2018 (4) TMI 1292 - HC - GST

Supply of branded as well as unbranded goods - non-payment of tax - the departmental authorities collected three cheques for a total amount of ₹ 19,74,886/- under co-ercion - whether this act of Department to collect post-dated cheques during raid permissible? - Held that - the action of the department cannot be countenanced. It has been held by this Court and other High Courts of the country that the practice of collecting post-dated cheques under coercion during raid is not permissible means of collection of revenue particularly, when no tax demand has been confirmed or crystallized - In the present case, there does not appear to be any justification of the departmental authorities to collect and the petitioners to voluntarily give cheques for the said amount - Department is directed to return the cheques. Validity of second SCN - second impugned SCN also pertains to the same period and same demand of unpaid taxes only the figure now proposes is ₹ 1,29,13,928/- - could the department have issued such a notice in purported exercise of powers under section 74(3) of the CGST Act? - Held that - powers under sub-section (3) of section 74 cannot be exercised for expanding or enlarging the liability arising out of show-cause notice under sub-section (1) from the same period - Essentially, sub-sections (1) and (3) of section 74 are envisaged to cover separate periods - the respondents are wholly incorrect in issuing a fresh show-cause notice for the same period of July 2017 to 20.02.2018, which notice was already issued under sub-section (1) of section 74 of the Act. Attachment of Bank Accounts of petitioners - no reason given for such attachment - Held that - Under sub-section (1) of section 83, the competent authority has power of provisional attachment, where during pendency of any proceedings under the Act he is of the opinion that for the purpose of protecting the interest of government revenue, it is necessary so to do. Such provisional attachment could be of any property including the bank account of the taxable person - In the present case, nothing is demonstrated by the department either in the orders of attachment or in the affidavit filed before us. The reason why exercise of such drastic power of attachment of bank accounts was necessary - attachments are set aside, in the absence of reasons for attachment. Petition allowed.

Summary

Issues Involved:
1. Collection of cheques under coercion.
2. Issuance of a second show-cause notice.
3. Provisional attachment of bank accounts.

Detailed Analysis:

1. Collection of Cheques Under Coercion:
The petitioners contended that the departmental authorities collected three cheques amounting to ?19,74,886/- under threat and coercion during a raid on 20.02.2018, before their tax liability was ascertained. The Court held that the practice of collecting post-dated cheques under coercion is impermissible, referencing the case of Atul Motors Pvt. Ltd v. State of Gujarat. The Court directed the department to return the collected cheques, noting that there was no justification for the departmental authorities to forcibly collect them.

2. Issuance of a Second Show-Cause Notice:
The petitioners challenged the second show-cause notice dated 19.03.2018, which demanded ?1,29,13,928/- for the period between July 2017 and 20.02.2018, on the grounds of lack of jurisdiction. The Court noted that the first show-cause notice dated 27.02.2018 already covered the same period and demanded ?36,88,706/-. The Court clarified that under Section 74(3) of the CGST Act, a second notice cannot be issued for the same period covered under Section 74(1). The powers under Section 74(3) are intended for periods other than those covered under Section 74(1). Consequently, the second show-cause notice was quashed.

3. Provisional Attachment of Bank Accounts:
The petitioners also challenged the provisional attachment of their bank accounts by the department. The Court examined Section 83 of the CGST Act, which allows for provisional attachment to protect government revenue during the pendency of proceedings. The Court referenced the case of Automark Industries (I) Ltd v. State of Gujarat, emphasizing that provisional attachment is a drastic measure and must be exercised with due care and only in appropriate cases. The Court found that the department did not demonstrate why such drastic action was necessary and set aside the attachments. However, to ensure the department could recover any confirmed tax liability, the Court imposed conditions: the petitioners must maintain a stock worth a minimum of ?50 lacs and file an undertaking to this effect.

Conclusion:
The Court directed the return of the cheques, quashed the second show-cause notice, and removed the provisional attachment of bank accounts, subject to conditions ensuring the protection of government revenue. The petitioners' defenses against the show-cause notice dated 27.02.2018 were kept open.