The Hon’ble High Court of Gujarat vide its order dated 17^th March 2022 in the matter of Arya Metacast Pvt. Ltd.  & 1 other (s) Vs.  State of Gujarat & 1 other(s) in R/Special Civil Application No. 2787 of 2022 held that provisional attachment under Section 83 should not hamper the normal business activities of the taxable person.  Further, Stock of Goods, Demat Account, current account, mobile phone, laptop cannot be attached provisionally under Section – 83 and ordered for releasing the same.

The writ-applicant in the present matter preferred the writ-application challenging the provisional attachment order passed under the Gujarat Goods and Services Tax Act, 2017.

Facts: –

• That the writ applicant No. 1 is a private limited company is engaged in manufacture and sale of ingots, having factory situated near Rajkot. The writ applicant No. 2 is the Managing Director of the said company.  The writ-applicant is duly registered under the GST Act, thus is a registered taxable person and has regularly paid output tax for three years i.e., 2018 -2021.
• The writ-applicant entered into business transactions with genuine dealers, who are registered taxable persons under GST and regarding that placed all the relevant documents on record.
• A search was carried out at the premises of writ-applicants by the officer of Deputy Commissioner of State Tax, Vadodara, suspecting that the writ-applicant had shown purchase form fictitious firms, thereby disputed the Input Tax Credit availed by the writ-applicant on the ground that the purchases made by the writ-applicant were not found genuine.
• The writ-applicant duly co-operated with respondents during search, however thereafter three Form GST DRC-22 were served to the writ-applicants by the respondent authority, provisionally attaching (i) Factory Shed & machinery (ii) Plant & machinery (iii) Pollution Control Unit (iv) Stock of Goods (v) Two Demat Accounts (vi) Current Account and apart from these mobile phone, laptop and other documents from the business premise of the writ-applicant were also seized. Hence the present writ-application.

Writ-applicant submissions: –

• That for the purpose of provisional attachment an opinion is formed by the Commissioner and while exercising such power attachment of the properties of the taxable person including Bank and Demat account is draconian in the nature and such condition of forming opinion by the Commissioner should be strictly adhered to before passing the order of provisional attachment.
• It was submitted on the behalf of the writ -applicant that the action of the respondent authority of the provisional attachment of the properties of the writ applicant is completely arbitrary and illegal.
• Further, relying on the Supreme Court decision in the matter of Radhe Krishan Industries Vs. State of Himachal Pradesh reported in (2021) 6 SCC 771 and the Circular No. CBEC-20/16/05/2021-GST dated 02.2021, submitted referring to the guidelines prescribed in the aforesaid circular that the respondent authority should not have acted in manner to hamper normal business activity of the writ-applicant by provisionally attaching the stock of goods, Demat Account and the current account.
• That as on date there is no substantial proceedings against the writ applicant and it has been more than four months since the order of provisional attachment dated 27.11.2021 was passed. Therefore, urged to impose suitable conditions to permit the writ-applicant to at least operate the Demat and Current Account and the provisional attachment on the stock of goods be lifted.  It was also requested not to dispose of the electronic items and documents seized.

Revenue Submissions: –

• On the other hand, it was submitted on the behalf of respondent authority that the writ-applicants made transactions with fictitious firms and seem to be engaged in bogus billing.
• The writ-applicants have wrongly availed the input tax credit of 4,73,39,338/-.
• That various invoices of aforesaid fictitious firms were seized during inquiry; it was therefore an opinion was formed to provisionally attach various properties of the writ-applicant. Thus, the act of the respondent authority is in consonance with the guidelines prescribed in the aforesaid circular of Central Board of Indirect Tax and Customs.

Held: –

• The Hon’ble Court after considering the submissions from the both sides, law on the subject and taking note of the Circular/instructions dated 02.2021 found that from the bare perusal of the instructions, the respondent No. 2, in spite of repeated reminder by this court in various decisions has once again overlooked the guidelines issued by CBIC dated 23.02.2021 for exercise of powers by respondent authority under Section 83.
• The Hon’ble High Court took note of the decision of the same High Court in Valerius Industries Vs. Union of India – reported in [2019] 70 GSTR 147 (Guj), wherein it was held that ‘the powers under Section 83 should be exercised with extreme care and caution and should not be used as tool to harass the assessee.’ , and also the para 4.3 to 3.4.5 of the instructions dated 23.02.2021 wherein it was clarified that ‘ it should be ensured that the provisional attachment does not hamper normal business activities of the taxable person.’
• Thereafter it was observed that said decision of Valerious Industries has been recognized in the decision of Hon'ble Supreme Court in Radhe Krishan Industries vs. state of H.P. reported in (2021) 6 SCC 771, “wherein the judgment of Hon’ble High Court of Himachal Pradesh and the provisional attachment was set aside laying down that ‘provisional attachment of taxable person including 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’ ”.
• That in the present matter not only stock of goods, but also the demat and current account has also been provisionally attached by the respondents. These are valuable assets and essential for routine business of the writ-applicant.
• That the Hon’ble Court referring to its own decision in the matter of M/s. Utkarsh Ispat LLP Vs. State of Gujarat in Special Civil Application No.188 of 2022, found that it has been repeatedly directed by this court in its decisions and through instructions issued by the higher authorities of respondents that ‘the provisional attachment should not hamper the business activities of the Taxable person’.

The Hon’ble High Court with he above findings set aside and quashed the impugned order dated 27.11.2021 of provisional attachment with respect to stock of goods, demat & current Account.  Further, it was directed to release the stock of goods, electronic items like mobile, laptop and other documents, on writ-applicant furnishing an undertaking to the effect not to dispose of the said goods, mobile phone, laptop and keeping these in original form.

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