Bombay HC Overturns GST Cash Seizure

Justices GS Kulkarni and Aarti Sathe stated clearly that GST law does not allow officers to seize cash just because it's found during a search. The court's March 10, 2026 ruling found the seizure of ₹1 crore from trader Smruti Waghdhare "perverse, arbitrary and without authority of law." This decision significantly limits GST authorities' investigative powers, reminding them to follow legal boundaries. The court ordered the ₹1 crore released, with interest, within two weeks. The searches in June 2023 targeted a fake invoicing network suspected of ₹312.8 crore in input tax credit (ITC) fraud.

Legal Argument: Cash Not Goods

Lawyer Abhishek A Rastogi, representing the petitioner, argued that the CGST Act allows seizure only of "goods, documents, books or things" related to GST cases. He stated that cash, legally "money," is not covered. Rastogi also pointed out that Section 67 of the CGST Act requires officers to record a "reason to believe" about the items' relevance before seizing them, which didn't happen here. Crucially, the department did not issue a notice within the six-month period required by Section 67(7) of the CGST Act. The court agreed that the department failed to show a clear link between the cash and the GST investigation, and it hadn't recorded proper reasons before the seizure.

Court Questions Funds Transfer to Income Tax

Adding to the GST department's issues, the court was surprised to learn the ₹1 crore had been transferred to the Income Tax Department. Justices Kulkarni and Sathe questioned why GST officers would transfer currency to another agency, as the CGST Act does not permit this. This transfer further weakened the case against the seizure. The ruling specifies that its findings only concern the GST seizure's legality and do not prevent the Income Tax Department from investigating the money's source under its own laws.

Risk of Overreach and Procedural Errors

The ruling points to possible overreach by GST intelligence units, which often seized cash in investigations of crimes like fake invoicing and ITC fraud. The court's firm stance indicates a need for stricter procedural rules. If cash is not clearly and legally linked to tax evasion under GST law with a documented "reason to believe," seizures may be challenged. Using incorrect interpretations of legal powers and procedural errors, like delayed notices, creates substantial risk for enforcement agencies. This decision means authorities must prove a direct legal basis for any cash seizure.

Impact on Future GST Searches

This decision will likely have wide-ranging effects on GST search and seizure operations across India. It restates that tax authorities' broad investigative powers must be used strictly according to the law. Businesses might have stronger grounds to challenge seizures they consider arbitrary, as GST officers must now clearly prove the relevance of seized cash to tax cases. The ruling is expected to lead GST intelligence units to review their procedures, focusing on careful documentation and strict compliance with the CGST Act for searches, seizures, and notices.