Blocking Bank Account Without Following The Procedure Under Section 83 Is Not Sustainable

Facts: –

• The principal grievance of the petitioner is the communication dated 25.02.2020 sent by the respondents to the bank of the petitioner i.e., IndusInd Bank, Punjabi Bagh Branch, New Delhi, requesting to keep the account blocked and maintain the status-quo till credentials of M/s Zuric Traders are established and verified.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that a plain reading of the communication would show that there is no reference to Section 83 of the CGST Act, 2017 and the copy of the impugned communication was not served to the Petitioner. It came to the knowledge of the petitioner, when it was communicated to the petitioner that its bank account had been blocked.
• Since the communication was not served on the petitioner and did not mention that the action was taken under Section 83, no objections could be filed under Rule 159(5) of the CGSR rules, 2017. Thus, amounts to violation of principles justice.
• That no proceedings, as provided under Section 83, has been initiated against the petitioner. Therefore, the action of the respondents is violative of both, Section 83 and Rule 159(5) of the Rules, 2017.
• Further reliance was placed on decision of Supreme Court in dated 20.04.2021 titled M/s Radha Krishan Industries v. State of Himachal Pradesh & Ors. 2021 6 SCC 771.

Respondents’ Submissions: –

• It was submitted on the behalf of the respondents that the impugned action has been taken under Section 83 and in view of order passed by the Supreme Court in Suo Motu Writ Petition (C) 3/2020, the timeframe prescribed under Section 83 of the CGST Act, 2017 Act, stands extended and the attachment order would continue till the date mentioned in the order. Further the period from 15.03.2020 to 28.02.2022 would be excluded and the period for which the provisional attachment order under Section 83 is to subsist, would commence from 01.08.2022.
• It was informed that similar arguments were taken in P.(C.) No.3551/2020, titled M/s Vikas WSP Ltd. & Ors. v. Directorate Enforcement & Anr, regarding provisional attachment order passed under Section 5(1) of the Prevention of Money Laundering Act, 2002, and Section 83 is pari materia to Section 5(1) of the 2002 Act. However, the Ld. Single judge repelled the similar submission advanced on the behalf of the Directorate of Enforcement, against which an appeal was preferred and the same is registered as LPA No. 362/2020¸ wherein vide order dated 02.12.2020, status quo has been ordered with regard to the ownership, possession and encumbrance on the properties in question.
• That it is also the case of revenue that the investigations have been made against persons who had supplied goods to the petitioner, three entities made inward supplies to the petitioner, namely M/s Laser India Trading, M/s Great Polimar Export and M/s Sharma Traders, and the investigations have shown that foreign currency remittances have not been received against exports made by the petitioner, for which IGST refund was credited to the account of the petitioner. Thus, the respondents/revenue have to make the recovery of IGST refund availed by the petitioner.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and the law applicable was of the view that the impugned communication would have to be set aside for the following reasons: – (i) First and foremost, the impugned communication does not mention of Section 83 of the 2017 Act. (ii) It was rightly contended on the behalf of the petitioner that had there been mention of Section 83 of the CGST Act, the petitioner would have filed objections against the blocking of the bank account of the petitioner with Indus Ind Bank, Punjabi Bagh Branch, New Delhi. It is to be noted that the expression used under Section 83 is ‘provisional attachment’ not ‘blocking’, with the former requires fulfilment of certain pre-requisites. (iii) No proceedings, at least to the knowledge of the petitioner, under Section 62, 63, 64, 67, 73 and 74 of the 2017 Act was pending against the petitioner, for which the action was taken under Section 83 of the CGST Act, 2017. (iv) The Section 83 also required the respondents to form an opinion that provisional attachment was necessary to protect the interests of the revenue. (v) since, concededly, no proceedings had been initiated on the date when the impugned communication was issued to the petitioner under any of the aforementioned provisions, the impugned order was issued without jurisdictional facts being present. (vi) The investigation of the inward suppliers of the petitioners, is an aspect which has never been put to the petitioner, despite the petitioner making several representations.
• Further the issue in the present case centres around the tenability of blocking order which was triggered by the respondents/revenue through the impugned communication.

However, it was the opinion of the Hon’ble Court that blocking order does not comply with the jurisdictional prerequisites which are prescribed under Section 83 of the CGST Act, 2017.

• The Hon’ble Court considering the submissions advanced on the behalf of the respondents that an appeal is pending with respect to pari materia provions found Section 5(1) of the 2002 Act and status quo has been ordered, found that the submission made does not impress us, as the perusal of the interim order passed by the Division Bench in LPA No.362/2020 dated 02.12.2020, shows that the operation of the judgment passed by the Learned Single Judge in the Vikas case (supra) has not been stayed, as the interim order directs status quo with regard to the ownership, possession and encumbrances on the properties in issue in that matter, and moreover, pertains to a different statute.
• It was found that the final judgment of the Single Judge is against the proposition advanced by the respondents/revenue, and it was held that the life of the order passed under Section 5(1) will not get prolonged because of the order passed by the Supreme Court in Suo motu WP(C.) no. 3/2020.
• It was also found by the Hon’ble Court that Section 83 of the CGST Act, 2017 provides for a time frame and not a period of limitation. Moreover, the scope and the effect of the provisions of Section 83 has already been decided by the Supreme Court in Radha Krishnan Case. We are bound by the judgment rendered by the Supreme Court in the said case.
• The Hon’ble Court considering another contention raised on the behalf of the respondents/revenue that ‘one year will expire only on 01.08.2022’, is also flawed as the impugned communication was not issued under Section 83 and there was no proceeding under Section 62, 63, 64, 67, 73, 74 of the CGST Act, 2017, pending against the petitioner during the relevant point in time, as required for invoking Section 83. Further the order passed by the Supreme Court in Suo Motu WP(C.) 3 of 2020, will not extend the time frame provided under Section 83 of the 2017 Act and the time frame, of one year, provided would have perhaps expired in the first week of June 2022.

The Hon’ble Court with the above findings quashed the impugned communication and ordered for unblocking of subject bank account and directed the respondents/revenue to communicate to the concerned bank i.e., IndusInd Bank, Punjabi Bagh Branch, New Delhi, about the directions issued.

To read the complete judgment 2022 Taxo.online 722