The Delhi High Court ruled that an assessee must be issued a notice within six months of the seizure of goods under Section 67 of the Central Goods and Services Tax (CGST) Act, 2017. If the authorities fail to issue such a notice, they must return the seized goods. The court also held that the seizure period cannot be extended without notifying the affected party.
Background of the Case
The case was brought before the court by M/S Kashish Optics Ltd., which challenged the continued retention of its goods by the GST department. The department had seized the goods under Section 67(2) of the CGST Act but failed to issue a notice for an extension within the stipulated time.
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The primary legal issue was whether Section 67(7) of the CGST Act is comparable to Section 110 of the Customs Act, 1962, and if the principles established by the Supreme Court in I.J. Rao, Assistant Collector of Customs v. Bibhuti Bhushan Bagh should apply.
Section 67(7) of the CGST Act states that if a notice is not given within six months of seizure, the goods must be returned to the owner. However, this period can be extended by another six months if "sufficient cause" is shown.
Section 110 of the Customs Act contains a similar provision, stating that the seizure period may be extended only if notice is served to the affected person.
Court's Observations
The Delhi High Court found that both provisions are worded similarly and serve the same fiscal purpose—protecting the interests of the government while ensuring fairness to taxpayers.
Court's Key Statements
“Both the CGST and Customs Acts are fiscal laws. Seizure of goods and documents in both Acts is based on ‘reasonable belief.’ This can have serious consequences for the affected party.”
The court rejected the GST Department’s argument that the two provisions are different and that the principles of the Customs Act do not apply to GST laws.
Violation of Natural Justice
The Supreme Court in I.J. Rao’s case had earlier ruled that an affected party must be given notice and a hearing before the seizure period is extended. The Delhi High Court applied the same principle, stating:
“An extension cannot be granted based on reasons known only to officials. The affected party has the right to be heard before an extension is approved.”
Department’s Arguments and Court’s Response
The GST department argued that the petitioner had the option of provisional release under Rule 140 of the CGST Rules, 2017, and since they did not apply for release, they could not challenge the seizure.
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The court dismissed this argument, ruling that the right to seek provisional release does not remove the requirement of issuing a notice before extending the seizure period.
Appearance: Mr. Puneet Agrawal, Mr. Ketan Jain, Ms. Sakshi Bisht, Ms. Shruti Garg and Mr. Chetan Kumar Shukla, Advs. for Petitioner; Ms. Anushree Narain, SSC along with Mr. Ankit Kumar, Adv. for Respondent
Case title: M/S Kashish Optics Ltd. v. The Commissioner, CGST Delhi West & Ors.
Case no.: W.P.(C) 7741/2022
