Can Bank Account be attached provisionally even when proceedings under Section 67 have been completed in GST?

Introduction

A proper officer has authority to inspection, search and seizure where he has sufficient reason to believe that there is evasion of tax under the GST Act. However, the question arise if the proceedings of inspection, search and seizure under section 67 have been completed can the officer still proceed and make the provisional attachment of the bank accounts of the taxable person under section 83.

In the case of Kushal Limited vs Union of India the Gujarat High Court, in 2019 has thrown light on this subject and provided clarity for the same.

Provisions of Law:

Section 67 pertains to power of inspection, search and seizure of a Proper Officer. According to Section 67:-

1.Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that––

a. a taxable person has suppressed any transaction relating to supply of goods or services or the stock of goods in hand, or has claimed input tax credit (ITC) in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act.

b. any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act, he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

2. Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things.

3. The documents, books or things referred to in subsection (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.

Section 83 pertains to provisional attachment to protect revenue in certain cases. – (1) Where during the pendency of any proceedings under section 62, section 63, section 64, section 67, section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

Can property of a taxable person be attached provisionally even when proceedings under Section 67 have been completed?

Let us refer to the case of Kushal Limited vs Union of India (Gujarat High Court) (2019) to understand the same.

Facts of the Case

1. The petitioners are engaged in the manufacture and sale of paper and paper waste and are also engaged in trading various commodities.
2. Search proceedings came to be conducted by the CGST Department at the premises of the petitioners. An inquiry was made regarding the trading transactions of the petitioners and evidence was demanded regarding the purchase and sale transactions.
3. The petitioners intimated that the goods were sold on “as is where is” basis and thus, there was no evidence of movement of goods.

Reasons why the petition was issued

1. Summonses were issued to the petitioner and the petitioner duly attended to such summons and his statement was recorded.
2. A notice came to be issued to the petitioners calling for documents in relation to the investigation. The petitioners responded to such notice by a letter and the documents as required by the respondents were furnished. The petitioners reiterated that there was no evasion of tax under the GST Acts by them.
3. After such correspondence, the respondents visited the premises again for scrutiny of the same transactions.
4. After verification, the second petitioner was called to the Commissionerate. When the petitioner went as directed, he was issued an arrest memo under section 69 under the GST Acts and was thereafter immediately arrested.
5. The petitioner thereafter applied for bail which was ultimately granted under section 167(2) of the Code of Criminal Procedure, 1973
6. After the arrest of the petitioner, no notice had been issued to the petitioners with regard to the issue in question and no show-cause notice had been issued under section 73 or 74 of the GST Acts.
7. It is the case of the petitioners that despite the fact that no proceedings were pending under sections 62, 63, 64, 67, 73 or 74 of the GST Acts, the respondent proceeded to provisionally attach the bank accounts of the petitioners in exercise of powers under section 83 of the GST Acts.
8. According to the petitioners, the provisional attachment of their bank accounts under section 83 is wholly without jurisdiction and illegal and hence, they filed the petition seeking for relief.

Proceedings of High Court

1. From the facts and contentions noted, it emerged that a search came to be conducted under section 67.
2. Where it was discovered that the petitioners had purchased goods and availed ITC thereon and had passed on ITC to various buyers by raising GST invoices without there being any actual movement of goods at their end either as recipient or as supplier.
3. During the course of investigation, it was found that the petitioners were engaged in the business of trading of paper and electronics and had availed GST on the basis of only invoices and no goods were actually received by them.
4. According to the respondents, investigation pursuant to the search was conducted under section 67 is still going on and therefore, the proceedings under section 67 of the GST Acts are not yet completed.
5. In the present case, since the premises of the petitioners came to be searched, the provisions of section 67(2) of the GST Acts would be attracted. In terms thereof, pursuant to an authorisation issued in this behalf, the proper officer may search the premises in respect of which the search is authorised and seize goods, documents or books or things and retain the documents or books or things so long as may be necessary for any inquiry or proceedings under the Act.
6. In the present case, search proceedings were conducted at the premises of the petitioners on 27.9.2018. Thereafter, there was a visit by the respondents on 1.4.2019 which led to the arrest of the second petitioner.
7. Thereafter, no search has been conducted at the premises of the petitioners. The search proceedings have, therefore, ended.
8. It is the opinion of respondents that proceedings under section 67 of the GST Acts are not yet completed and the matter is still under investigation.
9. In the opinion of the court, inquiry or other proceedings under the Act may have been undertaken and it may be that pursuant to the search.
10. However, such inquiry or other proceedings are not under section 67 of the GST Acts and hence, it cannot be said that any proceedings are pending under section 67 of the GST Acts.
11. On a plain reading of section 83 of the GST Acts, it is clear that an essential condition for exercise of powers thereunder is that proceedings should be pending under section 62, section 63, section 64, section 67, section 73 or section 74 of the GST Acts.
12. In the present case, the proceedings under section 67 of the GST Acts are no longer pending. Proceedings under any of the other sections mentioned in section 83 have not been initiated which are in accordance with the search.
13. Under the circumstances, on the date when the orders of provisional attachment came to be made, the basic requirement for exercise of powers under section 83 of the GST Acts was not satisfied.
14. The provisional attachment of the bank accounts of the petitioners under section 83 of the GST Acts is, therefore, not in agreement with the provisions thereof and cannot be sustained.
15. While, on behalf of the petitioners it was contended that there is no question of disallowance of ITC merely on the ground that the petitioners have not actually received the goods at their premises and that the petitioners have adjusted such ITC against tax liability on sales made by them. There is no allegation that the petitioners have illegally benefitted from such ITC.
16. However, such contentions were beyond the scope of the present petition which relates to the orders of provisional attachment dated 18.10.2019 passed under section 83 of the GST Acts and hence, the merits of such contentions were not looked into.

Therefore, in the absence of pendency of any proceedings under sections 62, 63, 64, 67, 73 or 74, the orders of provisional attachment of the bank accounts of the petitioners under section 83 of the GST Acts were considered without authority of law and were rendered unsustainable.

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