HC directs tax department to accept bank guarantee and release bank account
Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
If the government attaches the property of a person, the person cannot transfer the said property to anyone else. Even if he does manage to transfer the attached property, the transfer shall be deemed void and thus not recognised by law. Even bank accounts can be attached and one will not be allowed to transfer his funds to any other account.
During the pendency of certain specified proceedings under the CGST Act 2017, the Commissioner can pass an order for attachment of property including bank accounts of the taxpayer to protect the interests of the revenue.
Such order may remain in effect up to one year if no action is taken.
A copy of this order may be sent to the concerned Revenue Authority, Transport Authority or any such authority to place an encumbrance on the said property. This encumbrance cannot be removed unless instructions have been received from the Commissioner to do so.
Let us refer to the case of Uflix Industries vs Union of India and Others (HC Delhi), where the petition was filed in challenge of orders directing attachment of the petitioner’s bank account.
What was contended by the petitioners?
- In the present petition, it was maintained that that there were no proceedings pending against the Petitioner, which was a prerequisite for exercise of power under section 83 of the CGST Act.
- The orders of provisional attachment was passed by the respondent who was from CGST, Delhi (East), whereas the petitioner’s jurisdictional office was CGST, Noida, Uttar Pradesh.
- Consequently, it was submitted that the officers from CGST, Delhi (East) did not have the power or jurisdiction to initiate any proceeding against the petitioner under Sections 62, 63, 64, 67, 73 or 74 of the CGST Act, 2017.
- Petitioner had stated that the he was willing to offer a bank guarantee to the respondent of a nationalised bank of the amount in dispute claimed to be fraudulent availment of ITC i.e. in terms of communication issued by the Respondent, placed on record in the petition.
- Petitioner stated that the Bank account attached by the Respondents had a credit balance of more than Rs. 1 crore and that an appropriate amount therefrom could be retained as a security to safeguard the interest of the revenue.
- He further submitted that on account of debit freeze in the account, the entire business of the Petitioner had come to standstill and it was not able to make payment for items imported during the Covid19 pandemic.
What was contended by the Respondents?
- Respondents stated that they had instruction not to accept the bank guarantee.
- He insisted on payment in cash of the entire disputed amount.
- He further submitted that the amount claimed in the communication was tentative and was subject to further investigation and verification which is presently underway.
Order of High Court
- Since the entire disputed amount as of now was being secured by the Petitioner, respondent was directed to retain Rs 45 lacs from Current Bank Account, the attached bank account of the petitioner as a security.
- Respondent was directed to provisionally release/ lift the debit freeze instructions in respect of the said attached account to the petitioner, subject to the petitioner first depositing with the respondent, a bank guarantee of a nationalised bank for the balance amount of Rs. 15,08,750 for a initial term of one year.
- The bank guarantee shall be renewed and kept alive during the pendency of the present petition and shall be subject to further orders.
- The aforesaid amount and the bank guarantee shall be retained by the Respondent as a security which shall be subject to adjudication of the final demand.