Provisional attachment of Bank Account under GST explained by Supreme Court
What is section 83 of the CGST Act?
Section 83 deals with provisional attachment of property to protect revenue in certain cases. Where during the pendency of any proceedings under act 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.
The proper officer can assess the tax liability and pass ‘Assessment Orders’ under following provisions
- Section 62: Assessment of non-filers of returns
- Section 63: Assessment of unregistered persons
- Section 64: Summary assessment in certain special cases
- Section 67: Provides for inspection, search and seizure. Section 73/74 provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized.
What is article 225 of the Indian Constitution?
Article 225 of the Constitution of India empowers the High Court to make rules regarding proceedings and other matters connected to the High Court.
Fact of the case
The appellant manufactures lead according to the specific requirements of its clients, and has a factory at village Meerpur Gurudwara, Kala-Amb in the District of Sirmaur of Himachal Pradesh. The appellant has been in the same line of business since 2008. Upon the introduction of the Goods and Services tax4, the appellant migrated to and was registered under GST – GSTIN No. O2AAKFR7402H2ZE – with effect from 1 July 2017.
On 3 October 2018, a notice5 was issued to the appellant under Section 74 of the HPGST Act and the Central Goods and Services Tax Act6 by the third respondent requiring it to appear on 9 October 2018 and produce (i) invoices pertaining to inward and outward supplies for the years 2017-18 and 2018-19; (ii) party-wise summary/ledger of inward supplies; (iii) proof of payment of GST with a commodity-wise breakup; and (iv) copies of GSTR-1, GSTR-2 and GSTR-3 returns from July 2017 to July 2018. The appellant appeared before the third respondent and submitted original tax invoices pertaining to inward and outward supplies for 2017-18 and 2018-19 by a letter dated 15 October 2018.
On 10 October 2018, a ‘detection case’ was registered against GM Powertech, Kala-Amb7, one of the suppliers of the appellant, under Section 74 of the HPGST Act and the CGST Act read with Section 20 of the Integrated Goods and Services Tax Act, 20178. This was through a search and seizure under Section 67 of the HPGST Act and CGST Act. The partners of GM Powertech were arrested on 3 December 2018 on the ground of raising fraudulent claims of input tax credit9 from fake/fictitious firms in Delhi and Kanpur.
The appellant received a memo by an e-mail dated 15 December 2018 from the third respondent directing it to be present on 17 December 2018 for explaining the allegedly illegal claim of ITC made during 2017-18 and 2018-1 9. By its letter dated 17 December 2018, the appellant contended that it had validly claimed ITC as it fulfilled the conditions under Section 16 and other provisions of the HPGST Act and the CGST Act.
On 9 January 2019, a notice 10 was issued to Fujikawa Power, Bagbania, BBN Baddi, one of the customers of the appellant, for provisionally attaching an amount of Rs. 5 crores due to the appellant, under Section 83 of the HPGST Act. On 19 January 2019, the third respondent passed an order of provisional attachment in respect of receivables worth Rs. 5 crores due from Fujikawa Power. This order inadvertently referred to Sarika Industries instead of the appellant. The appellant responded by a representation dated 29 January 2019, claiming inter alia, that the order of attachment was without affording a hearing. The appellant also claimed that on 26 December 2018, they had noticed that the ITC had been blocked without prior notice. On 30 January 2019, the notice of attachment was withdrawn by the third respondent.
Issue of the case
Issue in this case is whether the orders of provisional attachment issued by the third respondent against the appellant on 28 October 2020 are in consonance with the conditions stipulated in Section 83 of the HPGST Act. The answer to this will require the court to embark on an interpretative journey of unravelling the substantive and procedural content of the power. The preliminary issue is whether the High Court was right in concluding that the provisional attachment could not be challenged in a petition under Article 226.
Observation of the court
The Supreme Court holds and concludes as follows:
- The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1);
- The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable
- The High Court has erred in dismissing the writ petition on the ground that it was not maintainable
- The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
- The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
- The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment
- The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue;
- In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal
- Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
- An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
- An opportunity of being heard;
- There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard;
- The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
- A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and
- The appellant having filed an appeal against the order under section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal.
The Supreme Court allows the appeal and set aside the impugned judgment and order of the High Court dated 1 January 2021. The writ petition filed by the appellant under Article 226 of the Constitution shall stand allowed by setting aside the orders of provisional attachment dated 28 October 2020.
Read the full Supreme Court Order from belowProvisional-attachment-of-Bank-Account-under-GST-explained-by-Supreme-Court