HC quashes provisional attachment order of cash credit accounts as the same had a petty balance

According to Section 83(1), Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that to protect 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

Therefore, during the pendency of any proceedings under Sections 62, 63, 64, 67, 73 and 74, the Commissioner can provisionally attach any property including the bank account belonging to the taxable person. For this purpose, the Commissioner has to form an opinion that it is necessary to do so for protecting the interest of the Government Revenue. These steps have to be taken in such manner as prescribed.

Rule 159(1) of the CGST Rules, 2017, deals with the provisional attachment of the property. According to the said rule, where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83, he shall pass an order in FORM GST DRC-22 to that effect mentioning therein, the details of property which is attached.

Rule 159(1) states that when the Commissioner decides to attach any property including the bank account, he shall pass an order in form GST DRC-22. Various forms have been appended to the GST Rules 2017. Form GST DRC-22 lays down the format in which the order has to be issued provisionally attaching the property and the communication thereof to the financial institution.

Let us refer to the case of Vinodkumar Murlidhar Chechani vs State of Gujarat where a petition was filed against the provisional attachment of bank accounts of the assessee.

Facts of the Case:

• The writ-applicant was a proprietor of a proprietary concern running in the name of M/s Chechani Trading Company.
• The concern was engaged in the business of trading of ferrous and non-ferrous metal scrap.
• A spot visit was carried out by the flying squad of the department at the premises of the writ-applicant.
• The department was prima facie of the view that the purchases made by the writ-applicant from the JSK Metacast and Uttam Metal and Alloys were not genuine.
• In the course of the search carried out by the department, the registers, documents and books of accounts for the period between 1st July 2017 and 11th August 2020 were collected and taken into possession.
• Respondent passed an order of provisional attachment of cash credit/current bank account and one savings bank account held by the writ-applicant with the HDFC Bank Limited.
• As the proceedings under Section 67 were initiated, the Additional Commissioner thought fit to exercise his powers under Section 83 for the purpose of provisional attachment of the bank accounts
• Being dissatisfied with the order of provisional attachment referred to above, the writ-applicant is here before this Court with the present writ-application.

Observations of HC on whether bank accounts can be attached which have a trivial balance

• The only question that fell for HC’s consideration was, whether the respondent committed any error in passing the impugned order of provisional attachment of the bank accounts.
• HC proceeded to consider the legality and validity of the action on other grounds as raised on behalf of the writ-applicant.
• In the course of the hearing of this matter, HC inquired with regards to the balance in the two bank accounts ordered to be provisionally attached.
• Thus, the amount as on date in the two bank accounts aggregates to Rs.22,065.
• What good purpose the department was going to achieve by provisionally attaching the two bank accounts with balance of a paltry amount of Rs.22,065
• The object of exercise of power under Section 83 for the purpose of provisional attachment of any property was to protect the interest of the Revenue.
• For instance, if an order of assessment was passed and liability of the assessee to pay a particular amount was fixed.
• It was at that stage that the department would consider recovering the amount determined towards the tax liability from the amount lying in the bank accounts.
• In the same manner, if any immovable property was provisionally attached and final liability towards the payment of tax was fixed under the order of assessment, then such immovable property could be put to auction for the purpose of recovering the dues.
• In the case on hand, HC did not propose to interfere with the investigation already undertaken by the department.
• Ultimately, if sufficient material surfaced indicating the involvement of the writ-applicant in some bogus transaction, the next step in the process could always be a show-cause notice under Section 73 or Section 74, as the case may be.
• However, to provisionally attach all the bank accounts and that too those accounts in which there was hardly any balance would only cause undue hardship to the assessee.
• This was the grey area where the Revenue or the authority concerned had to apply its mind before the power is exercised.
• Just because some proceedings are initiated under Section 67 by itself could not be sufficient to arrive at the subjective satisfaction that it was necessary to provisionally attach the property for the purpose of protecting the interest of the Government Revenue.
• An order of provisional attachment could not be as a matter of course. It is one of the drastic measures which the authority was compelled to take if the situation demanded for the purpose of protecting the interest of the Government Revenue.

Observations of HC on the expression ‘is of the opinion’ or ‘has reason to believe’

• The expression ‘is of the opinion’ or ‘has reason to believe’ were of the same connotation and were indicative of the subjective satisfaction of the Commissioner, which depended upon the facts and circumstances of each case.
• It was settled law that ‘opinion’ must have a rational connection with or relevant bearing on the formation of the opinion.
• The rational connection suggested that there must be a direct nexus or live link between the protection of interest and available property which might not be available at the time of recovery of taxes after the final adjudication of the dispute.
• The opinion must be formed in good faith and should not be a mere pretence.
• The courts were entitled to determine whether the formation of opinion was arbitrary, capricious or whimsical.
• The expression ‘necessary’ must also be taken care of From the order and record, it must come out that actually it was necessary to take drastic action of provisional attachment

Conclusion by HC

In the overall view of the matter, more particularly, having regard to the fact that there was hardly a balance of Rs.22,065 in the two bank accounts, HC saw no good reason to continue the provisional attachment.

The impugned order of provisional attachment of the two bank accounts was hereby quashed and set-aside. It was clarified that this order shall would no bearing on the further proceedings that the authority may deem fit to initiate in accordance with law.

In simple words, mechanical exercise of the power of provisional attachment is not appreciated. The Legislature has thought fit to confer upon the authority the power to provisionally attach the property of the assessee in the hope that such power is not exercised casually but, only after due and proper application of mind. A mechanical or casual exercise of such power will dilute the very efficacy of the provisions of Section 83 of the Act.

The object of exercise of power under Section 83 for the purpose of provisional attachment of any property was to protect the interest of the Revenue. Provisional attachment of bank accounts with nominal balance, serves no purpose. Hence, they should not be attached, just for the sake of carrying out procedure.

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