It is unsustainable to attach a bank account without any tangible assets

Fact and issue of the case

M/s Sidhivinayak Chemtech Private Limited – a company incorporated under the Companies Act 1956, having its registered office at New Delhi – has filed the present writ petition under Article 226 of the Constitution of India impugning a provisional attachment order dated 01.09.2022 [C.No. IV-CGST (9) CP/MRT/EXEM.SUPP./ 721. /2022/2255-56 – hereafter ‘the attachment order’] passed by respondent no.1 [the Principal Commissioner, Central Goods & Service Tax (CGST) Commissionerate, Meerut] provisionally attaching the petitioner’s bank account (Bank A/C No. 4563002100002434) maintained with respondent no. 3 (Punjab National Bank Limited). The petitioner also impugns a subsequent confirmation order dated 08.12.2022 (hereafter ‘the impugned order’) passed by respondent no.1, confirming the attachment order. Factual context

The petitioner company was incorporated on 05.09.2012, under the provisions of the Companies Act, 1956 and claims that it is engaged in the trade of industrial chemicals relating to the pesticide industry. Its Permanent Account Number under the Income Tax Act, 1961 is PAN AASCS0082M. The petitioner has two principal places of business. One in the State of Uttar Pradesh and the other in Haryana. It is registered with the GST Department under GSTIN 09AASCS0082M1ZP for its principal place of business in Uttar Pradesh and under GSTIN 06AASCS0082M1ZV for its place of business in the State of Haryana. For carrying out import of industrial chemicals, the petitioner has been granted Importer-Exporter Code (IEC) No.0512052859 by the Directorate General of Foreign Trade, Ministry of Commerce and Industry, Government of India

On 20.05.2022, respondent no. 2 [Superintendent (Anti-Evasion), Central Goods & Service Tax Commissionerate] issued summons under Section 70 of the Central Goods and Service Tax Act, 2017 (hereafter ‘the CGST Act’) to the petitioner company’s director, Shri Raman Kumar and Shri Indresh Kumar Yadav, who is employed as a supervisor with the petitioner, to appear at the office of respondent no.1 and tender statements in connection with investigations pertaining to fraudulent use of Input Tax Credit (ITC) of ₹36.6 crores by M/s Best Crop Science LLP and M/s Best Crop Science Pvt. Ltd

The petitioner company replied to the above-mentioned summons by its letter dated 08.06.2022 setting out the details of transactions with M/s Best Crop Science Pvt. Ltd. during the Financial Year 2021-2022. Subsequently, summons dated 22.06.2022, 01.07.2022, 04.07.2022, 26.08.2022, 29.08.2022, 31.08.2022 were issued by respondent no 2. directing the officers and directors of the petitioner company to tender statements along with the details of transactions with M/s Best Crop Science Pvt. Ltd. and M/s Best Crop Science LLP

The petitioner submits that in view of the repeated summons, it addressed a letter dated 06.08.2022 to the Chief Commissioner, CGST, Meerut Zone, requesting to intervene in the investigation conducted by respondent no.2

On 05.09.2022, on becoming aware that its bank account was provisionally attached, the petitioner filed its objection (in Form GST DRC-22A) under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (hereafter ‘the Rules’) with respondent no.1. Subsequently, by e-mails dated 02.11.2022 and 15.11.2022, the petitioner submitted a representation to respondent no.1 regarding the same

Aggrieved by the attachment order, the petitioner filed a petition, W.P. (C) No. 16084/2022 titled Siddhivinayak Chemtech Private Limited v. Principal Commissioner, CGST, Meerut & Ors., before this Court. This Court disposed of the above-mentioned writ petition by an order dated 22.11.2022, inter alia, directing respondent no.1 to decide the petitioner’s objections under Rule 159(5) of the Rules after affording the petitioner an opportunity of being heard

Further, on 05.12.2022, the petitioner filed an application (Application No. 52500/2022) in the disposed of writ petition [W.P (C) No. 16084/2022] alleging willful non-compliance of the order dated 22.11.2022. This Court disposed of the said application by an order dated 05.12.2022 with directions to respondent no.1 to pass a reasoned order on or before 09.12.2022

