No provisional attachment when search under Section 67 is already concluded

Facts: –

• The respondent authorities through letter dated 20^th January, 2021 addressed the State Bank of India (Banker of the appellant) carrying a heading ‘Provisional attachment of property under Section 83 of the CGST Act, 2017’ and it stated that the proceedings have been initiated against the assessee under Section 67 of the CGST Act to determine tax based on the information received by the Department, so to protect the interest of revenue and in exercise of powers under Section 83, the authority provisionally attached the bank account mentioned in the said communication.
• That summons under Section 70 were issued to the Director of the Appellant No. 1, However, in the meantime a representation was made by the Appellants and without going into the merits of admissibility or inadmissibility of the alleged ITC, it was submitted that they are unable to run their business due to attachment and passing through acute financial crunch due to COVID – 19 pandemics. Thus, agreed to pay Rs. 10 lakhs, though it was specifically mentioned that any further demand would be beyond their financial capability and would cause grave hardship.
• Subsequently, another representation dated 25^th March, 2021 was made to the authorities of DGGI and it was submitted that nothing has been seized from the place of its business pursuant to the search, statements have been recorded of the authorized representative and also it has been assured to produce relevant documents. Further the transactions are genuine as the goods have been received against the documents, and later on used in the manufacture of finished goods, which have been cleared on payment of appropriate tax through banking challans to the suppliers.
• That the appellants with the above submissions, sought for revoking of provisional attachment, which was rejected by the respondent authorities vide its communication dated 14^th June 2021 stating that ‘Rs 10 lakhs has been deposited by the appellants against the irregular input tax credit 83.79 lakhs (approx.) as per the search proceedings under Section 67’. Further, the respondent quoted the guidelines issued by the GST Policy Wing for provisional attachment of property. This communication was put to challenge by the appellants.

Appellants’ Submissions: –

• It was submitted on the behalf of the appellants that the submissions advanced on the behalf of the respondents does not reflect the legal position and relied upon several decisions of various High Courts, on the decision of Hon’ble Supreme Court in Radha Krishan Industries Vs. State of Himachal Pradesh, wherein it was held that ‘the power to order a provisional attachment of property of a taxable person including a bank account is draconian in nature and exercise of power for ordering provisional attachment must be preceded by formation of an opinion by the Commissioner that it is necessary to do so for the purpose of protecting interest of Government revenue. Second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Further, it has been held that formation of the opinion must be based on tangible material, which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue.’
• Further it was submitted that an anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion is not permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power.
• It was submitted relying of the decision of Radha Krishan Industries (supra)that under Section 83, the order of provisional attachment may be passed during the pendency of any proceeding under Section 62 or Section 63 or Section 64 or Section 67 or Section 73 or Section 74. Noting the fact of the said case, where a final order of assessment was passed under Section 74, it was held that order of provisional attachment must cease to have an effect

Respondents’ Submissions: –

• It was submitted on the behalf of the respondent authorities that the matter is being processed and ultimately will result in issuance of the show cause notice for which statute provides for sufficient time of four years to the department. Therefore, it is submitted that once the order has been passed under Section 83 provisionally attaching the bank account of the appellants, it should continue till the matter is taken to the logical end.
• Relying on UFV India Global Education Vs. Union of India – (Punjab and Haryana High Court), it was submitted that proceeding have initiated against the appellant under Section 67 and the sufficient material has been unearthed and ultimately a show cause notice will be issued, and if the Appellants do not secure the amount of Rs. 87.70 lakhs (approx.) as indicated, the interest of revenue would suffer.

Held: –

• The Hon’ble Court after considering the submissions made, and as agreed from the both sides that the legal issue involved in the Writ Petition was with regard to the validity of provisional attachment order and the Writ Petition itself may be disposed of at this stage in appeal, proceeded to decide the Writ Petition as well.
• The Hon’ble Court after applying the principle laid down in Radha Krishan Industries (supra) held that once the proceedings under Section 67 stands concluded, the impugned order of provisional attachment would cease to have an effect. However, it should not be misunderstood to mean that the power of provisional attachment can never be exercised.
• The Hon’ble Court taking reference of the decisions in Kushal Ltd. Vs. Union of India (Gujarat High Court) and Valerious Industries Vs. Union of India (Guj.), found that these decisions enure in favour of the appellants. Therefore, it was held that the provisional attachment order 20^th January, 2021 has been passed after the conclusion of proceedings under Section 67 of the Act and the department is said to be in the process of proceeding to take action under Section 74 of the CGST Act.

The Hon’ble Court with the above findings allowed the writ appeals, and the writ petition and quashed the order under appeal dated 20^th January, 2021 as well as communication dated 14^th June 2021, directing the respondents to intimate the appellants’ banker to lift the attachment of the said bank account within one week from the date of receipt of the server copy of the order and preserving the right of the department to exercise such powers if so advised under circumstances provided under Section 83 of the CGST Act.

To read the complete judgment 2021 Taxo.online 1418