Provisional Release of Seized Goods Pending Adjudication Under Section 130: New Precedent from the Kerala High Court

1. Introduction

The Kerala High Court’s decision in Shish Jewels Private Limited v. The Intelligence Officer (hereafter “the Judgment”) addresses a significant legal question under the Goods and Services Tax Act (GST Act), 2017: whether goods seized under Section 67 of the GST Act, subsequently proceeded against through a show cause notice under Section 130 (confiscation of goods) can be provisionally released pending final adjudication. The Petitioner, Shish Jewels Private Limited, is an interstate dealer of gold and diamond jewelry. Their jewelry was seized by State GST authorities while the Petitioner’s representative was exhibiting it for potential sale. A show cause notice under Section 130 of the GST Act was thereafter issued for confiscation.

The Petitioner sought provisional release of the seized goods on execution of a bond and furnishing security, relying on Section 67(6) of the GST Act and the relevant Rules. The Intelligence Officer resisted on the ground that Section 130 does not explicitly provide for provisional release once confiscation proceedings are initiated. The Court was thus asked to determine if an order of provisional release may be passed even after the issuance of a confiscation show cause notice. This Judgment has far-reaching implications for both taxpayers and the GST enforcement machinery, clarifying the scope of Section 67 and Section 130 of the GST Act.

2. Summary of the Judgment

In a combined proceeding disposing of two writ petitions—W.P.(C) Nos. 40450 and 18326 of 2023—the Kerala High Court delivered a common Judgment on January 6, 2025. Key points include:

The Petitioner is engaged in the wholesale trade of precious metal and diamond jewelry and sends marketing executives to various states to display products to jewelry dealers.
During a search operation by the Intelligence Officer, goods belonging to the Petitioner were seized from the premises of another entity (the second Respondent). Though the Petitioner claimed valid delivery challans accompanied the goods, the authorities seized them under Section 67 of the GST Act, citing discrepancies on the part of the second Respondent.
A show cause notice under Section 130 was then issued, proposing confiscation of the Petitioner’s goods. The Petitioner made repeated requests for provisional release of the seized goods, offering to furnish bonds or security, which were declined through communications stating that the law does not provide for provisional release once confiscation proceedings begin.
The Court held that Section 130 of the GST Act does not bar provisional release of goods pending adjudication of the confiscation proceedings and that Section 67(6) safeguards the Petitioner’s right to have the seized goods released on furnishing adequate security.
Ultimately, the Court directed the Intelligence Officer to release the seized goods to the Petitioner on specified conditions, including deposit of an amount equal to the penalty/fine and execution of a bond for the value of the goods.

3. Analysis

3.1 Precedents Cited

The Court referred to a series of precedents to determine whether provisional release is permissible under the GST Act after a confiscation notice is issued:

Golden Traders v. Assistant State Tax Officer (2022)
The Kerala High Court explicitly ruled that Section 130 of the GST Act contains no prohibition against interim release of goods pending finalization of confiscation proceedings.
Balakrishnan (2022 (1) KLT 83)
The Court explained that Section 130(2) permits release of goods in lieu of confiscation at two junctures—during adjudication and post-adjudication—signaling legislative intent not to keep goods perpetually under seizure if sufficient security is offered.
DHANLAXMI METALS v. STATE OF GUJARAT (2022)
The High Court of Gujarat held that the authorities have the obligation to provisionally release goods seized under Section 67, even if a Section 130 show cause notice is in progress, given that the legislative intention is not to let goods remain unutilized through extended adjudication.
Weston Components Ltd. v. Commissioner of Customs, New Delhi, (2000) 1 SCC 565
Cited by the Petitioner to illustrate that release on bond does not prejudice the ultimate decision-making power of the authorities, who can still impose penalties or redemption fines later.
Union of India v. Lexus Exports (P) Ltd., (1997) 10 SCC 232
The Revenue argued that confiscation being in rem bars interim release under the Customs Act. However, the Court distinguished Customs Act provisions from GST Act provisions. Confiscation under the GST Act does not necessarily contemplate absolute seizure of goods.

3.2 Legal Reasoning

The Court’s analysis focused on harmoniously interpreting Section 67(6) and Section 130. Section 67 grants power to inspect, search, and seize goods, while Section 67(6) explicitly provides that seized goods “shall” be released provisionally upon execution of a bond and furnishing appropriate security. Although Section 130 concerns confiscation of goods when there is an alleged intent to evade tax, it does not:

Expressly prohibit provisional release once a show cause notice under Section 130 is issued.
Require the seized goods to remain in the Department’s physical possession until the final conclusion of the confiscation adjudication.

The Court emphasized that the legislature’s intent, reflected in both Section 67(6) and Section 130(2) & (7), is to protect the Revenue’s interest without unnecessarily depriving the owner of the productive use of the goods for prolonged periods. The Judgment notes that even if the goods are released on a provisional basis, the authorities retain the power to impose penalties or fines if they eventually confirm confiscation.

3.3 Impact

The decision expands taxpayer protections under the GST regime and clarifies the statutory interpretation of Sections 67 and 130. Key impacts include:

Clarity for Taxpayers: Businesses now have judicial confirmation that even if they are served with a Section 130 confiscation show cause notice, they can apply for provisional release of their seized goods, strengthening safeguards against prolonged deprivation of property.
Revenue Security: By requiring deposit and a bond, the Department’s interests remain secure. The possibility of confiscation or further penalties is not lost if the final order finds a tax evasion attempt.
Reduced Litigation: The option of obtaining provisional release will likely reduce instances of extended litigation over seized property, enabling faster resolution and less economic harm.
Harmonized Interpretation: The Judgment aligns with other High Courts, notably the Gujarat High Court, fostering consistency across jurisdictions on the provisional release question.

4. Complex Concepts Simplified

Several key legal provisions and concepts discussed in the Judgment benefit from simplification:

Section 67(2) (Power to Seize): This provision gives GST officials the authority to inspect premises and seize goods suspected to be involved in tax evasion or non-compliance.
Section 67(6) (Provisional Release): Allows persons whose goods have been seized to request provisional release by offering a bond, security, or any other means prescribed by the government, ensuring that the State’s revenue interests are protected.
Section 130 (Confiscation Proceedings): Empowers the authorities to confiscate goods in certain cases of alleged contravention with intent to evade tax. However, the law offers an option to pay fines and penalties in lieu of losing the goods outright.
Confiscation In Rem: A principle where the proceedings are directed against the thing (goods) itself. The Court clarified that despite confiscation proceedings, the law may still allow the goods’ release pending final decision.
Interplay with Constitutional Rights: Seizure and confiscation potentially implicate Article 14 and property rights, necessitating fair and non-arbitrary processes, under judicial scrutiny.

5. Conclusion

The Kerala High Court’s decision in Shish Jewels Private Limited v. The Intelligence Officer confirms that provisional release of seized goods remains permissible even after the initiation of Section 130 confiscation proceedings under the GST Act. The Judgment clarifies that Section 130 contains no explicit bar against interim release of goods, and Section 67(6) continues to apply to protect the taxpayer’s property interests while ensuring the government’s tax revenue is safeguarded.

This outcome carries significant weight. It harmonizes the legislative intent of the GST regime—that is, facilitating hassle-free trade while ensuring appropriate oversight and penalty mechanisms when tax evasion is believed to have taken place. Ultimately, the new precedent underscores that the purpose of the law is to secure public revenue rather than to impose on taxpayers a prolonged loss of use of their goods. Taxpayers facing similar seizures under alleged GST violations may look to this Judgment as a roadmap to seek provisional release, subject to fulfilling the statutory conditions.