03.03.2022- Provisional Attachment Of The Goods, Stock, Receivable And The Property Of A Partner Of The Partnership Firm/LLP Is Not Permissible Under Section 83 Of The CGST Act

The Hon’ble High Court of Gujarat vide its order dated 27th January 2022 in the matter of M/s Utkarsh Ispat LLP.  Vs. State of Gujarat in R/Special Civil Application No. 188 of 2022 held that the provisionally attaching the property of the one of the partners of partnership along with provisional attachment of the stock lying in the factory and the sundry debtors is not permissible under Section 83 of the CGST Act.

The writ applicant preferred the Writ Petition before the Hon’ble High Court praying for quashing of orders of provisional attachment in FORM GST DRC-22 dated 25.11.2021, 26.11.2021, 27.11.2021 issued by the respondents whereby the property of one of the partners of the Petitioner’s firm, stock lying in the factory and the sundry debtors were provisionally attached.

Facts:

  • The writ applicant is a limited liability partnership firm and is engaged in the business of procuring various types of M. S. Scrap used for the manufacturing of the TMT bars.
  • The GST Department undertook a search at the registered premises of the writ applicant and the residential premise of the one of the partners under sub-section 2 of Section 67. The search was conducted on the ground of availment of ITC by the writ applicant on the basis of fake invoices issued by fictitious firms without any movement of goods.
  • During the pendency of the search proceedings the respondents passed orders in FORM GST DRC-22 provisionally attaching the multiple properties like the factory premises, plant and machinery and the bank accounts of the writ applicant under Section 83 of the CGST.

Held:

  • The Hon’ble High Court after considering the submissions from the both sides, proposes to focus on three issues: –
  1. Form GST DRC-22 dated 25th November 2021 for provisional attachment of Stock.
  2. Form GST DRC-22 dated 26th November 2021 for provisional attachment of sundry debtors.
  3. Form GST DRC-22 dated 27.11.2021 for provisional attachment of immovable property owned by one of the partners of the writ applicant.
  • The Hon’ble court after perusal of the order of the Assistant Commissioner dated 20th December 2021 observed that the respondents took the aid of Section 90 and Section 137 of the CGST Act for provisionally attaching the property of one of the partners of LLP.
  • The reason for taking aid of the Section 90 and Section 137 is that, Section 90 provides in case any firm is liable to pay any tax, the firm and each of the partners of the firm shall jointly and severally be liable for such payment, and Section 137 provides where the offence under the act has been committed by the taxable person being a partnership firm or a limited liable partnership of Hindu Undivided Family or a Trust, the partner or Karta or managing trustee would be deemed to be guilty of such offence.
  • The Hon’ble High Court taking note of law stated in Section 83, Section 22, Section 24, Section 2(84) observed that is very clear from the perusal of the Section 83 that property or properties which can be attached should belong to a ‘taxable person’ and the partner of an LLP not being a taxable person as per section 83, thus the respondents took the aid of Section 90 and Section 137 of the Act.
  • Referring to the judgment of Hon’ble Supreme Court in Her Highness Maharcmi Mandalsa Devi Vs. Ramnarain Private Ltd. in 65 B.L.R. 31 observed that Section 90 of the CGST Act conveys the same principle as enunciated under Section 25 of the Partnership Act and as and when the liability of the LLP as a taxable person is determined; such liability would be joint and several liability of all its partners.
  • The Hon’ble High Court with the above observations held that the respondents committed a serious error in invoking Section 90 of the Act for provisionally attaching a property owned by a partner of LLP as there was no determination and assessment of liability of LLP before attachment, and Section 137 of the Act has absolutely no application to the present case.
  • The Hon’ble High Court further relying on the decision of Supreme Court in Kapurchand Shrimal Vs. Tax Recovery Officer, Hyderabad and others (AIR 1969 SC 682) and on the Bombay High Court decision in the matter of Kaish Impex Private Limited vs. Union and others [Writ Petition No.3145 of 2019] held that the respondents were wholly unjustified in provisionally attaching a personal property owned by a partner of the firm under Section 83, moreover the respondents also overlooked the guidelines issued by the Central Board of Indirect Taxes and Customs dated 23rd February 2021 for the provisional attachment of the property under Section 83 of the Act.
  • Thereafter the Hon’ble High Court while deciding on the issue of provisional attachment of stock and sundry debtors, referred to the judgment of Hon’ble Supreme Court in M/s. Radha Krishan Industries vs. State of Himachal Pradesh and others [Civil Appeal No.1155 of 2021] and CBIC guidelines dated 23rd February 2021 observed that the authority should ensure that the attachment does not hamper the normal activities of the taxable person.
  • The Hon’ble Court considering the above circumstances and the law, guidelines on the issue held that the provisional attachment of goods, stock and receivables will bring the entire business of the writ applicant to a standstill, thus the attachment is not sustainable

The Hon’ble High Court with the above findings and considering the facts and law applicable set aside and quashed the Forms GST DRC – 22 dated 25.11.2021, 26.11.2021 & 27.11.2021 issued for provisional attachment of stock, sundry debtors and immovable property of one of the partners of the firm respectively.

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