In the meantime, the respondent authorities continued the investigations and summoned Shri Raj Kumar, Shri Ankit Bhutani and Shri Raman Kumar (stated to be the directors of the petitioner company) for a hearing on 09.12.2022. At the hearing Shri Raj Kumar and Shri Ankit Bhutani sought an adjournment on the ground that they had ceased to be directors in the petitioner company and were not involved with the day-to-day running of its business

On 08.12.2022, respondent no.1 passed the impugned order confirming the attachment order. Aggrieved by the same, the petitioner has filed the present petition

Observation of the court

This Court had enquired from the respondents whether there is any material in the file, which would establish that the shareholding of M/s Best Agro Group and the shareholders of the petitioner company were common or that the petitioner company held or controlled any share in M/s Best Agro Group. The respondents answered in the negative. This Court had also enquired whether there was any material whatsoever, which would indicate that the sale proceeds of shares of companies of M/s Best Agro Group had been deposited in the bank account of the petitioner. The respondents fairly stated that there was none

It is apparent from the above that the principal reason for attaching the petitioner’s bank account – the sale proceeds of shares of M/s Best Agro Group and other group companies are parked in the bank account of the petitioner – is not founded on or has nexus with any tangible material. Thus, any such belief would be clearly in the realm of unsubstantiated suspicion and therefore, cannot be considered as a ground for taking the drastic step of provisionally attaching a taxpayer’s bank account

It is necessary to bear in mind that attachment of a bank account would in effect result in the closure of the business of a taxpayer and has the propensity to cause irretrievable harm. The said drastic action is impermissible merely on the basis of suspicion and without any tangible material

The second reason that the petitioner is a dummy company because the director of the petitioner is/was an employee of M/s Best Crop Group is also somewhat in the realm of assumptions. The petitioner had stated that Shri Raman Kumar was employed by M/s Best Crop Group but he had since moved on and had taken up his role as a director of the petitioner company

It is relevant to note that there is no allegation that the shareholders of the petitioner company are non-existent or fictitious persons. It is also not disputed that the petitioner has, over the years, imported chemicals of substantial value under its ITC. The petitioner had also submitted details of transactions with M/s Best Crop Science Pvt. Ltd. undertaken during the Financial Years 2021-22 including back up of purchase invoices supplied to M/s Best Crop Science Pvt Ltd.; party ledger of M/s Best Crop Science Pvt. Ltd.; proof of receipt of the invoiced amount; the details of the bank account, as well as the bank statement for the Financial Year 2021-22. The petitioner is also an assessee under the Income Tax Act, 1961 and had furnished copies of the Income Tax Returns for the Financial Years 2019-20, 2020-21 and 2021-22. He had also submitted the tax audit report and balance sheets for three years as well as electricity bills and wage bills. The adequacy of material for affirming a belief that the provisional attachment of assets is necessary, are not justiciable. However, there must be a live nexus between the reasons for provisionally attaching assets and bank accounts and the material available with the Commissioner. Merely because there was some material (although disputed) to indicate that one of the directors of the petitioner was an employee of another company cannot be the basis to believe that the petitioner company is a dummy company given the material as provided

The language of Section 83 of the CGST Act requires the Commissioner to form an opinion that it is necessary to attach the property of a taxable person. However, the said opinion is required to be based on relevant facts and not merely on grounds of suspicion. It is difficult to imagine that a company would survive if its bank accounts are frozen for a protracted period of time. Thus, the nature of the power makes it necessary that the same is exercised with due caution and only when it is necessary

Mere suspicion that the petitioner is a dummy company, which is founded on the basis of statements that one of the directors of the petitioner company was, or is an employee of M/s Best Agrolife Group, and is in complete disregard of the corporate documents of the petitioner, would clearly fall foul of the requirement of forming an opinion, as it does not meet the standards required for taking an action under Section 83 of the CGST Act

In view of the above, the attachment order is set aside. It is, however, clarified that the concerned authorities are not precluded from proceeding against the petitioner in accordance with law

The petition is disposed of in the aforesaid terms