M/S Kashish Optics Ltd. vs The Commissioner, Cgst Delhi West & Ors. on 3 March, 2025

Judgment Summary

Case Title: M/S Kashish Optics Ltd. vs The Commissioner, Cgst Delhi West & Ors.
Date of Judgment: 3 March, 2025
Court: High Court of Delhi
Coram: Hon'ble Mr. Justice Yashwant Varma & Hon'ble Mr. Justice Harish Vaidyanathan Shankar

1. Outcome

The Writ Petition was allowed. The Court directed the Respondents (GST Department) to:
* Release the seized goods upon the Petitioner depositing the valued amount.
* Release all seized documents and electronic devices (laptops, mobile phones, etc.) after making copies of the data, within four weeks.
* Permit the Petitioner to take photocopies of all seized physical documents.
* Conclude any pending proceedings regarding the alleged violation within six weeks.

2. Core Issue

Whether the continued seizure of goods under Section 67(2) of the CGST Act, 2017 is legally valid when the initial six-month period is extended by the proper officer without providing prior notice and an opportunity of being heard to the person from whom the goods were seized.

3. Key Facts

• Search & Seizure: The GST Department conducted a search at the Petitioner's premises on 22/23 October 2020 and seized goods, documents, and electronic devices vide a seizure order dated 23 October 2020.
• Initial Seizure Period: As per Section 67(7) of the CGST Act, the initial period for which goods can be held is six months, which was set to expire on 22 April 2021.
• Extension of Seizure: On 16 April 2021, the department internally approved an extension of the seizure period for another six months, up to 21 October 2021. This extension was granted without giving any notice or hearing to the Petitioner.
• Show Cause Notice (SCN): A Show Cause Notice for confiscation of goods under Section 130 of the CGST Act was issued on 20 October 2021. The department claimed it was served on the same day by affixation, as the premises were locked and the proprietor was unreachable.
• Writ Petition: The Petitioner challenged the continued retention of goods, arguing it was illegal due to the procedural lapses in extending the seizure period.

4. Arguments

Petitioner (M/S Kashish Optics Ltd.):

• Mandatory Return of Goods: Under Section 67(7) of the CGST Act, goods must be returned if no notice is given within six months of seizure.
• Illegal Extension: The extension of the seizure period was invalid as it was done without providing the Petitioner prior notice or an opportunity to be heard, violating the principles of natural justice.
• Pari Materia Provision: Section 67(7) of the CGST Act is pari materia (on the same subject) with Section 110(2) of the Customs Act, 1962. Therefore, Supreme Court precedents holding that a hearing is mandatory before extending seizure under the Customs Act are directly applicable.
• Insufficient Cause: The internal note sheets do not show any "sufficient cause" for the extension; rather, they reveal the department's own inefficiencies.
• Delayed SCN: The SCN for confiscation was effectively served only in March 2022, well beyond the maximum permissible seizure period of 12 months.

Respondents (GST Department):

• Statutes Not Pari Materia: Section 67 of the CGST Act is different from Section 110 of the Customs Act, so the Supreme Court judgments do not apply.
• No Hearing Required: The language of Section 67(7) does not explicitly require a personal hearing before an extension is granted.
• Sufficient Cause Existed: Internal file notings demonstrate that there was sufficient cause to extend the period, which was duly considered by the proper officer.
• Timely SCN: The SCN was issued and served within the extended 12-month period via affixation, a valid mode of service under Section 169 of the CGST Act, as other methods were not possible.
• Provisional Release: The Petitioner did not avail the option of provisional release of goods under Rule 140 of the CGST Rules, 2017.

5. Court’s Reasoning

• Provisions are Pari Materia: The Court rejected the department's argument and held that Section 67(7) of the CGST Act and Section 110(2) of the Customs Act are indeed pari materia. Both are fiscal statutes, deal with the seizure of goods based on a "reason to believe," and have serious repercussions for the assessee. The underlying principles are identical.
• Right to Notice is Fundamental: Relying on the Supreme Court's decisions in Charan Das Malhotra and I.J. Rao, the Court affirmed that a person has a right to the return of their goods after six months. This valuable statutory right cannot be defeated unilaterally without notice and a hearing. The power to extend seizure is quasi-judicial and requires a judicial approach.
• "Sufficient Cause" Requires Due Process: The phrase "on sufficient cause being shown" in Section 67(7) implies an objective consideration. It cannot be a reason known only to the department. The affected party must be informed of the reasons for the proposed extension and given an opportunity to present their case against it.
• Department's Inefficiency is Not "Sufficient Cause": The Court examined the department's internal note sheets and found they did not constitute "sufficient cause." In fact, the notes revealed the department's own "shoddy performance," including improper valuation, failure to properly describe the goods, and misplacement of key documents like the panchnama. Such internal failures cannot be used to the detriment of the assessee.
• Irrelevance of SCN for Confiscation: The Court noted that a notice for confiscation under Section 130 is distinct from the requirement under Section 67(7). The validity of the seizure and its extension must be judged independently of the subsequent confiscation proceedings. The core issue was the legality of the extension, not the timing of the SCN.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 67(2): Power to search and seize goods.
  • Section 67(7): Mandates return of goods if no notice is given within six months, with a proviso for a six-month extension on "sufficient cause being shown."
  • Section 130: Confiscation of goods or conveyances.
  • Section 169: Service of notice in certain circumstances.
• Central Goods and Services Tax Rules, 2017 (CGST Rules):
  • Rule 140: Procedure for provisional release of seized goods.
• Customs Act, 1962:
  • Section 110(2): Provision for seizure and extension, held to be pari materia with Section 67(7) of the CGST Act.
  • Section 124: Issue of show cause notice before confiscation of goods.

7. Precedents Cited

• Assistant Collector of Customs v. Charan Das Malhotra, (1971) 1 SCC 697: Established that the power to extend seizure is quasi-judicial and requires a hearing.
• I.J. Rao, Asst. Collector of Customs v. Bibhuti Bhushan Bagh, (1989) 3 SCC 202: Affirmed the principles in Charan Das Malhotra, holding that the person from whom goods are seized is entitled to notice and a hearing before the seizure period is extended, as a valuable right to the return of goods is affected.
• Lokenath Tolaram v. B.N. Rangwani, (1974) 4 SCC 327: Referenced in I.J. Rao.