse – Approach the High Court under Article 226 for relief.
3. Consult a Tax Expert – A GST or income tax lawyer can help in filing a writ petition.
4. Request Case-Specific Clarifications – Seek clarification on the legality of the seizure under relevant sections.

FAQs: Based on Google’s ‘People Also Ask’

1. Can the GST Department seize cash from a taxpayer’s premises? No, unless the cash is stock-in-trade. Otherwise, such a seizure is illegal.

2. What is Section 132A of the Income Tax Act? It allows the Income Tax Department to requisition assets seized by another agency, but it does not validate an illegal seizure.

3. Can an assessee challenge the retention of cash by tax authorities? Yes, by filing a writ petition in the High Court under Article 226 of the Constitution.

4. What if the Income Tax Department refuses to return seized cash? The assessee can approach the Income Tax Appellate Tribunal (ITAT) or file a case in the High Court.

Conclusion: A Win for Taxpayer Rights

The Kerala High Court’s ruling serves as a strong reminder that tax authorities must follow due process before seizing or retaining a taxpayer’s assets.

This case reaffirms that taxpayers can challenge unlawful actions and demand accountability from government agencies. Businesses and professionals must stay informed about their rights to ensure compliance while also protecting their financial interests.

By understanding these legal principles, taxpayers can better navigate the complexities of GST and Income Tax laws while ensuring their assets are protected.